Eye 20% CAGR growth in future; expansion plans on: Syngene

The newly listed arm of Biocon, Syngene International is targeting a growth of USD 250 million by FY2018, says the Chief Executive Officer (CEO) of the company, Peter Bains. Syngene has managed to maintain its margin in the range of 31 to 34 percent and will continue to do so, he says adding that the company is aiming for compounded annual growth rate (CAGR) of 20 percent. In an interview with CNBC-TV18, Bain says that the company is looking to expand its manufacturing services and turn it into a commercial venture in the future.The company has set aside USD 100 million for new SEZ in Mangalore, which is expected to become functional by 2018. Syngene is looking at expansion in organic space, but will keep an eye out on acquisitions in inorganic space to complement its existing business, Bain adds. At present, the company has no plans to develop its own products or assets. Bain says it will continue to provide services to clients.Below is the transcript of Peter Bains\\' interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Sonia: It has been a very good fiscal for you in FY15 where you have seen a healthy sales growth of almost 25 percent and profits as well have been substantially higher, what kind of annual growth can we expect from Syngene for the next couple of years and what could the positive triggers be?A: If we look forward for Syngene, I think the guidance that we are giving is that we see a target of USD 250 million in fiscal 2018. That translates to a compound average growth rate of a revenue level of just about 20 percent and we remain committed and confident on those numbers going forward.Latha: You are now a clinical research organization and if I am not mistaken you had indicated that you want to become a clinical research and manufacturing organization somewhere down the line, what is the timetable for that?A: Yes, indeed that is very much the case and indeed today we are a manufacturing organization also. Though the manufacturing that we undertake is pre commercial, we are supplying a number of companies with their clinical trial material and we are working with them on manufacturing and process development at even earlier stage compounds. However, we have a very strong pipeline now where we are supplying late stage clinical product and we see the opportunity to follow that into the commercial. So going forward we have a very exciting growth plans around building a commercial manufacturing facilities to compliment our pre commercial manufacturing that we undertake today.Latha: What is the timetable for that, do we see that happen in the next financial year?A: Yes. The existing capacities that we have in our Bangalore facilities will have the capabilities to supply our customers the early stage commercial supply and we have earmarked about USD 100 million of investment capital to build a new multipurpose, multicustomer commercial manufacturing facility in the special economic zone (SEZ) facility in Mangalore. We will build that over the next few years, we see that coming onstream in fiscal 2018.Sonia: Put together with these new facilities what kind of operational leverage do you expect to see, what would your own expectations be for your margins in the next one year?A: I think on margins, we have seen in the last five years that we have been able to sustain margins in a very narrow band at a very high quality level. So in the last five years from 2011 to 2015, our EBIT margins has been maintained between 31 percent and 34 percent averaging 32 percent and going forward we see that we should be able to sustain that margin level.Latha: Does manufacturing mean higher margins?A: The manufacturing that we undertake will be exclusively on new chemical entities, it is an important and a very clear distinction, these are novel chemical entities for global companies and we see the margins that we will be able to drive from both pre commercial and commercial supplies maintaining in this 31 to 34 percent range that we have been able to deliver in the last five years.Latha: There are drug companies, which often tell us that some of these companies suddenly get out-licensed and there are huge milestone money that keep coming into the drug companies, are you all in that space, should we expect the word milestone to figure or out-licensing to figure sooner or later?A: No, our model is that we have teams of scientists working in world-class laboratories and manufacturing facilities but we are putting the science of our clients to work and develop their assets with our support and they may license them out. So we don’t develop our own products for licensing out, we support our clients.Latha: There is no plan to do that?A: There were no plans for us to develop our own assets, we are a contract service provider. All our revenues are derived from the support that we provide to our clients and customers.Sonia: Can you give us how the currency has impacted your business, how has the dollar strength impacted realizations for you?A: I think that the dollar realisation has supported our revenues and we have seen some currency gains there. We look to ensure that we hedge that well so we have a comprehensive hedging policies so that we protect the downside. So we are well covered in that respect.Sonia: You were telling us about this Mangalore facility where you have invested about USD 100 million, what is the capacity of that facility and what will your total capacity stand at now?A: We have not yet invested USD 100 million. This is earmarked for investment over the next three-four years. We have acquired the land in Mangalore, we are spending some time now going through the regulatory processes getting the permits and the licenses and I think we will start it next year and the way we will approach this phase is about half the money will be spent on building the shell of the facility and then the second half will be built when we have much clearer visibility of business coming in. We will build it on a modular basis and this will be multiproducts and multiclients. So capacities can be expanded very rapidly as we would need to.Below is the transcript of Peter Bains' interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Sonia: It has been a very good fiscal for you in FY15 where you have seen a healthy sales growth of almost 25 percent and profits as well have been substantially higher, what kind of annual growth can we expect from Syngene for the next couple of years and what could the positive triggers be?A: If we look forward for Syngene, I think the guidance that we are giving is that we see a target of USD 250 million in fiscal 2018. That translates to a compound average growth rate of a revenue level of just about 20 percent and we remain committed and confident on those numbers going forward.Latha: You are now a clinical research organization and if I am not mistaken you had indicated that you want to become a clinical research and manufacturing organization somewhere down the line, what is the timetable for that?A: Yes, indeed that is very much the case and indeed today we are a manufacturing organization also. Though the manufacturing that we undertake is pre commercial, we are supplying a number of companies with their clinical trial material and we are working with them on manufacturing and process development at even earlier stage compounds. However, we have a very strong pipeline now where we are supplying late stage clinical product and we see the opportunity to follow that into the commercial. Going forward, we have a very exciting growth plans around building a commercial manufacturing facilities to compliment our pre commercial manufacturing that we undertake today.Latha: What is the timetable for that, do we see that happen in the next financial year?A: Yes. The existing capacities that we have in our Bangalore facilities will have the capabilities to supply our customers the early stage commercial supply and we have earmarked about USD 100 million of investment capital to build a new multipurpose, multicustomer commercial manufacturing facility in the special economic zone (SEZ) facility in Mangalore. We will build that over the next few years, we see that coming onstream in fiscal 2018.Sonia: Put together with these new facilities what kind of operational leverage do you expect to see, what would your own expectations be for your margins in the next one year?A: I think on margins, we have seen in the last five years that we have been able to sustain margins in a very narrow band at a very high quality level. So in the last five years from 2011 to 2015, our EBIT margins has been maintained between 31 percent and 34 percent averaging 32 percent and going forward we see that we should be able to sustain that margin level.Latha: Does manufacturing mean higher margins?A: The manufacturing that we undertake will be exclusively on new chemical entities, it is an important and a very clear distinction, these are novel chemical entities for global companies and we see the margins that we will be able to drive from both pre commercial and commercial supplies maintaining in this 31 to 34 percent range that we have been able to deliver in the last five years.Latha: There are drug companies, which often tell us that some of these companies suddenly get out-licensed and there are huge milestone money that keep coming into the drug companies, are you all in that space, should we expect the word milestone to figure or out-licensing to figure sooner or later?A: No, our model is that we have teams of scientists working in world-class laboratories and manufacturing facilities but we are putting the science of our clients to work and develop their assets with our support and they may license them out. So we don’t develop our own products for licensing out, we support our clients.Latha: There is no plan to do that?A: There were no plans for us to develop our own assets, we are a contract service provider. All our revenues are derived from the support that we provide to our clients and customers.Sonia: Can you give us how the currency has impacted your business, how has the dollar strength impacted realizations for you?A: I think that the dollar realisation has supported our revenues and we have seen some currency gains there. We look to ensure that we hedge that well so we have a comprehensive hedging policies so that we protect the downside. So we are well covered in that respect.Sonia: You were telling us about this Mangalore facility where you have invested about USD 100 million, what is the capacity of that facility and what will your total capacity stand at now?A: We have not yet invested USD 100 million. This is earmarked for investment over the next three-four years. We have acquired the land in Mangalore, we are spending some time now going through the regulatory processes getting the permits and the licenses. We will start it next year and the way we will approach this phase is about half the money will be spent on building the shell of the facility and then the second half will be built when we have much clearer visibility of business coming in. We will build it on a modular basis and this will be multiproducts and multiclients. So capacities can be expanded very rapidly as we would need to.Latha: Will it always be organic growth that you will concentrate on putting in your own factories and commercialising production for your clients or will you even think of buying other clinical research organisations or clinical research and manufacturing organisations?A: I think that going forward, the majority of our growth and expansion will be organic but we have always kept an eye open and will keep an eye open for opportunities through inorganic acquisitions of capabilities that will compliment the core capabilities that we are building on our very extensive integrated platform here in Mangalore. I think it will be largely organic but there can always be opportunity for some inorganic acquisitions as well.A: I think that going forward, the majority of our growth and expansion will be organic but we have always kept an eye open and will keep an eye open for opportunities through inorganic acquisitions of capabilities that will compliment the core capabilities that we are building on our very extensive integrated platform here in Mangalore. I think it will be largely organic, but there can always be opportunity for some inorganic acquisitions as well.