Gufic Biosciences Limited (509079) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the Gufic Biosciences Limited Q4 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Ami Shah from Gufic Biosciences Limited. Thank you and over to you, ma'am.

Hello. Am I audible?

Yes, ma'am.

Good evening and a warm welcome to Gufic Biosciences Limited Earnings Conference Call for the Fourth Quarter of Financial Year '23. Along with me is Mr. Pranav Choksi, Chief Executive Officer and Whole Time Director; Mr. Devkinandan Roonghta, Chief Financial Officer; and Mr. Avik Das from Investor Relations team to give the highlights of the business performance of the company. We will begin the call with business highlights and an overview by Mr. Avik, followed by financial overview by Mr. Roonghta. After the opening remarks, the operator will open the bridge for Q&A session. I will now hand over the call to Mr. Avik.

Thank you, Ami and welcome to our investor call. I'll give you all the key highlights of each of the divisions to begin with critical care. So within critical care, we completed a detailed door-to-door market mapping for the various molecules that are offered by Sparsh division. We surveyed almost 8,000 hospitals and we have commenced supplies of medicines to a few of these hospitals. And in the coming financial year, we have devised strategies to increase our penetration and coverage with these hospitals. We will also be increasing the universe of the hospitals in the coming year for this division. We've also received the DCGI approval for Biapenem dual-chamber bag. The launch of ceftazidime + avibactam was very successful and we received good initial response. And in the coming years, we should be able to increase our market presence in this particular product. We also plan to launch the novel once-a-week anti-infective dalbavancin for the first time in India in H1 of the coming year. Both these molecules will also be offered to a select few CMO partners of ours in the coming year. On the Penem front, it gives us a lot of pleasure to inform all of you all that most of our captive requirement now is being fulfilled by the facility at Navsari, which was initially being outsourced. We've also initiated the process of filing for registration in certain regulated markets from this new facility at Navsari. Within this division, we also plan to launch the oral form of isoconazole. We've already launched the injectable form. The launch went off very well. Now coming to our other division, which is Ferticare, the launch of dydrogesterone was successful. And to increase our presence in this particular market, we also plan to launch a sustained release form of the same in the coming financial year. We anyways -- we had earlier also informed that we have market leadership position in HMG and HCG. And we have now launched a more potent form of HMG which reduces the chances of failures of IVF cycles. And innovations like these will help us solidify our position as a top 5 player in the infertility segment. Our trials with Thymosin Alpha infection for endometriosis is progressing well. And we'll keep you all informed of further developments as and when we have any to share. Now coming to the other divisions, which are health care, Stellar and Spark, the trials for a new product, which is derived from Boswellia Serrata has gone off well. And this particular candidate will be used for management of asthma. And we plan to launch this in the coming financial year. Our brand, Sallaki continues to be a market leader in Boswellia Serrata products. The launch of a new zinc-based multi-vitamin has also gone off well and has contributed to sales in our mass market division. Moreover, in this particular division, we plan to launch a novel analgesic in the coming year. Polmacoxib, it's a first-in-class NSAID for relief of signs and symptoms in osteoarthritis. This is one of its kind drug, which will definitely improve the way patients are currently treated with osteoarthritis. Coming to Aesthaderm, we have successfully completed a split phase trial between Stunnox and Botox. Stunnox continues to increase penetration in the market. And Gufic has now -- and our brand Stunnox is now the second largest player in the botulinum toxin market in India. We've also initiated the process of registration for a range of fillers to complement and augment our basket of products in this category. On our -- on the international business front, it gives us immense pleasure to inform you all that we cleared the ANVISA Brazil audit successfully without any observations. And moreover, we've received 4 new registrations and details of which we've mentioned in our investor presentation. And a quick update on our Indore project. So we are going as per the time lines that we had planned. And we anticipate that the validation of the facility will be completed by Q2 and subsequent to which we should commence our commercial production. Now I'll hand over the call to Mr. Roonghta to give an update about the financial performance.

Thank you, Avik. Good evening. I'm giving the financial highlights of financial year '22-'23 versus '21-'22 and Q4 of '22-'23 versus Q4 of '21-'22. First off, the financial results of '21-'22 versus '22-'23 is not comparable because in the financial year '21-'22, the total revenue increased around INR 170 crores of sales from COVID-related product. Out of the total revenue of INR [ 779 ] crores, if I minus the COVID related sales of INR 170 crores, this net sale is INR 610 crores. Against which, the current year sales is around INR 691 crores of sale. The EBITDA, last year it was INR 151 crores. This year the EBITDA is INR 137 crores. The EBITDA margin of last year, 19.4%. This year, this has improved from 19.4% to 19.9%. Profit before tax last year was INR 127 crores. This year, it was INR 117 crores. PAT margin, last year 16.3%, this year 15.5%. Profit after tax last year was INR 96 crores. This year it was INR 80 crores. PAT margin, 12.3% last year. This year, 11.4%. If I compare the Q4 of current financial year versus last financial year, the turnover of last financial year was INR 162 crores. This year, it was INR 173 crores. EBITDA was INR 32.7 crores. This year, it was INR 32.8 crores. EBITDA margin has reduced from 20.2% to 18.90%. Profit before tax last year was INR 26.2 crores. This year INR 23.9 crores. PAT margin was 16.1% last year, this was -- this quarter it was 13.8%. Profit after tax was last year INR 20.3 crores, this quarter it was INR 18.1 crores. PAT margin last year was 12.5%, this year 10.5%. Thanking you.

Should we open up for questions?

Yes, we can open up for questions.

[Operator Instructions] The first question is from the line of Bhavya Sonawala from Samaasa Capital.

Am I audible?

Yes, Bhavya, you're audible. Please go ahead.

So sir, just a couple of questions. The first, I just wanted to know if you can throw some light on the receivables and inventory, there's been a spike up. So just to understand on the inventory side, has there been some lag of demand? Or if you can help us understand that.

So firstly, I'll answer the inventory point and then I'll come to the receivables point. The inventory point because of 2 specific things are there. If you see the major increase has happened because of the launch of Sparsh, which has been there. Sparsh has been envisioned for -- with the launch of around 85 SKUs in the first phase. And in the next phase, they're going to be around I think, 50 -- sorry, 45 more, so 130 molecules have been selected. So these are the same molecules where we are going to do a sort of a process validation as well as value creation also because the efforts which we take to make 1 dose is -- we thought that the sales -- once the 3 validation batches are taken, the sales can be done in Sparsh in India. And in the same way, the doses can be created for international markets. So that is the reason of -- one of the reasons is Sparsh. #2 reason is that also -- we are -- if you can recollect that we were supposed to launch the dual chamber bag in, I think, September to October 2022. Now because we did not get the approval for the price increase from the government for meropenem and [indiscernible] I think we got an approval of 15%, 20%. However, we are -- efforts are still on to go for a higher, I would sort of, what do you call, price basket because the costing is not conducive in the 15% to 20%. We had ordered keeping in mind our 6 months quota because these bags are coming from Europe. So 6 months inventory of bags, which have been ordered from that time are still staying in our thing. And anyway, what we have decided now, as well as because Sparsh has come in, also critical care is there. We will be launching biapenem and teicoplanin, which anyway not controlled by NPPA right now. Side by side, our efforts will be on to get these bags approved for meropenem and ceftazidime + avibactam also. So meropenem, the NPPA clarification has come on first of April. So now I feel that maybe it's just a question of a month or 2 that meropenem clarity should come. So we -- I feel that inventory, which are majorly because of these 2 factors, I'm seeing, of course, there are other factors also because we have now other divisions and we have other things also. So inventory overall, so we are also keeping a much more healthy position. But the major 2, I would say, noncurrent reasons are Sparsh and dual-chamber bag. And both of them should be harmonized in the years going forward. So this is and about for inventory. Coming to receivables also, if you see post-COVID, most of the people in terms of contract manufacturing of exports for that matter because I think, we saw that inventory being built up and then COVID also cut sales and we went down and we also had to take some stocks back. People have now stretched the normal payment terms to [ 90 to 120 ]. That I am referring, I'm referring purely to the contract manufacturing as well as to the export sales. So [ 90 ] are the official terms, but normally, this has become sort of a norm in terms of exports as well as contract manufacturing. Yes, there has been some, I would say, new parties which have been opened up in terms of export in certain countries where it is mostly related to, I would say, hospital-based businesses in big countries also like U.K. or Germany for that matter. But any way keeping the transit time, the entire testing time, QP release as well as 90 to 100 days a normal payment cycle what we normally and working capital is normally what we envision. So this is the 2 main reasons for the trade receivables as well as the inventory, which I mentioned before.

Got it, sir. Just one last question. Sir, when we had the call just after COVID, you had mentioned INR 170 crores of revenue and plus you had also mentioned that because of COVID, a lot of our verticals couldn't show their true performance. So with respect to that, how have the verticals performed according to you in your expectation? Have they been in par with the company or particularly your expectations, can you throw some light on that?

Yes. So I would say there are mainly 3 verticals which are broadly divided into 8 different divisions, where I would say critical care and infertility, gynaec and then mass marketing are the 3 main verticals of the domestic pharma space. Critical Care took a hit this year because there were 2 things. Inventory was built up post COVID, where the sales just fell drastically as well as lot of capital-based inventory was taken back by us to normalize the outstandings and all that. So Critical Care suffered last year and we saw a degrowth happening in the Critical Care division, which I feel with the launch of ceftazidime, others should go ahead. So it's not a problem. For this year, I think, I mean we have taken more than, I think, INR 26 crore to INR 28 crore good return only in the Critical Care division last year, which was a big hit for us, which is reflected in our top and the bottom line, which was I think a onetime -- we have to take a hit. Infertility is something which I was very confident, that has really played out well. We saw more than expected returns in infertility. I mean it's not only with the launch of, I would say, dydrogesterone because in the recent quarters it's been a small component. However, the hormones business, the HMG, the FSH, the HCG and the [indiscernible] and also with our other hormonal range of estradiol also picked up really well. Enoxaparin to some extent, helped us, it was more or less stable. So infertility was the main growth driver for us in the domestic market space, followed by health care, with not only the Sallaki brand but also Gufic being launched and also like Avik mentioned, multivitamin being launched. And now going forward also from this year to next year with the launch of Polmacoxib and 100 SKU in the [ cannabis ] range, we are expecting that this health care should continue overall. Spark, even though it's a smaller division, now in part of the mass marketing division, also grew by almost, I think, 22%. But because of the small base, it's not adding much in the total revenue, followed by Stellar and Aesthaderm. So botulinum toxin is another, like I said, it's a small base but that is growing at much faster rate. I think it will have -- it will be of significant value maybe towards the end of this year or maybe by Q2 2024 -- sorry, Q2 2025, it will have relevant value in the total revenue of Gufic. So other divisions have picked up well but the critical care hit was something which we had to take last year and we had to go ahead and taken that hit.

The next question is from the line of Nirali Shah from Ashika Group.

Yes. Could you please provide an update on the contribution of ceftazidime + avibactam to our overall revenue. And also, it would be helpful to understand the revenue breakdown between in-house and revenue generated through CMO.

So if you refer the overall pie chart which we have given in the investor presentation, there will be a total revenue breakup, I would say, specifically. Other than that if you want some specific percentages, I can always ask Avik from IR to get back to you. Coming to ceftazidime + avibactam, as you know, the patent went off in Jan in 2022. We launched the molecule on the day of -- I mean just as the testing was going on and we had worked before. February, March took a, I would say, again, I can give you numbers but if compared to the entire revenue, it might not be even a thing. From April, May, you will get a much bigger number where you get a complete full financial year. But however, if you're still -- I'm just trying to calculate the number. But I still feel it should be around some -- because there were 2, ceftazidime + avibactam is sold by us not only as our own brand in the Indian market but it is also sold as a contract manufacturing option for [indiscernible]. So again, revenue I might be wrong, I'll ask Avik to get back to you. But as a number of why is that I am aware because we just finished the review last week. And there, we have told from only in the month of Jan, all the way to March, close to approximately around 90,000 vials to approximately -- 98,000 to 99,000 vials, combining contract manufacturing as well as this also, on the domestic market also.

So my question is actually how much percentage do we own from in-house and from CMO?

So again the domestic marketing in India would be more than 50% to 55%. CMO will be approximately close to 20% to 25%, I may -- I think I can ask Avik to correct me if I'm wrong., But according to me, it's 55% and 25% as of now.

And my next question, could you provide some insight into the sales performance of Stunnox in FY '23? And if you could share the guidance for FY '24 as well?

So I will divide Stunnox, as we say, I will divide the botulinum toxin business in 2 parts. Like I mentioned, the Stunnox was something which has a legacy of more than a year now. Zarbot is something which we have launched, which is same botulinum toxin but especially for medicine as well as pathological, commercial conditions. So of course, Zarbot was launched only, I think, in 2023 mid -- sorry, 2022, 2023 mid. Stunnox had a complete 12-year-ish, 12-year run rate, so 12-month run rate, sorry. So Stunnox, of course, has become almost 2.5x, like I said, the base is quite small, the 2.5x has no revenues and relevance over last year. Zarbot is then taking time because I feel that initially, we tried launching the product through our Critical Care division, then we clearly -- quickly realized that our Critical Care team doesn't have equation with the right target audience who handles these specialty products of neurological conditions as well as spasticity, with spasticity conditions [indiscernible] et cetera. So we got a new team actually recruited by October, November 2022. And of course, the launch was in December when we invited international faculty to come and train in our Arisia center upstairs. So January is where the actual Zarbot launch has happened. So Zarbot is still way below our expectation because we have around 12 people team completely selling Zarbot and we are going to expand to 16. But very high, it's like a special highly effective task force, we can say like a commando team who have been there, done that and worked in companies earlier who have sold botulinum toxin. Going forward, I feel, of course, Stunnox, idea would be to, again, keep that run rate of at least 1.5x to 2x of revenue of previous year. Zarbot, since the base is almost nothing, we foresee that Zarbot also should come at least close to at least 40% to 50% of Stunnox sales.

Okay. Continuing ahead, what is the current market share that the company holds in the relevant markets of Stunnox and Botox, like if we are ranking second in the world. So, if you could.

No, not in the world. I hope I will be ranking second in the world. I'll be very happy. Right now I am not ranking second in the world. Right now, I am ranking second overall in the representative area for botulinum toxin in India as per ORG-IMS. And there we -- again, I think maybe I can get back the data to you at the end of this call because I'll ask Avik to quickly go through the IMS and give you sort of a percentage which will be a clarity. Also, just to clarify and just for you to know that the total market represented by us is taken in 2 ways. One is the total market which is imported. So we take the number of vials which are imported into India but most of the products except Gufic's Stunnox and Zarbot are imported into India. And we get a revenue -- we come to know our market size from this because the current ORG-IMS does not capture the entire market. So even though we are second, whatever I tell you wouldn't be as per the ORG-IMS percentage. However, I know that the market for a fact is much bigger than that, what is actually represented in the IMS. So just allow me some time, I think I'll request Avik to quickly go through IMS and just give us a percentage, if that is possible.

And the third question is about the current percentage of revenue that is allocated to R&D. And does the management plan to increase this percentage in the future?

Till now, very frankly, we were spending more than 10% to 12%. Last year was higher. This time also 10% to 12%, it was some biological platform. This year, we might take a little bit, I would say, reduced percentage on spending on R&D. The very fact is that Indore will be starting very soon. And a lot of our energy, revenue and resources will go in the validation batch of Indore. So there will be some sort of a balancing which will be done at our end that we don't want to go overboard that we continue to spend crazy amount of money in R&D, as per our size. As well as we have to spend a lot in creating Indore's validation planned for certain molecules also for export. So there will be value, for this year, it might fall down to maybe 6% to 7%, what I feel, only for this year. Again from next year, we want to come back to that average of 10% to 11%.

The next question is from the line of Nitya Shah from KamayaKya Wealth Management Private Limited.

So I just wanted to understand that confusion, there are so many different kind of products being launched in the market. What's the plan with the field force going ahead? You have around 1,000 med reps at the moment. What's the outlook on this? How do you plan on leveraging this correctly, so we can improve our group. I just wanted to get some understanding on that.

If you see, for the last 3 years, even before COVID, we have not gone for any expansion of our field force, except maybe the new launches division, which is like Aesthaderm or Stellar or now even it would be with Sparsh. So in the existing divisions, what we have, we are now, we're emphasizing on PCP and have added where the emphasis and the progress is also happening. So when you take a division like a Critical Care or a IVF or health care or Sparsh for that matter which had our legacy division. Now because they have been there at least 5, 6 or 7 years in action. So there we have not gone for any expansion and we continue not to do so. If there's a new product like Zarbot, we have a special task force coming in because that we tried in criti care, it did not work and we needed a separate focus. So the field force expansion as of now would not be there in the legacy divisions. Sparsh has been launched with a field force of around 33 people, aiming at a [indiscernible] at least [ 10 to 15 lakhs ] because they have a good product line to go for. They already have reached [ 5 lakhs ] by, I think I'm seeing 15th to 20th May numbers, I'm talking about, that is right now [indiscernible]. So with Sparsh and I think to some extent Aesthaderm and neuro care would be a division for expansion but that would hardly be 5, 10 or 15 people division there. So maximum maybe 20 -- sorry, I would say, 20 to 30 people on a annual basis will be added in the field force of Gufic in India.

The next question is from the line of Yogansh Jeswani from Mittal Analytics.

My question to you is on the Center of Excellence that we have set up. So firstly, when will we start it? And how much have you spent on this entire facility?

So the Center of Excellence already has started as a dry run all the way from December 2022. And we already have had more than 4 to 5 different trainings there and workshops there, both for neuro care as well as patient and body aesthetics. And we are hoping now that along with more and more trainings setup and now because of the new different, I would say, indications of toxins, as well as now [indiscernible] is also being added to the portfolio in the next 3 to -- next 4 to 5 months. We are going to do more of these trainings of [indiscernible] as well as energy-based [indiscernible], where the entire basket can be a little bit more realistic. So it has already started and it's continuing ahead.

So sir, how much have we spent on Center of Excellence?

I believe it should be in the tune of something around -- I think Roonghta sir might be much more accurate with the number than me. I will request Roonghta sir to please throw some light over it. I don't want to give you a wrong number.

It will be around INR [ 9 ] crores, which will be spent on this center, built up costs.

Okay. And Pranav sir, you have clearly mentioned that you'll be adding more botulinum toxins and few more capabilities. So will that be something that you have, products and pipeline and the infrastructure is in place, so we won't have to spend more and instead, it will be a scale up -- scaling this up, so maybe, really want to understand, is there any more capital that needs to go into this, around INR 9 crores?

No, I think very good question. So if you see last year was the year where we have done most of our CapEx and maybe it will continue till only September, basically the most CapEx will be done on a still bigger scale. Now when you talk about just the Center of Excellence, it has been thought [indiscernible] of training and knowledge impartation. And botulinum is something that we already had in place and we're working on, of course, new types of toxins and new drug delivery systems, [indiscernible] but they are not capital intensive, they are mostly regulatory intensive. Coming to the fillers, it has been -- we've taken a very cordial call that we would be importing the fillers first because there's no use investing in the CapEx of making the fillers till we actually have economics of sales to market them. For the next 2 years, 3 years, we would be just importing the fillers from abroad and that's where the [indiscernible] place has been selected. The file has been sent to the Honorable Drug Controller General of India, I think in the last quarter. And we hope to get the permission, like I said by Q2 2024. And in terms of the [ energy ] devices, it's just the thing that we already have invested this money in energy devices where we can actually show and train doctors that how sophisticated, you know machines can be used along with toxins and fillers to get a much more desirable chiseled effect. So today, as you know, the toxin and fillers help to counter the body and helps to reduce wrinkles and as well as lead to some sort of a facial improvement. But if we use [ energy ] devices, the entire output is much amplified. So answering your question, there is no further CapEx required for that. It's just now knowledge impartation which will happening, which will be happening from the Center of Excellence, going forward for the next 3, 4, 5 years and so on, sorry.

Sir, if I understand this correctly, so Center of Excellence is built to bring together the doctor community and explaining to them how particularly you can use these [indiscernible] and basically all these botulinum toxins. And you're trying to educate and grow your market in the area, right?

You can say. So if you see, I feel that the market of toxin and filler and even [ energy ] devices still in the very neonatal stage in India, where a lot of people and awareness is not there. At the same time, like you said, there are a lot of amazing doctors we have in India who know how to use it very well but they want to impart training to also the new generation of the, the new category of doctors who also feel like this is the right profession for them to follow apart from just the basic MBBS or just a degree in dermatology. So not only facial and body aesthetics. There are a lot of clinical, I would say, indications of botulinum toxin, like hemi patients, spasm, blood clots, spams, spasticity [indiscernible] and there are more, I can keep on going on and on and on. So lot of these and migraine for the matter, these -- a lot of people are not aware in India that even botulinum toxin can give a relief for such matters for a period of 3 to 4 months. So our center just serves the purpose of minting the trainers to the people who want to be trained. At the same time we have all faculty, which we have in-house, Dr. Rajesh Lalchandani, who also has a lot of international networking, where we try to get faculty from abroad also, whereas, Dr. Lalchandani also has his own knowledge, which he also pass it on. I'll give you a small example, there a lot of gynaecolol -- I would say, IVF specialists or gynaecs who wish to do a [indiscernible] once the baby has been delivered. So vaginal tightening and vaginal rejuvenation is post the delivery of the lady. And that is something which we also -- today, we want doctors to be imparted more and more, I would say, new, I would say, techniques as well as new therapy exposure by which we can help them to serve their patients beyond their conventional field of expertise. So this is natural and I hope you get my point. I feel that tomorrow the sales of my products will only increase once we share knowledge. Once the knowledge is shared, there'll be more and more people who will be getting -- we'll be able to service new customers and the new customers will get aware about the fact that therapies are also available for us to experience. So that is the concept behind the Center of Excellence.

[indiscernible] is our effort is not to generate revenue. The Center of Excellence is rather creating awareness and educating people, so that we can push sales of our products few years down the line and...

And that has been the purpose of Center of Excellence, not to -- I think we foresee that the revenue of this Stunnox and fillers or even the other things can be much bigger if we can reach to that level of penetration all India level. So yes, you perfectly summarized it, sir. Thank you, sir.