Jonathan Hunt, MD & CEO, Syngene International, says we are doing all the things you would expect a sophisticated technology-led business to do and just because there are a couple of bumpy quarters in the market, I see no reason to change our long-term investment plans, because we think that will create value in the medium term.

There has been a guidance cut by you guys and we understand the major factor which led to the slowdown in the US is biotech funding. Did the situation get worse in the third quarter as opposed to what it was in Q2? Going forward, is there any scope for betterment?
Jonathan Hunt: There is a lot in that question, many parts. It would be wrong if I did not start with saying we had a pretty solid quarter. We delivered 9% growth and it actually turned out pretty much as we expected. There’s a little bit more softness in the quarter than I had hoped for which is why we have adjusted the full year guidance but it is not a different trend. It is just a little bit more of that trend.

Our business can simplistically be put into two halves; research services, development manufacturing. What we are seeing in the research services side as our peers, our competitors and the market in general is this just a slowdown and the rate of funding that is going into a part of that industry. So in the US Biotech segment, they are reliant on new capital formation. Private equity and venture capital flows and with interest rates going up other bits of the economy opening up after the pandemic it is just a bit of a slowdown in that sector.

I do not think it is structural, does not look to be. I think it will be temporal, which is a way of saying I think it will work through. Now we were hit a little bit later than many. We were quite resilient to it in the first half of the year. Hence the fact that the guidance adjustments have been concentrated in the second half of the year.

I do not know if any of us can call it an outlook with absolute precision. But it feels to me as if a couple of quarters, maybe three, and it should have worked its way through the system.

What is the outlook when it comes to EBITDA margin guidance? 30% is what you had shared earlier. Are you going to be making any changes here as well?
Jonathan Hunt: No change around 30% EBITDA margin, plus or minus a little bit, it is not just where we are in the year, it is where we have been sustainably over multiple years. It is well above average for our industry group. We are one of the better margin structured businesses on a global basis. I see no reason to change that expectation, either between now and the end of the year or over the long run. The guidance for next year, we have a habit, we cover that at the full year results in April which is where I will give more precise guidance, but I tried in my comments to give you a bit of a sense.

This is a temporal issue in US biotech. More broadly, the industry fundamentals are pretty good.Given the challenging business environment, would you like to revise your capex guidance for the full year at $80 million or no changes there? What would be your focus going forward?
Jonathan Hunt: Yes. Well, of course, remember, once we decided to do the acquisition of the biologics plant from Stelis, and we did that in the quarter to bring new capacity online years earlier than our organic plan. Of course, that changed our capex guidance. We started the year at $100 million capex for the year. We adjusted that down because we did an acquisition rather than investing in internal capex. Expectations for the full year are at $60 million now, and $40 million of that has already gone in.

So there is $20 million in flight that we should finish during the quarter. It’s good that we continue to invest in the business. We continue to invest to create value in the long term, and we continue to put in new science capabilities. We put some nice infrastructure into our R&D operations in Hyderabad. During the quarter, we brought online a new automated DMPK setup. We invested in compound management. So we are doing all the things you would expect a sophisticated technology-led business to do and just because there are a couple of bumpy quarters in the market, I see no reason to change our long-term investment plans, because we think that will create value in the medium term.

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