That is little disappointing. 38 PE (current) for a company growing at 20 % is very expensive.
Syngene is part of my core portfolio as well. However with projected growth , I am in dilemma whether to keep it or switch with some better options available in mkt.
does anybody know why Syngene is in free fall since last since few weeks? fire incident was couple months back.
discl: invested at 500 level, very small part of my portfolio. Might pocket more now that it is coming toward 400.
Employees have bought over 2 lac shares thru ESOP.
Hi All,
I attended Syngene concall and AGM today. They had reported flat results for Q1FY18
Here are my notes-
On Q1 numbers- Financials include benefit of 17cr interest income. Excl interest- revenue 291 vs 274, EBITDA 33%. Avg realization at USD/Rs 64.5 vs 67. Hedging gain of 16cr (captured in other expenses). Hedging is done for 100% of year 1 rev and 70% of year 2 revenue. so 100% of rev for FY18 is hedged at 67. Adding back hedging gain, other expenses are up significantly. As guided before, this is for business development (including travel), increase in insurance premium and safety/compliance.
Dollar rev growth compared to last year is 10%. Contracts are renewed in Jan and we can consider the forex part in the calculation.
Business mix- Dedicated centers (33%) discovery chem+bio (25%), Development- manufacturing, formulation, etc (40%)
Q3 fire impact- not fully recovered but clear positive momentum. 10% of infra was destroyed but had worked hard to minimize the impact by relocating to other areas within campus.
Syngene has deepened the relationship with Amgen. The plan initially was to have 100 scientists housed in 25k sqft of lab space. This has now been expanded to 185 scientists and occupy a total of 50k sqft. The scope of relation has also broadened and Syngene will now provide a range of services. Headcount will go up in H2 and additional revenues will flow in Q4. The capex needed for this is already built in into the 200mn capex guidance, so no extra capex on account of this addition.
Signed a multi year deal to supply gastrointestinal NCE for commercial launch in Japan. This deal was on expected lines and no surprise here. Syngene had been involved with this molecule from proof of concept stage to commercial manufacturing. My question to management was whether they have enough capacity to take care of the volumes. Management said that they expect that initial supplies can be met through Bangalore plant and at a later stage the Mangalore facility can be expanded. They dont foresee a situation where they will be limited by capacity, and they will keep getting demand indications with a lead time.
Viral testing can provide additional revenues because earlier companies were getting this done outside India. Now it can be done at syngene.
Infra development- 3rd year of investment of 200mn. Till now 80mn has been invested out of which 68mn is in Bangalore and 12 in Mangalore. Biologics will be operational in next Q. Mangalore- Going as per plan of time and costs. Work to start post monsson. Mangalore will go live in 2020.
Insurance claim- Will file claim for 200cr or so in Q2FY18. Full reimbursement by Q4FY18 or Q1FY19. Refurbishment in Q1 FY19.
It didnt seem that there was much happening on the agrochemicals side. I was expecting that this would have been substantial, given the earlier work with Du Pont.
I had a small chat with management later. I questioned him on how Wuxi in China was able to scale up so fast, even after starting out later than Syngene. The reply was that Wuxi is not doing so much on contract research side but they are huge on manufacturing side.Another point was that China is now a huge market, 3rd largest. So the value proposition in making drugs in china for China makes lot of sense for many companies. Also, there was probably lot of govt involvement in that story.
Syngene claims that 8 of top 10 pharma cos are their customers. I asked that many companies claim similar numbers so how many CROs provide service to a large company? Response was not more than 2-3. We can get an idea by BMS nos- almost 10% of BMS R&D staff is at Syngene and now Amgen is also scaling up.
Syngene International Announces Broadening of Research Collaboration with Amgen Inc.
Expands Dedicated R&D Cente
http://www.syngeneintl.com/Media/Default/pdf/news_events/Amgen-SARC-II-final.pdf
Thanks for the list but the business model of Syngene is quite different from many of the companies on this list. For example Quintiles is mainly into clinical trials.
You are right. The problem with the Syngene Business model is it donot have any moat. There are so many competitors for them within India.
The FTE (Full time equivalent employee) model can not generate high revenues typical FTE price has come down to $ 30,000/FTE from 2005 highs of $ 1,20,000/ FTE.
It is also challenging to get renewal of these FTE contracts due to competition from other Indian CROS like GVKBIO Jubilant Chemsys, SaiLIfe Sciences, TCG Life sciences.
The revenue can grow exponentially if they move up the value chain i.e. start doing more contract manufacturing projects (GMP manufacturing of phase 1 Phase 2 and Phase 3 investigational drug candidates) where the volumes are 10 kg to 1000kg Here typical revenue per project will be 1 cr to 100 cr depending on the complexity of the manufacturing process with profit margin of 40- 50 %.
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I think the good work of Syngene is reflected in its deep partnerships with BMS, Baxter, Amgen, Abbott. The fact that they continue to extend the partnerships is a proof that its not just about costs.
Syngene already manufactures drugs for clinical trials. However, most of these drugs are the ones where Syngene has been involved from early stages. My feeling is that there would be hardly any molecules where it is doing pure contract manufacturing.
Syngene Q2FY18 results announced. Growth is inching up. Capex is progressing well.
Investor Presentation:
http://www.syngeneintl.com/Media/Default/pdf/investor_relations/FY2018/Investor%20Presentation_October_2017.pdf
Syngene expands collaboration with Bristor Myers. Contract arrangement extended to 2026!
http://www.bseindia.com/corporates/anndet_new.aspx?newsid=2da791d3-a229-4aea-a367-3f5db5a6fe12
Syngene FY19 performance
Although revenue increased significantly ie 28% YoY we see PAT increasing by 9% only due to higher Material costs and Employee costs.
Infact PAT margin dipped from 21% to 17% which is the lowest in last 5 years.
Anyone here planning to attend Syngene’s AGM tomorrow at Bangalore. Currently Section 114 has been imposed all across the city for next 48 hours. I am not sure if the AGM will be now happen as scheduled. Appreciated if anyone has an update. Thanks.
Notes from Syngene AGM. Considering the nature of business they don’t share any specifi detail of drugs,research activity …etc.( there may be few mistake by me while preparing the notes).
Big global players continue to outsource research activity as their strategy. Small virtual companies don’t have assets and capability comes to Syngene for the research. Witnessing increased activity from small virtual companies. New customers addition will continue as a strategy.
New customers initially take time and gives small orders and once they found and confident about Syngene increase the orders with us. This process of increasing our business with clients which use to take 5 to 10 years has reduced to 3 yrs with new customers.
Syngene was able to establish its name in CRO space and created value for customers.
Dedicated R&D centres and long term strategic relationship with customers like BMS, Merck,Amgen,Baxter. Our partners are proud to be associated and have a world class facility here. Expanding dedicated centres to customers. Even if some customers did not renew deal we can use the centre for other R&D. We train people to work like our client.
Offering integrated services from discovery to commercialization in pharma,biotech,agrochemicals,nutrition…etc.
Tie up with govt of India for advanced study on proteins backed by BIRAC…established centre at Bengaluru campus.
New research Center in Hyderabad operational in Q2.
Last few years few molecules have progressed to phase 4 and some have failed. We have done commercial production of few molecules but they are small in size. In future we are looking for large molecules. No exclusive agreement with customers when we are involved in the initial stages of drug to manufacture them on commercial scale in future…but that’s what we are looking in future as a vertical addition to CRO business.
Mangalore API facility for manufacturing will be completed by end of FY20 but approvals from plant will atke time.Tax holiday for ?10-15 yrs.
FTE is not reducing around 40 lac/FTE.
Revenue booking on % completion method.
Growth was lead by discovery and dedicated centre’s in future manufacturing division will be vertical addition.
Assets turnover 1:1 Investment made by syngene indirectly tells about possible revenue in future. Increase in asset in next two years assets turn to remain around 1:1.
Net cash+… Next two year of investment mostly by internal accrual.
Customers pay some amount in advance
Added new leadership in compliance, discovery and operations.
Diclosure: Bought shares for attending AGM.
Hello Narendra, thanks for sharing notes. I also attended AGM and in fact raised concern about nature of contract for dedicated center. My understanding is that for a CRO trained scientists are more valuable asset. Very similar to how Human capital is for IT. If client has option to absorb these dedicated center at the end of contract, what happens to the revenue stream coming from that dedicated center ? Or how much more time Syngene needs to train and deploy new set of scientist ?
Disclosure: Tracking position
I think this question was asked in AGM (? By you). Management reply was they may lease out dedicated centres for particular time to customers and in that case revenue for syngene will continue to some extent. Chances of customer aquring whole unit and running is distant possible as answered by management. In case some customer cancels the contract syngene can use the facility for other clients which is not difficult considering they have many clients. (You must have noticed how difficult to get specific answers from them even on sidelines of AGM.)
I have been following Syngene since the IPO, and understand the tailwinds & the potential of the CRO industry. I have the following confusion due to which I haven’t invested in it (or any CRO) directly, although invested in its parent Biocon (which holds ~70% ownership of Syngene & is a good investment candidate on its own merits).
The R&D and Manufacturing units of the Pharmaceutical companies are receiving frequent USFDA observations these days, with the worst outcome being an import alert. If the facilities are owned by the companies then they work with USFDA to rectify the situation and lift the ban, and sometimes switch the molecules waiting to be submitted for approval to other facility, which is not affected by USFDA ban (recently Cadila is planning to do the same from its Moraiya manufacturing unit).
Now, since the affected facilities are OWNED by the Pharmaceutical companies they have no other option than to work with USFDA. But, what would be the worst outcome of USFDA import alert on a CRO like Syngene? How much is the chance that the customer switches to another CRO, instead of waiting for Syngene to work with USFDA for lifting the ban?
If my fears are true, then the CROs will have to remain on their toes all the time, and any such incident from a big customer can destroy their reputation big time.
On the other hand, a Pharmaceutical company suffering from USFDA impact can recover more quickly and suffer no such reputation loss.
Requesting comment from experienced members.
One of the key risk in investing in business like Synege is regulatory risk and their catastrophic effect. Business like CRO demands supreme trust with innovator. A small damage to company’s reputation may prove very costly. Government agencies across the globe always strictly monitor new drug development process. Any failure in maintaining data integrity or any observation from FDA on cGMP requirement could adversely effect the business. Synegene’s client belong to diverse set of geography hence they all monitored by different regulators. A CRO must invest in quality system to be in compliance with all regulators. FDA recently introduced a new system called SEND ( Standard for the Exchange of Nonclinical Data to provide the structure and implementation rules for the submission of computer readable datasets for NDA (new drug application) and IND (investigational new drug). Such regulations requires investment in computer system. In my view CRO business is something where one has to keep invest to stay in the game. There isnt any operating leverage but thats the only way to attract clients and gain their confidence. The very risky nature of regulatory environment and high capex pertaining to changing technology and regulation makes this business sticky and prevent new companies.
