Syngene International: Revenue jumps on increase in client base and capacity expansion

On 14 July 2022, Syngene International Limited announced the signing of a 10- year agreement with leading animal health company, Zoetis, to manufacture the drug substance for Librela® (bedinvetmab), a first in class monoclonal antibody used for treating osteoarthritis in dogs. Launched in Europe, the UK and Switzerland, the product won ‘Best new companion animal product’ by IHS Markit Connect in 2021 for its transformational impact on pain relief for canines suffering from this debilitating condition.

Comments from the Top Management

Managing Director and Chief Executive Officer, Syngene International Limited, Jonathan Hunt said, “We are delighted to be expanding our partnership with Zoetis. This multi-year agreement marks an inflection point for our Development and Manufacturing Services Division and we look forward to completing the regulatory inspections that will be required. This 10-year agreement will position Syngene as a leading Contract Development and Manufacturing Organisation (CDMO) in animal health globally.”

About the business

Syngene is a leading contract research and manufacturing services (CRAMS) organisation in India. It offers integrated services across the drug discovery and development value chain, and provides research services in medicinal chemistry and biology to innovator pharmaceutical companies.

The company’s established market position is reflected in its large clientele of over 400 companies, including 8 of the top 10 global pharmaceutical majors such as Bristol-Myers Squibb Co, Baxter International Inc and Amgen Inc.

Syngene serves these players, which outsource some or substantial part of their business in the product development life cycle and operates via full time equipment (FTE) and fee for services (FFS) models

Revenue breakup: Discovery services (35%) FTE engagements with high renewability Dedicated services (32%) Long-term strategic alliances that usually last five years or more, Development and manufacturing (33%) FFS engagements which increase in volume/scale over time.

Revenue grew 19% in fiscal 2022, driven by strong performance across all businesses and the sustained growth momentum in discovery services and dedicated centres.

Overall revenue from operations grew 19% year-on-year. This growth was driven by solid performances from all businesses. Discovery Services grew by 24% on the back of good traction across new and existing clients and added momentum from the integrated drug discovery portfolio. The Dedicated Centres reported a 15% revenue growth.

Earnings before interest, tax, depreciation and amortization (EBITDA) grew by 15% to ₹8,490 Mn (USD 109 Mn). EBITDA margin for FY 2021-22 was at 31.9% compared to 32.7% in the prior year. Raw material expenses increased to 28.2% of revenue in the current financial year compared to 23.4% last year.

This was due to a shift of business mix favouring manufacturing, driven by early-stage development projects, the manufacturing of remdesivir and acceleration of biologics manufacturing in the later part of the year. The increase in raw material cost was offset by other cost elements, which increased less than the revenue growth.

The stock price has moved more than 8% in last 1 month.

Capacity expansions to cater demand

Capex for the year was ₹621 cr, which included capital projects under progress and capitalization of lease rentals from long-term lease arrangements. Total assets capitalized during the year was around ₹512 cr. Of the total capex expenditure, approximately 70% was invested in Discovery Services where laboratory capacity was added in Hyderabad and the Dedicated Centers.

Around 10% was invested in Development Services primarily in completing the clinical scale fill-finish facility and another 10% was invested in the manufacturing business for the addition of a fourth reactor in biologics as well as a microbial development and manufacturing facility.

Guidance for capex

500 – 600 crore, unexecuted capex to be rolled over in FY23. The management guided to close FY22 with high teen growth and 30%+ EBITDA margins.

Increase in client base year on year

Syngene has dedicated research and development (R&D) centres for BMS, Amgen and Baxter. The client base has grown from 256 to more than 400 over FY16-21, with elite client additions like Amgen, Zoetis, Herbalife, GSK, etc, and multiple year extension of BMS, Baxter contracts. With years of experience in operating in this niche of CRO/CRM the company is well poised to capitalise on growing opportunities globally.

Phase III expansion (~250 scientists) in Hyderabad to be completed in FY22 and a new dedicated laboratory for Amgen to scale-up small molecules.

Completing an injectable fill-finish facility that will add a new capability to the formulation part of development services. Regulatory approvals from regulated markets for Mangalore facility.

Syngene’s Strategy - Extend and Expand Dedicated R&D Centers

In FY22, Syngene extended its collaboration with Amgen until the 2026.The Company remains focused on growing its strategic alliances within Dedicated R&D Centers as they provide a strong foundation for future planning and investment, provides revenue visibility over the medium to long term and generate predictable cash flows. Syngene is well equipped to cater the growing demand.

Shuchi Nahar is a Certified Research Analyst. She can be found on Twitter at @shuchi_nahar

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.