Chennai: As a strategy to further grow its contract research and manufacturing services (CRAMS) business, Chennai-based Shasun Chemicals and Drugs Limited has identified a synthetic wet lab in the US to take it on long lease.

According to whole time director Vimal Kumar, small drug innovator companies would like to outsource even the lab activities. And for them a lab in US will be much more comfortable.

For Shasun group a lab in the US will complement its wholly owned subsidiary Shasun Pharma Solutions Limited activities in UK. It may be recalled Shasun Chemicals acquired the French company Rhodia''s two custom synthesis and contract manufacturing plants in the UK in 2006 for €1 million, that also included stock of raw material worth €13 million, through Shasun Pharma Solutions. However Shasun Chemicals did not acquire Rhodia''s lab in the US. (See: Shasun Chemicals: Smooth integration of maiden acquisition)

According to N Govindarajan, CEO and managing director, Shasun Chemicals, normally synthetic wet labs will first develop new drug molecules in very small scale (50 / 10 gram level) and then will scale it up to the next stage-kilogram level. "When the results are satisfactory the product will be made at the pilot plant level and finally reach the commercial scale level."

Taking a lab on lease works out cheaper compared to setting up a new lab or acquiring one. "The cost of acquisition would work out between $2 - 4 millon whereas setting up a new lab would require an investment of $5 million. On the other hand lease cost will be $1 million."

During the first year of the lab operations there will not be any great jump in the revenues but there will be an increase in the company''s research product portfolio.

This apart the Rs9.62-crore equity based Shasun Chemicals has chalked out Rs1,100 crore capex this year. "We will set up a multi product pilot plant at Vishakapatnam (outlay Rs60 crore) and start submitting drug master files (DMF). Later a commercial scale plant (outlay Rs50 crore) will be built. The UK subsidiary will invest Rs90 crore in increasing its capability," said Kumar.

Govindarajan said, "At Shasun Pharma Solutions the capability increase will be made by installing cryogenic coolers and other equipments. There will not be any increase in the existing active pharmaceutical ingredient (API) production capacity."

The capex will be funded through an equal mix of debt and internal accruals. According to Kumar, the consolidated debt portfolio stands at Rs170 crore (Shasun Chemicals Rs105 crore and Shasun Pharma Solutions Rs65 crore) with the debt: equity ratio being 0.8: 1. "The average finance cost for the new borrowings would work out to 6 per cent."

Meanwhile, Shasun Chemicals has closed the FY07 with consolidated revenue of Rs793.34 crore and a net profit of Rs52.62 crore. Kumar is confident of closing the FY08 with a turnover of Rs1000 crore.

According to Kumar, the growth in CRAMS business after the acquisition of the two UK plants has been significant and the total revenue from this business segment for FY07 was Rs342.98 crore as compared to Rs37.53 crore registered the previous year.

The duo - Kumar and Govindarajan - are happy with the turnaround of the UK operations from negative EBIDTA to a positive figure. Even after starting to spend on raw materials from the fourth quarter of the last fiscal, the UK company has posted a positive EBIDTA figure of 0.43 million pounds, Kumar added.

Shasun Pharma Solutions closed last year with a turnover of 41.44 million pounds and EBIDTA of 2.19 million pounds. The company has 19 commercial products under its belt and 17 molecules under phase II and phase III for launch by its partners.

On a stand alone basis the bulk drug company Shasun Chemicals'' turnover stood at Rs425.82 crore and a net profit of Rs38.29 crore compared to the previous year''s figures of Rs370 crore and Rs36.50 crore. The company board has recommended a final dividend of Rs.0.90 per share taking the total dividend declared to Rs1.70 per share for the year.