India's leading biotech firm, Biocon Ltd, has clinched a deal that would let Pfizer Inc sell its insulin drugs, pushing the Indian drugmaker's shares to a record high.
Biocon shares surged more than 15% following the announcement of the deal on Monday. The stock has soared 60% this year, rising more than 43% since August alone and making investors wary of a further rise.
While there is no split on the view that Biocon will benefit hugely from the tie-up with the world's biggest pharmaceutical company, many are worried the stock may have run too far ahead.
SMALL DEAL, BIG STEP
"This small deal for Pfizer is a big step for Biocon," said Rakesh Rawal, head of private wealth management at Anand Rathi, adding that he would buy the stock on dips.
"When you strike an alliance with such a big name, it opens up many such possibilities and opportunities for the future," said Rawal, who manages USD 1 billion for wealthy individuals.
The deal would give Biocon the marketing muscle and the funds needed to meet regulatory requirements and take its drugs beyond the 27 developing markets in which it now present.
"It is a good thing that they can market through Pfizer now," said K.K. Mital, head of portfolio management services at Globe Capital, who does not hold the stock. "But it is definitely on the radar. We may invest...we are waiting to see its quarterly performance" on Friday.
"The visibility for Biocon is increasing. Its financial performance is also improving," Mital said.
ALL PRICED IN?
Analysts do not see significant revenue from the Pfizer deal coming in before 2012/13, when the companies expect regulatory approval for Biocon's genetically engineered insulin in Europe.
"At these levels, the stock has priced in the deal. I am not looking at a big upside in stock price," said IIFL Capital's analyst Bino Pathiparampil. He has an "add" rating on the stock.
Biocon, founded by Kiran Mazumdar-Shaw in her garage in 1978, has outpaced the benchmark index's nearly 14% rise this year. Most of Biocon's rise has come in the past two months when speculation broke that Pfizer was in talks with Biocon.
"The stock seems to have run up faster than the positive news flow," said Arun Kejriwal, director of research firm KRIS. "It is a good time to exit from the stock."
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