Syngene International – An Incredibly Important Next CDMO Giant

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Written By: Shuchi Nahar | Shuchi’s Blog | Linkedin Profile

1. Syngene International – Company Overview

 
Incorporated in 1994 as a subsidiary of Biocon, Syngene International (SIL) is a leading contract research organization (CRO), which supports R&D programs of global innovative companies.
 
SIL offers outsourced services to support discovery and development for organizations across industrial sectors like pharmaceuticals, biopharmaceuticals, nutraceuticals, animal health, agrochemicals, etc.
 
It currently caters to 293 global players including Bristol-Myers Squibb (BMS), Abbott, Baxter, and Amgen, among others. SIL derives 95% of its revenues from exports. Mangalore API plant is constructed and validation is expected to be completed in FY21. 
 
In FY20, Syngene International extended its biologics discovery and preclinical research capabilities in CAR-T therapy, an innovative cell-based approach to treat cancer.
 
Received approval from the Russian Ministry of Health the approval process was triggered as a result of a 4-year project with a Russian customer in which Syngene supported in the development and supply of multiple, modified-release tablet formulations of a multiple sclerosis drug.
 
Syngene International

 

2. Integrated Business Model – Ground for Customer Stickiness

  • Revenues grew at ~16% CAGR in FY16-20 to Rs. 2012 crore due to new client addition on a regular basis and scaled up revenues from existing clients led by integrated service offerings, high data integrity ethos, and continuous endeavor to move up the value chain.
  • Eight of the top 10 global pharma companies have been availing services for the last five years. It has a pool of 4240 scientists. The client base has grown from 256 to 362 over FY16-20. 
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3. Segmental Growth of Syngene International  Year on Year from past 3 years

CRAMS and R&D growth, Biologics is also in line for growth traction sequentially Revenue increased 13% YoY to INR17.5b (in-line) in FY20, mainly led by strong growth in Biologics (+31% YoY, 34% of sales) and Small Molecules (+16% YoY, 31% of sales).

Research Services (30% of sales) grew 11% YoY to INR5.2b.

However, Branded Formulations (9% of sales) de-grew by 26% YoY.

 

4. Rapid Increase in Revenue – Trend over the Years

Source: Syngene International
  • Growth was driven by an increase in sales from existing clients and the acquisition of new clients
  • Engage, expand and extend the strategy to extend client relationship over a longer period of time
  • Growth in the total number of clients
  • Increase in average revenue from the largest clients
  • Increase in the number of services offered to clients

5. Increase in Number of Clients

 

6. Increase in Number of Assets

 

7. Capital Expenditure

 
On a US$550 million program that was spread over multiple years, the last year of which is FY21, it’s expected to be fully invested with all US$550 million by the end of this year.
 
During the last 12 months, the company added US$108 million of that CAPEX. With this capital infusion, the company’s fixed assets currently stand at US$425 million.
 
This includes an asset under construction of US$70 million.
 
The company is very much on track to have a total asset base of US$550 million by the end of the FY21.
 
Capex in FY20 stood at 108mn USD, of which:
 
• 43mn USD in API
• 28mn USD in Discovery
• 12mn in Biologics
• 25mn USD in others
• Total gross block stands at 451mn USD including 33mn USD of CWIP
• It commissioned a new research facility (152K sq. ft.) supporting biology, QC microbiology, and other research domains.
• It is currently working at 70% utilization and expects to hit 100% by end of May
• It expects to achieve at least 1x asset turnover with revenue build-up by the second year of the asset
• Revenue build-up for manufacturing will take longer
 

8. Mangalore Facility

 
In FY 20 the company capitalized its Mangalore API plant which is reflected in the number.US$100 million from the past was the total money company estimated for the fully expanded capitalized plan.
 
The US$75 million corresponds to the current level of execution that the company has targeted by FY21.
 
But the company plans in a later stage to expand it further. Total Capex in the plant is USD 75mn and will be depreciated over 18yrs. 

• Construction is now completed

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• It is in the validation phase

• It expects to commence GMP commercial operations towards the end FY21
 

9. Scientist Count

Scientist strength addition: the company has typically added between 450 to 500 people on an annual basis over the last five years.

Now in FY20, the company added about 240 to 250 people. Syngene International still has a large room to grow in terms of scientists. 

 

10. R&D Centres – Growth Engines

To maintain the structural balance and improve profitability, they are inclined to outsource a substantial part of the R&D work.

Similarly, the innovative/virtual companies that are extensively working on new products and which may not have the required capital/manpower also tend to outsource a substantial part of their R&D.

Track record in acceptance of Recent Approvals

● Now one of Syngene’s strengths is their strong track record of regulatory compliance and over the course of the last year, they have cleared audits not only by their clients but also by regulators from across the globe and that includes the US FDA, the European EMEA, Japanese PMDA, and others.

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● Collaborations and partnerships to deliver numerous clinical candidates. Delivery history for integrated CMC programs towards FIH and beyond. The company has recently been approved for selling oral formulations in Russian markets.

● It successfully cleared USFDA inspection of the small molecule bioanalytical laboratory within the clinical development service line with no observations. Syngene International commissioned the first phase of a new research facility in Bengaluru that will house discovery biology, QC microbiology, and other research capabilities.

● Syngene International undertaking manufacturing of innovator drug APIs. It increases its revenue base, and also helps it offer bundled and diversified services to its customers.

● Syngene International remains aggressive on the CAPEX front (~US$463 million already spent & another ~US$87 million earmarked by FY21), attributable to order book visibility.

● With elite client additions like Amgen, Zoetis, Herbalife, GSK, etc, and multiple year extension of BMS and Baxter contracts, the company remains well poised to capture opportunities in the global CRO space.

● The management of Syngene International has guided for double-digit revenue growth on the back of continuous client additions, an extension of existing contracts, increasing manufacturing and biological contributions besides currency tailwinds.
 
  
Source:
Syngene International Annual Report & Investor Presentation
Jefferies Research Report
Axis Research Report 
 
Disclaimer: The information provided on Shuchi Nahar’s Weekend Blog is for educational purposes only. The articles may contain external links, references, and a compilation of various publicly available articles. Hence all the authors are given due credit for the same. All copyrights and trademarks of images belong to their respective owners and are used for Fair Educational Purpose only.
 

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Shuchi Nahar
Shuchi is NISM Certified Equity Research Analyst, CFA - Level 1, a student of Law and Finance, and an aspiring CS.
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