Margin performance in line with expectations: Jonathan Hunt, Syngene

The margin performance is pretty much where we expected it to be, said Jonathan Hunt, MD & CEO, Syngene. The margins look under control and really reflect the choices that one is making, he added. Edited excerpts:
Talk to us about how growth has been in key divisions this particular quarter.
I think it was a strong quarter. We have seen that revenue from operations are up 41% year-over-year. We are very happy with that. You could disaggregate a little bit if you just start to take that growth number apart. What you see is a prior year effect. If you remember, 12 months we were just coming into the pandemic situation in India and we decided to shut the business for a couple of weeks while we put in Covid control measures. That allowed us to reopen and we have stayed pretty much fully operational consistently since then, operating at the normal levels.

That does not mean that mathematically you get something of a prior year effect. There was no growth a year ago and then the comparative looks a little bit stronger, but the underlying business is performing very well. So, good growth is absolutely in line with the guidance that we gave for the full year which was mid teen revenue growth for the full year; tracking very well in comparison to that. And then in the quarter, given the second wave of the pandemic that we had in India, we have seen pretty strong sales on Remdesivir: the product that we manufacture under licence from Gilead. That of course gave an additional boost in the quarter.

If you keep on those three parts, good underlying performance is absolutely on track with our plans for the year. A little bit of a prior year comparison which is beneficial and then a one-time boost from pandemic-related sales of Remdesivir, you really get a good sense of how the business has performed this quarter.

Talk to us about the margins trajectory. What is the view from here on the performance on margins front?
The margin performance is pretty much where we expected it to be. Already EBITDA margins have come down a little bit in this quarter, but that very much reflects two factors. The first one is a stronger performance from the manufacturing division than we had in the prior year and that absolutely leads to what I just said about Remdesivir and the COVID manufacturing. The margins on those manufactured products compared to our discovery services are different.

Therefore, you see a little bit of a pressure on EBITDA from that one-time effect. Just as significant are choices that we have made, which is to increase raw materials and inventory across the business, and make sure that our supply chain is very secured. We are carrying a little bit more raw material, stock consumables than we would have done a year ago. So, we have got a very robust situation thinking about the second, third wave and supply chain distributions. So, the margins look under control and really reflect the choices that one is making.

Talk to us about the drug discovery side of the business. What are the key drugs you are working on? How is the pipeline looking?
Of course, to go back to our business model, we are not a drug company. We are not a product-based company, we do not have a pipeline. So, the question is slightly tangential to the way our business operates. What we do to is research, development and manufacturing for others and helping them discovered new medicines, to develop a knowledge around those new medicines and technologies, and from that perspective I think the market demand is very strong.

We are seeing a good uptick across all of our divisions, whether it is the discovery services and early stage of research, whether it is development. We are trying to develop new manufacturing processes dosages forms, formulations, or through the manufacturing whether it be clinical stage or commercial manufacturing. It is a healthy market and it is good to mandate there we are seeing some strong trends, particularly in the discovery services area.