Jubilant Organosys Company Analysis Report

Jubilant Organosys  Company Analysis Report

Summary

• Jubilant Organosys's CMO business is well positioned to service full spectrum of life sciences companies, starting from large scale pharmaceutical players to virtual biotech organizations all over the world. Moreover, its acquisition in the CRAMS space such as Hollister-Stier in the US (June 2007) and Draxis in Canada (April 2008) have consolidated its position in the regulated markets.
• The Washington Hollister-Stier facility is focused on the delivery of clinical and commercial fill and finish services for sterile parenteral pharmaceuticals, utilizing both liquid and lyophilisation capabilities, whereas the Draxis facility has multi-dosage potential ranging from sterile parenteral (vial and ampoule liquid and lyophilisation), to sterile and non-sterile semisolid manufacturing.
• Jubilant Organosys’s business is divided into two broad categories: Pharma and Life Sciences Products and Services (PLSPS) and Agri & Performance Polymers. The PLSPS form the core business of Jubilant Organosys constituting 88.9% of the company’s overall business in FY 2010.
• Custom Research and Manufacturing Services the largest business segment for the company, grew by 8.7% to reach $450m in FY 2010. Its Proprietary Products and Exclusive Synthesis segment posted the highest sales, reaching $198m in FY 2010. Furthermore, its CMO business of Sterile Injectables and Non-sterile Products remained the second best-selling segment under CRAMS, reaching $140m in FY 2010.
• Jubilant Organosys offers a wide range of R&D and manufacturing services for intermediates, APIs, and in-market products from development to the post-launch stage. It assists in process development and process optimization for intermediates and APIs on a contract basis.

Company overview

Table 4: Jubilant Organosys snapshot
Headquartered:	Noida, India
Established:	1978
Consolidated revenue (FY 2010):	$798m
Segmental revenue (FY 2010):	$450m*
Employees (as of March 2010):	5,950
*CRAMS division, of which, CMO of Sterile Injectables and Non-Sterile Products = $140m.Note: FY = Fiscal Year (April 01 to March 31)

Source: Company information

Jubilant Organosys (formerly known as VAM Organics) was established in 1978, and was primarily a manufacturer of industrial chemicals until the 1990s. However, in the mid-90s, the company began operating in the pharmaceutical sector. It is one of India’s largest CRAMS players, and is engaged in delivering value to its global customers through innovative technologies, products, and services. Jubilant Organosys's North American CMO business started with the acquisition of Hollister-Stier in June 2007 and Draxis in April 2008. These acquisitions positioned Jubilant as a strong player in the contract injectables space. The CMO business of Jubilant Organosys is well positioned to service the full spectrum of life sciences companies, starting from large scale pharmaceutical players to virtual biotech organizations all over the world. Its two independent CMO organizations in North America: Hollister-Stier contract manufacturing located in the US and Draxis Pharma in Canada, is well positioned to service clients with multiple dosage requirements from different locations. More recently, it has established a significant position in the CMO business of sterile and non-sterile products and radiopharmaceuticals in the international market.

The Washing Hollister-Stier facility is focused on the delivery of clinical and commercial fill and finish services for sterile parenteral pharmaceuticals, utilizing both liquid and lyophilisation capabilities, whereas the Draxis plant has multi-dosage potential ranging from sterile parenteral (vial and ampoule liquid and lyophilisation), to sterile and non-sterile semisolid manufacturing.

Business segmentation

Jubilant Organosys’s business is divided into two broad categories: Pharma and Life Sciences Products and Services (PLSPS) and Agri & Performance Polymers.

The following figure shows the current business segmentation of Jubilant Organosys.

The Pharmaceuticals and Life Sciences Products and Services (PLSPS) forms the core business of Jubilant Organosys constituting 88.9% of the company’s overall business in fiscal 2010. Between 2000 and 2010, this business has increased substantially, reflecting the company’s dedicated focus on being an integrated pharma and life sciences solution provider.

Custom Research and Manufacturing Services (CRAMS) is the largest sub-segment of PLSPS, which has a wide range of products and services, mainly in the area of contract manufacturing. More recently, the CMO business has expanded its regulatory track record with FDA, Health Canada, and Medicines and Healthcare products Regulatory Agency (MHRA) approvals across the various capacities in North America.

R&D focus

Jubilant Organosys offers a wide range of R&D and manufacturing services for intermediates, APIs, and in-market products from development to post-launch stage. It assists in process development and process optimization for intermediates and APIs on a full-time equivalent as well as a molecule basis. Its R&D innovation is divided into three segments, namely:

• Drug discovery and development – therapeutically aligned target identification, discovery and preclinical development, clinical development, and biomarker research, including tissue banking;
• Small-molecule development and manufacturing – across building blocks, intermediates, APIs, and finished dose forms, including sterile injectables, allergy and radio pharmaceutical products;
• Healthcare delivery in India – enabling low-cost affordable healthcare delivery through networked hospitals in semi-urban areas.

In terms of product development programs, Jubilant Organosys has its own source of APIs. This is supported by in house bioavailability/bioequivalence studies through Clinsys Clinical Research Ltd, which has a 68 bed facility in India to conduct such trials. Clinsys also offers clinical research operations from Phase I to IV, Electronic Data Capture (EDC) support, clinical data management, biostatistical support and clinical staffing solutions to many international medium to large sized pharmaceutical companies. More recently, Jubilant Organosys has started to focus on drug delivery differentiated products that can increase its profitability in coming years.

Jubilant's consistent effort of R&D in vapor phase chemistry has consolidated the company's global position in pyridine and its derivatives as one of the largest manufacturer and fastest growing company among other CMOs. The dosage form R&D team undertakes the development of products for US and European markets.

While complying with global standard regulations, Jubilant Organosys has engaged in various cost-cutting exercises. This is mainly by using energy efficient equipment and working closely with vendors to reduce the cost of input. Moreover, its key manufacturing locations have Integrated Management Systems accreditation encompassing ISO 9001, ISO 14001 and OSHAS 18001 - manufacturing industry standard accreditations which are globally implemented for providing assurance on the quality of manufacturing, enhancing customer satisfaction. In addition, Jubilant also possesses Hazard Analysis and Critical Control Points (HACCP) accreditation for products used in food application.

Financial performance

In recent years, Jubilant Organosys has successfully transformed itself from an integrated chemical company into a pharma and life sciences focused company. With FY 2010 sales of $798m and a y-o-y growth of 4%, Jubilant Organosys is one of the largest CRAMS providers in India. The following table shows its financial performance by operating segments in FY 2010.

Table 5: Jubilant Organosys financial performance by segment ($m), FY 2010
Division	Sales FY 2010 ($m)	Sales growth FY 2009–10 (%)	Share of revenuesFY 2010 (%)
Pharma and Life Sciences Products and Services	709	9.5	88.9
Agri & Performance Polymers	89	-25.7	11.1
Total	798	4.0	100
Note: 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

PLSPS has been a major revenue contributor for the company, recording an 88.9% share of revenues in FY2010.

Table 6: Jubilant Organosys pharma services financial performance by segment ($m), FY 2010
Division	Sales FY 2010($m)	Sales growthFY 2009–10 (%)	Share of revenuesFY 2010 (%)
CRAMS	450	8.7	63.4
Pharmaceuticals Products	136	4.3	19.1
Life Sciences Chemicals	81	21.2	11.4
Nutrition Ingredients	41	15.1	5.8
Healthcare-Hospitals	2	40.0	0.2
Total	709	9.5	100
Note: 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 = Financial year (April 1 to March 31)

Source: Company reports

CRAMS, the largest business segment under pharma services, grew by 8.7% to reach $450m in FY 2010. Its Proprietary Products and Exclusive Synthesis segment posted the highest sales, reaching $198m in FY 2010. Its CMO business of Sterile Injectables and Non-sterile Products remained the second best-selling segment under CRAMS, reaching $140m in FY 2010. The API segment, with FY 2010 sales of $59m and a y-o-y growth of 6.9%, witnessed healthy volume growth and a stable pricing environment in 2009.

Table 7: Jubilant Organosys CRAMS financial performance by segment ($m), FY 2010
Division	Sales FY 2010($m)	Sales growthFY 2009–10 (%)	Share of revenuesFY 2010 (%)
Proprietary Products and Exclusive Synthesis	198	-0.4	44.1
CMO of Sterile Injectables and Non-Sterile Products	140	30.8	31.0
APIs	59	6.9	13.2
Drug Discovery and Development Services (DDDS)	53	-0.1	11.7
Total CRAMS	450	8.7	100
Note: 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

During FY 2010, the CMO business of Jubilant Organosys, Sterile Injectables and Non-Sterile Products, saw a strong y-o-y growth of 30.8% through acquisition and client expansion. Moreover, strategic capital additions with lyophilisation expansion in the Hollister-Stier facility also strengthened its position in this sector. The integration of CMO service offerings continued in FY 2009 with the addition of Jubilant's own solid dosage form manufacturing capabilities in Salisbury, Maryland to complement the facilities in Spokane (US) and Montreal (Canada). In addition, Jubilant has signed a five year contract of $120m with J&J for contract manufacturing of ointments, creams, and liquids, initiated in January 2009.

Growth strategies

Partnering with pharma and biotech clients

The Indian outsourcing market is expected to grow significantly over the coming years, due to low manufacturing costs, the availability of skilled manpower, and strong technical competence. Although India has a smaller market share in the contract research and manufacturing sectors, the country offers cost advantages over China, Singapore, Eastern Europe, and Ireland. After establishing itself as a key outsourcing partner for several pharmaceutical and life sciences products, Jubilant Organosys is now exploiting its capabilities to position itself as an “innovation partner” of choice for many global pharma companies. The company’s emphasis on innovation is demonstrated by its significant investment in this area to develop new technologies, such as halogenations (which use halogenated pyridine derivatives), which will create first-in-class products and services across the entire pharmaceutical value chain, from target identification to custom manufacturing.

Full service provision

Jubilant Organosys is the largest integrated CRAMS player in India. The company has built a strong sustainable business model through consistent organic growth and inorganic expansion, by acquiring niche businesses in developed markets like North America and Europe. In addition, it has made a series of acquisitions of CMOs and specialty pharma (radiopharma and the allergenic business) units, an area in which it is seeing increased opportunity with large pharma multinationals. Moreover, it has largely been focusing on its PLSPS business (which accounted for 88.9% of the company's revenue in FY 2010), and it has utilized 25 years of experience in chemicals by successfully moving up the value chain, from chemical business to pyridines and their derivatives (proprietary products). In addition, it is also engaging in backward integration by building a new vitamin B3 plant (nutrition business) by the end of 2010.

Diversified niche businesses reduce risks

Jubilant Organosys has established its niche businesses of contract manufacturing of sterile injectables and specialty pharma through acquisitions of Hollister-Stier in the US and Draxis in Canada. Moreover, it has re-grouped the contract manufacturing assets of Hollister-Stier and Draxis under its CMO (contract manufacturing operation) division for sterile injectables and non-sterile products. It also re-grouped the radiopharma business of Draxis and the allergenic extract business of Hollister under its specialty pharma business. Thus, they are re-grouped as:

• CMO (sterile injectables and other non-sterile products) focused on complex manufacturing capabilities with an established customer base;
• Specialty pharma – radiopharma offering high value addition with limited competition.