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Passage of Biosecure Act gets postponed to the new administration

ICICIdirect Research 13 Dec 2024 DISCLAIMER

The enactment of US Biosecure Act, which was consummated to neutralise US dependence on few Chinese CDMO companies, is likely get delayed for want of passage in the US Senate as the government will go on recess till the new administration comes into power.

It is also likely that the modified version may exclude direct naming of the companies, instead this will provide specific guidelines for de-risking.

Since the bill was already through in the US House of Representatives in the month of September with a bi-partisan support and a clear majority, we do not expect change of stance from the new government.

However, irrespective of the passage of Biosecure Act, global companies have already started to de-risk there supply chain, specifically the China part and hence provide supply chain diversification opportunities for Indian CDMO players. 
 
Our thesis also considers other important factors like possible opportunities emanating from the acquisition of world’s second largest CDMO player Catalent by Novo Nordisk and improvement in US Biotech funding scenario on the back of benign interest rate scenario in the US.

Most of the players have undergone significant capex expansion in recent years with the combined capex figure for Divi’s, Syngene, Piramal Pharma, Hikal and GLS stood at Rs 9600 crore during FY21-24. This capex is based on visibility built in over the years tracking supply chain diversification and not necessarily targeting the Biosecure Act which came into shape only at the beginning of 2024.

A case in point is Piramal Pharma's CDMO sales guidance of US$ 1.2 billion for FY30 (~13% CAGR) which is without considering possible windfall from Biosecure Act implications.
Our top picks in the CDMO space are PPL with a TP of Rs 280 and Syngene with a TP of Rs 1030.

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