Cohance Lifesciences Limited (COHANCE) Q3 FY2026 Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q3 and nine months FY '26 Earnings Conference Call of Cohance Lifesciences Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Cyndrella Carvalho. Thank you, and over to you, ma'am.

Thanks, Nirav. Good evening, good morning, everyone, and thank you for joining Cohance Lifesciences earnings call for the third quarter and nine months of FY '26. Joining me today, we have our Executive Chairman, Mr. Vivek Sharma; Mr. Yann D'Herve, CEO, Pharma, CDMO; Mr. Gunjan Singh, Business Head, API+; Mr. Amrit Singh, Business Head, Specialty Chemicals; and our Whole-Time Director and Chief Financial Officer, Mr. Himanshu Agarwal. Before we begin, I would like to remind you that today's discussion may include forward-looking statements, which are subject to risks and uncertainties. Actual results may differ materially. We encourage you to review the disclosures filed by the company. With that, I'll hand the call over to Mr. Vivek Sharma for his opening remarks.

Thank you, Cyndrella. Good evening, and good morning to everyone joining us today. I would like to begin today's call by acknowledging that our recent performance has come in below our expectations. During this call, the team and I will walk you through where each business stands today, what is now embedded in our revenue base and how we see the business progressing from here. As we look at FY '26, it has been a transition year for the company, driven largely by portfolio mix and customer-led timing factors. With that context, let me walk you through the key highlights across each business segment, starting with Pharma CDMO. In our pharma CDMO business, we continue to see a combination of near-term challenges alongside encouraging progress. On the near-term side, destocking in two large commercial products is expected to continue. In addition, large commercial molecule is approaching patent expiry, which has resulted in lower reload volumes. Further, certain customer reloads and scale-ups have been deferred due to delays in launch sequencing and program time lines. At the same time, there are several positive developments. Customer engagement has deepened meaningfully with two large global innovators progressing multiple ongoing programs as well as new RFPs. Importantly, one later-stage commercial RFP has converted into a confirmed program, while the balance of the RFP funnel remains actively engaged with several programs now progressing in late development stages. We currently support a robust late-stage pipeline with nine Phase III programs across our portfolio. While the pace of commercialization is customer-led and timing dependent, the step of Phase III engagement provides clear medium-term visibility as these assets progress towards launch and scale up. In parallel, we are expanding relationship with Western CDMOs that are seeking to leverage our technology platforms. In this context, we have secured a commercial KSM opportunity with our Western CDMO with commercial supplies expected to commence from the second half of FY '27. Turning to our advanced niche technology platforms, including ADC and oligonucleotides, the near-term environment remains mixed. On the near-term side, decision-making across biotech customers has slowed due to funding constraints, impacting the pace of new signings and renewals. That said, we are encouraged by the large pharma customer momentum. Our adjacent payload platform has been further expanded, and we have already onboarded two new large global innovator and continues to receive a strong inquiry for this platform. I'm excited to share that on the existing payload platform, we have filed 1 new payload with work ongoing on three additional filings in FY '27. Operationally, we successfully completed a business continuity audit at our Vizag facility by a large Japanese innovator customer. In oligonucleotides, we have seen increasing engagement for higher complexity oligonucleotide and amidite programs, reflecting customer confidence in our chemistry capabilities, quality systems and regulatory readiness. To support this momentum, we have onboarded two highly seasoned dedicated business development professionals with over two decades of experience in oligonucleotides, one based out of the U.K. and one in Boston. Moving on to the API+ business. Performance during the period has been shaped by a combination of regulatory and demand-related factors. On the challenges side, as previously communicated, the Nacharam formulation site received a warning letter following the OAI status. Production for non-U.S. markets has resumed and remediation actions are underway alongside risk mitigation through filing transfer to alternate facilities. In addition, a small number of API products were impacted by customer-related approval delays and demand softness. Despite this, we have continued to rebuild the API and formulation pipeline. During the year, we completed eight DMF/CEP filings and filed five partner ANDAs. These filings provide a foundation for recovery in this segment as customer approvals and demand normalizes. In Specialty Chemicals, we continue to make progress on customer diversification and pipeline development. On the positive side, a Japanese customer has been onboarded with validation completed and commercial qualification planned for the second half of FY '27. Engagement with two large European agrochemical innovators also continues supporting medium-term pipeline development. At the same time, the agrochemical business has been impacted in the near term by Chinese generic pressure regulatory phases. Stepping back, we remain excited about our organization capabilities, reflecting in our strong technology-led CRDMO platform. Accordingly, we have continued to invest in quality systems, regulatory capabilities and complex chemistry platforms. Over the past few quarters, we have also strengthened leadership depth across business with experienced leaders now fully embedded and operating with clearer accountability and execution discipline. These investments position us well to scale as customer programs progresses. Overall, what we are seeing in FY '26 is largely a timing and product mix impact. I would like to reassure you that during this challenging period, we have not lost any customers or canceled any orders. Customer order metrics remain healthy, and we are able to service customer demands effectively. We continue to be an essential part of the innovative drug manufacturing supply chain, and we continue to win new customers and new business, including recent notable wins with two large innovator customers. Importantly, our technology platform continues to attract a strong interest from large global innovators and biotech companies with RFQ engagement levels remaining healthy and increasingly focused on higher complexity programs. Based on current visibility and execution phasing, we have revised our FY '26 revenue outlook to reflect an early to mid-double-digit decline. Looking ahead, we believe FY '27 will be a year of growth, driven by the successful pipeline built across businesses and recovery in the API+ segment, led by product filing and partnered products. With that, I will now hand the call over to Yann to walk you through the pharma CDMO business. Yann?rtner ANDAs. These filings provide a foundation for recovery in this segment as customer approvals and demand normalizes. In Specialty Chemicals, we continue to make progress on customer diversification and pipeline development. On the positive side, a Japanese customer has been onboarded with validation completed and commercial qualification planned for the second half of FY '27. Engagement with two large European agrochemical innovators also continues supporting medium-term pipeline development. At the same time, the agrochemical business has been impacted in the near term by Chinese generic pressure regulatory phases. Stepping back, we remain excited about our organization capabilities, reflecting in our strong technology-led CRDMO platform. Accordingly, we have continued to invest in quality systems, regulatory capabilities and complex chemistry platforms. Over the past few quarters, we have also strengthened leadership depth across business with experienced leaders now fully embedded and operating with clearer accountability and execution discipline. These investments position us well to scale as customer programs progresses. Overall, what we are seeing in FY '26 is largely a timing and product mix impact. I would like to reassure you that during this challenging period, we have not lost any customers or canceled any orders. Customer order metrics remain healthy, and we are able to service customer demands effectively. We continue to be an essential part of the innovative drug manufacturing supply chain, and we continue to win new customers and new business, including recent notable wins with two large innovator customers. Importantly, our technology platform continues to attract a strong interest from large global innovators and biotech companies with RFQ engagement levels remaining healthy and increasingly focused on higher complexity programs. Based on current visibility and execution phasing, we have revised our FY '26 revenue outlook to reflect an early to mid-double-digit decline. Looking ahead, we believe FY '27 will be a year of growth, driven by the successful pipeline built across businesses and recovery in the API+ segment, led by product filing and partnered products. With that, I will now hand the call over to Yann to walk you through the pharma CDMO business. Yann?

Thank you, Vivek. Good evening, everyone. From a pharma CDMO perspective, Q3 fiscal year '26, in particular, has been characterized by strong new customer engagement, which has translated into a meaningful increase in late-stage RFP activity both from new customers and for new programs with existing customers, strengthening our prospects as we look ahead to fiscal year '27. With the completeness of our business development team in December, our strategy has yielded a double-digit number of commercial and late-stage RFPs, including engagements originating from Western CDMOs. We are also deepening relationships with 2 top 10 global pharmaceutical companies, both of whom have visited our sites with senior level representation and indicated intent to commit additional new business in FY '27. As it is typical for the CDMO business, which is inherently lumpy. These new relationships are expected to start yielding business in FY '27 and grow progressively as we complete customer qualification. Near-term revenues were impacted by customer-led delays in reloads and payload intermediate offtake, driven by higher inventory levels at customer supply chain endpoints, changes in launch timing and reprioritization of programs. This resulted in a sharper-than-expected near-term impact. I want to clarify here that no business was lost as far as we know. Beyond near-term inventory normalization, there is some moderation in demand for certain mature commercial products as they approach late life cycle or patent expiry phases. In these cases, innovators are recalibrating volumes earlier than we had previously anticipated as part of life cycle and inventory management strategies. As a result, we now expect the steady-state contribution from some of these large commercial products to be lower than earlier trajectory assumptions. This earlier-than-expected volume recalibration has contributed to the current timing gap outside of this. Pharma CDMO revenue in Q3 was impacted by these factors, driving pharma CDMO decline of 27% year-on-year. Meanwhile, adjusting for the destocking, it was 7% growth. When adjusted for inventory destocking in select molecules and NJ Bio consolidation effects, underlying demand trends remain stable. We have also meaningfully strengthened our business development organization, adding senior high-capability professionals with deep experience across innovator and biotech customers. The pharma CDMO business is now supported by a dedicated global business development team of nine professionals actively engaged across North America, Europe and Japan and strategically positioned in critical hubs, Boston, San Francisco, Northeast U.S., U.K., Switzerland and Asia. Our approach remains execution-led with emphasis on lateral RFQ conversions, capacity commissioning and customer-led ramp-up. Customer engagement remains strong with RFQ intensify increasing at least 2x year-to-date, including a higher proportion of Phase III and commercial opportunities. Over the last three to four months, the company has undergone more than 16 large and mid pharma innovator and biotech audits and visits, many of which have also led to senior-level customer delegation visits and indication of intent to deepen ongoing engagement. To specifically address our commercialization pipeline, we currently support nine Phase III molecules across our pharma CDMO portfolio. Of these, four molecules are expected to move into commercial supply over the coming fiscal year across therapy areas, including pulmonary, ADHD, antidiabetic and oncology. Two of these molecules have already received U.S. FDA approval and entered the initial launch phase. The third has received priority review status and the fourth is awaiting clinical data readout expected in calendar year 2026. While pipeline maturity continues to improve, the pace of commercial ramp-up has been slower than originally anticipated, driven by customer launch sequencing, inventory management and cautious initial scale-up. As a result, this commercialization pipeline is taking longer to reach steady-state contribution, which has added to the current timing gap. In advanced platforms, including ADC payload intermediates, we continue to be the exclusive payload intermediate supplier to a major innovator. During the year, 1 new ADC payload DMF was filed with three additional payload filings progressing on track. Near-term demand remains influenced by biotech funding cycles, but customer programs remain active. A $10 million cGMP U.S.-based expansion is underway, enabling full ADC supply capability up to Phase IIb by fiscal year '27. Customer engagement is further supported by the successful completion of the business continuity audit at our Vizag site. In oligonucleotide, beyond capacity build-out, we are seeing increasing customer engagement through higher value and higher complexity RFPs, reflecting growing confidence in our chemistry, quality system and ability to support differentiated programs. The cGMP oligonucleotide building block facility at Nacharam is nearing operationalization, positioning the platform to scale as customer programs and launch phase assets progress. Customer qualifications and early commercial engagements are advancing as planned. At our subsidiaries, customers continue to recognize the quality of execution and technical capabilities of the team, including through public commentary. However, given delays in certain customer clinical programs and the slower pace of contract renewals in the current biotech funding environment, the recent trajectory has been muted, including into fiscal year '27. To reiterate, this reflects timing and funding dynamics at the customer level and does not change the long-term relevance of the integrated ADC platform, which we continue to be very excited about. Now I hand over to Gunjan to talk about API+ segment.us initial scale-up. As a result, this commercialization pipeline is taking longer to reach steady-state contribution, which has added to the current timing gap. In advanced platforms, including ADC payload intermediates, we continue to be the exclusive payload intermediate supplier to a major innovator. During the year, 1 new ADC payload DMF was filed with three additional payload filings progressing on track. Near-term demand remains influenced by biotech funding cycles, but customer programs remain active. A $10 million cGMP U.S.-based expansion is underway, enabling full ADC supply capability up to Phase IIb by fiscal year '27. Customer engagement is further supported by the successful completion of the business continuity audit at our Vizag site. In oligonucleotide, beyond capacity build-out, we are seeing increasing customer engagement through higher value and higher complexity RFPs, reflecting growing confidence in our chemistry, quality system and ability to support differentiated programs. The cGMP oligonucleotide building block facility at Nacharam is nearing operationalization, positioning the platform to scale as customer programs and launch phase assets progress. Customer qualifications and early commercial engagements are advancing as planned. At our subsidiaries, customers continue to recognize the quality of execution and technical capabilities of the team, including through public commentary. However, given delays in certain customer clinical programs and the slower pace of contract renewals in the current biotech funding environment, the recent trajectory has been muted, including into fiscal year '27. To reiterate, this reflects timing and funding dynamics at the customer level and does not change the long-term relevance of the integrated ADC platform, which we continue to be very excited about. Now I hand over to Gunjan to talk about API+ segment.

Thank you, Yann, and good evening, everyone. Let me begin with an update on the API+ business, which includes our generic API and the formulation segment. In the API business, our performance during FY '26 has been driven largely by product-specific dynamics rather than broad-based demand softness. Three products in particular, accounted for most of the impact. Two were delayed due to extended time lines for approvals and the third was affected by a facility-related issue at a key European customer. These were discrete identifiable issues and do not reflect any deterioration in the underlying competitiveness of the API portfolio. At the same time, we have been actively repositioning the portfolio and strengthening business development efforts to reduce dependence on small set of products and expand engagement across a broader opportunity set. Business development teams are increasingly focused on newer molecules, alternate sourcing opportunities and incremental wallet share with the existing customers, particularly in regulated and semi-regulated markets. While near-term revenues have been impacted, the inquiry flow and pipeline depth have significantly improved, providing a more balanced base as we look ahead. On the development front, there has been some interesting progress. We remain firmly on track to meet our filings and pipeline objectives. Over the last nine months, we have completed eight DMF and CEP filings against our target of 10. In addition, eight new products have completed lab development with two more expected to be completed in the coming quarter. These developments materially expand our offering set to our business development teams and support deeper multiproduct customer engagement. Before I move to our formulations business, I'm really excited to share a couple of interesting developments. As you may have heard earlier, we are working with a large European big pharma on life cycle management opportunity. Happy to share that we shipped the first validation quantity in the last quarter to the customer and the commercial for this product will get materialized in FY '28. Another interesting development was with another big pharma company, again, based out of Europe with whom we have already been in relationship. Here, after a long time, we received approval to add a dedicated block for the product. This will enable us to have the largest capacity globally for this customer who again has the largest market share globally. Turning to formulations. Our demand referral by one customer had a modest impact on the Q3 performance. That said, the focus over the last year has been on diversification and pipeline rebuilding rather than chasing immediate volume recovery. BD efforts are increasingly centered on partner and niche formulation opportunities, including products with limited competition, complex supply chain or long-term profit share potential. We are also seeing a growing interest from our existing API customers to extend relationships into fined dose formats. During the year, we completed five formulation filings on behalf of our customers, which has further strengthened platform credibility and enabled earlier engagement during the product selection and qualification stages. Several of these programs are progressing through customer qualification and regulatory reviews with commercial time lines typically linked to commercial launch sequencing rather than internal constraints. As shared earlier, the OAI status of our Nacharam formulation site received in September has since progressed to a warning letter. We have already implemented multiple remediation measures and are now executing an enhanced supplementary program to comprehensively address the FDA's observations, working closely with existing external experts. While production at the site has resumed, it will take some more time for the plant to return to earlier operating levels. In parallel, we are also transferring [indiscernible] filings to alternate facilities to manage risk and ensure supply continuity. As again mentioned earlier, we have also on the API+ side, strengthened our talent base, adding experienced resources across levels with strong industry credentials and operational depth. This enhances our ability to support a broader and more complex pipeline as it matures. The nine months period, API+ segment overall reported a revenue decline of 8% year-on-year to INR 8.15 billion. Overall, while FY '26 reflects known pricing resets, approval time lines and shipment adjustments. The Q4 order book remains healthy, consistent with seasonally stronger demand profile. More importantly, the pipeline across APIs and formulations is broader... [Technical Difficulty]alternate facilities to manage risk and ensure supply continuity. As again mentioned earlier, we have also on the API+ side, strengthened our talent base, adding experienced resources across levels with strong industry credentials and operational depth. This enhances our ability to support a broader and more complex pipeline as it matures. The nine months period, API+ segment overall reported a revenue decline of 8% year-on-year to INR 8.15 billion. Overall, while FY '26 reflects known pricing resets, approval time lines and shipment adjustments. The Q4 order book remains healthy, consistent with seasonally stronger demand profile. More importantly, the pipeline across APIs and formulations is broader... [Technical Difficulty]

Ladies and gentlemen, please stay connected, the line for the management dropped. Ladies and gentlemen, thank you for your patience. We have the line for the management reconnected. Sir, please go ahead.

Thank you. Good evening, everyone. So let me now cover the Specialty Chemicals business. To set the background, as you are aware, in Specialty Chemicals, we operate across agrochemical CDMO and performance chemicals, including OLED materials and photochromatic coatings with global innovators. FY '26 performance in Specialty Chemicals has been impacted by regulatory timing and program phasing, consistent with the longer gestation nature of this business. Engagement with a large Europe-based agrochemical customer continues, supporting future pipeline development and medium-term monetization. Also, I'm very happy to share that we have been shortlisted in the RFP stage for the patent regime AI, which is active ingredient by a U.S.-based agrochemical innovator. And more so, we are fully back integrated for this AI, which could help us to position as a strategic partner for this active ingredient. While near-term revenues are affected by global macro conditions and qualification time line, these engagements materially strengthen the resilience and visibility of the business. We have made good progress in onboarding a Japanese customer with laboratory and pilot validation successfully completed for the first project. We expect to submit the commercial qualification campaign for this project by the end of FY '27. Now coming to Performance Chemicals. We are cementing our relationships with key innovators in the OLED and photochromatic coating space. On the new development front, we are working on applications of our existing technology platforms in chemicals used for semiconductor chip processing. In nine months, the Specialty Chemicals segment reported a revenue growth of 32% Y-on-Y to INR 1.9 billion. Overall, FY '27 is expected to remain a transition year for Specialty Chemicals with earnings improving as qualification programs convert across both agrochemical CDMO and Performance Chemicals. Thank you so much. With that, I hand over to Himanshu for the further updates.

Thanks, [ Amrit ]. Good evening, everyone. Let me walk you through the financial impact of the specific drivers Vivek outlined and quantify how the timing and mix effect translated into our reported performance. At a high level, FY '26 performance has been influenced by clearly identifiable factors such as destocking in two large commercial products, which together impacted revenue by nearly INR 260 crores as customers normalize inventories earlier than anticipated. Second, the temporary disruption of our Nacharam formulation facility following the OAI classification and subsequent warning letter has led to a shipment deferral of approximately INR 55 crores. Third, product-specific customer-related approval delays and demand softness in select API products. And finally, subsidy performance has remained muted due to lower project renewals in the current biotech funding environment. As FY '26 is the first full year of NJ Bio consolidation, the cost base is fully reflected in our P&L, while the revenue has lagged. Importantly, these drivers are timing, product mix and consolidation related, not structural in nature. From a profitability perspective, EBITDA for the year has been impacted by three primary components: a shift in business mix with lower contribution from higher-margin commercial products and advanced CDMO programs operating deleverage resulting from lower revenue absorption, while we have continued to invest in leadership, business development, quality and our technology platforms. Finally, the first year consolidation effect from subsidiaries, where margins have remained subdued given the current biotech funding. As you would observe, all these factors are timing and not structural in nature. Turning now to the reported numbers. Given the inherently lumpy nature of the CDMO industry, we believe a nine-month view provides a more representative performance versus the quarterly trend. On a nine-month FY '26 basis, our revenue has declined by 6.7% to INR 1,650 crores. Gross margins have improved to 72.8%, up 204 basis points year-on-year, supported by product mix and the consolidation of recent acquisitions. Adjusted EBITDA for nine months FY '26 has declined by 43% to INR 348 crores with adjusted EBITDA margins at 21%. For context, stand-alone adjusted EBITDA margin stood at 24%, highlighting the impact of subsidiary consolidation and muted operating leverage. In quarter 3 FY '26, the revenues declined by 19.5% to INR 545 crores, reflecting the lumpy nature of commercial drawdowns and shipment timing. Gross margins have declined by nearly 126 basis points, largely due to product mix tilted towards lower-margin business. Adjusted EBITDA for quarter 3 stood at INR 85 crores with margins at 15.5%. Stand-alone EBITDA margins remained close to 19%, again, illustrating the effect of consolidation and operating deleverage. While near-term margin pressure is evident, this reflects business mix, volume and consolidation dynamics rather than a reset of platform's structural profitability potential. Turning to cash flows. Despite earnings volatility, the business continues to demonstrate resilience. During the first 9 months of FY '26, we have generated free cash flow of INR 175 crores, reflecting continued cash generation from the core platform. Capital expenditure during the first nine months amounted to INR 161 crores primarily directed towards advancing our differentiated platforms such as ADC and oligonucleotides, strengthening our quality and compliance systems and selective capacity and capability upgrades aligned with our customer programs. Our balance sheet remains sound and our capital allocation priorities remain unchanged. To conclude, while FY '26 has reflected timing-related pressures and margin product mix shifts, the underlying platform, technology capabilities and our customer engagements remain intact. With the actions taken and the assumptions now embedded, we believe the business is positioned for recovery as customer drawdown normalizes and our commercial assets scale progressively through FY '27. Thanks. And with that, I'll hand it over to Cyndrella.ry as customer drawdown normalizes and our commercial assets scale progressively through FY '27. Thanks. And with that, I'll hand it over to Cyndrella.

Thank you, Himanshu. I request the operator to open the Q&A. Nirav?

We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Foram Parekh from BOB Capital Markets.

My first question is, since we have lowered the revenue guidance for FY '26 to mid -- early to mid-double digit. So my first question is, are we retaining our USD 1 billion sales target for FY '30? And what would be the driver since FY '26 has seen such decline?

Thanks for the question. So yes, we are committed to a $1 billion guideline. Timing might shift slightly because of the challenges we have seen this year. But overall, management is fully committed to the long-term guideline that we have.

Okay. And my sub-question would be, since FY '26 is going to see a decline. So do we -- can we anticipate growth in FY '27 or it's still far away?

No, yes, we are fully working for growth in FY '27.

Okay. And my second question -- sorry, yes.

No, go ahead.

Okay. My second question is on the API side. I see in the presentation that we have written order book visibility -- I mean, the recovery looks gradual in the order book for FY '27. And since API contributes almost 50% of our total sales, so how should we look at it? Can we anticipate growth in FY '27 and therefore, it can be looked at a blended level?

Foram, I think if you look at the commentary that was shared by -- as well as subsequently by the business heads, I think we are seeing a lot of traction in our business. I think all the business partners have talked about how they are seeing the business growth, right? And therefore, API as well is looking at growth in the business. The growth that we are reflecting in FY '27 or indicating in FY '27 is a function of what off shoots we are seeing as of now, which is what we have transparently shared with the larger community. So yes, to answer your question, both FY '27 as well as API, we would be looking at growth.

Okay. And would you like to quantify what's the growth we are looking at for FY '27 on a blended level?

So, Foram, I perfectly understand the question and the need of the question at this junction. But given that we are in February, we are still in the midst of tightening our budget assumptions and very carefully looking at the risk profile. We do understand -- and you do understand as well that we have not reached to our expectations in FY '26. And therefore, we are very, very careful with the guidance that we give out hereafter. I would request you and the community to be patient with us and give us some more time for us to validate, test and give you more color to FY '27 in one or two quarters.

Sure. And third question, if I may. Are we calling out on the niche technology contribution for the quarter, contribution from ADC and oligo for this quarter?

Yes. I think two important aspects. One, we started calling out the niche technology percentage and the contribution, which we have indeed called up for this quarter. But as I mentioned at the start of my communication on financials, we are a lumpy business, and we are determined by the customer inventory management and the forecasting. So therefore, quarter-on-quarter, it is a little difficult for any analyst to attribute the percentages. though we have called out the third quarter. For nine months, it has been around 15%, and that's what I would urge the community to look at.

Next question is from the line of Amlan Das from JPMorgan.

Sir, my first question is regarding the Nacharam facility. Since it has been under OAI since the past few months and recently, it also a warning letter. And as you had pointed out that it had an impact of around INR 55 crores. So is this a peak of the negative impact that you see from this facility? Or should we bake in some more impact due to this ongoing warning letter? That's my first question.

Gunjan, can I request you to address this?

Sure. Thanks, Himanshu. So, as you rightly said, we received the firstly 483s and then the OAI, which subsequently got converted to a WL. We are putting in all the efforts from our side. We've got some really exceptional talent recruited in the team recently. At the same time, we are taking external consultants help into it who are experts and have done the similar remediation exercises in the past. And we are not shying away from anything which is required to regain the confidence of the authorities and our customers there. There will be some slowdown for sure because there will be some delays while we implement the remediation activities. Our revenues or our production or dispatches and production for the non-U.S. market would continue, while the U.S. will take gradual resumption. Additionally, I would also add, our overall exposure to the site was quite limited. Only 2% of the total revenues were to the U.S. market from this site.

Okay. 2% of the U.S. revenues you said. So following on that, since it's 2% of U.S. revenues, you said, right, if I did I hear it correctly?

This is Himanshu. No. So what we have mentioned is that it is 2% of our total revenue. So the plant contributes 2% of the U.S. sales, but it is on the total revenue for the business.

Sorry, it's still not clear. So is it 2% of the consol sales or 2% of the U.S. revenues per se?

It is less than 2% of the consolidated sales.

Okay. Understood. My next question is regarding the RFQs. Since you have been saying that you have been gaining good traction on RFQs since the past few quarters. So I just wanted to understand what's the conversion rate on these RFQs as suppose you have 100 RFQs from different customers, how much of those actually converts to a commercial molecule? And what's the typical time line for that?

Yann, can we request you to take this, please?

Yes, I can take this part, right? So, first of all, the good news is that we are receiving much more RFQs that are Phase III and commercial. The nature of commercial RFQs is that it takes much longer for conversion, right? Because very often, clients here are already one supplier, and they are looking at the second supplier most likely to derisk their supply chain. So that's a good news. It takes more time to get conversion. So, since the effort, right, has yielded at least double the value even more, right, in our funnel in the last quarter, which is good news, the pharma will essentially release orders, right, in the next two to three quarters. That's what it takes, okay? In terms of percentage, right, of win on RFQ, normally, the percentage win is around 20%. And that's what you can expect. And it depends on the phase, right, very often. So what I can tell is that the funnel that we have today is significantly better than what we had one quarter ago, and that will continue to increase with our business development team strategically located, right?

And if I could squeeze one more. Of these four molecules which are going commercial next year, what could be the end market size that we could guess from -- that we could understand for this?

Very good question. It really depends on the application, right? So I can give you an example. One application is ADHD. I mean the volume could be almost triple-digit metric tons, right, for this particular application. For oncology, it's a difference. It's normally the demand is much lower. So those molecules differ per nature given the application in the market.

Sir, could you please quantify it in value terms, in dollar terms per se, if it's possible?

So our clients might not know themselves, right? So very difficult to quantify.

Next question is from the line of Kunal Dhamesha from Macquarie.

The first one on the Nacharam plant, we are saying that the impact is around INR 55 crores, right? Now that represents around...

Can you speak a little louder, please?

Can you hear me now? Is it better? Yes. So, Nacharam impact of INR 55 crores, which represents around 2.1% of the full year '25 sales, which means that if that's the impact, the sale from that plant has gone to zero now in the nine months FY '26.

So, Kunal, I think the plant produces material that we supply to U.S., and it also produces material that we supply to non-U.S. market, yes. I mean if you would recollect, we had taken a voluntary shutdown of the plant so that we could proactively remediate and ensure that all CAPA are adhered to. We have opened the plant for non-U.S. markets. and we continue to service the non-U.S. market. What you are seeing INR 55 crores is an effect of both the loss of supplies to U.S. market as well as to non-U.S. market during the period of the shutdown. So it's a mix of both. Again, to repeat, we have opened the plant for non-U.S. market.

But then we are saying that the plant contributes less than 2% of total sales, right? So then last year, full year revenue was INR 2,600 crores. So then 2% is like INR 52 crores.

Let me clarify. The plant -- total plant does not contribute to 2% revenue. The total plant U.S. revenues is less than 2% of our consolidated revenue, which you said in FY '25 was INR 2,500 crores. That is correct. But qualification is that it is U.S. revenue.

U.S. revenue from the plant is less than 2% of total revenue.

That is correct. Thank you for further explanation.

Okay. Perfect. Secondly, the way you are talking about the destocking impact of INR 260 crores from the two commercial products. So the correct way to understand this is nine month FY '26 -- nine months FY '25 number for those two products minus nine-month FY '26 number for those two products is INR 260 crores. That's the impact. That's the decline.

Yes, that is broadly correct.

Okay. And let's say, when you would have -- have you analyzed these two products as to how the innovator sales moved versus how the -- how our supply moved historically? And was there a way or a pattern for you to figure out that your supplies are running higher than the innovator sales growth? Have you done such exercise? And if yes, have you done extended such exercise for the remaining seven molecules, which we supply currently on a commercial basis?

I would lean on to Yann to reply to you. I believe he has done a lot of work on this. Yann, please?

Yes. So, I mean, a good question, and the answer is yes, right? So we are, of course, based on client interaction as well as market intelligence, we develop our model for our forecast, right? That's clear. One thing to keep in mind, as information, right? Normally, between the production of the key starting material where we are active, right, and the consumption of the drug in the market, you have about two years, right, two-plus years. As such, when drugs are getting closer to patent expiry, which is the case for one here, what's happening is that the originator will reset their supply chain, and we have a new base, right, happening for the need of the key starting material based on the market that they expect to retain, right? So that's essentially what we have. And of course, we are trying to forecast properly with marketing intelligence and customer interaction.

So, Yann, for the remaining seven molecules that we supply, barring these two, would we be kind of comfortable with our forecast plan for the next couple of years that we won't see such a hiccup in majority of those molecules?

Yes, that is correct. In fact, I mean, what we have, right, we have a binodal distribution of our commercial pipeline, right? And what you see is essentially a reduction in the more mature part of the customer pipeline where we can influence and where we are influencing, right, is the acquisition of new projects that are freshly commercial, right, or Phase III. And also what we have is when commercial drugs have been approved, which is the case for many of those that have been approved last year, right, have been approved in calendar year 2025, right? You can project that for the next 10 years, you will have a constant growth for the early stage -- I mean, for this first mode, right, of the bimodal distribution. So that's why, I mean, what we are seeing today is a reduction in a more mature part of the portfolio, right? And what we have is actually pretty good pipeline on the early stage that will essentially render value for the next 10 years.

Sure. And let's say, for a product where the patent expiry is not a near-term concern of the two products, is it just an inventory drawdown or innovator would have added some new source beyond that? Is there a clarity that you have?

So, I mean, in fact, in the market, right, you have two phase where you have less predictability, right? One phase is when it's getting closer to patent expiring, right? And the other phase is when the drugs have been freshly approved because then the marketer doesn't even have -- I mean, very often doesn't know -- I mean, doesn't know. project, but the projections are never correct, right? Nobody can project properly on how drug will deliver so well, right? So what's happening is that you have a little bit more unpredictability, right, when the drug is freshly approved and a little bit more unpredictability when the drug is mature. Our pipeline essentially is very much heavy on those two end of the spectrum, right? So that explains a little bit the less predictability that we have right now in our portfolio.

Sure. And lastly, on the four molecules that we expect to commercialize, right, and where two are already approved. So would we have like the master services agreement in the place and waiting for purchase orders or we are yet to sign MSAs for those products?

So, for those products, we always have contracts, right? I mean those contracts may or may not include minimum orders, right, especially at the beginning, that's where you have -- because of the predictability, I mean, our customers are also very cautious, right, how they approach the situation.

So my understanding is during -- at the time of commercialization, typically, innovators are okay to enter into a long-term contract, right? Is that understanding correct? Or there are all sorts of contracts that kind of go on?

We -- I mean, by nature, right, we have long-term contracts with customers. Those long-term contracts might or might not include minimum orders, right? But by nature of the business are long-term contracts with obligations.

Sure. And lastly, for Himanshu, this INR 106 million reversal, what does it pertain to?

So, Kunal, that's essentially the ESOP that's kind of -- you're looking at the employee line, right?

Yes, yes.

Yes, yes. So that's essentially on the ESOP. That's an ESOP adjustment.

Next question is from the line of Shyam Srinivasan from Goldman Sachs.

Just two quick questions. One on this qualitative comment around earlier-than-expected life cycle for some mature commercial products. Just trying to double-click here. Is that something that is industry-specific you think, something that you're seeing more because products do see end of life cycle all the time. So has something changed now versus earlier?

Yann, can I request you to please take this?

Okay. So the question, right, what you're asking, I mean, is it the standard in the industry to have this less predictability when products get to the end of the life of the patent life, right? The answer is yes. There's less predictability. That's for sure. Especially when you're a key starting material supplier and the products that you make, right, are essentially made two years before the products are consumed in the market.

Yes. And what has changed now that the predictability has become increased? I think I'm just trying to look for more qualitative evidence. And should we expect this in the next, whatever, three, five years that this unpredictable nature, the two-plus years you're seeing will probably continue?

Yes. So that's what I was trying to explain. You have more unpredictability when your products, right, are in close to patent expiry or have just been approved, right? And that's where the unpredictability is the highest. When the products have been in the market for four, five years, the predictability is much better. In our case, we have a heavy load of products in those two buckets. I mean, that's where our sales were, right? So, as such, that increased the unpredictability for Cohance versus maybe other players may have a more balanced portfolio with products that have been, for example, commercial since about five years -- we have less of those in our portfolio. So it's a good news long term because we have a strong early -- I mean, early commercialized pipeline.

That's helpful. Just second question on Himanshu, on the -- what we should think about margins? I'm not asking for a quantitative number. But nine months, I'm again, not using third quarter. Nine months, 24% for consol, 21% for stand-alone. Last year was like pro forma is 30%. So are we now moving to a slightly lower trajectory of margins, again, not looking at the quantity level, but from the mix of how we are 50% API, right, 40% CDMO, the rest is spec. So I just want to understand, are we -- is there a downside? Maybe we come down and then start stabilizing there. But just want to understand just the margin walk there.

Yes. So, Shyam, I think the important aspects to understand is there is multiple factors that are in play here, okay? And I had alluded to some of them. Let me try explaining them. See, typically, the commercial products come at higher margins, okay? And I think Yann has alluded to the interplay that we have experienced as a business where we have a lower mix of lower contribution of commercial products. That's kind of had an impact on the margins, okay? You're right, the API business comes with a relatively lower margin than the CDMO and the niche tech business. The niche tech business continues to do well. And I think if you look at the trajectory that is coming in, right? So we've got -- we've talked about two commercial products, which will mature and two new commercial also, I think, which you have talked about, okay? And then there is new payloads kind of coming in. I would say that these are timing issues for us. We are not sensing that there is a change in the margin profile from a midterm perspective. But yes, short term is impacted. I wouldn't disagree, and that's what is reflected in the current performance. But we remain close to the guidance that we have set. that we will reach to the margin of 30-plus, which we had said. But in short term, we will -- you will have to allow us to get back to the right mix of the business.

Ladies and gentlemen, we'll take that as the last question. I'll now hand the conference over to Ms. Cyndrella Carvalho for closing comments.

Thank you, everyone, for joining. We'll see you again after the quarter 4 numbers. Thank you.

Thanks, everyone.

Thank you.

Thank you.

Thank you.

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