Dishman Company Analysis Report

Dishman Company Analysis Report

Summary

• Dishman’s continued focus on strengthening its R&D expertise and strong reputation in intellectual property (IP) development and protection has enabled the company to emerge as one of the leading contract research and manufacturing services (CRAMS) player in the Indian CMO market.
• Apart from Carbogen-Amcis’s acquisition in 2006, Dishman also ventured into a vitamin D and its analogue manufacturing, by acquiring the business from Solvay in 2008 which is expected to contribute around 8–10% of its total revenue in 2010/11.
• Although Dishman initially started off its business operations with specialty chemical and Quats, CRAMS command a leading role in Dishman's current business model with revenue contribution of over 70%.
• In FY 2010 Dishman recorded revenues of $193m, a 16.6% drop in revenues on the year before. The decline in revenues was largely driven by a sharp fall in its Switzerland Subsidiary – Carbogen Amcis (which contributes a major portion to the total revenues) along with the global economic slowdown.
• Dishman has also strengthened its contract manufacturing offerings by setting up a high potency API facility (targeted mainly for cancer) with an investment of around $17m, which is the only plant of its kind in the Asia-Pacific region.

Company overview

Table 12: Dishman snapshot
Headquartered:	Ahmedabad, India
Established:	1983
Consolidated revenue (FY 2010):	$193m
Segmental revenue (FY 2010):	$193m*
Employees (as of March 2010):	NA
*CRAMS: Contract Research and Manufacturing Services division accounted for $52m.Note: FY = Fiscal Year (April 01 to March 31). NA = Not available.

Source: Company information

Dishman is a research driven global outsourcing partner for the pharmaceutical industry offering a portfolio of development, scale-up and manufacturing services. It has a proven expertise in chemical synthesis and API production. Its strategy of not competing with its customers, continued focus on strengthening its R&D expertise and solid reputation in intellectual property (IP) development and protection has enabled the company to emerge as one of the leading contract research and manufacturing services (CRAMS) player in the Indian market.

Headquartered in Ahmedabad, India and listed on the Bombay Stock Exchange (BSE), Dishman was first established in the year 1983. Since then, it has established itself as one of the leading provider of high-value, cost-competitive contract services organization in the country. Moreover, the acquisition of Switzerland based, Carbogen-Amcis (CA), in 2006 has further enabled the company to provide complete range of services across the CRAMS value chain and strengthen its position in the high margin CRAMS business in India.

Dishman also ventured into a vitamin D and vitamin D analogue manufacturing by acquiring the business from Solvay in 2008 which is expected to contribute around 8–10% of its total revenue in 2010/11. Moreover, to strengthen this operation, Dishman has set up a large greenfield Vitamin D analogue facility in the Netherlands in November 2009.

Business segmentation

Dishman's business is broadly classified into following segments:

• Dishman Custom Services, which is again divided into two sub-divisions: Contract Research and Manufacturing Services (CRAMS) – providing contract research and manufacturing services to pharma and chemical companies across the globe; and Carbogen Amcis – supplies active pharmaceutical ingredients (APIs) and highly potent APIs to support clinical trial requirements;
• Specialty chemicals – supplies intermediates, fine chemicals, and products for pharmaceuticals and cosmetic industries;
• Vitamins and chemicals – manufactures Vitamin D analogues, cholesterol and laolin related products;
• Disinfectants – produces next generation innovative antiseptic and disinfectant formulations.

Although Dishman initially started off its business operations with quaternary ammonium cations (quats) and specialty chemicals, CRAMS continue to lead Dishman's current business model with revenue contribution of over 70%.

R&D focus

All facilities of Dishman operate under current Good Manufacturing Practice (cGMP) guidelines and produces material for preclinical testing, clinical trials and commercial use. With expanded capacities, Dishman is well prepared to exploit the future outsourcing potential in the field of contract manufacturing. As of FY 2010, Dishman has a robust customer pipeline with diversified projects covering Japan, US and Europe. Dishman also has several contract manufacturing projects with international customers like AstraZeneca, Johnson & Johnson, Abbott, Boehringer Ingelheim etc. in the pipeline.

Dishman's R&D processes are supported by analytical services starting from initial raw material releases to kilo and pilot facilities for cGMP production of APIs.

Financial performance

Dishman has emerged as a premier CMO player in India mainly through its strong R&D experience and effective relationship with multinational customers. The business segments of the company which is broadly divided into CRAMS and MM (bulk drugs, intermediates, quats and specialty chemicals) recorded FY 2010 sales of $52m and $20m at a y-o-y decline of 10.6% and 33.6% respectively. The decline in revenues was largely driven by a sharp fall in revenues from its Switzerland subsidiary – Carbogen Amcis (which contributes a major portion to the total revenues) along with the global economic slowdown. The consolidated sales of Dishman, which includes results of all its wholly owned subsidiaries, proportionate share in the joint ventures (Schutz Dishman Biotech, CAD Middle East Pharmaceuticals, Dishman Arabia, and Dishman Japan) and associate Bhadra- Raj Holdings, reported a y-o-y decline of 16.6% in FY 2010 to reach $193m.

Table 13: Dishman financial performance by segment ($m), FY 2010
Division	Sales FY 2010 ($m)	Sales growth FY 2009–10 (%)	Share of revenues FY 2010 (%)
CRAMS	52	-10.6	72.1
Maketable Molecules	20	-33.6	27.9
Total income product segments	72	-18.5	100
Note: CRAMS: Contract Research and Manufacturing Segment under long term supply agreements; Maketable Molecules (Bulk drugs, intermediates, quats and specialty chemicals)All numbers were converted into $m considering an average exchange rate for the fiscal year (i.e. in FY 2009, INR1 = $0.0218; in FY 2010, INR1 = $0.0211). FY = Fiscal Year (April 01 to March 31).

Source: Company reports

Growth strategies

CRAMS business will continue to dominate

Leveraging its long-standing contract manufacturing success with Solvay, the high-end technical capabilities of its subsidiary Carbogen-Amcis and its strategy of partnering with the innovators for patented drugs, Dishman has already emerged as the partner of choice for many pharmaceutical companies across the globe. However, industry wide inventory rationalization led by global economic slowdown and delayed off take of materials by Solvay (as it was under integration phase after being acquired by Abbott) have led to a significant decline in its CRAMS business in FY 2010. However, based on the progressive recovery of global CRAMS industry coupled with commencement of new facilities will boost the total revenues of Dishman in coming years.

Dishman's Solvay operation rejuvenates with its recent acquisition by Abbott

Despite Dishman's contracts with Solvay, under which it supplies eprosartan API and its intermediates, the company witnessed subdued performance in FY 2010, mainly due to economic downturn and the Solvay acquisition by Abbott in Oct 2009 which required business integration. However, Solvay's acquisition by Abbott is likely to present larger outsourcing opportunities in the near future. Furthermore, Dishman is also planning to start the commercial supply of fenofibrate (the API for Abbott's branded product Tricor and Trilipix) in addition to increasing the supply of eprosartan and it's intermediate in 1H 2011.

High number of capacity expansions and state-of-the-art manufacturing facilities

Dishman has the ability to construct dedicated FDA standard API plant and full cGMP compliant intermediate plants in a short span of time. Moreover, Dishman has recently completed a series of capacity expansions with an investment of over $40m in the last two years, most of which has either been contracted or are under customer audit by many global pharma and chemical peers. Dishman has also strengthened its contract manufacturing offerings by setting up a high potency API facility with an investment of around $17m, which is the only plant of its kind in the Asia Pacific region. More recently in February 2010, Dishman also formed an alliance with the US based biotechnology company, Codexis to supply APIs and intermediates using Codexis's proprietary enzymatic biocatalysis technology to certain innovator companies.