Syngene International

Syngene is considering interim dividend.
http://www.bseindia.com/corporates/anndet_new.aspx?newsid=7a24f464-c97c-48e1-bd2e-ae196242dd02

Is there any way through which we will be able to identify the potential of two molecules (out of three molecules) for which the production will going to start in near future.

Disc: Invested in Syngene

Syngene FY16 results :

http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/D1DD5486_0A30_47CF_94CD_68E3FD0B6C79_185901.pdf

Syngene Results Press Release :

Syngene delivers sustained growth in Q4 FY16

http://www.syngeneintl.com/Media/Default/pdf/investor_relations/Syngene%20Q4%20FY%2016%20PR-v5..pdf

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Important points noted from Q4FY16 concall :


Revenue Growth and Break-up :

In FY16, Syngene’s revenue grew YoY by 27.6 % in INR terms and 19.9 % in cc USD terms.

Revenue breakup -

33 % Dedicated Centres,

40 % Development & Manufacturing,

mid-20 % Discovery.



Billing USD Realised rate in FY16 & FY17e USD rate based on Hedges taken :

FY16 = 63.67

FY17 = 67



Top 10 Client Contribution :

69 % in FY16 v/s FY15’s 71 %.



Employee Count :

2967 in FY16 v/s FY15’s 2656

out of which 2571 scientists in FY16 v/s FY15’s 2227



Tax Rate Guidance :

FY17e Tax Rate to remain at 14-15 % of PBT.

FY18 onwards Tax Rate to increase gradually @ +2 % p.a.



Pricing Power :

In FY16, company refrained from increasing its pricing (billing rate) in USD because of significant INR depreciation (7 %) v/s USD.

In normal course, company increases pricing @ 3 % p.a…

In case of sudden significant INR appreciation, immediate significant price increase might be difficult as clients are used to 3 % p.a. increase.

However, there is significant advantage India enjoys vis-a-vis any other country in terms of pricing –

Syngene/India billing rate per scientist is 60k USD v/s… China’s 90k-100k…Western Companies’ 175k…Also, in case client doesn’t outsource then internal cost per scientist for the client works out to be 200k-240k per scientist.



Revenue Guidance and EBITDA Margin Sustenance :

Company is confident of achieving 250 mn. USD revenue in FY18. This is without any contribution from Mangalore plant which is expected to get commercialised in FY19 and for which a CAPEX of 100 mn. USD will be incurred (out of planned total USD 200 mn. CAPEX).

Company sees all manufacturing contracts coming at company’s historical margins and therefore doesn’t foresee much reduction in current EBITDA margins.

High Single digit molecules are in Phase II-B & Phase III.



Debt :

Company raised an ECB worth USD 100 mn. At the fag-end of Q4FY16 with a maturity of 4 years and 5 months carrying an interest rate of LIBOR + 140 basis points.

Interest cost of this ECB will be introduced in P&L starting FY18.

Out of total USD 200 mn. planned CAPEX, USD 100 mn. will be met via this ECB and another USD 100 mn. will be met via internal accruals.

Already in FY16, USD 50 mn. CAPEX is done via internal accruals and further only 50 mn. CAPEX is likely to be done going forward via internal accruals.

No further debt is likely to be raised going forward to meet planned CAPEX.

Discl. - Invested in Syngene

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From the latest Annual Report of FY16:

Given the above emphasis and future focus on ADC’s and oligonucleotides, I found the below 2 articles which highlight the opportunity size.

I have snipped the relevant sections.
Check the articles for complete info.

On ADC’s

ASCO 2016: Antibody drug conjugate shows early promise in small cell lung cancer

“Although these results are preliminary, rovalpituzumab tesirine seems to be the first targeted therapy to show efficacy in small cell lung cancer, and we may have identified DLL3 as the first predictive biomarker in this disease."

The ADC rovalpituzumab tesirine comprises an anti-DLL3 antibody and a cancer-killing agent, pyrrolobenzodiazepine dimer, which damages DNA.
The antibody component of the ADC serves to deliver the anticancer agent to the tumour and into cancer cells. Rovalpituzumab tesirine is the first agent to target DLL3.

Side Effects:
The most common severe treatment-related toxicities included serosal effusion (fluid build-up around the heart or lungs), low platelet counts, and skin reactions. These adverse effects appeared generally to be manageable with medications, or resolved without specific interventions.

About Antibody-Drug Conjugates
Antibody-drug conjugates (ADCs) are large molecules in which anticancer drugs are attached to an antibody. The antibody targets a protein that is abundant on the surface of cancer cells, but is preferably rarely found on healthy cells. When the antibody attaches to the target protein on a cancer cell, the cancer cell internalises the ADC.
Inside the cancer cell, the cancer drug is released from the antibody where it exerts its cancer-killing effect. Through such targeted delivery of cancer drugs to cancer cells, collateral damage to healthy tissues is minimised.
In fact, the cancer drug in the rovalpituzumab tesirine ADC is so potent that it cannot be given by itself, but it is safe when given in the context of an ADC.

There are only two ADCs currently approved in the United States for the treatment of patients with cancer.
However, dozens of different ADCs are being tested in clinical trials.


On Oligonucleotides:

Oligonucleotides: Opportunities, Pipeline and Challenges

Although meaningful progress toward the development of oligonucleotide therapeutics began in the 1970s, nearly a half century later, only three oligonucleotide drugs have been approved by the FDA. However, the field is gaining momentum and the clinical benefits of the more than 135 oligonucleotide therapeutics currently in various stages of clinical trials are extremely promising.

THE PROMISE & OPPORTUNITIES
What is so attractive about oligonucleotide therapeutics? Although this class of therapeutics is quite diverse, the excitement and dedication to this work is rooted in the following factors:

● Oligonucleotides offer promising treatment for a wide range of medical conditions.
● They allow for the development of therapeutics that affect protein targets that cannot be effectively treated by small-molecule or protein therapeutics.
Interfering with RNA function at the cellular level, specific malfunctioning genes can be targeted, manipulated, silenced and/or modulated.
● Immune system modification is possible, offering the possibility of treatment for a multitude of autoimmune disorders that are in many cases extremely challenging to treat with currently available drugs.
● Oligonucleotides are synthesized pieces of chemically modified RNA or DNA. Scaling up for commercial-scale GMP production is more feasible than it is for many cell therapies or other biologic therapies.
● Side effects for many oligonucleotides are more controllable and minimal than the side effects experienced with other classes of drugs.
● As reported by Ryszard Kole in 1993, oligonucleotides can be used to modulate pre-mRNA splicing. Much work has been done to develop therapies targeting Duchenne muscular dystrophy, including progress treating the splicing mutation that causes Duchenne muscular dystrophy. These learnings hold much promise for a number of other conditions as well.
● In concept, when compared to small-molecular drugs as well as to large-molecule biopharmaceuticals, oligonucleotide pharmaceuticals are much more straightforward to both design and develop.

Given the relatively new commercial viability of the oligonucleotide market, it is difficult to establish a precise value of the market. However, all indications point to a very promising future for viability and future growth. For instance, the oligonucleotide synthesis market is estimated to be $1.92 billion USD by 2020, up from $1.08 billion USD in 2015. Compounding Annual Growth Rate (CAGR) in the oligonucleotide synthesis market is approximately 10.1 percent.

Antisense oligonucleotide (ASO) therapeutics currently represent the most promise and have experienced the most success within the overall oligonucleotide class. As mentioned at the beginning of this paper, it is commonly accepted that the modern age of oligonucleotides and the birth of Antisense Oligonucleotide (ASO) work began in the early 1970s after Nobel laureate Gobind Khorana published his ground-breaking work.
(That was interesting trivia which i was happy to learn about :smile:)

THE CHALLENGES
While there are numerous challenges the field is currently grappling with, this paper will focus on four: enabling technologies, diversity within this class of therapeutics, delivery challenges and regulatory complexity.

Only focusing on Regulatory Complexity
The typical factors for development of oligonucleotide regulatory guidance are obvious: significant potency/efficacy, stability in vivo, favorable pharmacokinetics (PK), favorable pharmacodynamics (PD), minimization of off-target effects and safety. However, oligonucleotide drugs fall somewhere between small molecules and large-molecule biologics, creating a new set of unique regulatory challenges.

Oligonucleotides are chemically synthesized, and despite the diversity within this class of drugs, there are similarities in approaches for synthesis. However, there is tremendous range in the mechanics of action of these drugs at the cellular level. At the core of the debate is the reality that oligonucleotides are manufactured in ways similar to other small-molecule drugs, but interact in vivo in a manner more typical of biologic therapies.

…progress has been slow in figuring out how to apply this to regulatory constructs and creation.
Despite the challenges in creating regulations for oligonucleotide therapeutics, the FDA has released recommendations for approaching synthetic oligonucleotide drug substance and drug product approval—“Points To Consider For The Submission of Chemistry, Manufacturing, and Controls (CMC) Information in Oligonucleotide-Based Therapeutic Drug Applications.”

In addition to the lack of firm regulations, there is disagreement among the FDA and the European Medicines Agency (EMA), the world’s leading drug regulatory bodies, as to how oligonucleotides should be approached for regulatory purposes. After some debate, the FDA decided to classify these drugs as small-molecule drugs and they fall under the FDA’s Center for Drug Evaluation and Research (CDER) jurisdiction.

However in the EMA’s view, there is a preference for the use of “centralized procedure” for oligonucleotide therapeutics rather than the “mutual recognition” procedure. The centralised procedure allows for marketing authorization throughout the European Union. The centralized procedure is required for drug products manufactured using biotechnological processes, orphan drug products…

THE PIPELINE
The FDA has approved three oligonucleotide drugs. Two of the three—fomivirsen (Vitravene) and mipomersen (Kynamro)—perform via RNase H-mediated cleavage of the targeted RNA and were developed by Ionis Pharmaceuticals (formerly Isis Pharmaceuticals). The third approved oligonucleotide is pegaptanib (Macugen), an aptamer developed by OSI Pharmaceuticals and Pfizer.

Despite the years it has taken to gain momentum within the oligonucleotide therapeutic field, the market has now matured and includes an active pipeline of therapies with a meaningful number of drugs staged to enter the market.

Currently, there are 135 oligonucleotide clinical trials listed on ClinicalTrials.gov registered by more than 30 companies. Of the 135, 37 are open studies either actively recruiting, active but not recruiting or active and enrollment is by invitation only. The remaining studies have either been completed or terminated, and among the completed studies with results, some appear to be promising.

Many of registered clinical trials using antisense or siRNAs are for treatment of different forms of cancer. However, there are other conditions being addressed, including conditions affecting the eyes and liver, Duchenne Muscular Dystrophy, HIV, Mesothelioma, Rheumatoid Arthritis and many more.

Ionis Pharmaceuticals is the leading player in the space, having developed either alone or in collaboration with a strategic partner about 25 percent of the candidates in the current pipeline or approximately 33 percent of the therapies currently in clinical trials.


My personal inferences from the above, is that both ADC and Oligonucleotides have been largely untouched by the BIG pharma companies, until now.

Rovalpituzumab tesirine, the ADC mentioned above in the first article is being trialed by AbbVie.

Given the current market size and the share of Ionis in ongoing clinical trials, i assume that there is still a substantive number of innovators who are not among the strategic partners with Ionis/OSI, who are yet to foray or start Phase 1 trials in this space.

I perceive that Syngene may have gotten the timing approximately correct.
Though time will tell. :slight_smile:

Word of Caution:
Given the mention of Duchenne muscular dystrophy above, i would like to point out the below links wherein FDA has rejected 2 ASO drugs meant for this therapy from BioMarin, PTC Therapeutics. There is still another drug from Sarepta for which FDA has requested more data.
https://www.statnews.com/tag/duchenne-muscular-dystrophy/

Disc: Invested in Syngene. No transactions in last 30 days.

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crazymama - thank you for sharing your continuing hard work. I appreciate it so much.

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Q12017 Results are out.
http://www.bseindia.com/corporates/anndet_new.aspx?newsid=5d21a9d3-0609-40b0-9d5f-bf6365faddb3
30% EBITDA 28% PAT.
EBITDA margin up 2 percentage points.
However, I see quite a bit of “Other Income”. Excluding other income, growth is ~10%. Have to see what management has to say about this

On the business front, new virology research center is up and running.

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FY17 Q1 concall transcript: http://www.syngeneintl.com/Media/Default/pdf/investor_relations/FY2017/FY2017%20-Quarterly%20reports/q1%20FY17%20IR%20Call%20transcript_v7.pdf

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Syngene has commissioned its 4th dedicated R&D center for Amgen.
This center will staff 100 scientists.

I think this is a good boost and showcases their capabilities and deep relations with another client.

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Syngene opens R&D centre for Amgen in Bangalore

NSE corporate announcement of the same
https://nseindia.com/corporate/Syngene_PressRelease_September2016_06092016163143_046.zip

@pikrohit / @Mahesh Can you share some information on the revenue booking model ? Is it based on the number of scientists working on a specific project or based on reaching a specific milestone / target in a project ?

@kkvinvestor

Normally initially it’s based on number of scientists working for the client.

Rgds.

SYNGENE will work with Full Time Equivalent (FTE) cost based fess with AMGENE.

These days FTE fess are charged per chemist and my range from $40K to $60K, while in 2002 the fess per chemist use to be $100K - $ 120K

To get a 100 FTE contract is really good thing for syngene, but in my opinion you will not see much growth in the number of FTE over next 2-3 years.

Even though Syngene has a good track record of successfully running large FTE collaboration with BMS, Abott and Baxter, there is always a chance that the competitor CRO here in India or CHINA quotes lower FTE rates and SYNGENE may loose some or all of this FTE business

Hi swapnil,
Can you please share the source of this info?

I have come to realize that cost is not the biggest determinant of awarding contracts of such strategic nature.

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Thanks @swapnilyerande . I had seen similar model of working in my previous IT company. Client used to allocate some budget for the year. Based on that, the number resources were decided. Usually the budget used to be roughly $5K per month for one resource. Usually the budget used to remain same (or sometimes +10% or -10%) unless the client sees tremendous potential in the project.

I worked with CRO in 2002 , when the FTE rate was of Pfizer FTE was $ 100K.

In my last assignment while working with Indian CRAMS company we use to get $60K per FTE for 4- 6 FTE contract (AMGENE was also one of the client). I assume for that the large contract of 100 FTE might have been signed with a discounted rate of $40K.

The revenue growth will be muted if SYNGENE only depends on the FTE model.

The big increase in revenue should happen if they get the milestone payment for developing the new DRUG as well as exclusive get the manufacturing licence for synthesising the DRUG candidates developed from these Drug Discovery collaboration.

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ICICIdirect has come up with the list of biologicals in the pipeline for Amgen. The list is impressive and Amgen is a distant second in the list of companies doing research in biologicals. I think Syngene will always command higher multiples in view of the stickiness of its business…the link to the report http://content.icicidirect.com/mailimages/IDirect_SyngeneIntl_CoUpdate_Sep16.pdf

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@Donald @OM_1417

Here is a simple positive feedback loop/ re-enforcing/chakravyuh :stuck_out_tongue: model of Syngene as per my understanding.

Also a very key plot of volumes of drugs when they get into commercial manufacturing. If they can commercialize a handful number of drugs (say 3-4) in next 10 years, it will be a big plus.

As per my understanding, cost is not the most important criterion for selecting a CRAMs vendor. Track record and reliability for delivery timelines is more important. Rupee strengthening is one of the risks. They can increase prices by 3-4% per year but not much more than that.

Discl: Invested.

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Rohit,

Thanks for the effort.
However we have always opined against painting everything with the same
brush in an industry.

What is clear from above is generic to the industry - and any smart player
in the industry will claim to be doing the same.
And that has been my objection all along. We have not questioned the claims
of Syngene to be playing this model well - on facts/and ground relities.
Where and how do you bring in Syngene-specific understanding to sit on top
of this high-level look at the industry??

One very easy way to do that is to develop the business canvas model for
Syngene - in collaboration with folks.
Most of the objections will come in the Market part (not the product part -
though that also has gaps) - who are the customers, how does syngene reach
them, what does it have to do to convert R&D (CRO) customers to CRAMs (CMO) customers,
who are the competitors at both stages, how is procurement conducted at the
different stages, what considerations move the needle the most at each stage; where is the real Scalability in the model??

  • these are the most basic questions - to ask and answer for ourselves -
    which I find most of us are avoiding to confront directly - for one reason
    or another :slight_smile: (forget circles, or pictures…ha ha)

Let’s all decide - that all collaboration activities (that are not
real-time price-sensitive for us), to conduct directly in the public
threads - helps us conduct really open and honest dissection/debate - in our attempts to understand more - and
also pull in others who would like to work hard, contribute and learn.

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Yes Donald…agree with your points. I have a rough canvas for Syngene and will put it up after some more effort. We all can improve it.