Ladies and gentlemen, good day and welcome to Syngene International Q2 FY 2027 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this meeting is being recorded. I now hand the conference over to Ms. Saurabhi Naduvancheri from Syngene. Thank you, and over to you, ma'am.
Good morning, everyone. Thank you for joining us on this call to discuss Syngene's second quarter results for FY 2027. To discuss the financial and business performance for the period, we have on this call today Ms. Kiran Mazumdar-Shaw, Syngene's Executive Chairperson; Mr. Siddharth Mittal, Managing Director and Chief Executive Officer; and Mr. Deepak Jain, Chief Financial Officer. After the opening remarks, they will be happy to answer any questions you may have. Before we begin, I would like to caution that comments made during the conference call today will contain certain forward-looking statements and must be viewed in relation to the risks pertaining to the business. The safe harbor clause indicated in the investor presentation also applies to this conference call. The recording and transcript of this call will be made available on the company website.
With this, I would now turn the call over to our Executive Chairperson, Ms. Kiran Mazumdar-Shaw.
Thank you, Saurabhi. Good morning, everyone, and thank you for joining us. At the end of the quarter, last quarter, I described FY 2027 as a year of transition and transformation for Syngene. A year in which we could reset our growth priorities, sharpen our competitive positioning, and build a stronger foundation for sustainable, profitable growth. I outlined three strategic priorities: re-energizing our commercial engine, establishing CDMO as our principal growth driver, and transforming discovery services into a more differentiated technology-enabled and higher-value business. Our second quarter performance provides encouraging early evidence that this strategy is beginning to gain traction. The global pharmaceutical industry, as many of you know, is undergoing a significant transformation. Increasing scientific complexity, the emergence of new therapeutic modalities, growing cost pressures, and the need for resilient global supply chains are reshaping how pharmaceutical and biotech companies approach research, development, and manufacturing.
Customers are increasingly seeking strategic partners who can combine scientific excellence, technological sophistication, and manufacturing capabilities within an integrated operating model. This shift plays directly to Syngene's strength. Added to this is, of course, the geopolitics of our times, which is also favoring companies like Syngene in a China plus one model. CDMO is central to this ambition. We see CDMO as Syngene's most significant long-term growth opportunity, particularly as the industry moves towards increasingly complex biologics, advanced modalities, and diversified manufacturing networks. Our investments in biologics manufacturing in India and the United State, together with our expanding capabilities in peptides, oligonucleotides, and other specialized modalities, we believe position us well to participate in these emerging opportunities. An important milestone this quarter was the signing of our first manufacturing agreement for the Bayview Biologics facility in the United State. This is more than a commercial win.
It is an important validation of our India-U.S. integrated biologics manufacturing strategy, which combines India's scientific and operational strength with a U.S. manufacturing presence to offer customers greater flexibility and supply chain resilience. While the full commercial potential of these investments will take time to materialize, we are encouraged by improving customer engagement and expanded opportunity pipeline. Our second strategic priority is to reposition discovery services for the next phase of innovation. The future of drug discovery will be shaped by the convergence of biology, chemistry, artificial intelligence, automation, and data-driven science. We believe that Syngene has the scientific depth, multidisciplinary expertise, and experimental infrastructure to participate meaningfully in this transformation. Our investments in peptides, antibody drug conjugates, translational sciences, and other advanced capabilities are strengthening our capability to support increasingly complex discovery programs.
At the same time, we are embedding AI, automation, and digital technologies into our scientific workflows to improve productivity, shorten development cycles, and enhance the quality and speed of decision-making. Our ambition is to evolve discovery services from a predominantly execution-led research model towards a more integrated intelligence-driven scientific solutions platform. This transformation will take time, but it is essential to building a more differentiated and competitive business operating model for the future. We are pursuing a more agile, efficient, and accountable operating model with a clear emphasis on cost competitiveness, capacity utilization, and of course, returns on invested capital. The sequential improvement in revenue and profitability this quarter is encouraging and suggests that our corrective actions are beginning to yield results. However, we do recognize that these are green shoots.
We have more work to do to restore consistent growth, improve operating leverage, and fully realize the potential of our investments. Our immediate priority is to convert an improving commercial pipeline into sustainable revenue growth while maintaining strict execution and cost discipline. I am confident that Siddharth and his leadership team have the right strategic focus and operational commitment to deliver this transformation. Syngene, I believe, has built its reputation on scientific excellence, quality, and customer trust. Our task now is to leverage these strengths to build a more technology-driven, globally competitive, and profitable organization. We are not simply seeking to restore growth. We are repositioning Syngene for the next generation of scientific innovation and global biopharmaceutical manufacturing. With that, let me hand over to Siddharth for a detailed review of the quarter. Over to you, Siddharth.
Thank you, Kiran, and very good morning to everyone. As Kiran outlined, FY 2027 is a year of transition for Syngene with a clear emphasis on restoring growth momentum, strengthening execution, and improving operating efficiency. At the beginning of the year, we identified three immediate priorities, which are accelerating commercial execution, improving operational performance, and building a leaner, more agile, and cost-competitive organization. During the second quarter, we made tangible progress on all these three fronts. Our revenue grew sequentially by 13%. Operating EBITDA margins improved by 6 percentage points, and we returned to profitability. While we remain below last year's performance, these results demonstrate that our corrective actions are beginning to translate into improved business outcomes. Let me highlight the key developments during the quarter.
Our CDMO business continues to be a central focus of our commercial strategy, and we are encouraged by the improving quality and momentum of our opportunity pipeline. A significant milestone this quarter was the signing of our first manufacturing agreement for the Bayview Biologics facility in the U.S. with a large pharmaceutical customer. Under this agreement, process development activities are expected to commence in India during the current financial year, with drug substance manufacturing at Bayview scheduled to begin in FY 2028. This contract represents an important first step in commercializing our U.S. biologics manufacturing platform and demonstrates the strategic value of our integrated India-U.S. delivery model. We secured additional manufacturing business during the quarter, including a clinical supply agreement for our biologics manufacturing facility in Bengaluru, Unit III.
This represents the latest in a series of contract with an existing partner and reflects continued customer confidence in our scientific capabilities, manufacturing quality, and execution. We also successfully completed a technically complex oligonucleotide manufacturing program for a leading global pharmaceutical company. The program involved the development and manufacturing of challenging siRNA molecule, demonstrating our capabilities in process development, optimization, and scale-up for advanced therapeutic modalities. These developments reinforce our strategy of building a diversified CDMO platform capable of supporting increasingly complex molecules across clinical and commercial stages. Moving on to Discovery Services, our focus is on creating a more integrated, differentiated, and productivity-driven offering. Effective October 1, 2026, Dr. Jayashree Aiyar, our Chief Scientific Officer, assumed additional responsibility for Discovery Services, bringing chemistry, biology, and biotherapeutics under unified scientific leadership. This is important organizational step.
By integrating these disciplines, we aim to strengthen scientific collaborations, improve program execution, and offer customers a more seamless discovery experience. As drug discovery becomes increasingly multidisciplinary, our ability to integrate scientific capabilities across modalities will be an important competitive differentiator. Our Discovery Services customer base remained stable during the quarter, providing a foundation as we strengthen our commercial engagement and work towards restoring growth. We are also accelerating the deployment of AI, automation, and digital technologies across research operations. During the quarter, we implemented ChemVoyager, an AI-enabled synthesis planning platform, alongside automated analytical systems and end-to-end sample tracking solutions. These initiatives are designed to create more connected, data-driven scientific workflows, reduce manual interventions, and improve research productivity. Over time, we expect these technologies to enhance our ability to deliver faster, more efficient, and higher-value research solutions to customers.
We also commissioned a new clinical translational science laboratory in Bengaluru, expanding our capabilities in biomarkers, precision medicine, biobanking, and bioanalysis. This investment strengthens our translational research capabilities and enhances our ability to connect early discovery with clinical development. This also aligns with our objective to make discovery services more scientifically differentiated, technologically enabled, and commercially competitive. Before turning to our financial performance, I would also like to share an important leadership update. Deepak Jain, our CFO, has decided to leave Syngene for personal reasons and will pursue an opportunity outside the company. Deepak will continue in his current role at least until the close of third quarter's financial results to support a smooth transition of his responsibility and to ensure continuity. We thank Deepak for his contributions and wish him success in his future endeavors. Now turning to financial performance.
Revenue from operations for the second quarter was at INR 833 crore, representing a 13% sequential increase, supported by improved traction in the CDMO business. On a year-over-year basis, revenue was 9% lower than quarter two of the previous fiscal year, primarily reflecting the absence of Zoetis revenue in the current quarter. Discovery services contributed 65% of quarterly revenue, while CDMO accounted for the balance, 35%. Operating EBITDA stood at INR 147 crore, with margins improving by 6 percentage points sequentially to 18%. This improvement was driven by higher revenues, improved operating leverage, and the initial benefits of our cost optimization initiatives. On a year-over-year basis, operating EBITDA margin was lower by 22% reported in Q2 of last year, reflecting, of course, lower revenues from Librela and a foreign exchange hedge loss of INR 61 crore that we accounted during the quarter.
Adjusted for this hedge loss, the operating EBITDA margin would be in the mid-20 range for the quarter. Profit after tax, but before exceptional item was at INR 38 crore. We recognized an exceptional charge of INR 6 crore net of tax relating to employees' termination benefits, resulting in a reported profit after tax of INR 32 crore. This compares with a reported loss of INR 9 crore in the previous quarter, marking an encouraging return to profitability. Now, alongside commercial recovery, we are implementing structural improvements to enhance our cost competitiveness and operating efficiency. Our manpower cost optimization measures have been completed, while initiatives targeting other operating expenses remain underway. We expect the benefit of these actions to become progressively more visible over the coming quarters. We are also increasing the use of AI, automation, and digital technologies across our operations to improve productivity, simplify workflows, and strengthen execution.
Our emphasis is not simply on reducing costs, but on building a more efficient operating model that can deliver stronger margins and improve returns as revenue growth resumes. Capital investment during the first half was approximately INR 200 crore, directed towards strategic capability development, BU enhancements, automation, and infrastructure upgrades across our research and CDMO business. We remain disciplined in capital allocation, prioritizing investments that strengthen our competitive position, support customer demand, and improve long-term returns. Our balance sheet remains strong, with a net cash position of INR 1,392 crore at the end of the quarter, providing financial flexibility to support our transformation and growth priorities. The second quarter represents an encouraging step forward in Syngene's recovery. We have seen stronger commercial engagement, secured important manufacturing contracts, improved operating performance, and made tangible progress on our efficiency initiatives.
However, we do recognize that one quarter of sequential improvement does not constitute a sustained recovery. Our focus for the second half remains clear, which is converting our commercial pipeline into business wins, delivering consistently on quality and timelines, improving capacity utilizations, and embedding greater cost discipline across the organization. We will continue to prioritize growth, operational excellence, and disciplined capital deployment as we work towards building a more resilient and competitive business. The actions taken over the past two quarters are beginning to show results. Our task now is to sustain this momentum and translate into consistent performance. Syngene is moving from a period of transition towards a more focused, technology-enabled, and globally integrated business model. The early signs of recovery are encouraging, but our real measure of success will be sustained revenue growth, stronger profitability, and improved returns on capital.
With that, we would be happy to take your questions. Thank you.
Thank you very much, sir. Ladies and gentlemen, we will now begin with the question and answer session. Anyone who wishes to ask questions may click on the raise hand option. Kindly introduce yourself, providing your name and your organization name before proceeding with your questions. Ladies and gentlemen, we will wait for a moment while the questions queue assembles. The first question is from Kunal Dhamesha. Kindly unmute yourself and proceed.
Hi, this is Kunal from Macquarie. Congratulations on a good set of numbers, and thank you for taking my question. First one for Kiran, ma'am. We have seen a fair bit of turnover in the senior management in this quarter as well. Would you say that the internal reorganization is now complete, or we would continue to take the steps to make the organization more efficient?
Well, thank you, Kunal, for your question. I think most of the reorganization is now in a good place. I would say we will onboard some other capabilities which we believe are important to drive us to the future. I think most of the reorganization that we had anticipated and planned are complete.
Sure. If I remember it correctly, last quarter we had some bit of attrition in our discovery segment client base. Right? We had suggested that we kind of discontinued the low-value services. Is it fair to assume that this reorganization effort is also in those directions where the business requirements are and some of the business segments which we don't want to pursue?
Absolutely right. I think we are very focused on making sure that we have a differentiated services model. I think the commoditizing services which are very low margin or no margin kind of services is something we want to kind of wean away from. I think we are really focusing on a very differentiated model. As you know, we are already very differentiated in the biologics model when it comes to CDMO business. This is why we are beginning to see a good traction in signing up our capacities, because no one else has such capacities, especially U.S. FDA-approved capacities. I think we are very focused on ensuring that we again regain our position as a leading edge CRO, CRDMO company.
If I may add, Kunal, we are not discontinuing any of the existing business on discovery. All what we are doing is repositioning, and as we mentioned, that we are going to be using a lot of AI automation and digital technologies, especially on the new modalities, and try and integrate our offerings across discovery services. Discovery will continue to be a very core part of our overall journey. We will redo the way we have. Traditionally, it's been more a FTE business, and what we are looking at is embedding AI to make it more fee for-
FFS.
Value add business.
That's an important distinction, right? Moving away from one business model to another or there is a mixture. What are some of the key monitorables that you would be tracking? While I believe because there's a lumpiness in CMO business, the financial performance could be a little bit lumpy or volatile. But what are some of the metrics which you would think that would show continuous improvement on a quarter-on-quarter basis given all these efforts that you are taking and reorganizing?
See the new client additions, the number of new projects we onboard, the number of molecules that we progress from our discovery to development.
These will be important and finally it should all translate into revenue growth. We have seen discovery business de-grow over the previous year as well as previous quarter because of some client attritions that we had at the beginning of the first half, I think, which we had alluded to in our first quarter earnings call. Of course, we will look at building back the base, but in a differentiated way. As I mentioned, in an integrated way, because today discovery biology and discovery chemistry were running as separate OUs, and today we are going to integrate that into a single offering, and that's what our customers are looking at. When you really look at what our customers needs are, we have to be agile enough to address those needs. As we mentioned that it's not going to be an overnight turnaround.
We have started to see encouraging client pipeline, client discussions, but to translate into revenue growth, we will need some more time.
Sure. Mittal, when you move from, let's say, FTE to FFS basis, structurally, how does that impact productivity and profitability in the discovery business?
It should be-
I think it, yeah, it should be very positive.
Yeah.
Because we believe that it will add value, and I think it will basically allow us to capture much better programs from clients.
We would have seen this, right?
Yeah.
Historically.
No, we are seeing it already because of the differentiated services that we also have. I think embedding a bit of technology into it and then greater technology into it will clearly give us a leading advantage.
Sure. My last question on this Bayview facility contract that we have gotten. With this contract, what is the kind of utilization that we are looking at for this facility? When do you think that the peak utilization in terms of drug substance manufacturing could happen? Also the Unit III contract with the existing partner, is it the same partner with whom we had the CMO arrangement earlier?
Kunal, let me first give you my views on this. First and foremost, we are focused, as you know, on capacity utilization of all our facilities. Bayview is a facility that needs to be basically brought up to scale because we have basically identified certain gaps which we need to fix before we get full utilization. What is encouraging is that we have signed up this first contract, which obviously then has to be built upon. I think this is, as we mentioned very clearly in both our statements, this is just not about indicating that we have actually arrived and we have done everything that is required. It is just an indication that this is a win that actually signals the importance of having a U.S. presence and the confidence of customers to sign up.
I would go so far as to say that the capacity demand for biologic manufacturing is huge. I think right now the ones who are capturing that opportunity are the Koreans. We would like to be the Indian company of choice, the Indian CRDMO of choice to really basically take advantage of this demand. So give us a little bit of time. I think the fact that we have started focusing on identifying what is it that we need to do to really sort of make sure that we have optimal capacity and a very strong business growth driver from CRDMO is what we are really addressing.
Sure, ma'am. On Unit III contract with existing partner?
We have got multiple customers signed up for Unit III.
Some are doing clinical batches, some are doing development batches, some are doing filing batches. Of course, it will again take time to ramp up, which is based on when they get the approval from the regulators. At least Unit III has got a good set of clients signed on.
Sure. Thank you, and all the best.
Thank you.
Thank you. We will take the next question from Harith Ahamed. Please unmute yourself and proceed.
Hi. Good morning. Thank you for the opportunity. This is Harith from Avendus. My first question is on your FY 2027 margin guidance. I think you had maintained it at mid 20s last quarter. But when I look at the implied margins for the second half, that is a sharp improvement from what we have done in the first half. First question is whether we are maintaining the same mid 20s EBITDA margin guidance. A related question, if I may add, there is also fairly significant Forex loss that we have seen in the last couple of quarters. If rupee stays at current levels, are we expecting similar Forex loss in third quarter and fourth quarter?
Harith, no change in the EBITDA guidance. I think as you rightly said, we have done better. We are excluding the Forex loss at mid 20 EBITDA. We continue to work on cost optimization benefits. We are going to see some more benefits coming in in the second half. But at this stage, we will like to maintain our EBITDA guidance. As far as the Forex loss is concerned, we do have contracts, forward contracts on one of our large dedicated customer contract, which goes on till FY 2028. We will see similar level of hedge losses in second half as well.
Okay. My second question is on the Bayview facility. Siddharth, if you could confirm the contract that you have announced, then you also mentioned that we will commence drug substance supplies from next year. Will this be commercial scale supplies? Is this a product that is already in the market?
It will be for commercial supplies as well. As I mentioned earlier, the development of the product will be done in Indian process development lab, and it will be tech transfer to Bayview in FY 2028, and once the regulators approve it, we will be their commercial manufacturing partner. It would, the product currently is not commercially approved, so that is why we will have to wait for the regulators to approve the product and commence the commercial supplies in couple of years.
Just to follow up on Bayview. The pre-op expenses that we are currently capitalizing, I think you have disclosed a INR 66 crore number for the first half. By when should we expect this to start reflecting in the P&L?
As per our accounting policy, we capitalize the expenses until we receive the first regulatory approval, which we expect somewhere maybe second half of calendar 2028. Best case.
Got it. Thanks for taking my questions. I will get back in the queue.
Thank you. A request to all the participants to kindly limit their questions to only two per participant. Should you have a follow-up question, please rejoin the queue. We will take the next question from Shyam Srinivasan. Please unmute yourself and proceed.
Hi. Good morning. This is Shyam from Goldman Sachs. Just the first question on the mix, if I calculated, Siddharth, when you mentioned 65% discovery and 35% CDMO. If I do that, and I think you alluded to this as well, that the discovery business, CRO business has declined now for two quarters. Looks like at least the CDMO business when you mention in your opening remarks, the absence of Librela, but that is not declined. It is like what, 3% only down YoY.
Right.
Right. So it is more a function of discovery being weaker is the reason for the YoY change. Am I getting that right?
Well, it is a combination of both, Shyam, because we did have a significant number in quarter two of last year for supplies to Zoetis. This quarter has been zero, so that did have an impact, which was made up by the growth in rest of the CDMO business. But yes, the discovery business did degrow.
Got it. And you would largely attribute that to the client attrition that started at the start.
Right.
What type of customers are these? Is it like we have de-emphasized some of these commoditized parts of the segment, and that is the reason why there is a decline and you foresee this to be in the second half as well, Siddharth?
As I think we have mentioned even in the previous quarter and today's call as well, some of these services are becoming more commoditized. There is a pressure from competition from large CROs in China as well as some of the emerging CROs in India.
We are not playing a price game or the price per FTE game, and I think that is where we are trying to move to a more integrated AI technology-led business and shift from FTE to FFS, which of course, will take some time to transition out and move into the newer model.
What I would also like to add to what Siddharth is saying, Shyam.
Sure.
That some of the business attrition is actually attributed to large cuts that the companies themselves are announcing in terms of downsizing their R&D spends. We are seeing some of that effect.
I think that if you look at traditionally large biotech pharma companies in the West, they have done a lot of discovery work in-house or either in their own labs or through CROs. Now if you look at one-third of total number of drugs under trial, at different stages of trial, are from China in licensed models. Of course, that's changing the need for discovery services which is of course, going to impact all the CROs.
Okay, that's helpful. Second question is on the financial side. Gross margin has actually improved, right? Despite the decline in discovery, CDMO also declines. I am just trying to understand, is it the removal of the commoditized part that is leading to the margin improvement on the gross margin side? That is one. Two, when you now maintain your EBITDA margin guidance, is it excluding all the FX losses? Because if you add the FX losses, we may not end up at mid-20, right? Is that fair?
See, gross margin is calculated, I think, as revenue less the material cost, the material cost, of course, is only applicable in manufacturing business.
CDMO business. Okay.
In the CDMO business. The research has more people cost and lease and other things which are more fixed in nature. That is why I don't think you should really compare gross margin movement.
Because shift of revenues from discovery to development. On an absolute basis in the CDMO business, I would say our gross margins are probably at similar levels. Of course, Zoetis or Librela was a high margin product, and absence did have an impact on lower gross margin, at least on that part of the business. As far as the EBITDA guidance is concerned, I think, I would say let's wait for another quarter. We are, of course, putting in all efforts on cost optimization. We have already done enough in the last two quarters. We have started seeing benefits coming in. We are also looking at where the growth comes from, and of course, discovery and development business comes at different margins. At this stage, I wouldn't necessarily say that there is a significant change in our EBITDA guidance.
Thank you.
On a more sustainable basis, I think I would definitely draw your attention that hedge losses, we've changed our hedge policy and we will start moving towards more the options rather than forward contracts. Once the current hedges get over, which will be in FY 2028, the sustainable level of gross margins will already in mid-20s, and I think that's what is very important.
Got it. Thank you. All the best.
Thank you.
Thank you. The next question is from Surya Patra. Please unmute yourself and proceed. Mr. Patra, you are not audible.
Is it audible now, ma'am?
Yes, please proceed.
Yeah. Thanks for the opportunity. Sir, my first question is on the kind of the. Just an extension point, sir, to that point. This new clinical translational science laboratory, what you have mentioned. How should one read this development as a kind of a or what significance that we can see from this development into the revenue streams and what investment that you would have made there?
See, basically this investment strengthens our translational research capabilities and enhances our ability to connect early discovery with clinical development. I think today, Syngene is one of the few to development to clinical to commercial organization across modalities on both small molecule and large molecule side. I think, as I mentioned that during clinical development, there is a lot of translational data that is required and this laboratory will of course, be important. It will of course, be scientifically differentiated. It is technologically enabled and a very good laboratory. A lot of customers are interested in going to one CRO or CRDMO instead of fragmenting various services to different partners. I think that is what Syngene will be able to offer to customers.
Okay.
In terms of investment, I do not have the number readily available, but it is not a very large investment.
Oh, okay. Sure, sir. Thank you. Wish you all the best.
Thank you.
Thank you. We'll take the next question from Sajal Kapoor. Please unmute yourself and proceed.
Yeah. Hi, this is Sajal Kapoor from Antifragile Thinking. Thank you for taking my questions. Kiran and Siddharth on the organic pipeline, what needs to be different for programs that enter through discovery or early development to then stay with Syngene beyond a successful phase II, moving into phase III and commercial supply? Thank you.
I think, see there are. Go ahead, Siddharth.
No, you go.
There are different customers, Sajal. There are customers who are looking at CROs or CRDMOs only for a certain need of theirs or where there is a gap, and these are typically the large biotech companies. Now we are also seeing some of the large biotech companies, at least, who are willing to move from discovery to development stage. Some companies where they start the development work with us and then want us to do the commercial manufacturing might not be end-to-end, but there is a large segment of customers, especially the small and mid biotech customers, who don't want to go to different partners, service providers, and they want to have one integrated partner because that is the only way they will get faster speed, skin in the game, a better ownership and outcomes. Because they also understand CRDMO is fully vested in their success.
These are the customers we will be chasing, where the molecule or the program enters at the discovery stage, and we advance them through the different phases of development till commercial manufacturing. We are seeing some of these customers already where we have signed up, and we are making a good progress with them. But of course, a commercial team will have to showcase the end-to-end capabilities along with our scientific teams. We are very confident that over a period of time, we will be able to add many more such programs in our portfolio.
See, I would also like to add one very important point, Sajal, and that is that anybody looking at CRDMO services wants scale. They do not want small players offering a lower price and having only small facilities. Everyone wants large capacity, large facilities, because they realize that the CRDMO business is about having multiple clients and multiple production sites and slots which they can actually then tap into. I think that is where I think Syngene is highly differentiated from others when it comes to biological capacity. Now, of course, we are looking at strengthening even our small molecule capacity. But I just want you to understand that this is where we are very differentiated as a CRDMO out of India, because as you know, the demand is for biologics capabilities.
The fact that we have biologics capabilities right from discovery to manufacturing, I think positions us in a very strong differentiated category. So even when it comes to biologics capabilities, I think we have a lot of proprietary platforms that are now being positioned to customers because of now a strong effort on creating a very robust commercial engine, which was actually, I would say, had many gaps in the past. With all that, I think you will start seeing some good traction in the coming quarters and coming years.
No, absolutely, Kiran ma'am. I am not sure if any other Indian bio CDMO company can today claim 50,000 L ready capacity, and that is what makes Syngene so different.
Yeah, exactly. Most Indian companies playing in this field will only have microbial fermentation, but not biologic fermentation.
Yeah, not mammalian. Absolutely.
The BioSecure Act really adds a lot of advantage-
Yeah
to us.
There is a lot of growing demand, I can tell you that.
Yeah.
We offer dual manufacturing strategy, which many CMOs cannot do it. Even Samsung does not have a facility in the U.S. Today, there are a lot of customers, because of geopolitical reasons, tariffs, MFN, want to manufacture in the U.S. for U.S. and manufacture outside U.S. for rest of the world, and we offer that dual site flexibility with a single tech transfer effort.
Yeah.
At a very competitive price. I think I should also mention that our pricing is very competitive compared to either CMOs in the West or CMOs in the Far East.
There is another one more added advantage where companies want to come to India, do the work in India, and then tech transfer to the U.S. in our Bayview facility. That is also another model that is emerging.
No, absolutely, Kiran ma'am and Siddharth. Look forward to some exciting times going ahead. My second question is on the capacity itself. On the Biocon Park biologics facility that supported the Zoetis program, what kind of programs are we targeting to fill that capacity? Because that should be ready to take fresh work now. How should we think about the timing of those commercial shipment replacing the erstwhile Librela manufacturing?
Sajal, this second half of this year, that facility is going to be occupied because we are going to be manufacturing batches for Zoetis and deliver to them in the fourth quarter. We are talking to customers and we are showcasing them all the three biologics facility. Of course, this facility is US FDA approved, so it has an advantage. But here we cannot manufacture for any other customer until next fiscal year. Depending on customers' needs and timelines, they will choose which facility they want to go for. And we will provide more information on how the facility utilization ramps up across the three sites in due course.
Siddharth, just to clarify, it seems that we have still got some tail left for the Librela contract to first complete and then the capacity becomes available for a new customer, correct?
That's right. We had said that there is an obligation to supply to Zoetis during this fiscal as well, and that will be back-end loaded in the fourth quarter.
Okay, excellent. I've got more questions, but in the interest of the time, I'll rejoin the queue. Thank you.
Thank you.
Thank you. The next question is from Prolin Nandu. Please unmute yourself and proceed.
Hi, team. This is Prolin from Edelweiss Public Alternatives. Kiran, ma'am, I just have one question for you. There are lots of these senior level changes which has happened, even some at scientific and clinical level. When you look at the morale within the organization with so many changes, how will you rate that morale versus, let's say, a few years back when things were going right for us or when we started Syngene as a subsidiary of Biocon? Given the fact that most of our assets are more people assets, and scientists. When all these transition happen, there is a fear amongst these people as well about their future. How are we managing the morale and the culture within the organization with so many changes happening at the top level, including the clinical and the scientific level as well?
Well, let me answer that by saying that every organization has to bite the bullet and do what is right for the organization. Fortunately, we have a very deep pipeline of talent in Syngene, and we have very good scientific talent at that. Obviously, there is going to be a little bit of a shakeout when you take such drastic measures because there was a right sizing needed for the organization, which was actually making us very inefficient. When you take these kind of surgical decisions, there is bound to be a little bit of concern, rumor mongering. Actually people who exit also start creating some fear mongering, which we are addressing through a very strong communications approach, where we are basically saying everyone who is here need not be worried. This is all about now rebuilding the organization.
I can tell you that we have had to deal with a lot of, shall I say, extra costs because of people who did not have any roles or work cut out for them. So we had to take these decisions. I think now onwards, you're going to see a much more cohesive and integrated model, which was not happening. When you have too many people, you tend to get into silos, you tend to get into turf protection. That's what we're trying to now recreate in terms of making it into a cohesive organization. So we are dealing with it and I think it will work very well. You'll see the results in the next two quarters. I don't think it's much of a concern for us.
Biocon and the Biocon group and Syngene, which is part of it, has always been a very fair company and we always value our people and we make sure that people are respected and empowered and given the best opportunities.
Sure. That's good to hear, ma'am. The second question would be on the CDMO model that we are changing from FTE to FFS.
No, the CDMO model is different. The services model is FTE to FFS.
Yeah, I'm sorry. The services model. You also mentioned that this move will take more time for it to show the results. Is this time taken from more of our capability end, or is it more from the client testing us and doing their own checks? What is it that is leading to more time for this changing model or the service part?
I think, we have to reposition ourselves to our customers who have always treated us as an FTE model. We are now trying to say, "Look, don't look at us as an FTE model. We are an FFS model because of our very deep scientific capabilities." It's beginning to actually deliver results. But as I said, it's very early days, so I don't want to get ahead of ourselves. What we are saying is, I think this is the way we will project Syngene. This is the way we will grow our business. I think we're really focusing on some of these high-end capabilities, because Syngene has always excelled in leading edge capabilities ahead of others.
We have identified some of these very strong capabilities ahead of others. We will now reposition ourselves as the go-to CRO for these kind of initiatives, and we are seeing that there's a huge demand for it.
Also to add technology enhancements and upgrades in AI and automation will take time.
Yeah.
That is where we see a differentiation.
Yeah.
Thank you so much, and all the very best.
Thank you.
Thank you. The next question is from Kunal Randeria. Please unmute yourself and proceed.
Hello. Good morning, and thank you for the opportunity. At the beginning of the year, you had announced the expansion of Bristol Myers agreement, which I guess validates the end-to-end offerings that you have. If you could perhaps tell us what additional work you are doing with them, which you weren't doing previously, and has it already started to flow into your revenue?
All we can say is that we are doing some interesting additional work for them, but we cannot share it for confidentiality.
Including the development and the clinical work.
Yeah.
Right. But it includes manufacturing also?
Yes.
Yes.
Right. Okay, perfect. Secondly, I am sorry, but I did not quite understand this move from FTE to FFS. Is that because, let us say, a certain scientist, let us say, is paid, what? You bill it at $100,000 a year now
I wish.
No, I am just giving an example, ma'am. So let us say you do it, but now perhaps with better investments, your productivity has gone up and to reap that benefit, you are moving to FFS. Is that the primary reason to move?
Let me answer that question, and Siddharth can add to it. The problem is when you go down an FTE model, what happens is whatever you quote, a competitor will quote lower and get the business because it is a commodity offering. We do not want to go down that path. We want to go down the path of value-added services, which means that we would like to go down the fee for service, which just to your point, if you can get $100,000 per scientist because of doing that, rather than go to a FTE model, which is much lower than that, it helps you because then obviously you do more for less and you get more for less.
And if I may add, today customers, if you look at Indian CROs, they are 30%-40% cheaper in FTE charge-out rate compared to China and maybe half of Europe or U.S. CROs. I think customers are not really looking at FTE per rate as the real measure. I think what's most important for customers is the time it takes to bring a drug from discovery to an IND filing or clinic, and how much is the overall budget they are going to spend on that molecule till the IND filing. So while you might have a lower FTE rate or a higher FTE rate, how many FTEs you're deploying is the real science because if you use technology, AI, automation, and reduce the number of FTEs, then customers are willing to pay you premium. That's the change in model that we are talking about.
Understood. Then one more if I can squeeze in. Siddharth, you had mentioned that your prices are extremely competitive to Western companies as well as Eastern companies. But how does it compare to some of the Indian players?
Well, on the large molecule CMO, we hardly have any Indian credible player. I'm not talking about small molecule, but our emphasis is, of course, a lot on biologic manufacturing. Beyond Syngene, which other Indian CMO is there on biologic side?
Sure. Okay. So you meant it on the biologic front and not on the small molecule front.
Correct.
Yeah.
Small molecule, there are many other Indian CMOs who are more cost competitive or have much larger capacity. That is why our focus there is on new modalities such as peptides and oligonucleotide. I think I mentioned that we have done a very complex oligonucleotide manufacturing for one of our customers at a GMP level. The ADC conjugation, we are the only company
Sure
which is fully integrated from the biologic to linker to payload and conjugation at commercial scale.
Right. This is great. Thank you, and all the best.
I think one of the comments I do want to make is I think when you look at CROs and CRDMOs, I think you need to do some due diligence on the investments made, the scale created, the capability built, because I think everyone is just looking at a quarter-on-quarter performance of slow, small base businesses. You have to look at whether they have invested in building scale.
That is fair point. Thank you.
Thank you. Ladies and gentlemen, we will take that as the last question for today. Thank you, members of the management. On behalf of Syngene International, that concludes this conference. We thank you for joining us, and you may exit the meeting now. Thank you.