Cohance Lifesciences Limited (COHANCE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Cohance Life Sciences Limited Update Conference Call on the change in Directors. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Cyndrella Carvalho, Head of Investor Relations. Thank you, and over to you, ma'am.

Good evening, everyone. Thank you for joining us on a short notice. As you would have seen our stock exchange communication, this call is regarding the update on our Managing Director's resignation. Today, we have with us our Executive Chairman, Mr. Vivek Sharma; and our Chief Financial Officer, Mr. Himanshu Agarwal. With that, I'll hand it over to Mr. Vivek. Vivek, over to you.

Thank you. Thank you, Cyndrella, and good evening, everyone. I would like to share an important leadership update effective immediately. Dr. Prasada Raju will be stepping down from his role as Managing Director of Cohance. Dr. Prasada Raju has resigned from his position considering his personal priorities and to continue his learning journey. Prasada will remain associated with the company to orderly transition for an extended period ending this fiscal. The Board has placed [Technical Difficulty] deep appreciation for his invaluable contributions, leadership and commitment in steering the company through its growth and transformation journey. In light of this development, the Board has approved a revised organization structure, one that better reflects our multi-business portfolio and expanding global footprint and positions Cohance strongly on its path towards a $1 billion U.S. vision. This new structure is designed to bring greater agility, faster execution and deeper accountability across our businesses. With this in view, we are realigning our organization structure to strengthen focus and expert decision-making. As you are aware, over the past year, we have established 3 distinct business verticals, each led by a highly experienced and accomplished industry leader who bring deep expertise and proven track records in their respective domains. These business unit leaders have full cooperation -- fully operational ownership and accountability, will henceforth report directly to me. We will also be welcoming a platform COO shortly, a seasoned industry leader who will be based out of Hyderabad. A techno commercial professional with over 3 decades of experience, he brings a strong blend of operational excellence and on-the-ground project execution. Our new CEO will further strengthen our technology and operations backbone across the organization. Additionally, I am pleased to share our CFO, Mr. Himanshu Agarwal, will be joining the company's Board as Director, ensuring continuity and alignment across leadership and governance levels. You are all aware of our leadership structure, but let me take a moment to reintroduce our key business leaders whose key responsibilities areas are fully aligned with our vision in the next phase of Cohance's growth. Mr. Yann D'Herve, Pharma CDMO. Yann is based out of Pennsylvania, brings over 3 decades of global experience across pharma and specialty chemicals, including more than 15 years in the CDMO space. Yann's deep understanding of drug substance, CDMO, high-potent APIs and complex chemistries position him to scale our CDMO and niche technology franchise globally, drive customer-centric partnership and embed operational excellence as a core differentiator. Mr. Gunjan Singh for API plus business. Gunjan, based in Hyderabad, brings extensive leadership experience across top Indian pharma companies, combining strategic portfolio management with a strong commercial and operational acumen. Gunjan's focus is to expand our differentiated API portfolio, improve portfolio productivity and strengthen customer engagement across regulated markets. Mr. Amrit Singh, Specialty Chemicals business. Amrit has close to 2 decades of experience across leading Indian specialty chemical corporates with a strong track record in scaling new business and managing global customers. Amrit's priority will be to accelerate growth in agro and performance chemicals space, leverage our technology integration and enhance international partnership to build a sustainable specialty platform. This revised organization structure will enable us to deliver on our vision through a value of customer first, accountable, empowered, trust, loyalty and sustainable. Our 2 business units leaders along with their commercial teams are participating at CPHI Frankfurt right now, meeting with global customers and partners to strengthen strategic relationships and explore new collaboration opportunities for Cohance. We have unveiled our new brand identity at CPHI Frankfurt event, reinforcing our positioning as an integrated global CDMO with niche technology platform. To sum up, this transition further accelerates our positioning of Cohance as global platform with 3 engines of growth with 3 strong leaders for each business unit that will help drive growth and our vision for USD 1 billion by 2030. Thank you, Cyndrella.

Thank you, Vivek. That concludes our formal remarks. I would like to remind everyone that we are currently in our silent period ahead of our quarter 2 earnings. And hence, we will not be able to take or comment on any quarter-specific or financial number-related questions today. We'll now open the floor for questions from participants.

[Operator Instructions] We have question from the line of Chirag Dagli from DSP Asset Managers.

Sir, can you spend some time on how are you managing this transition insofar as client interface, et cetera, is concerned, if you can spend some time on that. And of course, you must have spoken to clients. What is the initial feedback around this whole transition?

So I think, Chirag, thank you for the question. Our businesses and business CEOs, they directly work with the clients and they're managing clients, and they are all at CPHI right now, right, dealing with clients. And between the commercial team and the business CEOs, there is very good connectivity with the clients. And there is no single dependency on Dr. Prasada on any specific client. Relationship was already transferred as part of normal transition to the business CEOs. However, Mr. Prasada as part of transition will be with us for the next few months. And in that period, he will attend important meetings and work on transition, wherever the relationship transition is required or if there's any key customer meeting, he will join that to make sure that the handover properly happens. This just happened a little bit ago. So we have not broadly communicated except for the communication you just see on the stock exchange, we have not called out to customers. We will be through these meetings at CPHI communicating. Actually, we just communicated to our team a few minutes ago. So we are now communicating to our team. So we'll be telling our customers who are participating at CPHI through that process. And then as needed, we will communicate in other forum. But otherwise, it will be one-on-one meetings. During the CPHI we will be communicating more concerns.

Understood. And just broadly speaking, of course, this company is changing a lot and clients are -- it is expected when 6 entities become 1 to see some bit of churn. But when do you think a lot of this churn kind of normalizes and things start to find some base in terms of attrition or churn within employees?

Yes, Chirag. So listen, you are right. I mean 6 companies coming into 1, right? It's a platform. And our hope is that we don't end at 6, we'll keep adding more, and we're looking aggressively to add more. Some of this, listen, I think, is natural. However, with the Cohance and Suven merger earlier this year, I think what you see are some changes that, in my view, are big in nature. However, with the verticals that we have with the new CEOs, with the new COO coming, we have few other key talent, actually senior people that will be joining us in the next month. I expect at the senior level, we are reaching that phase of stabilization as of now. As we continue to expand, as we have just hired our Chief Operating Officer for the CDMO business, who joined us about 3 weeks ago. As we continue to expand and as we continue, there might be changes and upgrades that you might see in different positions. But at a senior level, my hope is that we are reaching that point of stabilization.

Understood. And sorry, I joined a little late. I don't know if you've covered this, but are we already looking for a replacement? Have we finalized? When do you think we can hear from getting a new CEO?

Yes. So Chirag, we did talk about it that we are -- we have changed the structure from what it was before. The new structure will have 3 new business CEOs who were actually in the system before. And they will not directly report to me. We are, however, creating a new position of platform COO, who will be joining us shortly, hopefully, in the next few weeks, and he will also report to me. So that is operations dotted line also report to him in addition to supply chain quality, but the businesses will have complete autonomy and they will report it to me. So the structure will be slightly different from what it was before.

[Operator Instructions]

Maybe while we're waiting for more questions, I can just give a brief update that you may find helpful. This is -- given, as you know, that we are in quiet period, we cannot share any numbers. But just general update, we've recently completed 4 major customer audits across our CDMO facilities, and they all went very successful. Our RFP pipeline, which -- with the addition of the BD team and all these investments we've been making in commercial infrastructure is becoming more and more robust. Pharma is taking time to make decisions, but we are excited with the pipeline and the relationships we are working with our engagement with customers on different fronts. One of our large Japanese customers has confirmed its Phase III order, which is very important for us. This is a very important milestone in our CDMO journey. Our Suryapet facility is scheduled to be capitalized in line with this confirmed order, which reinforce our readiness for commercial scale execution. This is 1 of the 4 Phase III commercialization products that we were expecting. So we are pretty excited about it. In addition, our recently onboarded large innovator customer relationship is progressing very well with multiple mid-phase projects under active discussion and their leadership team is actually expected to visit us shortly. Our ADC business continues to gain traction with wins in alternative payload program and a steady progress across both existing and new partnerships supported by our NJ Bio team in the U.S. Surya -- our oligonucleotide unit has successfully completed equipment validation and remains on track for commissioning in Q4, marking another important milestone in expanding our advanced therapy capabilities. This is a site in Nacharam in Hyderabad, which just got completed, and we're working on the validation process. Now on the recent OAI classification of our Nacharam FDF unit, which we updated to the stock exchange last week, we are in the process of appointing a leading U.S. FDA consulting firm to also help us in addition to an Indian firm to guide us through the remediation process. We're working proactively with external experts to address observations and engage with the agency in the best possible manner. However, as we have said in the past, business is less than 1% of the overall impact EBITDA that we have. However, we're giving it all the due importance and continue to work on making sure that we address everything in the right way.

So, we have a new entrant to the question queue. We have Shyam Srinivasan from Goldman Sachs with the next question.

Just the first question on the change. Do you expect any large change in strategy following some of the recent changes, Dr. Prasada before that, Dr. Sudhir. So anything that is changing? Or you think, like you said, maybe it's just as 2 platforms come together, there are going to be personnel changes. Are we going to pivot into something different? Or is there a thought process to change the execution strategy?

So Shyam, if there's a change, it is to expedite actually our growth journey and to bring more execution and to accelerate everything that we are doing. But fundamentally, our vision of $1 billion business by 2030 remains there. We are committed to reach there. And as part of that, we're bringing in more global leaders, more talent that can help us reach there faster and improve our chances of reaching there. But fundamentally, no, there is no change in our strategy. We remain committed to $1 billion business with a significant portion coming from CDMO with focus on tech-driven businesses. However, as part of progression, it's important to bring in leaders that can help us reach there faster and better. That's why you are seeing a lot of new additions to the team. We have added 3 business CEOs. All of them have joined us in the last 6, 7 months. We're adding a COO position. We're bringing in some other functional expertise. Commercial team has strengthened significantly and a very different level of commercial team that I'm excited. So to answer your question, there's no change. All our efforts are to accelerate and make sure that -- to ensure that we reach that path.

Helpful, sir. Just second question on industry development. The U.S. US Biosecure Act has been cleared by the Senate. So what are you -- is this -- this is much delayed, right? This was started in December last year at the House. So anything that you're picking up now from conversations that you're having with customers on -- or is this change -- legislative change going to be more lasting in terms of its impact?

Yes, Shyam, as you know, this has been going on for the last, what, 6, 7 months or 9 months now, right? And we have seen ups and downs. My -- listen, my answer is going to remain consistent with what I've been saying. You said people are moving towards figuring out a China-free strategy. That trend irrespective of Biosecure, I think companies are trying. However, the pace at which they move depends on company to company. Indian companies will definitely continue to benefit. Now the Act, as you know, is still being reviewed and it's not fully passed, but it's a step in the right direction now with some changes, right? They took some of the names of the companies. They made some modifications to the original version. That will definitely have impact. But overall, this is a positive sign in my view, for India and the India CDMO and CRO industry.

[Operator Instructions] Our next question comes Naresh [indiscernible] from SBI Life Insurance.

Question is regarding [indiscernible] in plant operation inner level [indiscernible].

Naresh, your line was not very clear, but let me repeat [indiscernible].

So what I'm asking is [indiscernible].

So you heard the question, [indiscernible] level attrition and [indiscernible] R&D.

So let me answer it. [indiscernible] R&D...

Naresh, put yourself on mute [indiscernible] lot of noise...

So we have a new Head of R&D for the CDMO business, [indiscernible] two senior guys, who joined the us in the last one year, they have taken over Head of R&D, Dr. Somesh and Dr. Ashok. Both were in the system and we are now running the R&D [indiscernible]. For R&D part we have also added the ADC segment with [indiscernible]. We have not -- [indiscernible] for one or two changes, where the crop apart from that, [indiscernible] they are actually expanding and we had a lot of R&D resources [indiscernible]. So while there were some people that lacked [indiscernible] and got replaced right away, there is actually more addition to the people and there is actually [indiscernible] coming up, we have added lot more latent and lot more people. [indiscernible] company contract [indiscernible]. So that is actually the growth in R&D in our R&D workflow.

Okay. And my -- the difference was because of the position that is [indiscernible] or communication of the clients came in [indiscernible].

The -- so Naresh, if I understand -- your line is unfortunately very bad, but if I understand [indiscernible] workflow with the client. So our delivery motive for R&D remains at 100%, we are very good in delivering our R&D project. We actually had success in winning some large projects with new teams in R&D. And they are ahead of R&D in the CDMO work in Europe. [indiscernible], so we have -- if anything we are positive [indiscernible] improvements and we are working on the launches, [indiscernible] R&D. We have got a large contract with a large CDMO for ADC. That is also a result of our R&D capabilities. So if anything Naresh, we are seeing a lot of positive momentum.

Our next question comes from the line of [indiscernible] from [indiscernible] .

Just wanted to understand from a [indiscernible] perspective. How do you view the addition [indiscernible] as outsiders [indiscernible] before [indiscernible] necessary level. So how do, a, view this, considering [indiscernible] and b, how do you ensure that [indiscernible] as urban thing.

So yes, so I think this is culturally -- we actually are a very unique orgranization. Somebody started saying we are a combination of 6 businesses that has now become a part of [indiscernible]. So there is cultural transformation in the [indiscernible] realize [indiscernible] we will have to continue to evolve in our [indiscernible]. And we becoming more global in nature and we are becoming more integrated in nature, as we are moving up [indiscernible]. But culture has to shift [indiscernible] moving up, it delivers that ambition that we have for our shareholders, for our customers, for our employees, right? [indiscernible] different [indiscernible] of businesses and different places, but that was part of global company until, definitely we are transitioning in culture, you will see that natural transition in culture. [indiscernible] common things that [indiscernible] our values is our ecosystem, is our performance system, is our culture, for example we just had a small [indiscernible] is our leisure [indiscernible] different businesses. Globally -- because these are all parts of the business. Tomorrow we are having a global townhall [indiscernible] employees of the company [indiscernible] we very open, we are very confident, we are very [indiscernible]. We shared with them. So [indiscernible] in these calls, so why [indiscernible]. [indiscernible]. So that is also [indiscernible] currently open there [indiscernible]. Other thing [indiscernible] make [indiscernible] the Head of R&D, so we are building talent internally in the company that can move up. [indiscernible] Head of R&D [indiscernible] actually with internal uplift, with internal moving up. And we are working strongly to build that pipeline, [indiscernible] rather than we keep hiring people from outside. The third [indiscernible] I really want everyone of you to focus on is the amount of talent we have had. It is [indiscernible] that some people will have that for good reasons, however, we have [indiscernible] deliver our company net record, [indiscernible] been there, done that [indiscernible] expertise in a different region. Some people may have left, I can tell you we have hired a lot [indiscernible] people that have left, right? So they help you [indiscernible], some of this was designed, some of this was timely, [indiscernible]. But I'm actually excited with the new team that we have built [indiscernible], as we remain committed to [indiscernible]. So if we don't have any planned activities that, these are more -- if people leave for personal reasons. [indiscernible]. And [indiscernible] we have seen a lot of changes, a lot of [indiscernible]. So I'm personally optimistic that we are [indiscernible] top level.

The next question is from the line [ Bansi ] from JPMorgan.

Firstly, [indiscernible] ongoing [indiscernible] that is open about cross function. How should we think about the impact on overall cost structure and margin then?

Okay, and what's the second question?

Second question is that in your vision of achieving $1 billion revenue. You highlighted that organic would also play a role. So in that side, if you guide us through any areas that you are prioritizing geographies that you are looking more closely to [indiscernible] or [indiscernible].

So I think [indiscernible] yes, there is [indiscernible] involved with the new people coming. And there will be some overlap also because when new people come in [indiscernible] and some of these things. However, we are also very cautious of -- of course we are looking at everything appropriately optimized [indiscernible] program that we are running, Lean Six Sigma, [indiscernible] target. Looking at everything [indiscernible], people [indiscernible] only a portion of the cost, but there are other areas we are good at. Guidance that we have given [indiscernible] however, short term, there will be some overlap on [indiscernible] minor impact that we are trying to make and [indiscernible]. On your second question in terms of the inorganic growth, we are aggressively committed, we actually an in-house M&A team, two people who are very experienced. We are aggressively looking at opportunities [indiscernible]. And we are talking -- some discussions going on, these are again, focusing [indiscernible] direction that we said we want to be a key CDMO player. And looking at capabilities that allows us to become a [indiscernible] player in that direct [indiscernible]. And we may [indiscernible] you will hear more about it.

And how should we think about some of these opportunities [indiscernible] would it be to manage them [indiscernible].

[indiscernible] okay, [indiscernible] opportunities [indiscernible] we don't create opportunities, right, we [indiscernible] what is out in the market. Our plan is to punch everything that is in front of us. It required [indiscernible] to [indiscernible] money, but looking at [indiscernible] internal punching right now. Idea is to remain cash positive with [indiscernible] and current opportunities [indiscernible] structure aligns with our vision [indiscernible] and [indiscernible].

On [indiscernible] that as you would recollect, provision is very clear that we will be cash positive at the end of the [indiscernible]. And as Vivek already mentioned that it all depends upon the size of your opportunity. We are neutral to using internal funding as well as a part low if it were to be required to the internal [indiscernible] and then we will kind of [indiscernible] to cash positive [indiscernible].

Our next question comes from the line of Harith Ahamed from Avendus Spark.

So on the resignation of Dr. [indiscernible] follows Dr. [indiscernible] earlier. So I'm just trying to understand if other [indiscernible] organization structure [indiscernible]. Was there [indiscernible] in terms of [indiscernible] roles and responsibilities and [indiscernible] in terms for [indiscernible]. And it was [indiscernible] with these changes, have the problem been addressed.

Harith, I -- we explained a [indiscernible]. We have [indiscernible] were running the business with complete authority and [indiscernible] accountability [indiscernible] and [indiscernible]. As you know the organization has worked over a period of time. These companies coming together, so it [indiscernible] to really relook at the organization and make sure it is [indiscernible]. That's why you see that there are 3 different CEOs [indiscernible]. And have complete authority being supported by [indiscernible], head of quality, head of supply chain [indiscernible]. So the that's a main [indiscernible].

So your as [indiscernible] that continues or will you be adding more [indiscernible].

[indiscernible] I'm very busy with what I do right now. I am continuing and I am spending a lot more time in India. I'm here every other week, a lot of you guys have met me. So that will continue, and it has become very hectic [indiscernible]. I'm fully committed to the company and [indiscernible] and the support that I have. And [indiscernible].

[Operator Instructions] Our next question comes from the line of [indiscernible] with [indiscernible] Capital Markets.

I just have one question. Since we have mentioned about talking opportunity on the M&A side. So I would like to know, so if you could share some color, like are looking to expand into [indiscernible] modalities of ADC or [indiscernible]. Or are we looking to expand into [indiscernible] modality. We can still [indiscernible] span of time we have transformed the entire business from small molecules to newer modality. So are you looking to venture further into newer modality or we restrict to ADC and [indiscernible].

Thank you for using the word transform and [indiscernible] transformation journey. So [indiscernible] idea is to look for capability [indiscernible] ADC we have received [indiscernible] you find something [indiscernible]. We are looking at [indiscernible] that are [indiscernible] comfortable, that bring unique capability to our portfolio. They are [indiscernible]. Something with niche capability. Sometimes we need to buy a bundle, that bundle you may get, if not your first priority [indiscernible] right, so [indiscernible].

There are no further question, ladies and gentlemen. I would now like to hand the conference over to Ms. Cyndrella Carvalho for closing comments. Over to you, ma'am.

Thank you, everyone, for joining us on a short notice. See you in the quarter 2 call. Thank you.

Thank you, everyone.

Thank you.

Thank you. On behalf of Cohance Lifesciences Limited, I conclude this conference. Thanks to all for joining us. You may now disconnect your lines.