Syngene International

Thanks Mahesh for you response. I have read through 2014-15 AR and following are some observations/questions.

Top 3 criteria for selecting an outsourcing partner are - Quality, Consistency of Performance and Confidentiality. For first two points, it becomes very important for company to hire right kind of people. The quality of research in India is rather poor and there is plagiaristic mindset. But there are some exceptional institutes in the field of chemistry as well (e.g. UDCT in Mumbai). So it would be great if we can get some insight into Syngene’s hiring process + how is research culture inside the company?

AR mentions that company does business with Baxter, DuPont, Abbott and Bristol-Myers among others. And given that some of these are fierce competitors and confidentiality is a major factor in selection of outsourcing partner, what are the internal controls and practices of Syngene for these different clients? (Dedicated scientists per client? Some period of no-activity if a scientist is switching projects? How about people in senior management - can they manage two competitors? Risk of IP theft and trading by employees?)

AR mentions that total R&D expenditure of pharma companies was $139bn, out of which $105bn was outsourc-able.
The CRO discovery market is expected to grow from $14.7bn (2014) to $22.7bn (2018).
The CRO development market is expected to grow from $28.8bn to $44.6bn.
Given the discovery + development market size of $43bn worldwide in 2014 and Syngene’s revenue of about $0.15bn (1$ = 60 Rs.) is rather minuscule, who are other large players in this space?

Another question is - what stops big pharma companies (such as Bristol-myers) from setting up their own R&D centers in India (like Auto companies) instead of relying on external players?

Now some notes about balance sheet/technicals:

  • The company has contingent liabilities of about 100Cr with Tax departments. If the cases go against them, then it can be a short-term dampener on P & L and cash flows.
  • All the directors of the company seem of foreign origin or foreign. So just curious to know what is the SEBI/RBI rule in this regard? Just a small technical detail.

Sorry for the long post. Looking forward for some good insights/discussions and learning.

Thanks,
Rupesh

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Q2 & H1 FY2016 -Conference Call Invite.
Event date: At 3:30 pm IST on 21 October 2015

http://www.syngeneintl.com/Media/Default/pdf/investor_relations/H1FY2016_Syngene_Concall_Invite.pdf


September 2015 Shareholding Pattern

http://www.syngeneintl.com/Media/Default/pdf/investor_relations/Syngene_Clause_35_Sept_2015.pdf

With 77.92 % promoter holding (including trusts) and 16.91 % fund holding, free float is reduced to only 5.17 % equity and if we count 1.56 % held by corporate bodies which will be most of PMS holding, free float gets further reduced to 3.61 % which seems excellent pitch for rerating if positive triggers materialise…IPO selling seems to be absorbed well by FIIs.

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Great results from Syngene.
http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/196A4865_E4EE_4EAD_9BF6_259895AF394F_191354.pdf

Revenues up 28% (compared to Q2FY16)
PAT up 31%
EBITDA margins at 33%

“Our recent capacity expansion in manufacturing services has helped us keep pace with increasing requirements of our clients.”

“Growth was specially strong in development and manufacturing services. We had added capacities in the development and manufacturing vertical over the past 2 fiscals, which helped fuel this growth”

“We continue to plan investments towards capacity additions and capability enhancements in both discovery and development space. Key ongoing investments in these areas include a new research center, a formulations center and a large molecules manufacturing unit at our current site. In terms of new capabilities, we are currently investing in a viral testing facility and an oligonucleotide pilot plant.”

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Syngene has appointed a couple of senior ppl. Pretty impressive profiles

Dr Thomas Privette as Head of Business Development. He has PhD from East Carolina and MBA from Wharton, 20 yrs experience in big pharma- GSK and Pfizer. His last role was in Covance.
Dr Bisachhi as Head of Discovery Chemistry. He has a PhD from UCLA and post doc from Stanford. Ex- Astra and BMS.

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Mahesh whats the expected EPS ,ROCE & CAGR for Syngene for next 2-3 years? will opp size also keep on increasing?

@Vivek_6954

Syngene has to be looked at from multi-year perspective and not 2-3 years because even at this scale it is just at a nascent stage relative to its opportunity landscape…financial parameters like eps, etc., could be variable depending on strategy it adopts but visibility of sustaining at least 20% pa top line growth with 30% + EBITDA margins along with maintaining historical EBITDA to ocf conversion rate is quite high…

Rgds.

I attended the concall. Management was answering questions in good detail. Most questions, however, were pretty standard like -When will new facility be be operational? What will be the debt mix? what will be the EBITDA margins? what will be the asset turnover after new capcity comes up?

Here are my notes

  • New client additions- Building and strengthening client base. Won’t give client numbers every quarter.
  • Mangalore facility will complete in FY18. 3 long term agreements can be started at existing Bangalore facility and then move to Mangalore. Mangalore facility to commercialize in FY19.
  • Product pipeline- late single digit (8-9?) products are in late stage clinical trials. When these get commercialized depends on clients and regulatory approvals .
  • Biologics platform is exciting. They are already a substantial portion of global markets. Growing faster than small molecules. Syngene will mirror client R&D requirements. Biologics platform is less mature than small molecules but Syngene long standing client relations help demonstrate capabilities
  • Tax rate- Remain at these levels in FY16. Will move to MAT rates in FY19.
  • Capex USD250mn in next 3-4 years. 100mn for Mangalore. Continue to add new and exciting capabilities. High potential in oligonucleotides, viral testing. Want to be first mover in many new areas. 200,000 sq ft R&D capacity will go live next year.
  • ANDA submission by a client triggered one of the USFDA inspections. USFDA inspections are product based. If a client files a new product, there could be more inspections.
  • Asset turns dipped recently…. Take off CWIP from calculations. We have maintained/grown asset turns.
  • Peak debt/equity will be 0.4
  • Employee cost gone down. Salary outgo increased 18% but increase is muted because last year had a higher ESOP charge.

My questions
Q: The large Pharma cos want to consolidate their vendor base. In such a scenario, how do we compete against the big players like Quintiles, Paraxel and Covance?
A: We are more integrated than other players. Quintiles, Paraxel etc focus mainly on clinical trials.

Q: Are there any regulatory challenges for Syngene to conduct clinical trials in India? Is India at a disadvantage compared to other countries from a regulatory point of view?
A: Couple of years back there were some regulatory challenges. But policies are improving a lot compared to 2 years back and pendulum has swung back. Syngene is in a strong position to leverage low cost and large population for clinical trials.

Q: When a drug is commercialized, how much of the total sales can come to Syngene because a pharma company would typically have multiple vendors.
A: Can’t say. Varies from case to case basis. There is always an absolute min 2 vendors to mitigate risks.

Q: Pharma and Biotech are our core areas but how do we look at other sectors such as agri, cosmetics etc.? Is there a big focus on these sectors or will the company focus on core for now and explore these areas in a big way later on?
A: Underlying capabilities such as knowledge in chemistry are a core to Pharma and Biotech but also apply strongly to some other sectors- Agri, nutrition and veterinary. Company is aggressively exploring these sectors as well.

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Health ministry plans to revamp regulatory rules for biosimilar drugs
By Vikas Dandekar, ET Bureau | 18 Nov, 2015, 04.00AM ISTPost a Comment
!
MUMBAI: The health ministry plans to revamp guidelines for approving biosimilar drugs to make the regulatory pathway more robust and sync it with the rapidly evolving global landscape. The guidelines were released three years ago.

Biosimilars are copies of complex drugs, which are based on living cells and ‘similar’ to an original biologic manufactured by the innovator. These drugs stand distinct from the chemical-based generic drugs that are ‘identical’ to the originator’s compound.

Officials say the new norms are expected to build further on the existing rules. They will be finalised after consultations with the industry, academic institutions and stakeholders like the civil society. “We will put up the draft in public domain and seek views prior to giving a final shape to the new rules,” a senior health ministry official said, adding that the ministry aims to finalise the rules by year-end. “A large number of future products will be from biologics origins and it is important to be geared up to examine those filings with clear rules.”

The new rules are intended to drill specifically on areas like comparability tests with the reference drug and also address issues such as pharmacovigilance and post-marketing surveillance to report any adverse events.

Health ministry plans to revamp regulatory rules for biosimilar drugs

The existing proposals, called Guidelines on Similar Biologics, were released by the department of biotechnology in 2012. They offer a broad roadmap for lab tests, clinical trials and manufacturing processes. The new norms may set the threshold for the minimum number of patients needed for clinical trials and depending on the drug, the number may be increased. “Some key issues were not specified in the first guidelines, which had created scope for interpretations,” an industry executive said.

Biocon chairman Kiran Mazumdar Shaw told ET that the Association of Biotech-led Enterprises (ABLE) is looking forward to the pathway that enables safe and dependable biosimilars. ABLE is the local industry group of biotech players.

Shaw advocated the use of new innovative technologies to ensure patient safety and better treatment outcomes, in line with the efforts followed by drug regulators in developed markets. She said stress should be on establishing a pathway for robust molecular characterization from the initial stages, mitigate risks and assess efficacy to demonstrate non-inferiority of tested compound.

Leading Indian drug makers like Biocon, Dr. Reddy’sBSE -1.89 %, CiplaBSE -0.68 %, Zydus Cadila and Intas are pursuing ambitious programmes to tap the emerging global biosimilars market.

ET View: Focus on Awareness

We need to proceed cautiously. Reportedly, the first biosimilar drug was approved in the US earlier this year. Note, biosimilar drugs are not really perfect copies. It follows that biosimilars are not generic versions of original molecules. Hence, it is vital that prescribers & patients are educated on safety aspect, if need be after trials and tests.

Large market opportunity (40 B$ - 260000 Cr market size) - Decent sized company - professional mgmt - 980Cr Avg revenue - Similar sized indian competitors are missing

  1. Syngene plans to invest 250M$ to grow in size - Is the business model capex heavy? Or they want to achieve a certain scale?

    RoA from the current six month results (asset size 1465 cr & 95 cr for six months) - 13% Not bad
    Net Asset increase from FY15 to FY16 seems like 40 cr - FY16 profit looks to be up 40 cr - Not bad

  2. There is a size-able debt of 200 cr on balance sheet already.

    Interest payout seems to be low at 12cr compared to loan of 192 cr (6% Loan) - at this rate its value accretive to shareholders. And the interest payout is around 10% of Net Profit.
    Not sure if the loan is from Biocon? Who gives loan at 6%? Either the loan EMI payment has not started.

  3. Quintiles, paraexel seems like they are heavily staffed at high-cost countries but have similar margin profiles - So there is definitely a cost advantage over them?

    Quintiles did not mention employee salary cost in its quarterly filings - Would be nice to find avg emp cost and compare that with Syngene

  4. Quality of rsrch

    Indian brains are capable of cracking this model as shown in IT/elsewhere - so thats a huge +ve

  5. Valuation is already at 40 P/E

    However market opportunity size (40 B$) for CRO is huge - if the mgmt can execute, this valuation should noat matter

Disclosure: I am considering a purchase and might buy/sell/change position without posting an update here.

India has ‘natural potential to grow’ in CRO space, says Syngene CEO

http://www.outsourcing-pharma.com/Clinical-Development/India-has-natural-potential-to-grow-in-CRO-space-says-Syngene-CEO

India’s CRO industry is playing catch-up to the generic and manufacturing sectors, according to the departing CEO of one of the largest players, Syngene.
Peter Bains joined the board of Syngene, the contract research and manufacturing (CRAMs) wing of Indian biopharmaceutical firm Biocon, in 2010 and was appointed CEO last year, just before the company was spun-out into a standalone entity , raising $1.15bn (€1bn) in an IPO.
Bains is preparing to hand over the reins to Jonathan Hunt, the former President of AstraZeneca India, but found time to speak with Outsourcing-Pharma about the evolving Indian CRO and CMO landscapes:

How has Syngene changed since you became a Director in 2010?
Syngene has evolved from a pre-commercial manufacturing service provider to an integrated provider of end-to-end discovery, development and commercial manufacturing services for NMEs.
Our client base has increased from about 100 to more than 220 over the last five years and these now include 16 of the top 20 global pharma companies.

Why are there relatively few large Indian CROs, compared to say CMOs?
I think that the Indian strength in CMO’s is a reflection of India’s very strong heritage in generic development and manufacturing. The CRO industry in India started up later and is in that respect playing catch-up. India has great natural potential to grow in this space, drawing on its huge and diverse scientific talent pool as well as having structural cost advantages.
Another important difference between manufacturing (CMO) and research (CRO) is that drug research and development is a multidisciplinary activity requiring integration of complex work processes which very few companies are able to do effectively. This has been Syngene’s strength where we have developed and implemented these processes which effectively compliment the work-flows and mind-set of our partners.

What challenges currently face the Indian CRO factor?
CRO challenges are fundamentally the same irrespective of geography; life science based companies are looking for ways to do more and better science, to improve productivity and to drive innovation and of course they are budget constrained.
The CRO industry must share these challenges and find solutions that can be of added value to customers.

And what is Syngene doing to help overcome these?
We look to align our work to our customer’s goals and objectives at every step. We look to ensure that we have a customised team of scientists to match our customer’s needs. We have also put in place a world-class infrastructure that allows advanced and complex research across multiple domains thereby providing innovative and value added solutions to our customer’s requirements.

Indian regulators CDSCO issued new guidelines in 2014 covering a number of issues relating to clinical trials. Are there still issues with the regulations?
The landscape for CRO operations in India is competitive but there is room for improvement to ensure India can emerge as a leading destination for outsourced life science. We work with local and national authorities to look to improving the regulatory environment to help the industry match up to its potential.

What is Syngene doing about ongoing quality concerns in the country?
Syngene’s advantages include our excellent pool of scientific talent, world class infrastructure, an impeccable track record of quality compliance, our focus on delivering productivity and innovation in our work.
On quality and compliance we are pleased to advise that we have successfully cleared 4 USFDA audits in the last 2 years without any 483s.

Finally, what will your successor Mr Hunt directly bring to Syngene?
Mr Hunt has an extensive experience of the global pharmaceutical industry.
In his earlier assignments at Astrazeneca, he has built a track record of strong customer-centric result-oriented work, as well as demonstrating leadership in transformational change.
He has also been involved in several high profile drug development and launch programs as well as strengthening Astrazeneca’s relationships with both internal and external stakeholders.
Syngene is at a rapid and dynamic phase of growth and evolution and Mr Hunt brings a breadth and depth of experience that is very well suited to lead Syngene in its onward journey.

Disc: Not invested. But on watch-list. Will add incrementally when funds become available :frowning:

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Latest Corporate Film uploaded onto Site a month ago.

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Interview with Tim Sangster and Kurt Sales (Charles River Laboratories) on the developing CRO industry and the challenges faced by sponsors

Insights into early-stage drug disovery, immunology and increasingly complex biologics.

https://02-lvl3-gcs-pdl.vimeocdn.com/vimeo-prod-skyfire-std-us/01/278/6/151391961/464564029.mp4?expires=1452887760&token=017ee0e98c7cd79c8be7b

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For those geeks/nerds among us i found the below video involving Sygene scientist who also briefly explains about Warfarin.
(You can directly go to 22:10 minutes into the video to listen to Murali)

Source URL

https://03-lvl3-pdl.vimeocdn.com/01/424/4/102124095/274846748.mp4?expires=1452894876&token=03e9b0ddc860c3ba965ea

Murali Subramanian
Senior Principal Investigator
Biocon Bristol-Myers Squibb Research Centre (Syngene International)

Murali Subramanian, PhD, received his bachelor’s degree in Chemical Engineering from National Institute of Technology (Karnataka) and his PhD in Chemical and Biological Engineering from Iowa State University in the field of metabolic engineering and phytoremediation. He completed a postdoc with Prof Rory Remmel and Prof Timothy Tracy at the University of Minnesota in the field of drug metabolism and bioanalysis. He is currently working in Biocon Bristol Myers Squibb Research Center (Bangalore) in the pharmaceutical candidate optimization department with specialization in the biotransformation division. He has published over 15 articles and book chapters in international peer reviewed books and journals.

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Another blockbuster results from Syngene. Revenue up 23% YOY and Pat up 31% to 59 Cr. New triggers are there next year with new facilities coming up. Depreciating rupee will also help Syngene.
Company also cleared 5th USFDA inspection in last 3 yrs this quarters. Though PE re-rating looks difficult from here but if the company can grow 30% YOY like this, then this stock can be a treat to portfolio. It is still just $1B dollar company with the potential to go become quite big as Pharma spend is not going to go down soon.

Disc. forms 10% of my portfolio after Today’s fall in other stocks.

@kanvgarg123, Isn’t Biocon a better play on Syngene from valuation perspective?

Biocon is the holding company for Syngene and holding companies trade at more than 50% discount from their market values. However, Biocon if a wonderful company. They have 4 biosimilars coming in FY17. Biosimilar’s are very interesting but not well verified in American Markets. So it has some risks associated with it. The market potential is more than 30b$. So, if you are willing to take some risks then yeah Biocon can be an interesting bet for next 5 years.

Great questions by Rohit during Q2FY16 concall. Missed the post earlier.

Investor Presentation for Q3FY16
http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/78DAE07B_C79B_4DAA_8A63_03E3BF6AFB95_182225.pdf

Concall Updates:
* Like last qtr, mgmt is happy that growth is strong and broad-based across 3 verticals.
* Within Discovery services, strong traction was witnessed in Large Molecules biology discovery.
* Within Development services, increasing supplies for small chemical molecule programs.
* On Capex Progress (All capex to be done in “Modular” approach):
* Syngene Research Centre to come online in Q1FY17 (April). 1st 2 floors to be dedicated to chemistry and biology discovery services (50,000 sqft). Later floors would be ramped up based on future demand (pull-based)
* Formulation and Biologics mfg to come online in 12-18 months (Bengaluru).
- Reconfirmed to be completed by end of FY17 and Q1FY18 respectively.
* Mangalore: In process of getting clearances/approvals. Expect to start construction early FY17. It is primarily geared for commercializtion of NCE small molecules.
* Dedicated centers contributed 34% for 9MTHS YTD (v/s 36% in FY15)
* Out of the 3 commercial-supply agreements, 1 has been voided(contract will not be carried forward) due to decision by client to stop progress (most likely on account of failed Phase-III clinical trial). So 2 out of 3 expected molecules will be commercialized.
- Inspections for the above 2 NDA’s has been done. 1 in Q2FY16 and 1 in Q3FY16 with no 483s or observations.
- Supply would be Intermediates
* Consolidation of customers through M&A’s has no impact on Syngene. For instance, Baxalta which was spun off from Baxter and being acquired by Shire.
* Forex issues:
- Current qtr there was a forex loss of 7 cr booked in other expenses.
- Hedged through a put option at a flow rate of 66-67 (net of forex premium).
- Whole of FY17 and 50-70% of FY18 has been hedged.
- Option premium would be expensed in the relevant qtrs.


IMHO, fact that they are bringing the Biologics mfg facility onstream by FY18, implies that a large molecule candidate is not far of from early clinical Phase 1 or 2a.

Conference on Biosimilars held in Hyderabad in Oct 2014.
http://www.omicsgroup.com/conferences/ACS/conference/speaker_ppt/aparna-kasinath-clinigene-international-limited-india.pdf


Disc: Invested last week @371 levels.-

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Thanks for the notes vishnu.

I think Syngene results are rock solid and consistent. What is heartening is no USFDA inspection issues.

The only negative development is this

This highlights that a drug can get flushed even in phase 3 trials and we should not pin our hopes on one drug, as i understand is the case for suven. Anyway, this is not a big problem for Syngene as the other 2 will hopefully commercialize and they will have a good number of scale up opportunities from their pipeline.

Discl: More than 5% of my portfolio, bought around 300 levels.

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Even 50 % success rate in NCEs is considered great and so 1 failure in 3 doesn’'t seem a concern atleast at the stage where Syngene’s CRAMS business is currently at. It’s the way management has communicated it transparently without any hesitation is what is heartening. Another important takeaway for me was the extreme focus of management on ‘Growth’ and ‘Profitability’. Flexible approach of management beforehand, before 2 years of commercialisation of mangalore manufacturing plant (which is coming up on 48 acre land) , of considering generic contracts too in case of underutilisation seems very practical and in long term interest of the company. Its not that generics always mean lower margins. Yes, 30 % + margins might not be feasible but 20 %+ margins can be achieved in many generics too. Although I believe this might not be required at all as, as per management talk at the time of Syngene IPO Meet, it had indicted ~7-8 % projects in late stages.

Rgds.

Discl. - Invested in Syngene

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does anyone know why peter bains ceo moved over from executive role and new person had to come in ?

@reacher

Possibly because of his retirement as he is approaching 60 years of age.

Rgds.