Eris Lifesciences Limited (ERIS) Earnings Call Transcript & Summary

So business as usual. We are just getting the focus back. We are launching a -- there's a couple of new product launches, right? So it's all elementary. So it seems that there was a little bit of an eye-off-the-ball kind of a thing in a couple of products. We have got it back. I'm a little confident because we have done it in the past. We have been doing it for a long time now in diabetes. So my confidence is a shade higher to get it back.

Okay. Cardiac, you mentioned some 2 products by which you're going to bridge the gap from 11% to 15%. Can you highlight that?

Absolutely. Good that you remember. So we were looking for a very -- in our view, a very good, big launch of a product called Esaxerenone, which is a nonsteroidal MRA. But the launch had got delayed. The approvals have got delayed. We couldn't launch it. As of now, the visibility is of launching it in the first fortnight of August. And that, to our mind, is a very good opportunity.

Okay. And the next question is, the semaglutide market offtake has been slower than expected. So what are your thoughts on the same?

Yes, we might have to do another meeting for that. But yes, you are right, it has been a little slower than what we expected. But I take nothing away from the product, right? My simple understanding in a very -- look, I have been a very strong supporter of semaglutide in diabetes, but the general winds which were blowing were more from an obesity point of view. And if you would have taken note of what we had been saying from the last couple of quarters that this is a diabetes drug which has an effect on weight loss. So we see the prescriptions coming up. The good thing is that the prescriptions are coming up from the KOLs. If you look at the specialty mix, the endocrinologists and diabetologists are contributing 70% of the prescriptions, which basically, till this point of time, has always meant that this is a flow going down in the next couple of months, couple of quarters. So I still am very upbeat about semaglutide from a scientific point of view. I feel that this is a drug which will change the face of diabetes globally and especially in India, where the load is too much. So -- and I see some good green shoots happening, but the value and volumes are not what we expected. But it's a matter of time.

Okay. And how many product launches should we expect for FY '27 and '28 in terms of number of products?

So Mohammed, look, we will call out something -- product launches are now a regular thing, right? And the launches sometimes do get delayed here and there because of procedurally-- so that is why if there is something major, we'll call it out. Like Esaxerenone, we called. And we are planning something in the third quarter, which to our mind would be a big product. So every time a big opportunity comes, we'll call it out. Otherwise, growth is always a function of volume, new products, and price rises. So let's remain there.

Okay. My last question. CFO to EBITDA was 77%, so should we expect this trend for the rest of the year?

Sorry, what is that?

OCF to EBITDA percentage.

Yes. That would be the trend to expect for the financial year.

The next question comes from Mr. Pratish Chadha.

Sir, any time line for the analogs?

I wish I could give a time line, man. We are very eagerly waiting. Look, the way we are -- it looks from here, I think we should be up there in Q3. That's where we are pinning it up now. But there have been so many hits and misses that I'm a little skeptical in calling out a date. So that's where we are.

The next question comes from the line of Alankar Garude.

Sir, another question on semaglutide. You spoke about KOLs prescribing the drug, but if you can just talk about any feedback from the patients. I mean, is there any resistance at their end? Also if you can talk about possible supply issues or any patient adoption issues apart from the government regulations, that would be helpful.

Yes, of course. I'll do that. So look, guys, this is the first time what we are seeing in the market is that the chatter on the side, say, social media, actually has become quite a bit. So for the first time, we are seeing patient resistance at the clinic level saying, "Doc, give me some more time. Let me think about this." So that's what we are seeing in the marketplace today, and it is happening across the specialties, which was -- which we hadn't seen. So all that which happened a couple of quarters ago now, so much of noise around this has taken a little bit of a toll in terms of the adoption. Now what is happening now, while there is a resistance on one side, simultaneously, there are patients who are coming back with successful HbA1cs of 5.3, 5.2, liver fat getting diminished, correction in LDL. So this is the -- these are the people who are now getting on the other side because once you start semaglutide and you escalate it to a level where it gives results, it takes 2- to 3-month. So please understand, this is the fourth month, and the adoption happens late. If you remember last -- in one of our conferences, I told you that the peak adoption happens in the third year in any chronic disease product, right? So what I can tell you is that the adoption is growing, right? And it is a matter of time that this will be on the other side. So I'm completely convinced of the future of semaglutide because it is not the future of me or the industry, it is about the future of Type 2 diabetes. It is such a wonderful drug, right? But it has a lag, and that lag is currently going on. So that's one piece. The second piece is the supply side of things. Look, everything has some good attached to it. Because the market didn't take off probably which way we were all expecting, it gave everybody good time to kind of put their backend together. So for example, our facility also got the license a week back. So that will also start, we'll putting it together. But it has given 3, 4 months for the industry to kind of create a good integration. So I don't really worry for the supplies at this point of time.

Understood, sir. That's very helpful. Maybe one follow-up here would be, would it be fair to say that the issue is not as much on the prescriber side, but more on the patient side, and maybe over the last few months it was more on the supply side?

Look, supply side happened because look, all of us rushed into that. The price -- the value per product is -- the value per pen is very higher, man. We haven't dealt with a mass product with this kind of a value. So generally, the way we do billing is, if we have a team of 400 representatives, we give them 200 strips, 300 strips usually. A strip is more or less INR 100, INR 150, so it gets to INR 30,000, INR 40,000 per person. But when it came to a INR 3,000 an [ IV ] product, even if you give 50, it becomes INR 1.5 lakh. INR 1.5 lakh with 4 is like INR 5 crores. So there was a gush which happened, which was not because you billed 20 pens, which is like very basic, and you have 3 SKUs. Even if you billed five pens, it kind of gets there. So the supply issue, which we thought early, was not a secondary problem, it was a primary issue. Then the secondary kind of caught up and it got balanced. So that was what happened in the first year and it was bound to happen, man. It happens all the time when there is a little bit of excitement in the market. Now it has kind of settled down. That's there. Number two, patient resistance is not -- what happens, it doesn't only remain on the patient, it has an effect on the prescribing doctor also, because when a doctor sees more people saying, "Let us think, let me come back," so he also gets a little bit, maybe on the back foot. So this is a small little journey which we have to do. It's a curve, I would say. I think we are doing well. That's my hunch, that we are doing well.

Got it, sir. Sorry, just one more final follow-up on this particular point. You said, you will consider any pricing actions only once the volumes expand a bit. Isn't it a bit of a chicken and egg situation, considering that the pricing is much higher compared to what patients were paying for any normal diabetes therapeutic therapy so far?

Look, a lot of things are chicken and egg, and that is where you have to use your gut sometime. So even we are going by the conventional wisdom. The conventional wisdom is when you get to a level where you have a good 4,000 to 5,000 prescribers at a P/D of 15, 18. That's a conventional wisdom, right? That is the time it expands, and it goes to the other people also. So right now, we are not even close to the question of affordability. We have a much bigger population which is available for this price point, and we are still not able to get there. So right now, price is not the issue, and you can see that in the data. The prescription data is not differentiating as much within the price bracket because price is not a challenge at this point of time. Adoption is. So we want to work towards adoption, and at the right time, we will be happy to make it accessible to more people.

Understood, sir. That's very helpful. Final question from my side. See, in general, IPM growth rates have increased considerably over the past few quarters. Different companies have different theories as to what is leading to the overall market growth rates improving. Can you also help us understand what are the reasons you are attributing to this IPM growth picking up over the last few quarters?

So man, look, this is little [ specular ]. What I could tell you is that nothing has changed on the ground except for GST reduction. Now whether this GST reduction is kind of convincing people at the retail level to keep a little bit more inventory to service their patient, there is a good possibility. Now when you keep a little more inventory, generally that inventory falls into the chronic segment because that is where it is more predictable. So if I look at the prescription data, if I look at the prescription growth data, OPD data, nothing seems to change in the last 6 months, 9 months. The only change which I could see is this. And we can build stories on that, that people are getting more educated and aware, but that has been a -- is a slow burn, which has been happening for such a long time. So my take on this is maybe that GST thing which is making people store a little more. That's my take on this. Which is -- I have no data to prove this as of now, but this is what my experience tells me.

The next question comes from Bhawana Israni.

Can the participants also introduce themselves, please, before asking a question?

Yes. Sir, just wanted to check how we are seeing Eris in the next 3 years, as now we are focusing on the manufacturing footprint also at the Bhopal site. We are launching on the analog products also and other, the chronic therapies also. How we are seeing Eris shaping up in the next 3 years -- next 2 to 3 years?

Yes, Bhawana. Look, I would like to believe that we have kind of turned a corner because we were trying to do this new age, biologics and insulins and oncology and try to put all these together and try to get the back end ready. So this was all that which was happening in the last couple of years, I would rather say. So if it works well, there is a good chance that we structurally get to a top tier of growth because then you have one good significant portfolio which continues to grow quite ahead of the market. And then you have the routine thing which grows at double digit, close to that double digit number. So we are in that direction. Have we reached there? I don't know. But we should reach there. That's the belief which we are keeping.

The next question comes from Foram Parekh.

So my first question is on the vitamin section. We see good percent growth in this therapy. So is it safe to assume that we are seeing a rub-off effect because of the GLP-1 uptick? Or what can be the reason for this up move in the vitamin section?

For a more logical reason to give you at this point of time, it is surely not the GLP thing. GLP has reached far too few patients until this point of time to have a rub-off effect in any other adjacent therapy. Now, why has -- why is the growth being good? As of now, I don't have an answer to this. My only hunch is that, maybe, the stocking has gone up. It's little -- it's got a little liberalized there. But I don't have an answer from a structural change, which I could see.

Okay. And my second question is, on the OAD side. So as you mentioned that we might see -- we will see uptick in OADs to 5%, to 6% growth. So can we also see a uptick -- corresponding uptick in the domestic EBITDA margin, which is right now 35%, and can it scale back to 37% with uptick in OAD?

So no, not only OAD, Parekh. Look, that 37 going to 35 is not the function of OAD not selling. It's rather the function of gross margins being contracted by 300 basis point. So now the gross margin coming back is more of a function of us letting in the production in our newer facility, the facility getting functional, and we are able to get the yield which we require. So that -- most of it comes from the other side, which we think should happen. That's why we feel that the last half -- the second half of this year should see us home as of the visibility which we have today.

Sure. And my last question is, taking ahead to earlier participant Bhawana's question. So in 2 to 3 years' time, is there a quantum that we can mention on the top line growth, aspirational top line growth or EBITDA margin? Because historically, if we see in last one decade, there are couple of -- more than a couple of times we have doubled our sales. So now with no inorganic activities on the cards, can we see doubling of revenue anywhere 3 to 5 years line organically?

Look, I will say the same thing which I told your colleague and friend. Look, structurally, there is a shift in the portfolio. This was something which we were trying from the last 2 years, but we were not able to cross the line. That's the reason we were getting stuck at -- last year also, we were 11%, 11.5% roughly. [Foreign Language] last year DBF was at 11.3%. 11%. We were getting stuck at that, 10, 11, 12. So this change should enable us to get to that top tier of growth. This is what my expectation is. But look, that it has to play out.

[Operator Instructions] We have a follow-up question from Nilay Parekh.

My name is Nilay Parekh from Perpetuity Ventures. So my question is regarding Bhopal facility. When can we expect this commercialization and this operationalization of the facility?

So thankfully, I can have a straight answer for this after a long, long time. So we will be commercializing it next month. Our licenses are in place, right? So the commercialization will happen in August.

Okay, sir. Also, sir, just wanted to add this one more question. What are our [Foreign Language] this Mixtard sales for this Q1 FY '27 Mixtard sales?

Sorry, sorry, I didn't get that, Nilay. Once again?

This Mixtard sales for this Q1 FY '27. Mixtard.

Mixtard cartridges have already been out of the stock. And we haven't checked this actually. We believe that there should be no sale. But this is not -- without checking. So I think let us check then and get back to you on this. My hunch says that it would hardly be there. But still, let's be sure about this, Nilay. And Nilay, also remember that the ramp-up in Bhopal will take time. We will commercialize it next month, then all the products will be taken one-by-one. So it's a kind of a gradual process. But we feel that by the end of Q3, we should be more or less home.

[Operator Instructions] The next follow-up question is from Mr. Mohammed Patel.

Yes. This is Mohammed Patel from Edelweiss Public Alternatives. So I have one question follow-up. Should we expect market-beating growth in derma, women's and CNS in the coming quarters?

Women health, we are already market-beating. Derma, we are right up there. And CNS, yes, for sure. CNS, we have launched a good product, actually. It is giving us good visibility. Yes, I can put my finger on this. No problem.

[Operator Instructions] As there are no further questions, I would now like to hand the conference over to Mr. V. Krishnakumar for the closing comments. Over to you, sir.

Thank you all for your participation today. By way of summary, our DBF segment delivered a 14% revenue growth in Q1. EBITDA grew 7% year-over-year. EBITDA margin came in at 35%, largely led by the gross margin movement, which in turn is a reflection of the increasing importance of biologics in our product mix. Our insulin franchise continues to be an exciting story of market share gain with significant headroom for growth from our existing products, RHI, Glargine, and a comprehensive pipeline of insulin analogs. Our semaglutide brand, Sundae, has taken off to a strong start in Q1 with a 20% market share by sales volume and 14% by sales value in its very first quarter after launch. On the international front, the base business remains largely uninterrupted since it has no contribution from the EU. Our CAPA actions are on track, and we expect the sites to get audit ready by December. Our long-term thesis and growth strategy for this business remains unchanged. Our consolidated revenue has grown by 13% in quarter 1 with a profit after tax margin -- sorry, the profit after tax growth of 14.5%. Operating cash flow came in at 77% of EBITDA, and CapEx for Q1 stood at INR 88 crores. Effective book tax rate for the quarter was 20%, down from 22.5% in Q1 of last year. And EPS for the quarter came in at INR 10.3. Thank you all and wishing you all a good evening.

Thank you very much, sir. Thank you, members of the management. Ladies and gentlemen, on behalf of Eris Lifesciences Limited, that concludes this conference. Thank you for joining us, and you may exit the meeting.