Divis Laboratories Company Analysis Report

Divis Laboratories Company Analysis Report

Summary

• Divis Laboratories, an Indian custom manufacturer of APIs and advanced intermediates operates through two subsidiaries: Divis Laboratories Inc (US), and Divis Laboratories Europe AG (Switzerland). The company also produces and markets of nutraceutical products in North American and European countries.
• Divis Laboratories' business model can be broadly categorized into two divisions – Generic APIs; and Custom Synthesis of APIs, intermediates and specialty ingredients for innovator pharma companies.
• The company has four research centres with well defined functional focus on custom synthesis, contract research for foreign players involving processes like route design, route selection, process optimization, impurity profiling, pilot studies, pre-validation batches, validation of process and transfer of technology to plants.
• With FY 2010 sales of $196m and a y-o-y decline of 24.6%, Divis Laboratories was a major company to feature among the leading contract manufacturers in India. Exports constituted over 90% of its gross sales during FY 2010.
• Although the company was hugely impacted by recent global liquidity crunch and subsequent inventory rationalization, customers have almost finished the inventory de-stocking process which will lead to fresh orders in 2010/11.

Company overview

Table 11: Divis Laboratories snapshot
Headquartered:	Hyderabad, India
Established:	1990
Consolidated revenue (FY 2010):	$196m*
Employees (as of August 2010):	NA
*Divis did not disclose its segmental revenues.Note: FY = Fiscal Year (April 1 to March 31). NA = Not available.

Source: Company information

Divis Laboratories is an Indian custom manufacturer of APIs and advanced intermediates. With four R&D centers, two Pilot Plants and two large scale manufacturing units (including a cGMP/ISO/FDA accredited facility), Divis forms a key partner for custom synthesis, process development and mass manufacturing of pharmaceutical intermediates. The major portion of its revenue is generated from export business (mainly to European and American countries). The company operates through two subsidiaries: Divis Laboratories Inc (US), and Divis Laboratories AG (Switzerland), and is also engaged in manufacturing and marketing of nutraceutical products in North American and European countries. The company’s activities are mainly focused on generic APIs, nutraceuticals, and custom synthesis of pharmaceutical intermediates for global pharma-biotech companies.

Business segmentation

Divis Laboratories' business model can be broadly categorized into two divisions – Generic APIs; and Custom Synthesis of APIs, intermediates and specialty ingredients for innovator pharma companies. With four R&D centers, two pilot plants and two large scale manufacturing units including a cGMP, ISO and FDA accredited facility, the company has a range of capabilities in custom synthesis, process development and mass manufacturing of APIs and intermediates. Divis Laboratories has certifications ISO-9001 (for quality systems), ISO-14001 (Environment Management Systems) and OHSAS-18001 (Occupational Health and Safety systems) for its manufacturing facilities for its manufacturing/operating activities which are renewed periodically. It also offers analytical and process expertise to generate data for regulatory agencies such as ICH stability studies and its documentation expertise for preparing draft drug master files – Drug Master Files (DMFs) with FDA and Certificate of Suitability in Europe (CoS). Its niche generic division is involved in developing alternate, non-patent-infringing API processes for the innovators and leading generic drug manufacturers in the world. The company operates predominantly in export markets and has a broad product portfolio under generics and custom synthesis.

R&D focus

Divis has three manufacturing facilities with a total reactor capacity of around 4,000 cubic meters supporting infrastructures like utilities, safety systems and environment management. The company has four research centers with well defined functional focus on custom synthesis, contract research for foreign players involving processes like route design, route selection, process optimization, impurity profile, pilot studies, pre-validation batches, validation of process and transfer of technology to plants. Moreover, Divis' R&D has evaluated over 500 product opportunities and developed processes for more than 200 products, out of which around 80 are already at commercial scale. Divis R&D focus is divided into four research centers:

• Divis Research Center in Hyderabad – involved in research and investigational studies in new areas of chemistry such as peptides, nucleotides, carbohydrates and projects for multi-national pharmaceutical companies;
• DRC Visakhapatnam – involved in development of non-patent-infringing processes for APIs going off-patent in the near future;
• R&D Units 1 & 2 – involved in the evaluation of technologies from customer or the company's research centers, completion of process justification, process optimization, scale-up, pilot studies and validation.

Financial performance

With FY 2010 sales of $196m and a y-o-y decline of 24.6%, Divis Laboratories was among the leading contract manufacturers in India. Exports constituted over 90% of its gross sales during FY 2010. Exports to mature markets such as Europe and America, accounted for around 76% of its total business in FY 2010. The last couple of years have seen an unprecedented global economic slowdown with its effect on almost all markets, be it commodities, crude, financial or currency. This has resulted in a serious turmoil across the globe with varying severity in different countries including India.

Growth strategies

Innovation driven pharma companies continue to be key clients

Divis has emerged as a preferred partner to global innovator companies due to its ability to offer a complete solution to its customer right from process development to custom synthesis of APIs and intermediates. The key idea in custom manufacturing business is to get associated with innovators early in their drug discovery and development cycle, so that it can continue manufacturing after commercialization. Moreover, with state-of-the-art R&D centers and large manufacturing facilities, Divis has emerged as an ideal partner for custom manufacturing, process development and mass manufacturing of customers’ discovery products in India. As of FY 2010, Divis is working with around 20 of the top 25 innovator global pharma companies. Its philosophy of protecting IPR combined with its wide-ranging chemistry skill-set and world-class infrastructure has enabled it to position itself as the customer's satellite manufacturing hub in India.

Strong chemistry skills and process development capabilities

Since its establishment in the year 1990, Divis has given high importance to R&D, as a result of which the company has a current pool of over 250 scientists working in its four research centers. Divis' research team is specialized in process design for new drug compounds, scale of developing material – from gram to kilogram, structural elucidation, impurity profile studies and process validation to process justification, process optimization, analytical methods development and validation, environment impact analysis, safety studies and time cycle studies. In addition, its Hyderabad and Visakhapatnam research centers have also been recognized by the Department of Science & Technology of Govt. of India, as industry research centers.

Generic API business to maintain steady growth

Since inception, Divis has been focusing on the development of alternate, non-patent-infringing API processes for leading generic companies to manage the late lifecycle of a drug. Moreover, it has attained market leadership in various products like naproxen, diltiazem and dextromethorphan, which alone contributes to around 25–30% of total generics sales. Although the company was hugely impacted by recent global liquidity crunch and subsequent inventory rationalization, it is believed that the customers have almost finished the inventory de-stocking process which will lead to fresh orders. Additionally to grab the upcoming generics opportunity, Divis have started to develop a new set of products such as sartans, latanoprost and pregabalin.