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Incorporated in Bengaluru in 1993, Syngene International (SIL) is the contract research organisation (CRO) arm of Biocon Ltd. SIL caters to the outsourced research requirements of global pharmaceutical, biotechnology, agrochemical, consumer health, animal health, cosmetic and nutrition companies on a fee-based contractual arrangement. SIL provides a gamut of integrated, end-to-end services to develop novel molecular entities (NMEs) or new drugs. In this process, it works with customers to conduct discovery (from target identification to candidate selection), development (including pre-clinical and clinical studies, analytical and bio-analytical evaluation, formulation development and stability studies) and pilot manufacturing (scale-up, pre-clinical and clinical supplies) under one roof. SIL has a client base of 221 overseas customers including large global pharma players like Bristol–Myers Squibb, Abbott and Baxter among others. The company has a team of 2122 scientists including 258 PhDs. It owns a laboratory and pilot manufacturing facility spread over 900000 sq ft located in Bengaluru. "Subscribe to the issue", says ICICIdirect research report.
Investment rationale
Well poised to cash in on growing global pharma R&D outsourcing trend
Global pharmaceutical players are facing structural issues such as profit pressures arising from impending patent cliff, drying product pipeline and rising R&D costs. Surprisingly, however, the new product approvals from the USFDA are on the rise. Hence to maintain the cost balance at one end and maintain the new product introduction at the other, these players are inclined to outsource some of the R&D budget to CROs like Syngene. Also, the need for greater flexibility has reduced the willingness of these players to incur large fixed costs associated with large scale R&D programmes. Outsourcing allows clients to convert a portion of their R&D budgets from a fixed to a variable cost, giving them greater flexibility to shift strategic and development priorities in response to market conditions. According to Frost & Sullivan estimates, R&D spend in the global pharma space was ~US$139 billion in 2014 whereas the CRO pie was ~US$44 billion (32%).
Global pharmaceutical players are facing structural issues such as profit pressures arising from impending patent cliff, drying product pipeline and rising R&D costs. Surprisingly, however, the new product approvals from the USFDA are on the rise. Hence to maintain the cost balance at one end and maintain the new product introduction at the other, these players are inclined to outsource some of the R&D budget to CROs like Syngene. Also, the need for greater flexibility has reduced the willingness of these players to incur large fixed costs associated with large scale R&D programmes. Outsourcing allows clients to convert a portion of their R&D budgets from a fixed to a variable cost, giving them greater flexibility to shift strategic and development priorities in response to market conditions. According to Frost & Sullivan estimates, R&D spend in the global pharma space was ~US$139 billion in 2014 whereas the CRO pie was ~US$44 billion (32%).
Indian CRO advantages- cost arbitrage, skills availabilityHistorically, India has offered a significant cost advantage and skilled personnel. However, as global pharma outsource more R&D functions, outsourcing to India is increasingly seen as a strategic move to garner quality and value, rather than just a tactical decision to lower costs.
High recall value Due to its integrated service offerings coupled with consistent performance and high data integrity ethos, Syngene enjoys high recall value, which is reflected in the fact that eight out of top 10 clients have been engaged with the company for the past five years.
Priced at 27-29x on FY15 EPS of Rs 8.8At the IPO price band of Rs 240-250, the stock is available at 27-29x on FY15 EPS of Rs 8.8.
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