Bora Pharmaceuticals Co., Ltd. (6472) Earnings Call Transcript & Summary

Welcome to Bora Pharmaceuticals Fourth Quarter 2024 Financial Results Conference Call. [Operator Instructions] As a reminder, this call is being recorded today, March 10, 2025. Joining me today for prepared remarks is Bobby Sheng, Chairman and CEO of Bora Pharmaceuticals. We also have CFO, Alice Wang, Vice President, Simon Chen. Before we begin, let me remind you that this call may also contain forward-looking statements related to our growth and future operating results, discovery and development of our drug candidates, strategic alliances and intellectual property as well as other matters that are not historical facts or information. Various risks may cause our actual results to differ materially from those expressed or implied in such forward-looking statements and we refer you to our most recent annual report for detailed information describing such risks. Now I would like to turn the call over to Bobby.

Thank you, Nadiya, for the intro. We're pleased to announce and present our 2024 financial results and discuss our future outlook. 2024 had some great milestones and highlights for us. Our group revenues increased by 35.5%. Our group net income increased by 31.5% versus 2023. Our CDMO revenues compared to 2023 increased 30.3% and our commercial revenues increased 84% year-over-year compared to 2024 (sic) [ 2023 ]. Also, we secured sizable CDMO U.S. capacity to take advantage of a lot of the onshoring activities going on in demand. We've also expanded our CDMO offerings to include new modalities such as prefilled syringe, injectables and biologics. We've also, on the commercial Rx side, launched VIGAFYDE, which really enhanced our position and increased our presence in the specialty pharma space as well as increased our large -- increased our generics and our large margin generics potassium chloride ER to the market as well as we've been able to maintain a leading position of DLS in the U.S., even though we've seen increased competition. Next slide please. On this slide, Bora continues to deliver rapid growth in 2024, as you can see year-over-year. Over the last 5 years, we've seen a revenue CAGR of 60% and a net income CAGR of 30% and as I explained in the previous slide, we continue to show year-over-year rapid growth of 30-plus percent on the bottom line. Also, we've continued to increase gross margin, although we've only -- our gross margins have been affected by acquisition costs and onetime integration costs. We've still been able to show an increase in gross margins and we'll be able to show better gross margins for this year as well. Next slide, please. This is a breakdown of our revenues from 2023 and our increases into 2024. On the CDMO, we've seen double-digit organic growth on the CDMO side. We still see strong demand especially in our U.S. facilities and our North America facilities as well as our Taiwan facilities as we continue to ramp up the scale in those CDMO operations. On the commercial organization side, we've seen, obviously, expected competition from Dexlansoprazole DLS but also been able to maintain the price erosion to within forecast. We've also been able to add on new products as well. So we've seen a less of a hit on our commercial organic. But we've had -- I would say 2023 was an anomaly, a very strong year for DLS. And so 2024, we saw it coming back down to reasonable competition. Now on the inorganic side, we've really had 3 large acquisitions, I'll share with you on the middle of these 2 -- this graph here. On the inorganic, we have USL, which is the acquisition we bought, Upsher-Smith. Now this only shows 6 months of earnings -- or sorry, sorry, 3 quarters of earnings. As you can see, we acquired them in the Q3 -- or Q2 of last year, so we had a 3/4 of earnings here. On Baltimore and Pyros, we only acquired them in Q3. So there's only 3 months of Baltimore revenues here as well as only 2 months of Pyros. And within the Baltimore we had 1 month of shutdown. So what I want to show here is really we had a lot of acquisitions in 2024, 3 of them here in the middle and they only show a incremental increase in revenue. However, we did incur all of the onetime transaction costs and onetime integration costs. So that's where you'll see on the next slide. Next slide, please. As you see here, even with those onetime costs, we've been able to increase our gross profits by 10%, on the top line here, obviously, as stated in the previous slide, we've increased our revenues by 35%. There is extreme anomaly here on our operating profits and the quick explanation of that, like I said, in 2023, we had an exceptional year of Dexlansoprazole sales with 0 competition. And thus also on the nonoperating profits for 2023, as you can see, we have a payout of a revenue share with the owner -- previous owner of TWI. Now in 2024, you also see onetime transaction costs of 3 acquisitions annualized for the full year. So that's actually in the operating cost. So you're seeing a depreciation in the operating margin. However, because of our ability to acquire high-value assets at the low market rate, we were able to accrue negative goodwill and still deliver positive net income year-over-year for our shareholders, which is very important for us. Next slide. We also continue to have the capital efficiencies that will drive long-term growth. We've been able to show outsized return on investment and return on equity. And also on the cash flow side, we've been able to maintain a very, very strong cash position as well as, as you can see in 2023 versus 2024, we continue to increase and strengthen our equity base for our shareholders but we continue to have various options to pay down the debt. Now you'll see an increase in debt in 2024 but that's because we closed a very large convertible bond in the Q3 of 2024, which shows up as a long-term debt for us. However, we have proven year-over-year on a consistent basis to have ways to repay the debt with the acquisitions we have and the cash flow we generate from our revenues. And we continue to do so with the financials here as well. Next slide. This slide I just wanted to show, we acquired Upsher-Smith in April 2024 and we acquired Emergent in 2024 August. And as continually with our previous acquisitions, we continue to show that we will have success in our acquisitions, especially on the site acquisition side. So on the left side here, we show what we've done with the previous sites and we've shown high return for those. We have the same expectations for Upsher-Smith and the CDMO arm of Emergent. On the Upsher-Smith acquisition, we continue to split the CDMO and pharma sales business and we will continue to transform that business model. We'll scale and upgrade technologies. We are rationalizing low-margin products. As you will see, we did that last year and we'll continue to do that for the first half of this year with -- removing some of the low-margin products as well as shutdown of the Plymouth site. They have 2 sites at Upsher-Smith, and we're shutting down the lower production one as well as building customer-facing know-how for CDMO. On the emergency side, we continue to scale and upgrade technologies and also transform that business into CDMO business and make that an offering -- end-to-end offering now that we will have a large molecule drug substance as well as large molecule drug product in the fill and finish for large molecule as well as fill and finish for small molecule. Some of the CDMO highlights as we've really become a true end-to-end in 2024. If some of you have been on the call in the previous years, we've been able to -- wanted to finish out and actually become an end-to-end CDMO. We did that in 2024, especially we've been looking at the injectable space for a very long period of time. We found a perfect acquisition for us and added the Emergent facility in 2024 as well as a fast, rapid growing CDMO biologics facility out in San Diego. We continue to do the CDMO business with best-in-class figures as well. Our on-time infill rate is best-in-class at 94%. We're right the first time at 95% and a very, very impressive yield to batch success rate of 99%. These are best-in-class industry-leading figures and also always to focus on the unique competitive advantage that we have is we have large pharma quality, as you can see with these figures but we are a customer-centric culture and you'll see many results of that in the next oncoming pages. Some other highlights of the CDMO business. We manufactured 2.8 billion doses. We've had 16 launches for a total of 96 commercial products. We have 7 commercial MSAs signed and we have 40 new molecules delivered in 2024. On the customer-facing scorecard, we have a best-in-class, again, 6 days to turn around a quote time and that's really focused on our customer-centric focus as well as a less than 2-week time to onboard, which is also best-in-class. Finally, what shows that we are best in class is that 32% of our revenues are from world top 20 pharma companies and that's really hard to achieve in this industry but we've definitely done so. Next slide. I also want to highlight here, in the last couple of years, we've really been focusing on the North America's footprint and North America manufacturing strategy. And in 2024, it's the realization of that strategy in our Plymouth acquisition. Our Maple Grove acquisition in Minnesota with the USL facilities, our Baltimore, Maryland injectable facility and our biologics facility through strategic acquisition of Tanvex, now renamed Bora Bio. Now this is very impressive for us and that we actually started -- previous slide, sorry. We've actually started the strategy post COVID because we saw a huge demand to onshore. And based on where our customers' needs, to be closer to the clients, we really started our onshoring and our footprint -- manufacturing footprint in the U.S. Now obviously, with the current administration in the U.S. and the tariffs that are being administered, we are in a unique position to take advantage of the increase in demand for production within the United States. So this is a great opportunity for us. Next slide. So in this slide, it really makes -- puts us in a prime position to fire on all cylinders in 2025. Here are some basic numbers that happened in 2024. On the small molecule side, we had 140 project wins and a repeat business from 30% of our customers. On the large molecule side, this is before the acquisition of San Diego. We had 25 project wins already from our Zhubei facility in Taiwan and repeat business from 25% of our clients. Now with the injectable facility, the fill and finish facility and the biologics facility in San Diego, we definitely had continued CapEx. Our CapEx criterias are 35% to 40% IRR threshold. And our Phase I is to have short-term upgrades at the sites and then Phase 2 is to have a future 5-year investment strategy. I also want to highlight our acquisition of USL is very timely and we are definitely capitalizing on their major asset, which is the Maple Grove facility, which is one of the largest OSD facility sites in the United States and definitely well positioned again for the onshoring capacity. Now I wanted to highlight what we're doing at USL. This is part of our integration strategy. This is definitely part of some of the onetime expenses that are happening but we're really rationalizing and setting ourself up for enormous growth in 2025, 2026. We're ramping down our Plymouth facility, which is a smaller, older facility, a very inefficient production lines and we're moving those to our sites, including Maple Grove but also other sites within the Bora network. So really maximizing the broad network with this acquisition. The Maple Grove facility itself is a 612 square foot space facility, 6x the size of Plymouth. It was built in 2023 but expanded by Sawai with a $60 million investment in 2022. It's equipped with manufacturing, packaging, QA/QC pilot test area, warehouse and logistics and it's ripe to partner with many customers that we are discussing with now on their major U.S. strategy and major onshore U.S. strategy. So this is a prime time for this site and it's a prime time for Bora to take advantage of the current trends in the market. Next slide. Just I wanted to highlight the importance of our San Diego acquisition or strategic investment into Tanvex, now renamed Bora Bio. We definitely saw an increase in demand over the last 5 years for monoclonal antibody, especially for antibody drug conjugates and multispecific monoclonal antibody, which is bispecific or trispecific antibodies. So with our San Diego acquisition, we not only have a development facility in Taiwan but one of the few large molecule commercial site facilities in the U.S. And when I say that, there are very, very few CDMO large molecule, single-use [ rAAV ] facilities within the United States and we have one of them and we are expanding on that facility as well. So once again, really increasing our footprint in the United States to take advantage of current onshoring trends. Next slide. Before previously, I was talking about our advantage in this space and what we continue to prove that our strategy is correct, is that we want to be the most valuable partner for our customers and we want to be customer-centric. And we just announced that we had an award that was given out by Outsourced Pharma and we were awarded the best CDMO for small molecules and biologics and we'll be receiving that award next week in New York as well. Now the commercial side, it's equally exciting. As we acquired the USA facility -- USL facility -- Upsher-Smith or we call it USL, the Upsher-Smith facility, we split that business into the CDMO business, which I explained the value and the opportunities in the Maple Grove facility. Simultaneously, there's extreme value in the 100-plus year brand that is Upsher-Smith. So after acquiring Upsher-Smith, we merged the TWI products into 1 brand under Upsher-Smith. So that's the first thing we did. Next slide. And continuing on the Upsher-Smith name and as you may have heard before, we actually continue to focus our efforts on rare disease and specialty franchise. So the 2 things that we are focusing on here for our commercial is to move into high-margin differentiated generics and also brand IP-protected rare disease specialty franchise. As you can see here, compared to 2023, we have a large increase in specialty brands and also a differentiation in our products in the generics to focus on the large margin generics. Next slide. Now specifically on the specialty pharma side, I want to focus on 1 product that we're extremely excited about and that is VIGAFYDE. So VIGAFYDE is definitely a game-changing drug. And I think many of you have heard about it before. But in a summary, it's a -- only -- the only brand in the market that has a liquid form versus the original type of product, which was in a powder form. And what does that mean? Next slide. So previously, you would have to administer the drug to infants. So this is a drug that's specific for infantile spasm. It is the only compound, is the only API that's used in the infantile spasm space that is a nonhormone. And it's only originally available in powder form, very hard to administer, very difficult to have compliance and very difficult for safety. Now with VIGAFYDE, it is the only liquid dose form of this product, of this brand and available to the market. And so this study we made here, VIGAFYDE, compared to powder, it is much, much more accurate and much more easy to use and much more safe for the patient and the caregiver, as the caregiver is the parent and the patient is normally an infant, which is 1 to 2 years old. So you can see on the right side, the dosaging and the safety and the accuracy of VIGAFYDE is far, far, far superior than the original vigabatrin. So we see definite market dominance and ease of use and a differentiator for sure, for this product in the market in the infantile spasm space and rare disease orphan space. Next, page. To continue on that, we are going to double down on this pediatric rare disease market. As you can see, we have a combination of the VIGADRONE, which is the original powder solution. We have a brand recognition in this space, I would say, market-leading brand recognition of the Upsher-Smith brand name and our commitment to the key opinion leaders in this space as well as adding now VIGAFYDE, we are definitely the dominant player in the pediatric infantile spasm. And on top of maximizing and having access to a potential size of a $229 million market of which we feel we can have a majority of that market share, we also see this as a platform to continue to invest in the infantile spasm space, which is a potentially $2 billion market size. And we have 3 more molecules in this space led by [ stiripentol ] and which is going on in 2026 and 2027. Next slide. On the generic rationalization side, we continue to have outperforming generic portfolio but we are also continuing to rationalize and focus on high-value pipeline. If you really look at the right side here, we have a market leadership in Dexlansoprazole, which I was explaining before DLS. We have seen competition but we still maintain 40% market share. On the potassium chloride, we are market leaders in potassium chloride and these are both high-margin products for us. As you can see on the bottom of the left-hand side, we have 64.1% of gross margins from a peer average of 49.1%. So as you can see, we're definitely, compared to our peers focusing much more on high-value, high-margin products. And even in our pipeline, we're very excited about our future pipeline. Deflazacort was launched in January of this year. We have multiple assets that are launching in this year as well as 2026 and 2027. Slide. So in summary, we are very, very excited about what we've done in 2024 but we're more excited about what we can deliver in 2025 with scale-up and integrating more intelligently. Our 2025 performance is to improve as we integrate our synergies. So on the CDMO side, we're going to ramp down production of Upsher-Smith Plymouth facility, which will definitely increase our operating margin and we're shifting to a more cost-effective production site within the group on top of not only the Maple Grove side but our other sites within the group. Our Maple Grove CDMO business is going to begin in March. We see definitely an increase in that business, especially when we're talking to a lot of partners, including mid- to large-sized pharma and having that as a foundation for their U.S. manufacturing platform. We are also onlining a FlexPro line, which is an injectable line within the Baltimore, Maryland facility that adds another 30% capacity on to already a very full capacity in our sterile injectable facility. That will be online in Q3 of 2025. And then we have 20 molecules signed already in 2025 in the first quarter, mostly new clients for many of our sites. On the commercial Rx business, we continue to increase our focus on VIGAFYDE and the vigabatrin franchise and continue to make large investments for -- in sales and marketing for this product. Like I said, we're extremely bullish about what we can have as a future for not only this franchise but also our specialty rare disease franchise in the market going forward. We continue to discontinue low-margin generics. These are the rational things do. Sometimes these are very hard. But in our organization, that's what we focus on is large margins and high returns for our shareholders. We continue to shift our R&D pipeline to high-value generics and as well as partnerships. We think that's one of very valuable things. We're finding partners all around the world that are developing high-value generics but would like to have access to the U.S. market. That is our brand value. Upsher-Smith has a strong, strong, strong brand value and a very strong distribution channel within the U.S. for generics. Next slide. A little bit about Bora and our community. We're recognized by global investors and capital markets. As you can see, as we've grown as a company, we've gone listed into many indices. I'll highlight in 2024, we got into the FTSE Taiwan Mid-Cap 100 Index. We got in the FTSE Taiwan Eight Industries Index. TIP TWSE Market Capitalization Top 500 Total Return Index as well as the TIP custom Taiwan -- Customized Taiwan Market Leader Dividend Equal Weight Index. On this slide, I just really, really want to hideout -- highlight, sorry, the amount of diversity we have within our organization. We have 45% female managers, 50% of our employees are international employees. We have high skilled labor focusing on -- 79% of our employees are masters or PhDs as well as the total MSCI ESG rating of A and we continue to want to improve that year-over-year. Next slide. Finally, we continue to be a world-class company and aspire to be world-class and industry-leading. So on our commitment to sustainability, we're on to achieve net zero by 2050. And then on the sustainability drug side, one of the reasons why we wanted to move many of our production sites to North America and a total overall movement of our sites to closer to the patient is we want to make sure that we have no serious drug shortages or supply chain issues going forward. So drug sustainability and drug supply chain is extremely important for us as a company. Okay. Thank you.

Thank you, Bobby. Now we will enter Q&A session for today. [Operator Instructions] Okay. So here is the first question. Will there be any impairment of the goodwill?

Thank you, [ Jane ]. No, there won't be any -- we don't anticipate any impairment of goodwill for 2025.

Coming from [ Ms. Lin ], is there any new M&A goals in the near future.

We did do a ECB for 2024, just so we are in line and capable to do more acquisitions in 2025. As I've always said year-over-year, a lot of our growth is still driven and our dependable growth is driven organically but we are constantly and actively searching for acquisitions. We still feel like we are in our infancy and growth. We definitely have a lot of room to grow. I think acquisitions will be 1 of the tools that we can definitely use and we are bullish and excited about potential acquisition opportunity in 2025.

Coming from Morgan Stanley, how do we see the ongoing tariff developments for the U.S. impact on our margin outlook, both towards the commercial operation and CDMO segments?

I would say, let's go backwards, starting from the commercial operations, the majority of our drugs are manufactured on the commercial side, majority are manufactured in the United States. The ones that are not in the United States, the margins are very high. So we see a minimal impact on those products. And we also see a lot of goodwill from our suppliers to also minimize the impact of some of these tariffs that affect our commercial side. So we are confident that the tariffs will be minimal, if negligible on the commercial side of the business. On the CDMO side, it's even more simple. We are a fee-for-service contract manufacturer. So any increase in cost gets pushed down or gets pushed to the customer. So the customer needs to deal with some of those. None of our contracts are, in any way, delivered to a port with any sort of taxes or tariffs included on to them. So we've positioned our company very well and we definitely think we are in a good position to not be affected too much by these tariffs.

We have more and more questions from [ Mr. Reynold ] on acquisitions. Do you foresee similar transformative acquisitions in 2025? Are there many targets in the market today? How do you factor in tariffs and onshoring noises from current administration in Washington in your M&A plans?

Yes. I think the -- we do 2 times of acquisitions, transformative or we would say, scale or scope. I think transformative acquisitions are always the ones we look for. The type of effort you put into a transaction, large or small, it's similar in effort. So we definitely are good at transformative acquisitions. We've done many before. We still think we can and will transform into a much larger organization. So yes, I definitely -- those are the ones that are meaningful and are impactful and very lucrative for the shareholder and the investor. On the tax -- the tariff side -- I'm sorry, what was the -- you took away the question but on the tariff side, do we see...

How does tariffs impact our M&A plans -- targets?

Yes. Our -- like I said, we continue to analyze and reanalyze the tariffs, especially with more -- as the Trump administration. And we continue to also analyze if there's any -- going to be any reaction from other countries as well. Right now from what we see, we're very, very proactively looking at potential tariffs as well. Right now, we have high confidence that the tariffs will have minimal effect.

We have a couple of questions surrounding 2025. Can you give more color on 2025 growth catalysts? Will it be on CDMO or on commercial and the overall top and bottom line thoughts?

I think you're definitely going to see growth from both sides of the business. On the CDMO side, we're going to see realization of the acquisitions we made from last year, especially on the sterile fill and finish. We're very, very excited about the growth of that business. We're very excited about what we've been investing in for the last 3 to 7 years on all the development projects we have, many of them are commercializing. So as you may know, development is the root of the larger side of the business, which is the commercial. So as we have multiple development partners throughout the multiple years, these products will, through their -- going into Phase II and Phase III and getting approval will be -- start getting commercialized. So we saw multiple commercialization of our customers' products last year and we'll see an increase in commercialization for this year. So on the CDMO side, we're excited about the commercialization of many years of investment with our partners on their development products. And we're also seeing a realization of our acquisition of the USL facility and the filling of that facility as well as the continued growth and the annualized revenues of the injectable facility that we purchased from Emergent as well. On the commercial side, we're definitely excited about the growth of VIGAFYDE. Very rare does a drug company have the ability to have a best-in-class, one of the only products to be used in a therapeutic category even if it is rare and orphan disease and also have the ability to expand into TSC, which I didn't mention in the previous slide but we are filing for an indication for TSC, which is a much, much, much larger market and we will also be the only liquid form in that market as well. So that's very exciting but also just to have the sales and marketing platform, the promise of support that USL offers to the key opinion leaders in the therapeutic category, not only in infantile spasm but in the pediatric CNS space, we feel that there is a lot of potential for that platform being built as well as rationalizing these generics that we have and focusing on large margin generics and really repurposing some of that manufacturing capacity and allowing that captive capacity now to be released to the CDMO customers and allowing us to have higher margin for the CDMO customers and eliminating the low-margin generics that seem to be going into low-margin countries to manufacture.

One more question on Baltimore or the fill and finish site. How will this site add to your capacity?

Where is this question? Oh, the fill and finish facility. How will the site [Foreign Language]. Yes, I think it's -- yes, it's -- overall capacity -- I mean it's an injectable facility. So the facility is a different facility than all of our other facilities. So it affects -- it has own capacity, basically. So when we purchased it, it was already 60% to 70% full in capacity but we know we're adding on the FlexPro line, which allows another 30%. So we see a lot of potential to fill that site, which only increases our gross margin but also increases our capacity utilization and lowers our operating costs for that site.

One more question from [indiscernible] Investments. Can you describe your 2025 CapEx plan?

On the larger scale of our CapEx plan, we're definitely reinvesting and focusing on 3 main areas and this is not including the large molecule, which we can talk about in the Bora Bio, Tanvex shareholder meeting call. But in one, we definitely are investing in a high-speed, larger-scale packaging line in the Mississauga facility. We are upgrading and adding new technologies for our customers, which we can't disclose. But in the Maple Grove facility and we are investing in a more production lines for the injectable facility, of which we see a lot of high demand for. That will equate to about $30 million in CapEx. On the maintenance side, each site has their own maintenance schedule. It is on par with industry. And I won't go into the details of it here but we do not see any anomalies on the maintenance side of the facilities. The are quite -- they are very, very new facilities and very well-kept facilities when we acquired them. We continue to maintain them and make the correct investments on the maintenance of these facilities. There are no lines that are getting too old for production. But I will say, the FlexPro -- as the FlexPro line goes up on the injectable facility, we are shutting down an older [ rAAV ] production line, which was very small and outdated. And as the FDA wants us to improve and have better lines, higher quality lines, isolator lines in the fill and finish. We will continue to invest in new isolator lines that not only increase our quality and our adherence for regulatory but also increase our gross margins and our throughput.

We have the last question also from [indiscernible]. Could you give us more color on the new generic drug to be launched this year?

Yes. We have a really interesting pipeline with some partners. I will give you some ones that we definitely are excited about, the one I mentioned before. But also we have a GLP-1 product with a partner that we're launching this year. Cyclosporine, we are launching this year and [indiscernible] contributing, which is a exciting product we're launching this year. So we look forward to 4 main products that we're going to launch this year that are much, much higher in margin and should also increase our total product profile as well on the generic side. I will mention -- I don't know if we mentioned this before but as we continue to rationalize products, we -- as a company, we focus on what's most important for our shareholders and what drives more value for our shareholders. As we mentioned before, we will be rationalizing a lot of products. Does that mean that there might be a slight slowdown on the top line some of our revenue as we maneuver and into these larger high-margin products, there theoretically could be. So I want to make sure that the investor community and our shareholders are aware of that and understand that this is planned for us as we expand and become a stronger company with better margins in 2025.

Thank you, Bobby. And this concludes today's conference call. Thank you for participating. You may now disconnect.