Cohance Lifesciences Limited (COHANCE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the Cohance Lifesciences Limited Q4 FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Cyndrella Carvalho from Cohance Lifesciences Limited. Thank you, and over to you, ma'am.

Thanks, Darwin. Good evening, everyone. Welcome to Cohance Lifesciences Quarter 4 and FY '25 Earnings Call. This is our first call with our new identity as Cohance. I'm joined by today with our Executive Chairman, Mr. Vivek Sharma; our Managing Director, Dr. Prasada Raju; our CFO, Mr. Himanshu Agarwal. I will now hand it over to Vivek.

Thanks. Good evening, everyone, and thank you for joining. Today marks an important milestone in our journey as we complete the formal merger process and unveil our new identity as Cohance Lifesciences. It makes a bold step forward in the company's evolution into a niche, technology-led, global CDMO platform. The name Cohance unites collaboration and enhancement, the values that define our DNA. It captures our commitment to collaborate with global innovators to enhance their molecules and products to deliver transformative solutions to patients and consumers worldwide. FY '25 marked a period of strategic transformation, and over the last year, we have made significant progress to put the building blocks in place for our vision to be a $1 billion integrated, technology-driven CDMO with a global footprint by 2030. We have created a $335 million integrated, technology-led platform revenue company FY '25 pro forma with EBITDA margin of 34%, reflecting a very disciplined execution. On the organization and talent front, we have built a high-quality leadership team and engaged strategic advisers from leading global contract manufacturing organizations. We have institutionalized 3 focused business units, which are our engines of growth, which are: Pharma CDMO, API+ and Specialty Chemicals, which are supported with dedicated commercial and enabling teams. We have also formed BD teams internationally in U.S.; EU; and in Asia, primarily Japan. We have leveraged M&A strategically to increase our tech-led business mix and partnering with well-renowned scientists who have now joined hands with Cohance. Our investments in NJ Bio and Sapala have strengthened our capabilities in antibody drug conjugates and oligonucleotides and expanded our presence in the United States, bringing us closer to key customers. Contribution from high-tech, fast-growing modalities is expected to double over the next 5 years. We have improved significantly on the key business metrics in September 23, which is: We have expanded the commercial molecules to 16 from 10; we have expanded the late Phase III molecule pipeline to 9 from 2; we have built pipelines with higher RFPs from a wider customer base, including large global innovative pharma companies. We have kept a very high focus on quality, regulatory and ESG front. As part of that, we have augmented R&D to expand to a team of 500-plus scientists and added the facility in Genome Valley in Hyderabad and in Princeton, New Jersey. Our USFDA inspections at our Nacharam site concluded successfully, and we received an EIR with VAI classification. Our Jaggaiahpet API unit 1 cleared EU inspection recently. In commercial supply, we have constantly been maintaining 100% OTIF. Our Pashamylaram site received distinction rating from British Safety Council. We have been named among the world's best companies for sustainable growth 2025 by Times and Statista magazine. And SBTi, we received SBTi validation, which is the Science Based Target Initiative validation for our GHG, which is greenhouse gas emission reduction targets. FY '25 was marked a year of transformation through integration, aligning our go-to-market and operations under a unified framework. FY '26 will be a year of acceleration and execution. As we enter FY '26, we are excited to operate as one integrated organization deeply aligned and focused on delivering value through science, speed and reliability. We remain focused on our vision of $1 billion global revenue by 2030, which is primarily driven by a diversified growth strategy built on 3 key business: Pharma CDMO, Speciality Chemicals and API+. A higher mix of differentiated modalities like ADC and oligonucleotide and other emerging technologies; a programmatic M&A approach to scale niche capabilities; a professionally managed execution focused leadership team. Our participation in industry events like DCAT, TIDES in London and California recently, CPHI Japan under combined brand identity, Cohance was well received, reinforcing our position as a global CDMO. This has strengthened our focus on brand visibility post-merger and ensures continuity with global customers. Now I'll hand over to Dr. Prasada to walk you through the business updates. Dr. Prasada?

Thank you, Vivek. A warm welcome to all of you, and thanks for joining us today. Let me build on what Vivek shared and reflect on our performance and momentum across the business units. The FY '25 was a foundational year in many ways. We successfully integrated our acquisitions of NJ Bio and Sapala Organics and advanced our strategic road map to become a differentiated, technology-led CDMO. We are also working on strategic initiatives to accelerate the growth. Platform integration has been one of the important key driver for us, and we have begun aligning our systems, processes and business segments, cross-pollination of capabilities and customer relationships across the combined platform. On pharma destocking in some of the key molecules, we also have investments in high-growth modalities. And the current pipeline will help diversify the business further and deliver consistent growth in near future. AgChem downcycle, we also have utilized this time to establish a dedicated business unit with sectoral leadership and R&D expertise. We have started seeing increased customer interactions, and new opportunities as the cycle has actually come back to us. As we have been saying during our last few quarters and our guidance for FY '25, we have delivered 9% full year revenue growth and maintained a robust pipeline across modalities. To give you a brief outlook and performance review, our Pharma CDMO segment continued to be the key growth driver, growing 18% year-on-year, supported by expansion in late-stage projects. Notably, our Phase III pipeline has been maintained at 9 active molecules. Four of our intermediate projects pertaining to one of the important molecule expected to enter into commercial production. The lateral strategy has been rewarded in the right direction as our Phase III share has actually gone up versus what it was in FY '23-'24. We continue to add more projects from recently added large innovative customers in the early to mid-phase. Our RFQ pipeline continues to expand, featuring a more balanced mix of existing and new customers as well as late-stage RFQs, which adds visibility to our new integrated global pharma CDMO platforms item. We continue to be audited and inspected by leading global innovators and biotech companies and meaningful indicators of validation from large pharmaceuticals and biotech customers. Regarding ADC business, our dual value proposition in both camptothecin-based and auristatin-based creates a very rare payload depth among global CDMOs. The integration of linker synthesis, payload supplies and conjugation via NJ Bio further underscores Cohance pivotal role in upcoming late-phase and commercial ADC programs. We continue to see healthy expansion in RFQs across all modalities, particularly in late-phase and integrated ADC opportunities, including payload linker and bioconjugation. Seeing evidence of cross-selling opportunities, a large innovator with whom we have been partnered for 3 decades has recently shared one RFQ in the ADC segment. In addition to this, we are also witnessing growing interest from large innovator companies in our ADC and oligonucleotide platforms, further validating our positioning in complex modalities and creating a new cross-selling opportunities across the platform. We have initiated capital expenditure in the U.S. to expand NJ Bio's bioconjugation infrastructure in line with our growth aspirations as we work to meet some of our customer requirements. During our last call also, we did mention oligo facility of cGMP is on track for validation by end of Q3 FY '25-'26. Regarding Speciality Chemicals, while the first half of the year experienced and expected challenging macro environmental impact, a sequential recovery occurred in the second half and the improvement in Q4 performance was also as expected. We see a clear recovery trends heading into FY '26. Although on a weak base, FY '26 is poised to deliver further growth as we move up in the value chain with existing customers and expand into new areas, including graduation in the life cycle to active ingredients. The RFQ are progressing well for the new projects from existing customers. FY '27 also should reflect continuous momentum of growth given the current traction that we have. In the API+ segment, we have delivered year-on-year growth of 9%. We successfully validated 9 products, and we also done 8 filings. This is in line with our commitment to deepen our portfolio across the platforms, specifically in the business segment of API+. During the year, we also had 2 of our DMFs reviews completed. Our visibility of FY '26 remains healthy driven by new product launches, continued traction in our portfolio as well. We expect mid- to single-digit product validation in fiscal '26 as well. Overall, we believe FY '26 will be a pivotal year of acceleration and execution as a unified organization under the Cohance Lifesciences platform, we are better positioned than ever in serving our global customers with agility, flexibility, science and sustainably. Coming to FY '26 guidance and margin outlook. Our key focus areas are going to be continue to strengthen our relationship and strategic partnership with our existing and new customers, drive large projects wins and invest in the scale of tech-led part of the business, continue to add right assets with the strategic, value-accretive M&A for the platform. As mentioned earlier, we expect growth acceleration in FY '26 with the delivery of double-digit growth and have a building blocks in place to deliver our strategic engine of $1 billion. As per our previous communication, our business is nonlinear and annual performance will be the most representative measure of business progress, which is closer to the reality. We expect Q1 FY '26 to be muted with the growth being way towards second half due to the shipment timings and customer inventory adjustments. As we continue to invest in building the business ahead of scale as well as with the full year impact of acquisitions in the growth stage, coupled with our advanced investments in people for long-term sustainable growth, we expect our EBITDA margins to be in the low 30s in FY '26. The midterm target remains in the mid-30s with scale. With that, now I hand out the session to Himanshu, our CFO, for the financial overview. Thank you. Over to you, Himanshu.

Thank you, Dr. Prasada, and good evening to all. Let me take you through the financial highlights for the quarter as well as for the full year. As we have reiterated many times, we operate in the lumpy nature of the industry. The annual performance trends are a better assessment of the growth trajectory. As indicated earlier, we have delivered growth in FY '25 on a full year basis and we expect our growth to accelerate starting FY '26. We are excited about our business integration and the opportunity that platform would present to us. For the full year FY '25, we ended the year with 9% year-on-year revenue growth and with an EBITDA margins of 34%, in line with what we had communicated earlier. For the quarter 4 FY '25, our revenue grew at 20% year-on-year, supported by our strength in Pharma CDMO and Speciality Chemicals segments. The adjusted EBITDA margins were at 31.3%, reflecting business mix impact as well as integration of recently acquired assets. The CapEx investment totaled to $3.1 billion primarily directed towards capacity expansion and modernization in most of our major platforms across the entire platform. We had earlier communicated the GMP manufacturing capability on oligo that continues to move ahead and the NJ growth capital continues to get deployed. We do anticipate a higher CapEx spend in FY '26 with NJ Bio's expanded conjugation commercial facility being set up. We generated INR 3.6 billion in free cash flow, maintaining a net cash balance sheet with INR 2.9 billion in cash and bank balance. This is despite the strategic investment of INR 8.1 billion for the acquisition of Sapala and NJ Bio. Looking ahead, our capital allocation will remain focused on scaling differentiated modalities, both organically as well as inorganically. We will continue our focus on delivering integration synergies and operating leverage. With that, I'll hand it back to Cyndrella.

Thank you, Himanshu. With that, I now request the operator to open the Q&A floor.

[Operator Instructions] The first question is from the line of Mehul Panjwani from [ Forty Cents ].

I have 2 questions. First question is, can you please elaborate on the rationale behind the acquisitions of Sapala and NJ Bio? That was my first question. And second question, with the current emphasis by the U.S. President on manufacturing in the U.S., do we have -- do we foresee that we will add more manufacturing sites in the U.S. apart from the NJ Bio thing?

This is Vivek. Let me just try to answer that. Rationale for acquisition of Sapala and NJ Bio, I think we have been consistently saying as a tech-led CEO, we wanted to expand our capabilities on technology. And both ADCs and oligo are fast-growing capabilities, fast-growing modalities that a lot of pharma companies and biotechs are investing. And investment in these capabilities has allowed us to enter and expand our TAM that we are now playing in a bigger space. This has allowed us to get access to customers, biotech as well as large pharma, that we would not have otherwise been able to at a fast pace. And we can now go ahead as well as grow these capabilities and then sell them our existing offerings. Both these sites are going through capital expansion. At Sapala, since we acquired, we are adding GMP capabilities to cater to customers that are looking for GMP capabilities. And at NJ Bio, we are investing capital to expand the conjugation capabilities so that we can offer more services to the existing customers that grow that business, right? So there's -- and as you know, we had ADCs before through our site in Hyderabad. And now with the acquisition of NJ Bio, we can now offer more integrated East and West combination as well as linker payload and conjugation capability. And so that's the rationale for getting into the technology to really -- our vision towards a $1 billion business by 2030. So this is a key piece in that space. In terms of -- and in terms of U.S., I think we, as a company, had made that investment before the government in U.S. changed, before the new president actually came. And then we continue to believe our vision of having an East-West combination and having their capabilities where the talent is. With the acquisition of NJ Bio, not only we got a business, we got capability but we also added about 100-plus scientists, and as a science-driven company, we're really excited with what NJ Bio brings, and we will continue to invest in expanding there. In addition to that, as a company that has grown through M&A and organic growth, we are constantly looking for assets, which makes sense. There may be more investment, more assets if we find the right one in these geographies. Right now, we're very excited and continue to invest capital in NJ Bio as well as Sapala to grow the technology as well as in Western units.

Sir, just one follow-up question. Sapala is also in the United States?

The Sapala is not in the United States. Sapala is an India-based company. We are expanding the capabilities. They have customers in United States. They have significant presence from customers in United States. But the capabilities and the offerings are all in the India. We have commercial resources based in United States that help and support, some scientific advisers based in United States. But capability-wise, delivery is all from India right now.

Our next question is from the line of Abdulkader Puranwala from ICICI Securities.

Sir, my first question is with regards to these 4 intermediates you talked about the supply starting. So could you provide us some color as to when the supply starts and some bit of color on the therapeutic category, which the molecule pertains to?

So thank you for asking this question. Abdulji, at the current stage, we can only share with you that the Phase III pipeline has actually grown healthy. And today, we are sitting with 9 products as opposed to 1.5 years back. If you can recollect, it was only at 2. Specific, we were told by our innovative partner, that 1 product has 4 intermediates, which are getting commercial. At this stage, we would be only able to share the details up to this extent. As you understand, we are governed by the CDAs, and we would not be able to mention beyond these details. I hope you understand our situation.

Sure, sir. Fair enough. And sir, in terms of your guidance for next year of double-digit growth. So just wanted to understand, what would be the key growth drivers, including your Pharma CDMO versus Speciality Chemical? How should we look at FY '26 from a group perspective between both these segments?

Abdul, this is Himanshu. So I think we have guided that Spec Chem is a business which is turning around. And we see that in quarter 4, it has poised healthy growth. So with Spec Chem coming around, we expect all the 3 engines. So as you would recollect, we have created 3 engines of growth: Pharma CDMO, Spec Chem as well as API. We expect all the 3 engines to fire, some stronger, some weaker but all the 3 engines would be on a double-digit growth.

Sure. Understood. And one final one, if I may. So in terms of your -- enhancing your technical capabilities, so what are the kind of capabilities, which you'd like to add, say, from a 2 to 3 years perspective, which are currently missing in the Suven portfolio or Cohance portfolio?

So this is an ongoing effort, Abdulji, as maybe our past, if you can recollect, as our Chairman was mentioning. When we started, we were only in one part of the antibody drug conjugates, which is more of a payload. NJ Bio has actually brought in bioconjugation and even linker capability. Same is the case, we also feel advanced modalities within oligo can be a potential possibilities. And we keep monitoring very closely whatever is relevant, which will accelerate the growth of the existing business while it becomes an additional advantage to us. We have been constantly scouting. Once we have a better answer, we'll definitely come back to you.

[Operator Instructions] Our next question comes from the line of Mehul Panjwani from [ Forty Cents. ]

Sir, can you please elaborate on the time line for commercialization of the 9 molecules which we are actively working on?

I think in commercialization, we are expecting that it will start soon. I mean, as you know that it depends on a lot of factors. These are customers' molecules. So they have Phase III, they have to wait, they have to file. There's a lot of effort. But we have said that 1 molecule with 4 projects is getting commercial this year. And we hope that others will start on that progression path. We -- this is all -- there's a lot of external factors, actually, that are dependent on. But the fact that we have provided Phase II, Phase III material for the customer, there's discussions around a lot of these things as they get a good readout and then they file for commercial. But right now, the guidance we are giving is 1 product, 4 projects getting into commercial. And we are hoping that others will also follow soon.

Right. And sir, is it possible or -- to let us know, which areas of -- which areas are these molecules in?

So again, universe, we are slightly agnostic for any therapy. We are predominantly science and technology-based product. Having said that, some of the products are in fast track and breakthrough therapy, starting from CKD to even oncology also. To that extent, we can give a general response as of today.

Right. And these all 9 molecules are different innovators or there's a concentration as well?

Multiple innovators.

Our next question is from the line of Arjun Sindhwani from Goldman Sachs. As we're not receiving an audio from the line of Arjun, we will proceed to the next question, which will be from the line of Shyam Srinivasan from Goldman Sachs.

Am I audible?

You are audible, sir. You may proceed.

Just the first question on just the guidance for fiscal '26, right? You have been talking about -- you've talked about a double-digit growth. But if you were to kind of qualitatively talk about the 3 business segments, CDMO, the agrochem as well as the API+, is there any qualitative sense of how we should look at each of these businesses? I'm going to say agrochem is probably -- when we look at fourth quarter, it seems to be recovering from a low base. So could you help us understand us how one should be...

I didn't hear the question properly.

Shyam, your voice is cracking. We are unable to hear you well. Darwin, if you are able to hear him, if you can...

Yes. So I was saying -- hello, can you hear me now?

Yes, sir. It's better, sir.

Yes. So I was saying just the guidance -- or revenue guidance of double-digit growth for fiscal '26, how should we liquidate qualitatively between the segments, Pharma CDMO versus agrochem versus API+?

Great. I think -- this is Himanshu. I think as I said that -- I think I responded to an earlier question from Abdul that we are looking at a double-digit growth for the platform. And with Spec Chem turning around, which we have mentioned, we are looking at a double-digit growth across all the 3 business verticals that we have very carefully crafted in the FY '25. So that's the guidance I would like to give you.

Much helpful. In terms of -- since we have -- also looking at the EBITDA margin guidance, sir I know we ended quarter 4 at 31% and looks like the guidance for fiscal '26 seems to be the low end of that. So what explains that? From an integration perspective, I noticed an INR 30 crore onetime expenses in pro forma consolidated financial. Does that continue to remain for some more time and -- which is why the EBITDA margin dragged down? If you could help us, please.

So I think EBITDA margin is a temporary decline that we have called out. That FY '26 would be a low 30s EBITDA, right? And there are multiple factors. I think predominantly, I would say that there's a business mix that is there, which will play. There is also operating leverage, which will take time for it to plan in. As you know, we have invested ahead of the curve, and that would kind of play. There is also an NJ Bio, which we are integrating. And that is a fast-growth acquisition for us. It does come with a lower EBITDA than the average EBITDA for the business. So I mean there are actually multiple aspects. I think we've also called out that there is an inventory destocking that is there in the business as customers have come back and said that for a few commercial molecules, they do hold inventory and they're looking at pausing for FY '26. So as I said, there are multiple levers, which is playing for this temporary dip in EBITDA of low 30s for FY '26.

Helpful. Just a last question for me...

For midterm, as we have said -- sorry, just 30 seconds, please. As I said that for midterm, we will start growing in our midterm guidance of mid-30s hold as it is. I'll recall, and I'll call it back again, it is a temporary dip for multiple factors, and we will start climbing EBITDA thereafter.

Okay. Himanshu, last question on CapEx...

Sir, does that answer your question?

Yes, it does. Just on CapEx lastly. Sorry, I'm not sure whether I got the full year number on a pro forma basis for fiscal '25. And what is the outlook for '26, please?

Look, as we have called out, there is an INR 314 crores of CapEx that is there on the pro forma P&L for FY '25. As you know that we have put in a growth CapEx for NJ Bio, which we have started spending. So as I've called out in the communication, we are looking at NJ Bio's expanded conjugation commercial facility being set up, along with the regular CapEx at the platform level. And hence, it will be slightly higher than INR 350 crores that we have spent in the year FY '25.

So you're not calling out a number here, right, Himanshu?

I mean it will be difficult to call out a number at this stage.

[Operator Instructions] We have the next question from the line of Foram Parekh from Bank of Baroda Capital Markets.

My first question is on the ADC segment. So we read a lot of news of ADC drugs like HER2 and all being qualified India late-stage clinical trial for the first line of treatment. So we all -- we know that right now, these are in the second line of treatment. So once they are qualified to the first line of treatment, how do we see our ADC segment panning out? And currently, what would be the ADC proportion in the Pharma CDMO? And on the base of this positive outcome, where do we expect the ADC pie to grow in 2, 3 years down the line?

Thank you, ma'am, for asking this question. We'll give some industry-related comments before we come back to specific products. As you understand, 13 plus to 15 products, which are approved as of today, there are 2 major products as of January of 2025 which have antibody drug conjugates with camptothecin-based payloads as an approved product, out of which, one product is becoming a gold standard product because of variety of reasons, more selectivity, as you have rightly alluded to. Across HER2-positive/negative to even additional non-small lung cancer also, therapy expansion is happening specifically for that molecule. There is also an anticipation that it becomes a second-line to first-line therapy. When such kind of development happens, anybody who supplies the payload to such kind of a molecule, obviously, along with the therapy expansion, volume uptake also happens going forward. That's a broad way that we have it. In terms of overall ADC, as what we learned in the last 7 to 8 years, while there's enough focus on various payloads, which includes PBD dimers, auristatin-based and camptothecin-based, camptothecin-based payloads are found to be the gold standard products with a drop rate projected to be less than 1%, whereas others are in the range of around 55% to 60-plus percent. Good news is we are there very deeply in commercial scale. We have unique competencies of producing the product on scale from a regulatory approved site using our expandable OEB capabilities. Hence, we feel we will continue to be staying relevant in the expanded market going forward.

Okay. My second question is, right now, we know that in Phase III, we have like 9 molecules. So on the basis of the reading of Phase I, Phase II, is it possible for us to give a guidance linked to -- in next 1, 2 years line? How much increase in the Phase III molecules can be from current 9 molecules?

Ma'am if I may request, as you have heard from us, we have been heavily investing time and effort in terms of expanding our outreach to our customers. Past should set the precedence for future. Our starting point was 2 products. Now we have reached to 9 products in less than 2 years' time frame. And our endeavor is to expand the basket further. We are quite hopeful that this basket will be further expanded.

Sure. And lastly, I heard that you all have not called out for the FY '26 CapEx number. But can you just give us like what can NJ Bio CapEx be, I mean, in FY '26?

Before I request our CFO to comment, I just wanted to also say this, we have taken to monitor what is more difficult to achieve, which is Phase III. But we also have active pipeline of Phase I to Phase II, a meaningful higher double-digit number. So that sets the tone that we will continue to expand our Phase III molecules. With this, I would request Himanshu to answer this question on the CapEx side of it.

Yes. Foram, so I think given the interest of everyone on the CapEx, I think our sense is that, I mean, it will still be in the range of around INR 350 crores as a total CapEx for FY '26.

[Operator Instructions] Our next question is from the line of [ Hemant Soni ], an Individual Investor.

Congratulations on merger. I have one question. I read in your presentation that we are guiding for a double-digit kind of revenue growth in FY '26. Will you be able to quantify it, sir?

So Hemant, this is Himanshu. I think I will reiterate what I have been saying in the call that in FY '25, we had very categorically said that Spec Chem was on the wrong side of the business cycle, and it will recover, which it has and as we see quarter 4. And having that recovery end, we have also established 3 engines of growth for us, which is Pharma CDMO, Spec Chem CDMO and API. Our understanding is that all these 3 engines of growth will fire and deliver double-digit growth for the revenue. Obviously, one would be higher and one would be lower relatively but they will all fire and deliver double-digit growth.

Sir, I got your point that we are looking for a double-digit kind of revenue growth but I just wanted a number or maybe a range.

So unfortunately, Hemant, we do not give guidance beyond what we are communicating. So you have to allow us time.

Any range is also fine, sir. I'm not looking for exact numbers. Maybe are we looking for a number in early teens or maybe mid-teens or late teens?

I think it would be -- I mean it would be certainly in the teens, okay? So we will define as to what it is. I don't want to kind of get into early teens or mid-teens at this stage.

[Operator Instructions] We have no further questions. I would now like to hand the conference over to the management for closing comments.

Thank you, Darwin, and thank you for joining and thanks for your time. We'll wait for the next quarter to join back. Thanks a lot, everyone.

Thank you, all of you.

Thank you.

Thank you. On behalf of Cohance Lifesciences Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.