DISHMAN CARBOGEN AMCIS LTD

BSE CODE: 540701 | ISIN NO: INE385W01011 | CMP: ₹ 220| MCAP: ₹ 3555 CR | FV: 2

COMPANY BACKGROUND:
Dishman Carbogen Amcis (DCAL) is one of the world’s leading fully integrated contract research and
manufacturing service (CRAMS) player. Established in 1983 as Dishman Pharmaceuticals it was a
leading outsourcing player for the global pharma companies. Today it has become a leading company
with respect to manufacturing as well as advanced research. This was due to its acquisition of the
world’s pre-eminent drug research and commercialization firm Carbogen Amcis in 2006. In 2015
Dishman Pharmaceutical and Carbogen Amcis were merged together and DCAL was formed. DCAL got
listed on the Indian securities market in 2017. With advanced research and high-end manufacturing
capabilities, DCAL has carved itself as a global player when it comes to niche drugs in therapeutics
such as Oncology, CNS, Cardiovascular, and Ophthalmic. In FY18 50% of revenues have been derived
from the therapeutic of Oncology. Top ten global pharmaceuticals account for 35% of revenues. The
current order book stands at $150 MN and development pipeline order book stands at $70 MN.

INVESTMENT RATIONALE:
BLOCKBUSTER COMMERCIAL PIPELINE:

The company has a strong product portfolio of API, High Potent API, Vitamins, Vitamin D analogs,
Cholesterol, and phase catalyst transfer. There are more than 450 plus molecules that DCAL is working
upon. 15-16 molecules are in Phase 3 and will get commercialized soon. As per management, one to
two drugs can get commercialized every year. The company’s first commercialized product was
Niraparib the ovarian cancer drug. Niraparib is manufactured by Tesaro which is now been acquired
by GSK UK. Now it is seeking approval for a new block of the drug from the FDA. As per reports the
current market size of Niraparib is $1BN at a peak level. The management has guided for $12 MN sales
in FY19 from this drug. The company’s second drug is the MDR Tuberculosis drug which is doing very
well. The drug has registered a $9 MN in the first nine months of FY19 from which is a huge boost from
sales of $3-$4 MN per annum in the last four years. The third promising launch is of Nurzuya which
has gotten approval from USFDA in October 2018. Nurzuya is the drug that treads community-
acquired bacterial pneumonia and acute skin structure infections. As per GlobalData, the skin
structure infection market is valued at $2.5 BN. The company believes that initially, it can expect a
turnover of $2-$4 MN per year from FY20. Currently, it is sold by Paratek Pharma who has patterned
with DCAL for formulation and commercialization of this drug.

VITAMIN D A PROMISING MOLECULE:

DCAL was already present in the Vitamin D drug formulation and manufacturing. But it was more
focused on the high volume low margin drug. From the last three years, the management has shifted
its focus on low volume high margin business of Vitamin D analogues. This strategy has been fruitful
for the company as well. The company focused on the rare and niche drug formulation in the Vitamin
D catalog. Hence the company was able to increase the margins of Vitamin D business form 20% in
FY15 to 41% in FY18. It currently contributes around 57% of total marketable molecules turnover. As
per reports available Vitamin D market is expected to reach a $2.5 BN by 2020 and expected to grow
at a CAGR of 11%. As per management the business can contribute around ₹240-250 CR per year and
can grow at a faster pace than the industry. The therapeutic has grown 56% in 9MFY19 on a YoY basis.
ROBUST CUSTOMER BASE:

Currently, in FY18 top ten global pharmaceutical players contributed around 35% of total revenues.
The Top 5 clients of DCAL are Mylan, Abbott, Johnson and Johnson, Celgene, and Novartis. In this
business, it is a lengthy procedure from initial research to commercialization of the drug. Hence when
one innovator pharmaceutical company joins hands with a partner, the pharma company does not
change its partner till the drug is not commercialized. It becomes costly as well to change partners
during the process. Also, the pharmaceutical company does not change its partners frequently if they
have good relations with the partner. Hence due to these factors, DCAL has been able to retain clients
for a long time. Currently, there is an order book of $150 MN and the management believes that
around 70-75% of the order book is of repeat business.

FORMIDABLE BRAND CREATION:

DCAL has created two separate brands for its businesses. Dishman India is the one that handles all the
manufacturing of large drugs and Carbogen Amcis is the one that handles all the research part. This
has helped the customer to get the satisfaction of IP protection as well. DCAL with now it's research
and manufacturing capabilities available in-house has created a significant advantage for itself over
the competitors. It is now able to give full-fledged service from early-stage research to
commercialization services to its clients. This has also helped to attract small innovator pharma
companies and reduce dependence on a few large pharma players as well. Thus effectively de-risking
the business model.

KEY RISKS:

SCIENTIST ATTRITION :

DCAL is a pharmaceutical company with high capabilities in research side. It hires more than 400
scientists and most of them are Ph.D.’s. DCAL requires top scientist as the firm deals in life-saving
drugs. Hence the company needs to maintain its talent pool and make sure the attrition rate among
its scientist is low.

DELAYS IN REGULATORY APPROVALS AND OTHER HURDLES:

DCAL deals in niche drugs in a very sensitive therapeutic of oncology. These drugs are lifesaving and
hence any regulator will take its time to test these drugs. Any delay in approvals by the regulators can
affect the timeline to commercialize these drugs. DCAL needs to comply with all regulatory
requirements from time to time.

FOREX EXPOSURE:

Majorly the company has revenues in Swiss Francs. Other currencies include the dollar, euro, and
pound. The company hedges around 70 to 75% of its forex exposure. In 9MFY19 the company incurred
a net loss of ₹324 CR. Hence the company gets adversely affected by any sever movements in the
currency markets.
CREDIT RATING:
As per India Ratings & Research on 10th December 20181.

As per India Ratings & Research on 11th September 20182.

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