Buy Biocon CMP 511 Target 620 in 6 months or early.

Company Background
Biocon is a research-driven, global healthcare company with a strong matrix of capabilities along the gene-to-patient
continuum. It manufactures and markets biotech-based pharmaceutical products. Its subsidiaries, Syngene and Clinigene,
provide contract research and clinical research services to global pharma majors. The company's bio-pharmaceutical
products comprise anti-diabetic agents, anti-hypertensive agents, anti-inflammatory agents, anti-oxidants, cardiovascular
agents, digestive aid enzymes, haemostatic agents, hepatoprotective agents, immunosuppressants and nutraceuticals.
The company recently divested its enzymes business to Novozymes A/S for US$115 million. This will enable Biocon to focus
on its core bio-pharmaceuticals business. Its subsidiary Syngene provides custom research services in the areas of synthetic
chemistry and molecular biology. In Sept 2006, Biocon launched BIOMAB EGFR, a monoclonal antibody for head and neck
cancer. In addition, the company offers renal therapy products to treat kidney disorders. Its innovative R&D has few products in
pipeline in various phases of clinical trials.

Changing product mix to boost core business
We believe Biocon's exposure to the vagaries of statin business is declining with its changing product mix and rapid growth in
the newly added products such as insulin. Moreover, with launch of BIOMAB and INSUGEN, we believe that the company is
gradually moving up in the value chain by shifting its focus towards formulations. It already has a formidable presence in Indian
biosimilar space and the niche therapeutic segments of nephrology and oncology. We see good future prospects in its
discovery focused R&D, where it has two monoclonal antibodies related to oncology and rheumatoid arthritis along with the
oral insulin. We believe revenue from the biosimilars and formulations would grow at a CAGR of around 20% over FY07-09E.
Customs & clinical research to add more value
We believe Biocon's custom research outsourcing would grow at a CAGR of over 40% during FY07-09E. As per Frost and
Sullivan estimates, Asian contract research outsourcing (CRO) market will grow at a CAGR of over 13.50% to $2 billion in 2010
from $1.2 billion in 2006 indicating a strong growth momentum. Biocon's presence in CRO business is through two companies
- Syngene and Clinigene. Syngene provides contract research while Clinigene focuses on Clinical research.
Syngene: Syngene is a leading global custom research service provider and is providing services to external customers from
few years. It has over 50 clients, including 6 of the top 10 global pharma companies as its customers. It contributes almost 90%
of Biocon's CRO businesses. Syngege provides a broad range of services, which enables it to participate in drug development
process from discovery to supply of development compounds. Recently, Bristol-Myers Squibb entered into a long-term
contract with it to set up a new research facility to house more than 400 scientists. This will further improve its capabilities in
medicinal chemistry, biology, drug metabolism and pharmaceutical development. Syngene has a strong knowledge base with
over 700 scientists.

Clinigene: Clinigene started operations for external customers only couple of years back. It provides clinical research services.
With demand for outsourced research expected to grow exponentially, the company has expanded its operations into a new
60,000 sq ft facility. This facility will house a new unit for conduct of BE/BA and Phase I studies and coordinate Phase II to Phase
IV Clinical Trials for a large number of global pharma and biotech companies.
Sales proceed from enzymes business boosts cash position
With a view to become a more focused player in the biotech pharma space, the company sold its enzymes business to
Novozymes A/S for US$115 million. The company plans to utilize the cash generated from the sale of the business for
inorganic growth opportunity.