Jonathan Hunt, chief executive officer and managing director, Syngene.

“Seeing a good demand for chemistry, biology”

NEW DELHI Contract manufacturing and research services companies, such as Syngene International Ltd, will be in the spotlight due to increased outsourcing opportunities in the pharmaceutical sector.

Syngene posted strong numbers for the March quarter led by its development services division, which accelerated projects have been postponed due to disruptions, including supply chain delays, following the coronavirus outbreak.

Growth has been well balanced, driven by solid delivery across all four divisions, Syngene chief executive and chief executive officer Jonathan Hunt said in an interview. “We are seeing good demand in the chemistry and biology market as many of our Western customers are returning to their offices,” Hunt said.

“Our development services, manufacturing operations, discovery services and dedicated centers have produced very solid and sustained growth,” he said.

Business normalization and the rebound in discovery services, which is key, have also been aided by inventory build-up, which, however, has led to some pressure on margins and may take a few quarters to ease.

Overall, inventory build-up is positive considering the emerging threats of supply disruptions in China due to the new wave of covids and subsequent lockdowns. “We are monitoring supplies and prices on a regular basis and while we can’t accept a request for fiscal year 23 as a whole, but in the short term, we are not facing any major threats,” Hunt said.

The company experienced strong revenue growth, but earnings growth was reduced due to higher tax rates. “We expected an increase in the effective tax rate, driven by the expiration of some of the historic tax advantages we enjoyed on a number of our facilities covered by the SEZ tax breaks,” Hunt said.

The growth opportunities are immense and momentum should remain strong. The company’s customer base grew from 256 to 420 in FY16-22 and the multi-year extension of Amgen, BMS and Baxter contracts makes it well positioned to take advantage of growth opportunities globally, analysts said.

“Today we have an established position in the contract research market and a strong emerging presence in contract development and manufacturing services businesses,” said Hunt.

This is reflected in the corporate portfolio, where a decade ago 80% of revenue came from research. Despite strong and consistent growth in research services, the research business’s share now accounts for 66% of its revenues, indicating a visible shift in Syngene’s revenue mix towards development and manufacturing, Hunt said.

The company is relatively new to drug development and manufacturing operations, but progress so far has been encouraging. “As we scale commercial-scale manufacturing for small and large molecules, we expect the share of business from services to increase. Fiscal year 22 has laid the groundwork and we see fiscal 23 as an important year as manufacturing plays a bigger role in driving future growth, ”Hunt said.

Syngene is also aggressively expanding its manufacturing facilities. In the research sector, it has upgraded its technological capabilities across platforms and therapeutic areas. It also concluded Phase 3 of the Hyderabad facility expansion plan.

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