Nov 1, 2007: India’s largest Custom Research and Manufacturing Services (CRAMS) and Drug Discovery and Development Services (DDDS) organization Jubilant Organosys has reported 106 percent growth in net profit for the quarter ending September 30, 2007, compared with the corresponding period in the previous year. The company attributed the growth to substantially better operating performance and revenues from Hollister-Stier Laboratories, its recent acquisition. In an interview with BioSpectrum Mr Shyam S Bhartia, Chairman & Managing Director, Jubilant Organosys  shares the growth story so far and the company’s outlook. Some excerpts:

What steps have you taken to strengthen your CRAMS business? How has Hollister acquisition changed the outlook for Jubilant Organsys?  
CRAMS comprises the largest business within Jubilant’s pharma and life science products & services segment. As it is also the central aspect of the growth strategy, the company has utilized its skill sets and scale to establish a global presence here.

Jubilant is one of the leading players in the manufacture and supply of pyridines and their derivatives (that it develops and sells under CRAMS). Volume growth in the recent past has accrued through a combination of realistic demand assessment and planned re-balancing of production facilities on part of the company.

Although largely driven by volumes, Jubilant is creating incremental value in the business by leveraging the services side (custom synthesis) of the business.

Global relationships (that Jubilant is forming within the PLS universe) form the second critical lever for growth in CRAMS. The outsourcing industry is built on mutual trust and customer/domain experience—aspects that the company has been successfully leveraging to its advantage.

The addition of Hollister has given the company access to a high-margin opportunity within CRAMS.

Jubilant’s recent acquisition, Hollister-Stier Laboratories for $122 million makes it one of the largest takeovers in the contract manufacturing space by an Indian firm. Hollister brings along its high-growth Injectables contract manufacturing business giving Jubilant a new growth platform within CRAMS.

The company is supporting the expansion of vial filling capacity from 48 million vials a year to 120 million at Hollister by January 2008. This will have the effect of accelerated growth in a business that presents high barriers to entry.

Hollister also brings along a steady state allergenic extracts business (where it occupies a global ranking) that provides growth capital (high cash accrual) for the CRAMS business. Meanwhile, there remain inherent synergies in cross-selling products/services to customers of the combined and expanded operation, synergies that Jubilant intends to fully utilize to its advantage.

What kind of competition do you have to face while pitching for business?
Overall, Indian pharma outsourcing industry is fragmented, with ticket sizes of the deals and the overall size of the players executing those deals both remaining small.

There is no single company as integrated as Jubilant or one which has the comparable scale/experience in outsourcing. And competition from domestic quarters basically emphasizes the cost advantage.

Incremental business for some Indian peers also comes via a scaling up of the existing relationship with global customers in the chosen product/service areas.

Internationally, competition typically comes from low-cost operations in other developing countries. China particularly is one such competitor, which relies on leveraging its volume advantages in manufacturing to compete in the market place.

Though the Chinese are considered better than Indians at certain aspects of drug production and have growing relationships with large foreign pharmaceutical companies, India is very strong in regulatory compliance and supply chain management experience that puts India into an advantageous position.

What is the USP for the company and how is it positioned vis-a-vis competition in the Indian market?
Having a focused presence across key components of the pharma and life sciences value chain Jubilant, today, occupies the position of a leading CRAMS and DDDS provider from India.

Jubilant has a keen understanding of the pharma and life sciences industry (domain knowledge) and has anticipated trends ahead of its peer set.

Based on this knowledge it has continuously invested in creating/balancing capacities with a view to maintain its operating edge. With a presence across three continents, the company offers global scale and skill sets to innovator and generic companies alike—helping them optimize their product development while reducing the costs associated with outsourcing.

Jubilant enjoys global rankings in the manufacture of most of its major products e.g. pyridines & its derivatives—and is frequently able to pass on the benefits of scale to its outsourcing clients.

How long do you think it will take for India’s cost advantage to even out?
Indian outsourcing industry is very small.  While the total size of (outsourcing) business is estimated to grow to $64 billion by 2010, the size of individual projects handled by Indian players is still small.

India has a handful of technologically sophisticated companies that have moved up the pharmaceutical value chain to become international players. These players typically partner developed country players to execute deals with larger ticket sizes.

There are few players on which global pharma can exclusively rely on to full its outsourcing requirements.

India nevertheless retains relevance as a growing source of research and contract manufacturing. Its low-cost manufacturing, inexpensive English-speaking labor, and advanced chemistry expertise remain attractive to large pharma MNCs seeking to cut costs.

India enjoys certain inherent advantages in terms of product/process engineering that the industry has been prompt to leverage for outsourcing.

The government meanwhile is taking a supportive stance by enacting favorable laws to increase the scope of outsourcing. While it is promoting private investments industrial parks exclusively meant for Pharma SEZ on one hand, it is examining the grant of concessions to the industry on the other. For instance, the Union Budget for FY2008 has provided tax relief for clinical trials expenditures.

Government committees are evaluating State support to private R&D efforts, which the country needs in order to sharpen its industrial competitiveness, particularly in hi-tech fields like pharma and biotech.

Outsourcing to India in pharmaceuticals & life science is in its nascent stage and opportunity will continue to abound in the medium to long term. It is therefore premature to discuss the petering of advantages in terms of cost or otherwise.