Cohance Lifesciences Limited (COHANCE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '23 Earnings Conference Call of Suven Pharmaceuticals Limited. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Rishab Barar from CDR India. Thank you, and over to you, sir.

Good day, everyone, and thank you for joining us on this call to discuss the Q1 FY '23 earnings for Suven Pharmaceuticals. We have with us Mr. Venkat Jasti, the Managing Director; and Mr. Venkatraman Sunder, Vice President, Corporate Affairs; and Mr. Subba Rao, CFO. Before we begin, I would like to mention that some statements made in today's discussion may be forward looking in nature and may involve risks and uncertainties. Documents relating to the company's performance have been mailed to you earlier. I now request Mr. Jasti to share his perspectives on the performance and outlook. Over to you, sir.

Thank you, Rishab. Thank you, everyone, for tuning in, and good evening to you all. As you know, Suven results will not be comparable quarter-on-quarter basis because it has its volatility because of the nature of the business. You can see that quarter-on-quarter, there is a little less growth, I mean, a little less revenue, but compared to the last year, in the same quarter, right, we might see a better growth, both in terms of revenue, EBITDA, profitability aspect. Last year is a very good year for us. As you know, some of these old molecules which were repurposed for the COVID had additional sales. Also, there is one other COVID molecule which was launched by the global innovator. So those sales were there, and they may be short-lived one, as you know, because it's the pandemic. We may not get that every year and that may be considered as one-off. But that -- filling the gap for this year itself is going to be a task for us, but we are hopeful that we will do with the last year and at least, meet the numbers of the last year. One thing I want to bring up is there are costs, increased costs due to the logistics due to some of the raw materials, especially, it's always going up and the higher inflation. All these are affecting a little bit on the profitability, but we could be able to, more or less, maintain profitability even under these trying circumstances. As I was [ saying ], the last results were because of the COVID-related activity and all that stuff. There is a little transformation. This year will be a transformation year because the global innovators themselves are now coming back to the original rollout of the 20 molecules for all of the diseases rather. Rather, they are concentrating only on COVID molecules. So there is a little gap that is going to happen. And since I have only 6 months visibility, I'm telling you right now, it will be the -- whatever we're going to perform is going to be like last year's, filling in the gap of those that are lost to the COVID. But we hope in quarter 3, we will have a better idea how that will ramp up and surpass the last year's numbers. The other thing, what I want to tell you is the little less sales in the Specialty Chemicals and formulations. This is the reason why on a quarter-on-quarter basis, there's a little bit less revenue growth this quarter. But that'll keep changing quarter-on-quarter as in, in other quarters anyway. As you know, we have on, in Casper in the April, and we were telling you last time that a few months later, we should have the inspection done by the FDA. And I'm glad to inform you that it would be 9th of July, the inspection was carried out by the USFDA. And that the inspection passed without any observations. And already, we have filed about 4 ANDAs. And the goal days ranging back from March '23 onwards, so the revenue attrition will take place only post that. And other -- that will be filed within this year. And so the revenue generation from capital will happen post -- I mean, in the '23/'24 time frame. We had all possible and all may come this year. But this is the natural progression, and we're happy that things are going well without any delays. And in general, things are better. And as I was telling you the -- getting the new projects are a little bit slower because of the transformational process from the big pharma. And we will know by November-December timeframe when the new budgets are taken care of by the pharma. Then this will, based on the part we have with the customers, so it will be coming back to the normal and we'll have a good traction in the CDMO. So I just want to give you this qualitative things and then look forward for your comments and questions. So I can answer you better.

Should we open up for questions?

Yes, please.

[Operator Instructions] The first question is from the line of Sudarshan Padmanabhan from JM PMS.

Can you hear me sir?

Yes.

Yes. My question is on the cost. As you had talked in the fourth quarter and also in the opening commentary that raw material costs, the [ formulation ] cost as well as the transportation costs being higher. My question to you is when you're looking at it from a trajectory perspective, how does the cost look when we are in the second quarter? Have we seen some kind of cost coming off? And how are you placed on this side?

Not that much different. Not that much difference we see. I mean, whatever it is that they put up, up there to earlier quarters, they're still continuing.

Sure. And my second question is we are embarking on this CapEx, I mean, INR 200 crores annually. And that is also -- you had mentioned that one of the Specialty Chemical could see commercialization later this year. There are a bunch of pharmaceutical CRAMS products, which are the late stages can get into commercial. So if you can give some color, I mean, I'm not talking about on a quarter-to-quarter basis. But when we take, say, the next 2 to 3 years, I mean, you talked about Casper gaining some momentum going forward, say, from FY '24, but specifically from the pharma CRAMS and specialty CRAMS, how do we see the commercialization gathering momentum, especially in the light of CapEx?

So it is not in our hands, as I was telling every time. This is the success of the molecule that the clinical trial will give us the opportunity to subject the product. Even the customer, largely knowing these themselves, until the target or the price is lower. So they're only looking at -- as of now, there is no indication. But going by the past few years, the track is much better. And sometimes it can happen, 2 or 3 molecules can go in a quarter or not. Sometimes 2, 3 quarters, nothing can go also. But in general, the track -- I mean, seamless transitionary projects are happening. And with the new budget coming in at the end of the year for the R&D proposed. And going forward with the -- all the other indications other than the COVID, we see, based at the top we had, better traction. And that is all -- naturally the traction and hopefully, this success of the molecules that the clinical trial it will give. So I cannot give you quantitatively, but qualitatively, we are very confident that things are moving in the right direction. But quantitatively, I cannot give, because I don't have any data, neither my customer has the data.

Sure, sir. Sir, can you share how much of molecules from the CRAMS and specialty are in the late stage, which can potentially get into the commercialization?

I mean, again, see, the number has no meaning in this place. I mean if I say 100 and only 15 to 20 are only give revenues. See, it is not a percentage like in a generic year-on-year percentage basis. It can give you a 0 to 1, as in no in between. So a number of molecules has no meaning because it's only the mix at match. It's the one that's giving us the same and also the continued revenue generation from the already marketed products. But giving you a guidance base and how many will convert and all that stuff is a very big debt and we don't have additional [ roll-up ] there, neither my customers.

The next question is from the line of Ankush Agarwal from Search Capital.

Sir, firstly, on the opening comment that you mentioned that last year we had some COVID-led packaged revenues, and this year, the organic growth would largely lead to filling up the revenue that won't be there. So would you be able to quantify how much of FY '22 revenues were because of this pipe, which won't be available this year?

About INR 120 crores.

INR 120 crores, okay. And so, which quarters we saw that impact? Because I remember the last quarter of Q4 FY '22, asking you this question is the higher growth of 40% that we were seeing for last 2 quarters, if that had some impact of COVID, but you mentioned in that time that this is broadly not COVID-led growth. This is largely organic growth. So what changed that?

No, no, it is -- I mean, it was only quarters and with the third and fourth quarters, we're a little bit higher, especially fourth quarter. But what I'm saying is the organic growth will fill that gap. That's what's based on the existing orders and also based on the communications we have, while with CDMO doing this.

Okay. Secondly, sir, on the capital business. And now we have this approval in place and you also mentioned that the time line when you start seeing revenue. So would it be possible to share more color on the kind of opportunity that is there for Suven in terms of the end market size of the 3 products that we have in the pipe?

See, we are not going after the big blockbusters, as we keep telling you. I mean, these are the niche molecules and they're small volume molecule. And the total number will be filed by 14 to 15 in Casper itself. Our other 4 are already filed where the inspection has taken place. The goal is that spend starting in March '23 onwards. And once maybe we look before that, so this path is very difficult for me because until we get into the -- 1 year or 2 before we can give you a quantification.

Okay. But not in spite -- not molecule-specific, but what do you see that cash flow will bring for -- to Suven in the next 3, 4, 5 years? Some guidance on that.

What was that again?

Like, not molecule-specific in terms of end market size, but as an opportunity for us when -- what kind of -- I remember in 1 of the interviews, you mentioned that it could be INR 300 crores. Sorry?

Yes. I mean by the time '25/'26 comes, it will be around INR 300 crores to INR 400 crores, we expect the population business to derive.

And just a clarification, lastly, on this. So this is the pure profit sharing model, right? We are not getting any manufacturing models out of it? So it's not a CMO kind of...

Somewhat together, you get both put together. The sale price, which is Casper and also the profit sharing.

I see. What kind of percentage is that, sir? Is it, like, normal 50/50 or so?

No, it keeps changing depending on the molecule.

The next question is from the line of Amit Khurana from Dolat Capital. As there's no response in the current participant, we'll move on to the next. That is on line of Darshit Shah from Nirvana Capital.

Congratulations on these good results for this quarter. Sir, you quantified that around INR 120 crores last year was due to this COVID drug. Sir, could you tell us roughly how much was the total it was in this Q1 first quarter? Is there any contribution from the COVID drug?

I mean, we are not giving the drug by drug then, and we are only giving you the combined because it doesn't make sense to give something which is -- are going to be repeated. And then again, people will just put in expenses and correlate it. And so no, we will not be able to meet that. So the best thing is to give you the things -- because especially the COVID-related drugs, as I said last time, so it will be a one-off kind of thing. One-off means 1 year, something like that. Not very...

Correct. So -- yes. So my -- only wanted to understand, because you said out of the processes, they -- just contribution came in third and fourth quarter. So if you look at Q1 numbers currently versus last year's, Q1, we've done fairly well and we've grown around 30% year-on-year. So I just wanted to have a feel in that.

Yes, point is that we cannot compare, like, a generic thing here. We have -- it came from an event, so you cannot compare. If the product mix change, you'll be there, and the valuations of the product's also there and the stages the product also is there. So many variables. So you cannot compare. Year-on-year, yes, but not quarter-on-quarter.

Got it. And sir, on -- if you look at our annual report this time, you're talking quite a bit about forward integrating. You are the -- you made intermediates to more in terms of potentiating [ with ] PLAs and as a full life cycle management services for a few of our global, with those. And you have been telling us, in the conversation which you have with clients, but that has been directed due to COVID. So where does it stand now? Those are...

We are restarting the activity of the customers and the travel has not started yet. And the activity, we -- which we are starting now, hopefully, will culminate into debt write-off into India, so that they can start the activity. So we have started all over again, so.

But this used to be a very good opportunity to materialize over the next 2, 3 years?

Yes, even for any change, seems to be, innovators equates at least a minimum of 3 years before you see any tactical results. So we hope, unfortunately, when started this activity way back in 2019 before we came in and we last '20, '21, '22 now. So I think '25 time frame, we should be able to get some -- hopefully, some kind of a traction into this fast activity of forward integrating it and also the life cycle management.

And sir, my last question to you is on how much was the cash, I mean, looks like after paying off cash for around $20 million?

We have INR 380 crores now.

The next question is from the line of Abdulkader Puranwala from Elara Capital. Sorry to interrupt sir. Yes, your audio is sounding very soft. Can you speak a bit louder?

Is this better?

No, sir. It's still the same.

Yes, is this better now?

Sir, much better.

My first question is on the CDMO side. So sir, from the last 2 quarters, I mean, if I just look at the quarterly sales run rate, I mean we are at close to INR 210 crores. So since just to better understand this sort of revenue where the -- it were the clinical molecules which are driving the pace or there are some traction, what you are seeing on the commercial side? Again, I'm not picking out for any specific numbers, but directionally, if you could highlight, it would be useful.

It's a combination. It is a combination. It is a 60/40 tilting towards the commercial.

Okay. And sir, secondly, on your guidance. So earlier, you have been guiding for a mid-teen 10% to 15% growth. So are we still maintaining that on the INR 120 crore base that you have? Or excluding that, we are maintaining the guidance?

No, as I mentioned in my opening statement, last year, which is because of the COVID, which is to the tune of INR 120 crore, that filling that gap itself organically is a challenge for us, and we are hoping that it will be done. But 10% to 15% growth, I have not given this time because, as I said, this is a transformational year, not only for us, but also for the customers who are always are mainly focused on the COVID is now coming back into the main field, into R&D. So that will give us a traction to the new projects, and that will give you things. In the end of third quarter, I can be able to give you much better growth. As of now, we are speaking to the last year's toppers..

Okay, sure. And sir, just finally, on the CDMO Specialty Chemical business. So here, we had added 1 molecule which has got commercialized towards the start of FY '22. So sir, how is the traction there? Because...

No, that is an initial requirement only, because unlike -- this is not going to be a global one, like, population. I mean, unlike the human migration. So it will be a small quantity, and it will be at least 1.5 years or 2 years before we get the repeat business.

The next question is from the line of Amit Khurana from Dolat Capital.

This is Rashmi Sancheti from Dolat Capital. Sir, my question again on CRAMS business. Can you give us the total number of molecules? Can you give the breakup in Phase I, Phase II and Phase III currently we have?

So at -- we have stopped giving you that breakdown because the numbers are not giving you right indications. Because if I gave you, as I was telling earlier, if I have 100, I have -- like, maybe generation is only at 20. So the number has no meaning. So we have dispensed away with that very difficult things for us to quote -- I mean, to tell which one gives you this and which one is going to give you that one, which says -- because there is a gap for everything. From Phase I to Phase II, it is a 1 year gap. From Phase II to Phase III, it's 1.5 years to 2-year gap. III to last, it's a 3-year gap, all these things. So it's really difficult for us. That's why we're doing a combined activity in the CRAMS, both the commercial and the -- what do you call, the reclaim of...

But we had 5 products in Phase III out of that. Also, we were expecting that 1 product will get commercialized.

I have not gotten any indication so far. Phase III, as I said, it takes 3 years before you see any results. Out of that, only one is the 1.5 years old. The other ones, that is 1 year old only. So it's a long way to go. So that's why we cannot give any guidance of that and also -- the breakup also.

But as of now, sir, today, we have total 5 products in the commercial stage, right, which we are supplying and the last being the anti-infective, which is a COVID molecule?

Yes.

And sir, when you said that CRAMS has really done well because of both base CRAMS as well as because of the commercial supply, so commercial supplies, you meant that the first molecule, we have supplied in a big way in this quarter. And how is it expected in the subsequent quarters?

We didn't say it's big way. We have supplied on it. And also, I said that the exposed molecule is going to be a one-off kind of a thing. So you cannot expect it to continue to ramp up. That is not the indication of what we got from the customer.

Okay. And sir, on specialty side, currently, we have around 3 molecules, right?

Yes.

So any particular guidance, like earlier, you were -- you used to always say that we will be doing a flattish growth because the third molecule will gradually pick up. Do you still stick to your guidance that we will be doing more or less, what you call flattish growth? Or we see that, that molecule can pick up?

Right now, it is -- stick to the old guidance, since the third molecule, as I said, at least 1 year away before we get the repeat business. So that's the -- what will happen there. So with that also, I'll stick to the same thing. There may be 5% this way or that way can happen. Other than that, not much different.

And on formulation business, sir, you just said that Casper, we have filed 4 ANDAs. Can you give us organically how much ANDAs we have filed? I think we have around 8 products on shelf in the U.S. market, right? If you can give how much when we had filed or if you can just clump totally and give the numbers to us.

As of now, we have filed about 20 in Suven. I am not talking about Casper, okay? Out of that, cannot approve, cannot launch already. And in the Casper, we have filed 4. And the goal is starting March of 2023 onwards. And the other 10 will be filed during the year in Casper. So another 8 will be filed in Suven. So it will be, by that time, about 40 will be filed by the end of March of 2023 altogether.

And sir, what did you say in FY '23, Casper, are we expecting any launches from this Casper? Or we expect that it will take around 1 or 2 years' time?

No, no, it will start doing from March of 2023. That means the results will be in fiscal '24.

Okay, and sir, my last question, again on the breakup. In your overall formulation and other services of around INR 11 crores, how much is the formulation business in Q1 FY '23 and versus quarter 4 FY '21?

[indiscernible]

No, sir. So whatever number...

Prices will be, I mean, INR 1 crores, INR 1.5 crores.

Sorry, I didn't get, sir. So there is a formula, like, Services?

Services will be less than INR 2 crores.

Tech -- other services would be INR 2 crores, you said?

Yes.