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

Welcome, everyone. Thank you for standing by for the Bora Pharmaceuticals First Quarter 2026 Earnings Conference Call. I'm Penny Wang. We have Bora Pharmaceutical CEO and Chairman, Bobby Sheng; CFO, Alice Wang; and IR, Nadiya Chen with us. [Operator Instructions] Some of later statements that we make today regarding our business, operations and financial performance may be considered forward-looking. Such statements are based on current expectations and assumptions that are subject to a number of risks and the uncertainties. Actual results could differ materially. Please refer to our annual and financial report, including the risk factors. We undertake no obligation to update any forward-looking statements. During this call, we will present both IFRS and the non-IFRS financial measures. A reconciliation of the IFRS to non-IFRS measures is included in today's presentation, which is distributed and available to the public through our website. We will now begin our conference call.

Good morning, everyone. This is Nadiya Chen, the IR of Bora Pharmaceuticals. So let us go through, first of all, a quick overview of numbers relevant to Bora. Market cap right now is USD 1.7 billion. We have 2,100 employees. We export to more than 100 countries, more than 100 markets. And the latest update, manufacturing site count, we now have 11 sites, which we will give you a deeper dive in future slides. And last year's consolidated revenue in U.S. dollars was $634 million. More than 95% of our revenues are generated outside of Taiwan, as you know. And as of now, we are the #1 pharma manufacturer in Taiwan. The beginning of 2026 was eventful both in the world and at Bora. We have seen supply chain disruptions, inflation from wars and continuous geopolitical tensions. The overall softness was there and yet we view it as temporary. So March -- the first quarter in March showed a very clear rebound across both businesses. And as we're entering the second quarter with healthy order book and resumed fixed cost leverage, we are happy and confirmed that we will resume growth in the very near future. Most importantly, Bora Group's disciplined approach to growth-oriented investments remains unwavering. So as you can see on the slide, we would like to draw your attention to the forward-looking signals before we start the call. Our team during the first quarter advanced Maple Grove sites ramp up significantly with several multiyear CDMO agreements signed or are progressing across emerging biotechs and top 20 global pharma clients. Bora Board also approved the acquisition of CDMO business of MacroGenics in Maryland, Rockville to scale up its biologic CDMO platform eyeing at further consolidation. All CDMO operations are now ready for more than 15% CAGR from now on. In addition, we consolidated the iconic sports nutrition brand, Weider Global Nutrition into Bora Group through our subsidiary, Sunway Biotech, and this officially completes the last mile of dual engine strategy across platforms. Moving to the next page. The company reported the first quarter 2026 revenues of TWD 4,001 million, down 17.68% sequentially with a basic EPS of TWD 0.21. Gross margin stabilized quarter-over-quarter. The quarter reflected a temporary slowdown across both businesses. Pricing and demand variability in the generics market through January and February left Upsher-Smith's first quarter revenue 18.63% below the trailing fourth quarter run rate, while the scheduled annual maintenance of 6 weeks of our Maryland fill-and-finish facility limited fixed cost absorption during the quarter, which weighed on our earnings quality. And as mentioned a second before, March saw a rebound in both businesses as conditions improved for both the top and bottom lines with steady demand. During the quarter, the company advanced our Maple Grove site ramp-up, more multiyear CDMO agreements signed and additionally, our new CDMO business as a 12-month rolling backlog arrived at TWD 350 million. So that's a very healthy order book at our North American sites entering the second quarter. So we do expect fixed cost leverage to resume and also driving profit improvement as utilization builds across the installed asset base. Meanwhile, Upsher-Smith after the first quarter has successfully defended our market share and is deploying life cycle management initiatives that reinforce our ability to set the cadence of sales in a dynamic competitive environment. Nonoperating loss, however, primarily reflected a wider equity loss from our affiliate, Tanvex BioPharma, together with higher tax expense driven by the annual first quarter recognition of tax from undistributed earnings of the previous year. Disciplined OpEx control has driven expenses down 14.87% quarter-over-quarter and a 14.41% year-over-year. This signals that resources have settled in as we begin to see advantages in scale. The company does expect ROA and ROIC to trend gradually upward, albeit with some quarter-over-quarter variability as operating leverage builds. Product mix-wise, during the quarter, it came in at 38% CDMO and 62% pharma sales for external orders only. When we say pharma sales, that mostly means the Upsher-Smith operations. And as mentioned, there was a lower contribution from the sterile facility at Maryland in the first quarter, which is why the sterile came in at 14% and also less high-value generics. Channel destocking and less working days at the sterile site has led to an increase in inventories and higher net working capital deployed. Overall, net debt to equity was 71.8%, and we have ample cash on hand, nevertheless, roughly TWD 4,800 million. Now I would like to turn the floor to our Chairman and CEO, Bobby Sheng, to give you a deep dive into operational updates. Bobby, the floor is yours.

Thank you, Nadiya. I know I'm in control now, can everybody hear me?

Yes.

Okay. Great. So a little -- thank you, everybody, for joining the call. My name is Bobby Sheng, Chairman and CEO of Bora Pharmaceutical Group. I will do a little summary of the Q1 activities and highlights for our business in quarter 1. Let me start off with the CDMO business. As Nadiya mentioned, we had a small decline in our year-over-year and quarter-over-quarter earnings -- or sorry, revenues for the CDMO and the business in general. It's mainly due to a scheduled maintenance at our fill-and-finish facility, which is pretty much 1/4 of our business now. So the scheduled shutdowns for maintenance had an impact, but a predicted impact and also seasonality in our Canadian facility. But yet, we still have strong visibility in our backlog. The 12-month backlog has increased 19.31% compared to last quarter and has a total of $314 million. During the quarter, the CDMO business also booked $27.2 million in external wins. And what's strong about those wins as well is that 6 of that -- or 7 of the molecules came in of their pre-commercial or their development stage molecules, which is really good foundation for our sites as they commercialize over the coming 2 to 3 years. And finally, our strength is our on-time in full for Q1 was at 88% and right first time was at 92%. As Nadiya also mentioned, we acquired -- we just announced the acquisition of the MacroGenics facility in Rockville, Maryland. That really continues to amplify our ability to support our customers in the United States and solidifies our footprint in the United States, especially with regards to now large-scale commercial biologics in the United States. As you can see, we are -- continue to be building our platform and strengthen our one-stop shop capabilities within North America and across the world. On top of our acquisition, we continue to also invest in CapEx. This slide really just to show that the CDMO market continues to outpace the pharma growth market as more pharma and development companies continue to outsource their development and their commercial manufacturing, not only for new molecules, but also in rationalization for some of the customers. They are transferring a lot of their legacy and large products, old products into commercial -- CDMO commercial sites as well. And so we want to be prepared for that. A lot of our facilities are getting up to 70% to 80% capacity even in double shifts. So we are increasing our investments into those. In the past 30 months, we've invested, including acquisitions, USD 520 million. And in 2025, our CapEx investment is 10% of our 2025 revenues. A little bit of visibility into how we view our sites and how our sites mature over time as we acquire them. So basically, we have 2 sections of our sites and ones that we have acquired for over 3 to 5 years. They become sites with economies of scale like our Canadian facility, our Tainan facility, Zhunan facility and Domi facility. These have strong gross margin profiles, and we continue to invest with our partners into efficiencies and CapEx into their delivery platforms. And as you can see, for example, the Canadian site, we've had over 5 years now, and we are seeing very strong economies of scale as we continue to have more commercial products come into that facility going from development into commercial. Now as we acquire facilities, they are investments for the future, including the Baltimore fill-and-finish facility we bought about 14, 18 months ago. Our Taoyuan site, which is our ophthalmic facility, our Maple Grove facility and the biologic platform in our strategic investment in Tanvex and now currently the Rockville facility that we've just acquired from MacroGenics. That continues to build out our U.S. footprint. It continues to build out our growth in scale and in scope and investing in new technologies. Now we do see a lot of new development programs in these facilities. We continue to see high demand for our Maple Grove and our Baltimore fill/finish facility, and that will continue to drive the growth for our company in the future. Now we continue to focus on benefits of scale and high-growth modalities that we see potential to drive a 2 to 3x revenue over the next 5 to -- 3 to 5 years. A little bit about our MacroGenics carve-out deal. This is a fresh off the press. We did it at the beginning of this week. So here are some basic details. It is a commercial scale U.S. FDA inspected facility with over 140 full-time employees. It is a biologics GMP manufacturing site with a warehouse, 122,000 square feet for the manufacturing facility and 70,000 square feet for the warehouse. It has five 2,000-liter single-use bioreactors and two 500 liters, 3 commercial stage products and 6 programs in the portfolio and 4 active customers. A little bit of highlight on why we continue to invest in large-scale biologic manufacturing. It is well known that the demand for the global capacity for mammalian antibody is vastly increasing over our availability to supply the demand. So we are increasing our capabilities for that as well. A little bit of highlights. We have stable commercial revenue as a base for this facility. It's 30% utilized. And with our capabilities in sales and marketing, we -- through our Bora Biologics and Tanvex JV, we will continue to grow at that out. And we have visible near-term growth with the PPQ work that's being done at the facility already. A little bit insight on how we see and how we view the large molecule growth in our group. This acquisition really strengthens and differentiates us in many ways. As you know, we have a strategic investment into Tanvex, which now the CDMO business is called Bora Biologics. It has a very, very strong brand presence and strong BD capabilities that continues to bring in and service customers and a lot of early-stage PD cell line development technology and capabilities in our Zhunan and San Diego facilities that pairs really, really well and has complementary skill sets to the MacroGenics site, which has highly skilled executives and 10-plus years of commercial scale manufacturing. Also a lot of complex modality capabilities, specifically in ADCs and bispecific, trispecific. On top of that, you add that under the Bora Group umbrella, which we continue to have financially strong investment into the facility and into its people as well as allowing now to not only have drug substance capabilities, but you tie that in with our Baltimore, Maryland fill-and-finish facility, it is a complete end-to-end drug product, drug substance platform that we offer now to our customers. And some insight into our quarter 1 activities for our pharma sales business under the Upsher-Smith brand. We continue to see strong growth in our rare and orphan disease Specialty Pharma division and led by our vigabatrin franchise, and we have some data here. The unique patients were up 141%, and we continue to see that as a strong growth platform for our business and along with our strategy as well to not be as dependent on the generics business that we have and continue to focus on high-value generics and focus on our specialty branded 505(b)(2) rare disease business here. At the same time, as you know, we continue to see competition in our generics platform, especially with our main drug, DLS, dexlansoprazole and so -- but we see that, as Nadiya was saying, we see that sort of flattening out. And as the competitor comes in and has taken a little bit of market share, and we've defended pretty well on that. But our main goal is to also launch new generics. And so we've launched 3 new generics so far to complement our generics platform. Finally, I'll just introduce another acquisition we've done in this quarter. Actually, it was in April. We -- under the -- our subsidiary, Sunway Biotech. Sunway Biotech is a supplements ingredients manufacturer with patented technology and patented supplements, especially ingredients in red yeast rice and fermentation technology for probiotics. We were able -- they were able to acquire the 90-year-old global brand, Weider. And obviously, some of you investors might know the long history of Weider, and Joe Weider and his affiliation and his leadership and really iconic representation of body building and health and fitness in the '80s and '90s. This is a very, very strong brand. It did over $100 million last year in revenues. And so it really complements our Sunway biotech supplement ingredients. And as you can see here on the far right, we will launch the Ankascin brand, which is the red yeast rice under the Weider platform. We see this as a solidifying direction for Sunway. And also, we see it as a way to definitely increase our visibility and our ingredients and supplements CDMO manufacturing. And here's some of our global network for the Weider brand. It's headquartered in Gilbert, Arizona, also having offices in Madrid, Spain and Hamburg, Germany as well as Taiwan and Seoul, Korea. Finally, a summary of our quarter 1 and our vision in 2026. We continue to have unwavering commitment to the rest of the year in 2026. Our quarter 1 '26, our financials are in line with our expectations. Once again, it was due to a scheduled maintenance shutdown for our injectable facility in Baltimore and DLS competition was expected, and we expect the competitor to take market share. So the financials are in line with our expectations. And our 2026 complete year outlook has gone still unchanged. We believe in the strong growth of the vigabatrin franchise, and that will continue to grow quarter-over-quarter as well as we see strength in demand in our Maple Grove facility, continued signing of new customers and new development projects into that facility, and we see strong growth with that facility quarter-over-quarter and then this year on to next year. Finally, just continues to get generic products approved and has external programs that they're working with our partners. Finally, we see these 2 M&As contribute to consolidated financials starting May. So the WGN -- here, the WGN will be -- Weider and will be consolidated in May this month. And the MacroGenics deal will close hopefully within about 60 days, and we will be able to also consolidate that -- those financials as well as the operations in -- starting within about 60 days. A little bit of insight into where we see these 2 acquisitions contributing into our business and then looking outlook into 2027, which we will see a full year benefit from these acquisitions. I will highlight this graph is not to scale, but we just want to show that the WGN, Weider business and the MacroGenics business does add on to our top line. And as we also continue to see CDMO backlog increasing and to drive double-digit organic growth. And we also see the expansion -- steady expansion of our Specialty Pharma business and inorganic growth from these acquisitions we have. Finally, I want to highlight here, our marketing efforts are seeing really huge payoffs. We're seeing a 94% 12-month run rate increase in our qualified leads, and that's really due to the increase in demand for North America, U.S.-based manufacturing as well as our high-quality brand name reputation that is continuing to increase quarter-over-quarter and year-over-year. Thank you very much, everybody.

Thank you Bobby. Also remainder, to ask a question you will only needed to enter in the right, QA section. Thank you.

[Operator Instructions].

Okay. We are now back. The first question is on -- mostly on inventory. So the question is, you mentioned that some large customer orders in the U.S. have started production and should show results from the second quarter. Should inventories expect a meaningful sequential recovery? I assume it means decline in revenue and profitability in the second quarter? Or should the recovery be more back-end loaded into the second half of the year? We would like to clarify on inventories. The higher inventory...

Sorry, I think Nadiya says investors, should investors expect meaningful sequential?

Should investors, yes. Expect a meaningful sequential recovery in revenue and profitability. So we would like to clarify on inventories. The uptick in the first quarter inventory was from less working days at Maryland, the fill-and-finish side and also DLS market conditions. However, as an absolute dollar amount starting the second quarter because of the consolidation of Weider Global Nutrition, the landscape of our overall inventory mapping will be very different. So we cannot and we do not suggest a direct comparison between the second quarter inventory level in terms of absolute dollars on that front. So that's what we would like to clarify first. But then when asking about if business would be picking up in the second quarter, the answer is yes. And we actually did see very significant improvement in March stand-alone from top to bottom lines already. Bobby, would you like to address more into the question?

Yes, yes. So we did mention large customer orders. I would say, they are in line with our expectations as -- especially within our more mature facilities like in Canada and in Zhunan as well as in our Baltimore fill-and-finish facility. But we do see a lot more customers signing in and they're more development projects. And those are more short-term based and then the commercialization of those really happened in about a year or 2. But these are strong leading indicators for the second half of the year and also for the upcoming years to come. Should we expect meaningful sequential recovery? I think definitely compared to Q1, there will be a -- I wouldn't call it a recovery, but I would say, in line with our expectations to get back into business, obviously, because of the scheduled shutdown for our Baltimore facility, recovered more back-end loaded into the second half of the year. We do see -- we do expect quarter-over-quarter increases as these orders mature and we actually fill out the backlog for the year. As we mentioned, we have over $300 million in backlog that we will be able to fill out over the year. We also see increased quarter-over-quarter demand for our vigabatrin franchise as that grows out and some new product approvals. Second question? I can take this one. It's pretty much the same thing. Do you expect the revenues to decline compared to 2025 as the company experienced negative operating leverage due to high fixed costs combined short-term weak demand? We don't really ever give forecast into our revenues and earnings. We expect -- like I said, we have -- I can give you details in the business. There is a -- we expected a decline in our leading generic product, dexlansoprazole. We saw headwinds with that. We announced that in Q4 of last year. We see strong demand and strong increase in our lead branded product for the vigabatrin franchise, and we also see new products. Now the timing of those are important. So we will manage that and manage the increase and the decline as well. We also see increase in demand and revenue uptick for our CDMO business. And so we don't see any huge headwinds that would have any large differentiation, but it's hard to make a direct comparison to 2025 as dexlansoprazole is a large impact on the business, and we are trending to recover from the decline in that one product. Has the company expected negative operating leverage? No, there's no high fixed cost, but I will say, I think Nadiya did mention our Bora Biologics Tanvex business. We just finished complete investing into two 2,000 liters. And so the ramp-up of the biologics business is a lot slower, but we also know it's very well known that the biologics business has higher margins and has long-term stable growth once the facility gets filled. So as we continue to say, we continue to make investments into our future. And so we do -- it's not -- there is no short-term weak demand. There's just investments that we are making and some of those will need to be made before the business comes in. So -- but we do not see high fixed costs combined with short-term weak demand. That's definitely not true. All right. Next, maybe you can answer this, Nadiya.

Thank you, Bobby. The third question online is on the MacroGenics deal. For the acquired MacroGenics CDMO business, could you clarify its current profitability profile? Is the business currently EBITDA positive, breakeven or loss-making? And after consolidation, do you expect it to be EPS accretive or dilutive in the year and the coming year? So a quick question is the MacroGenics site has very healthy order book again because it does own 3 commercial projects and a very strong pipeline. So for current year 2026 because of the merge, there is a onetime cost there. Aside from that onetime cost, the site is roughly at breakeven level. But we do expect 2027 with these commercial projects, the profitability will be a very strong platform for our biologics CDMO business, meaning, yes, on an EBITDA level, it should be positive. And we also expect a couple of months of consolidation between the platform and our DP or fill-and-finish capability also in Maryland. So altogether, we do expect it to be a positive contribution to the business.

Okay. We go to the last one. CDMO backlog has -- are we running out of time?

No, no, no. We're good. Go ahead.

Okay. CDMO backlog has increased meaningfully and could reach around [indiscernible] after MacroGenics. Could you comment on the margin profile and revenue conversion, scheduled backlog, investors expect margins to be similar historically CMO or during the ramp-up period? We don't know what the margin will average out to after the MacroGenics acquisition. We'll need to realize our synergies and also see what new programs we can bring into that facility over the next 12 to 18 months. So we can't give you an expectation on the gross margins, but the margin profile revenue -- yes, the conversion schedule, I think it will be relatively the same as previously. We don't see an increase or a decrease in the conversion schedule. So it should be relatively the same as before.

Yes. So when we disclose backlog, it's usually 12 months rolling. So the conversion, we already calculated and give you a 12-month conversion number out there. So -- so far, this has been the last question, and it's 8:00. Thank you, everyone, for your participation, and we will wrap up today's call.

Okay. Thank you, everybody.