Gufic Biosciences Limited (509079) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q4 FY '24 Earnings Conference Call of Gufic Biosciences Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Ami Shah, the Company Secretary. Thank you, and over to you, ma'am.

Thank you, Manuja. A very good evening to all ladies and gentlemen, and a warm welcome to Gufic Biosciences Limited Earnings Conference Call for the Fourth Quarter and Financial Year '23-'24. We have with us today 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 and financial performance of the company and to take questions, if any. Before we begin, I would like to say that some of the statements that will be made in today's discussion may be forward-looking in nature. It is subject to unfortunate risks and uncertainties, and the actual results could materially differ. The company undertakes no obligations to update or revise any forward-looking statement, whether as a result of new information or future events or otherwise. We'll now begin the call with the opening remarks from Mr. Avik followed by a financial overview from Mr. Roonghta. Thereafter, we'll have the forum open for the interactive Q&A sessions. The participants are requested to ask two questions in the initial round. I'll now request Avik for the opening remarks. Thank you.

Thank you, Ami, and good evening, everyone, and thank you for joining us on this investor call to discuss our Q4 performance. I'm pleased to provide an update on the significant developments and achievements that have taken place this quarter at Gufic Biosciences, and I will begin with the Indore CapEx update. We have made substantial progress with our manufacturing facility in Indore. Our media fill validation studies are underway, ensuring the robustness of our aseptic process. This validation is crucial for minimizing product batch rejections and streamlining the approval processes. We are confident that this will lead to faster regulatory approval and certification and also enhance our production quality as well as reliability. Moreover, a preaudit by a distinguished ex international inspector has further helped us prepare for the upcoming regulatory inspections. Their expertise and practical recommendations have helped us improve our compliances and operational processes, setting the stage for hopefully a smoother future inspection and fewer regulatory hurdles once we commence the regulatory audits. On the product development front at Indore, so our team has been actively working on over 14 niche products. We are developing a wide array of products, expanding our portfolio from antibacterials and antifungals to molecules used in the treatment of schizophrenia and bipolar disorder to HIV treatment and innovative products for neuropathic pain management. I'll quickly give an update of the various business divisions that we have now starting with Critical Care division. So our Critical Care division has sustained growth to enhance market penetration and leadership in niche antibacterial and antifungal products. We have successfully penetrated over 2,000 hospitals now with brands like Guficap, Micafung, Polyfic, Ticofic, and Merofic becoming preferred choices among medical professionals as per the market data that's available to us. We are also proud to introduce Sankalp. This is Gufic's first patient assistance program. This initiative supports economically strained patients requiring long-term therapy, providing free therapy that will be delivered to their doorstep with 50 doctors and 500 patients expected to participate. Sankalp will definitely enhance patient engagement and build trust among health care providers. We've also done some differentiated product launches in this division. So we've launched the Merofic dual chamber bag. This is an innovative closed drug delivery system that ensures zero human intervention, setting a very new standard in medication safety and efficacy. This innovation is strengthening the market position in Critical Care drugs, and we intend to add more and more molecules to this drug delivery system, which is very proprietary to Gufic at the moment in the market. Another notable launch was Dalbavan, which is a second-generation lipoglycopeptide antibiotic, which is used for serious bacterial infections. This is also a once-a-week dosing frequency, which will help reduce the treatment burden on patients and the health care providers. We have a range of unique products in our pipeline planned in this division, which includes a next-generation tetracycline, a next-generation carbapenem, a next-generation echinocandin as well as an azole. Now coming to our Ferticare division, our assisted reproductive drug portfolio has been strengthened with the planned launch of differentiated products such as the ultra high purified HMG, the recombinant FSH. These products offer superior efficacy and safety addressing the complex fertility challenges and demonstrating significant growth potential in the domestic market. We've also introduced Guficin Alpha, which is effective in recurrent implantation failure. Now coming to Sparsh, the Sparsh division continues to excel with its direct-to-hospital distribution model. We have established business channels with over 1,400 hospitals and in this division we have complete visibility on the tertiary care. And we've also noticed a very high retention rate of customers, and this transparency and efficiency have positioned us well to launch more value-added products and expand our offerings. And we mentioned in our presentation the kind of therapeutic segments that we are adding to Sparsh in the coming quarters. Now a quick update on the Aesthaderm division. Our Aesthaderm division is growing through knowledge sharing and unique training programs like the GROW program, which democratizes the use of botulinum toxin and expand our market reach. We've also achieved milestones such as hosting FACE OFF, India's first hands on cadaver and injectable workshop and publishing comparative studies on botulinum toxin type A with other leading brands of botulinum toxin in the market. A quick update on the Neuro Care division. Our Neuro Care division has successfully launched Zarbot, the first Indian botulinum toxin of international pedigree. Zarbot has quickly gained the confidence of leading neurologists with acceptance and prescriptions by over 100 leading neurologists in India within a year of launch and we are continuously conducting scientific activities, workshop and injector programs to expand Zarbot's user base and reinforce its position as a suitable alternative for neurologists. Now I'll give you all a quick update on our mass market division, which includes Spark, Stellar & the Healthcare division. Here, we've conducted various knowledge sharing programs. We've also conducted diagnostic camps across India. For our Stretch Nil product, which is a very unique product for stretchmarks, we've come up with a proprietary device, which helps us measure the stretchmark and which can help us to be proactive in ensuring the right treatment because, as we know, stretchmarks are irreversible. We've also filed a patent for this particular device. We have some very interesting products which are set for launch in these divisions. We mentioned them in our presentations, one -- and the notable ones are the extended release dydrogesterone, which is a very exciting market. Now a quick update on the international business. Our international business strategy has yielded new product approvals and registrations across a diverse range of countries that include the U.K., Australia, South Africa, Nepal, Sri Lanka, Philippines, Thailand as well as Myanmar. With over 200 products now registered across regulated and semi-regulated markets and another 150-odd products in the pipeline, we are well-positioned to leverage our existing combinations and target new market opportunities. We also have a very exciting announcement about a unique pain management solution, which we have in-licensed in the past quarter. This is a synthetic analgesic with a mechanism of action that is similar to an opioid but without the associated side effects. This product acts as both an agonist as well as an antagonist at opioid receptors that provides effective pain relief while reducing the risk of respiratory depression, which is the most common side effect of opioid pain treatment options. This is also a once-a-week pain management product, which should mean it has a lower abuse potential and is particularly suitable for managing moderate-to-severe pain, including postoperative pain. There is a patent for this product and the patent period for this product in India is till 2031. In conclusion, Q4 has been a quarter of growth and strategic advancement for Gufic. Our dedicated efforts in product development, market penetration, regulatory compliance and patient engagement are driving our way ahead. We remain very committed to delivering innovative and high-quality health care solutions, while enhancing value for our stakeholders. Thank you all for your continued support and confidence in Gufic Biosciences. I look forward to addressing questions later in the Q&A. And this concludes my update, and I'll now hand over the call to Mr. Roonghta for the financial highlights and update.

Thank you, Avik. I am just going to highlight the financial results for the Q4 of financial year '24 versus the Q4 of financial '23. I will also going to highlight the financial results of '24 versus the financial results of '23. The total revenue for Q4 of this financial year is INR 194.9 crores compared to INR 173 crores of Q4 for financial year '23. The EBITDA for the current Q4 is INR 34.6 crores compared to the Q4 of last year, INR 32.8 crores. The EBITDA margin for current Q4 is 17.8%, whereas the Q4 financial year '23 it was 18.9%. The profit before tax for the Q4 for this financial year is INR 26.6 crores compared to Q4 of financial year '23 was INR 23.9 crores. The PAT margin for the Q4 of the current financial is 13.6%. Q4 of last financial year, it was 13.8%. The profit before tax for the current financial is INR 19.5 crores. The Q4 of financial year '23, it was INR 18.1 crores. The PAT margin for the Q4 is 10%. The Q4 of last financial year PAT margin was 10.5%. Now I'll highlight the financial results for financial year '24 versus '23. The total revenue from the operation is INR 806.70 crores compared to INR 690.6 crores during the financial year '23. The EBITDA margin for the financial year '24 is INR 148.05 crores compared to INR 137.2 crores of last financial year. The EBITDA margin for current financial year that is '24 is 18.4% compared to financial year '23, it was 19.9%. The profit before tax for the current financial year '24 is INR 115.7 crores. For the financial year '23, it was INR 106.7 crores. The PAT margin for the current financial year '24 is 14.3%. For financial year '23, it was 15.5%. The profit after tax for current financial year '24 is INR 86.1 crores compared to financial year '23, it was INR 79.7 crores. The PAT margin for the current financial year '24 is INR 10.7 crores (sic) [ 10.7% ] where the financial year '23, it was 18.5% (sic) [ 11.5% ]. Thank you very much.

We can now start the Q&A session.

[Operator Instructions] The first question is from the line of Nitya Shah from KamayaKya Wealth Management.

I wanted to understand whether the BIOSECURE Act, which has been passed in the U.S. recently, what impact do you think that would create for Gufic? Is there any big advantage you're seeing out of that?

I'm sorry, actually, there was a little bit of a disturbance. Can you repeat that question again, please?

Yes. I was saying that the BIOSECURE Act that has been passed in the U.S., how do you see the impact coming on Indian players such as yourselves? Do you see this as a good benefit going ahead?

So very frankly, it's very preliminary and very early to comment on that because in the past also, they had come up with some other act in terms of the generic market, which eventually then got changed once the election changed. So I'm assuming since the act has been made, there will be, what do you call, a proper execution. For us, keeping in mind the India market, specifically keeping in mind some specific products, is that -- if we are able to do a good regulatory profiling of our factory and there are certain technologies where -- and there are certain, I would say, USPs by which, as a U.S. FDA partner and having prime bio as a part of that, there can be some advantages. But again, I would like to say because it's very preliminary to comment on that. And right now, I'm still not the expert because what my team told me, let's wait. That's what I would try to give you, the same feedback.

And after going through your presentation, is it a fair assumption to say that in quarter 2, we will start seeing the commercialization of the Indore CapEx?

So that was a good observation what came out. If you see last year, we were trying to go for more and more hospital penetration and direct supply rather than primary supply to stockists. Right now because of the different experts whom we have called in Indore to get the audit done and the feedback done, I think there's a delay of one, 1.5, two months happening in terms of the actual commercial production starting. We visited DCAT also in the month of March, and there were some clients whom we already are engaging for the U.S. markets, and it's not much -- I think the discussions have really taken a good turn. And their QA team has come and they also have given their inputs, which can be changed right now. So implementing those changes, taking the confidence, and as Avik said, we also had ex U.S. FDA inspector who has retired and she does consultancy. She also had come and gave her a good insight about certain processes which are being implemented and executed right now as the media fill. And something we did before the media fill and right now, something will be done side-by-side in utilities also. So I hope the Line 3, Line 4, which will be starting the -- revenue should be captured from approximately June end and that will be for the last week or maybe by July first week, and yes, as you said, the lyophilization full fledge revenue should be start capturing from July end and August first week. So you can say maybe two months full of Q2 will be somewhere where you will see the revenue going up because we have a big order book, and we are right now struggling with execution. So I hope -- I mean, I'm not sure how I'm sure now. We will not hope anymore. We are sure that from July onwards, we can see the revenues being captured in our profit and loss.

And now that you've crossed INR 800 crores of top line in FY '24, are you confident on reaching close to INR 1,000 crore revenue mark by FY '25 end?

I'm confident for sure, and I'm sure we'll be doing especially what Indore comes and other things coming in the order book what is they are looking for. But more or less, I would like to make a point very clear. Gradually, year-by-year, we are right now derisking ourselves from contract manufacturing, getting into more front-end where the profitability is. And even now, even with Sparsh and Critical Care, even in Infertility, we are trying to get more and more involved in direct supply to the doctors, to the patients where we can maneuver the pricing, also maneuver the, what you call, the quantity. So keeping this in mind, primary is not something I'm focused on. But yes, I think INR 950 crores to INR 1,000 crores is something, if I look even with all these parameters, and we hope we can cross that also. So the more we get into tertiary and secondary billing rather than primary billing, the numbers might take a hit, but not that much also, but at least we'll get more -- we can control our business much more where we have our control of which hospital, which nursing home and all of them are buying it rather than depending on certain distributors. So yes, I feel that we are closer to INR 1,000 crores.

And last question from my end was regarding -- I've noticed the working capital structure has been a little more stretched, you had explained due to onboarding more hospitals and penetration into the hospitals. So in this year, are you seeing the working capital to ease out a little bit like better payable terms from the hospitals and so forth?

Yes. So that was, I think, a very good question. So in the first year to get the confidence, get the penetration done and also to [indiscernible] stockists and these people are giving us so much benefit, can Gufic give us the same? So in the initial run, we have definitely stretched it not only in terms of hospital and nursing homes, but even with certain infertility centers also, where we know what are the cycle going on. But we feel going forward, by September, at least around 40%, 45%, 50% of the amount will be back in circulation because we have some other parameters of discounting, which we have started now. And I think by the end of the year, we feel that the data should come back to the normal level. So that is the one big thing which we also realized because we thought that going and reaching the end customer is good, but sometimes, we expect that getting the money and they expect more discounts. So we are taking care of them from now on.

The next question is from the line of [ Aditya from MSI Capital Partners ].

Quickly, I wanted to understand what would be the revenue spread across our SBUs that is domestic branded business, international business, CDMO and API? And how has that grown over the last year?

So very frankly, because of the demand of Sparsh and domestic, that 55% of our domestic revenue has gone to 58%. Then, of course, API, I mean -- then the next biggest thing would, of course, be exports, which has gone -- I would say, no, the next biggest thing would be contract manufacturing, which has fallen from 25% to around 21% or 22%. We have seen -- or actually a little less, it's actually 19% if I consider Q4 also. And then the API -- the export business has increased. The problem with exports business is because of the capacity constraints, there are some U.K. tenders, which we have just won in Germany, which we hope to fulfill in Q2 this year, instead of Q1 this year. That will, of course, give that percentage change. And then, of course, API business is around 4% to 5%. So export would be around 20%. The next thing will be -- I mean export would be around anything between 18% to 20%, contract manufacturing will go from 19%, what is there last year would fall down to 17% or 15% this year. And then domestic business will be anything around 58% plus or minus, with the Sparsh division also getting further help by the Indore plant. API, like I said, between 3% to 5% because the base of the other division will increase much more than the API, so we'll see API fall from 5% to 3% or maybe 6% to 4%, something like that.

Understood. And gross margins have improved quite well on an annual basis. Is this sustainable or there were some onetime material benefit that we got?

So that's the problem I'll tell you. So these gross margins are in spite of our validation that is happening at Indore and Navsari. So that's the reason if you remember last three quarters, I have been telling you, I'm trying to go off the primary billing and going more to directly to a hospital, to nursing homes and to doctors, which is having an impact on the debtors. But at the same time, the margins are definitely improving, but I'm getting much more transparency of business. So someone who was buying 100 units and then discounting themselves as a primary thing, I can ensure now I know each and everywhere where my 100 units are being sold at a better price. So this is one thing which has helped us for gross margin. In spite of the prices also -- if you see the prices from China have eased off only in the last three months. Otherwise, the prices last year were quite high and they went up in spite of that and in spite of the validation batches, which are also part of the consumption, the gross margin we're able to maintain because of this direct penetration we're trying to increase. So now -- that's why I answered the first question also. Now, is it worth keeping this pricing benefit against the debtor's level? So that is why we have come up with new solution also from March onwards, where we are trying to give some more discounting, which is still lesser, still our margins will be [ kept ] here, but we'll give some discounts to the hospital and incentivize them to pay us a little bit more on it. So that will ease out hopefully by September and next March.

Understood. And sir, the previous participant also asked this, so even you highlighted also why. But if I will -- just to get a color across the SBUs other than Sparsh, which would be the division that impacted the increase the most?

So Critical Care, because there also, we are directly now supplying to hospitals and keeping that marked data where we really come to know what hospital is buying how much and at what pricing. So the stocking patterns have reduced, so the primary has gone down because distributors have stopped stocking it. So whatever orders from the hospital that only is taken care of since last September. So last February, we started Sparsh, that is 2023. From September, we started Critical Care, where all the inventory they keep is based on the hospital actual supply. And third division that is Infertility, we have started only three products, that is Puregraf, then Guficin Alpha, and of course [indiscernible]. So these are the 3 products which are part of Infertility, which consume around 25% to 30% of our revenue of Infertility. These are all only tertiary business, which happened and all this is in additional to the Stunnox business. The Stunnox and Zarbot, since launch of the divisions, have been directly doctors supply. So there's no primary billing which happens. So all these, I would say, different product line of Sparsh, Critical Care, then Infertility, 25% revenue, full revenue of Stunnox and full revenue of Zarbot, all of them are directly tertiary business only which we penetrate on where directly we give it to the hospital, the nursing home or the, what you call, the doctor. And we ensure that, that penetration -- and we have real-time data of who is buying how much and on a work limit and this is the total which is affected.

So even in Critical Care, we have superseded the super stockist -- the entire supply chain. So we're not dealing with super stockist anymore.

We still have stockist, but stockist have a marked data. So the stockists still are very important. Without stockist, we cannot work because they have a good penetration and collection. And because as a company, we can't outsource or enter NovaCare to go and collect from a small Class B, Class B towns. But now the stockists are pure stockists working at an X margin that is 8% to 10%. So any order is validated by the team, and that is only supplied for by which we get real-time data that which hospital, which nursing home is buying for. So it's not that we used to do the primary billing they used to supply to other people also and make a little bit more margins wherever possible. So that is a little bit difficult now overall.

Sir, just last couple of questions. So we have got an in-licensing approval from an innovator who manufactures pain management molecules. So...

The once in a week pain management product, yes.

If you can highlight that a bit, how large is the market, who is the innovator if that is possible?

It's a company based in Taiwan, and they have already got approval in Southeast Asian markets like Taiwan, Singapore, Malaysia, I think, and 2 more countries. I think, Japan, they are in trials. In U.S., they are looking for a partner for Phase III. In India, we have taken the exclusive rights for India, where we have -- also it's actually two part of a relationship. Firstly, that they gave us the exclusive marketing rights for this pain management. So what is in pain management? Any IQ-based question or any doctor or any orthopedic -- any ortho, I would say, pain release or even gynec, wherever the acute pain is there, when you want immediate pain relief, where you either have to take, I would say, like a morphine or something or if you have to take a diclofenac or anything of that matter, depending on the nature of the pain, of course. These products can work well in conjunction and also maybe sometimes in some cases, in isolation also. You don't need to pop in pills every day. You don't need to take injections IV every day. If you take an injection on the first day, then you need to take the injection on the fifth day or the seventh day depending on the seriousness of the pain. So the entire compliance of the patient and the doctor just grows. So you go to an ortho with a severe pain, he just gives you an injection on Day 1 and then for Day 5, you are still okay. So you'll be also happy that certain people who take NSAIDs who have acidity issue or some people have kidney issues, some people with metabolism issue or some people have other side effects, this is completely avoided. So this is a good product, which we are quite gun go on. And like I said, tomorrow, if we reach a particular milestone on sales in India, then we get a localization option also where we can be a contract manufacturer for them for other countries also along with India. So it's a good relationship. It's almost one year we worked on the deal. Finally, it got signed. And I think it's a good addition to our ortho range as well as ICU setup range also. And even in gynec range, where cesareans and other sort of pain or even hysterectomy or others are involved. So it fits our front end very well.

Congratulations. And how large would this market be? So pain management is a large market, but inside pain management...

Yes. For the day-to-day pain, which is there, which can be managed by oral, of course, we will not get into that because they're going to price it also differently. So that is where our discussion is happening with the innovator and how do we price it. So based on the pricing, which clarity should come because first, we are doing a clinical trial here in India also. I mean we have asked for a waiver, but if they ask us to do a clinical trial, we will do a clinical trial in the Indian subset also. If that happens, we'll come to know also, like the Indian patient pool, how is the product happening. We have some pricing options. So if we decide pricing here, then the market addressable so and so, we have to decide pricing within the market addressable is something else. So I think let's wait for a quarter or 2 and then we'll give you a little bit more insight. Anyhow we are looking at launching this product around in 2025, Q1 or Q2. So that is where the time line is assuming that we have to do a Phase III. If we don't have to do a Phase III, then we're looking at Q3, Q4 this year, let's hope for the best.

Sir, this will be manufactured from our Indore plant?

No, no. This is right now will be manufactured in Taiwan and it will be imported here. Moment we reach a particular milestone in sales in India, then it will be manufactured by the Indore factory, yes, down the line.

Understood. And sir, for Indore plant, what would be the time line where we would figure -- we would not directly go for U.S. FDA. We'll first go for an ANVISA or...

We will be targeting it parallelly. So we are looking at three to five molecules, which are immediately starting in every line, Line 1, Line 2, Line 3, Line 4, there are total four lines. Out of that 40, 45 products which Avik spoke about, there'll be around four to five products, which will be -- which have been planned on every line. We'll be triggering the inspection from the first two products only in all these lines. So we have Europe, U.S., then, of course, Brazil and I think even Russia and others also planned, but because most of the products which are there in the first five launches in every line are something products, which eventually we want to take in all these countries. So how you have Navsari, which is approved by all, I would say, countries except U.S. and Japan, now Indore opens up the market also for U.S. and Japan. So we will be filing as and when with all these clients right now. In Japan, we don't have a client yet and as well as, I think, in some -- one, two other countries we don't have a client yet. So other countries, we can take it up as thumbs up trigger.

So when are we planning to trigger...

So the batches will be taken by July, like I said, in August. And then on three months stability that is around October, November, we'll file for the -- what do you call, we can give the dose here. But moment the WHO GM comes and also we have -- so we are looking at 2025, where most of the audits will be triggered subject to the availability of the auditors. So anything between Q1 to Q4 2025, you will have a series of audits happening in Indore.

Understood. Understood. And then we will start registering the products in those markets where we receive the health certifications.

Yes.

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

Am I audible?

Yes, sir, please go ahead.