Gufic Biosciences Limited (509079) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 and FY '25 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, Company Secretary. Thank you, and over to you, ma'am.

Thank you, Sejal. Good evening, everyone. I welcome you all to Gufic Biosciences Limited Earnings Conference Call for the Second Quarter of Financial Year '24-'25. We have with us today Mr. Pranav Choksi, CEO and Director; Mr. Devkinandan Roonghta, CFO; 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 state 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 obligation to update or revise any forward-looking statements, whether as a result of new information or future events or otherwise. We will 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 session. Over to you, Avik. Thank you.

Thank you, Ami, and welcome, everyone, to our quarterly conference call. I will quickly update all of you all on our strategic business units, and I'll begin with the Indore facility. So the commissioning of the Indore facility marks a transformative milestone for us. The immediate focus for this facility is a carefully calibrated strategy where we aim to ramp up production in a phased manner. So in this approach, we try and balance operational readiness with our long-term objectives and ensuring efficiency, regulatory alignment and most importantly, quick market responsiveness. In the short term, the strategy centers on transferring select high-demand products from Navsari facility to Indore. By moving these products, we aim to optimize production capacity while maintaining seamless supply chain operations. The process will involve rigorous validation protocols to ensure that the high standards of quality and consistency that we are known for are preserved. This targeted transition will allow Navsari facility to focus on backlog export orders by leveraging Indore's capacity to scale production progressively. Simultaneously, we will [Technical Difficulty].

Mr. Avik, we are not able to hear you.

I think since he might be in Indore on route, there might be an issue. So what we can do, we can go to Roonghta, sir, and then let Avik join back once he gets connected again.

Sure, sir.

I will just highlight the financial results for Q2 of '24-'25 versus Q2 of '23-'24. The total revenue for the current quarter of Q2 is INR 204.2 crores. Last year Q2, it was INR 214.9 crores. The EBITDA for current quarter of Q2 is INR 38.7 crores. Last year, it was INR 39.7 crores. The EBITDA margin for Q2 of current year is 18.9%, previous quarter Q2 was 18.47%. Profit before tax for Q2 of this quarter is INR 29.3 crores, previous year Q2 was INR 30.9 crores. The PAT margin (sic) [ PBT margins ] for Q2 of current financial year is 14.13% (sic) [ 14.35% ]. Last year Q2, it was 14.38%. Profit after tax for current Q2 is INR 21.8 crores, previously, it was INR 23.2 crores. PAT margin for current Q2 is 10.68%, last year, it was 10.80%. Now I will highlight the 6 monthly result of '24-'25 versus '23-'24. The total revenue for the current half yearly is INR 407 crores, previous half yearly, it was INR 409.9 crores. The EBITDA for current half year is INR 79.8 crores (sic) [ INR 75.8 crores ], last year, it was INR 76.1 crores. The EBITDA margin [ for current half year is ] 18.62%, last year, it was 18.57%. The profit before tax for current Q2 -- current half year is INR 57.4 crores, last year, it was INR 59 crores. PAT margin -- profit before tax margin for current half year is 14.10%, last year, it was 14.39%. Profit after tax for current half year is INR 42.6 crores, last year, it was INR 43.8 crores. The PAT margin for current is 10.44% (sic) [ 10.47% ], last year, it was 10.69%. Thank you.

Sir, should we begin the question-and-answer session?

I think Avik has joined. Earlier he rejoined, he had some network issues. Avik, can you continue with the business details?

I'll do that. So I'll restart by giving you an update on the Indore facility. What I was touching upon is our short-term strategy and the long-term strategy. So I'll first begin -- I hope I'm audible now? Can someone confirm that?

Yes, sir, you are audible.

Thank you so much. So our short-term strategy at -- for the Indore facility will be centered around transferring some of our high-demand products from Navsari. By moving these products, we aim to optimize the production capacity while maintaining seamless supply chain for these products. The process will involve rigorous validation protocols to ensure that we are able to sustain and maintain our high standards, which we are very well known for. This targeted transition will allow Navsari facility to focus on backlog export orders by leveraging Indore's capacity to scale production progressively. Simultaneously, we will initiate audits of the Indore facility by our domestic contract manufacturing partners. These audits are intended to validate that the Indore plant adheres to the stringent quality standards required for manufacturing their products for the domestic market. Over the next 2, 3 months, these audits will be undertaken followed by a phased initiation of production for these partners. This collaborative approach will not only position the Indore facility as a trusted manufacturing hub for complex injectables for our partners, but also facilitate a gradual scale up of the operations. Now as you all know, a critical pillar of our long-term strategy, is leveraging the Indore facility to gain a foothold in the regulated markets. The facility's advanced infrastructure positions us as a very competitive player capable of meeting the stringent requirements of most of the regulatory bodies. We've shortlisted high-potential molecules that align with the market opportunities in these regulated markets. And we're in the process of finalizing collaborations with partners to facilitate registrations. The production of exhibit batches for these molecules will commence shortly, laying the groundwork for regulatory dossier submissions and future approvals. This sales approach to scaling production offers several [Technical Difficulty] risks by allowing the facility to gradually ramp-up [Technical Difficulty].

Ma'am, we lost Avik, sir, again.

Okay. So I think we should -- we'll start with the -- or we'll wait for a minute and then post which...

Avik, sir, is back ma'am.

Okay.

Sir, please, continue.

Right. So I was saying that the phased approach to scaling production will offer several advantages, it minimizes operational risks by allowing the facility to gradually ramp up capacity while addressing potential challenges during the transition. Additionally, focusing on exhibit batch production and regulatory preparation ensures that the Indore facility is well positioned to meet the expectation of international markets, which will be the way ahead for our long-term growth. The gradual scaling also optimizes resource allocation, ensuring that our investment in manpower, infrastructure and materials are used effectively in the short term. The Indore facility's strategic role extends beyond its immediate operational goal. It represents a key component of our vision to establish ourselves as a leading player in both domestic and international markets by balancing the need to ramp up production immediately. With our long-term objectives of regulatory alignment and market expansion, we are hoping to set a robust foundation for sustained growth and meaningful market impact not only domestically, but also in select international markets. Now I'll quickly update you all on our business divisions. To begin with in the Critical Care division. This remains the backbone of our operations, supplying life-saving injectable solutions to hospitals across India, with a strong focus on addressing critical challenges in antifungal and antibacterial therapy, this division has further made it a priority to combat sepsis, which is one of the leading causes of hospital mortality. We've done a lot of product development. We've relaunched one of our products, which is especially targeting towards sepsis, and we've definitely taken it up as a cause that we are rallying around to control the rise of sepsis in hospitals. For this, we've engaged more than 3,000 health care professionals through more than 100 scientific activities nationwide raising awareness about sepsis management and moreover, the judicious use of antimicrobials. These initiatives will aim to equip clinicians with tools and knowledge for early detection and effective intervention. This reinforces our commitment to improving patient outcomes and working with hospitals more as a partner than only a supplier. On the product front, we are expanding our pipeline with innovative molecules in advanced antibacterial and antifungal classes. These products are uniquely positioned to address therapeutic gaps while offering complex manufacturing processes at very competitive prices. By aligning scientific education with cutting-edge product development, Criticare is not just providing solution, we believe we are shaping the future of cost-effective hospital-based care. We've also given a brief of the kind of pipeline we have in this division in our investor presentation. Now coming to Ferticare division. Ferticare is addressing the rapidly growing need for assisted reproductive technologies in India. Where infertility rates are rising at an unprecedented pace, we are committed to being a comprehensive solution provider in this domain, for which we are expanding our pipeline of products towards recombinant hormonal products such as rFSH and rhCG. Additionally, we are also introducing very differentiated products like Niacinamide vaginal gel and coenzyme Q-10 supplements to support the reproductive health holistically. The division recently also launched Fertimax, a specialized task force focused on deepening engagement with gynecologists and IVF centers. It offers a very niche and specialized hormonal product offering. These initiatives have already begun driving market penetration and strengthening -- further strengthening our relationships with leading IVF chains, IVF centers and boutique practitioners across the nation. Coming to Aesthaderm. Aesthaderm is at the forefront of creating a category for aesthetic dermatology in India. Stunnox, our flagship Botulinum Toxin brand, it aims to democratize the access to aesthetic treatments and expand the user base among dermatologists and cosmetologists. Stunnox has become the second most used Botulinum Toxin in India with acceptance driven by its quality and performance. And over the past 6 months, we've trained nearly 300 doctors through specialized workshops and onboarded several trainers to conduct knowledge definition nationwide. These efforts, combined with clinical studies or new indications such as Hyperhidrosis are building confidence among practitioners. Additionally, we are expanding our cosmetic portfolio to include solutions for concerns like melasma, wrinkles and dry skin. This comprehensive approach should position us as an early mover in the fast-growing aesthetic dermatology space, which is poised for growth as awareness increases income drive and the population ages gradually. On the Neurocare division, the focus over here is on the therapeutic application of Botulinum Toxin, which is addressing an unmet need in the conditions like spasticity and chronic migraines to name a few. Zarbot is India's first Botulinum Toxin type A of international pedigree. It has gained acceptance with more than 100 neurologists within a year of its launch. Here, we are doing targeted scientific activities and interacting with user groups. We're creating a robust ecosystem of knowledge sharing and best practices. This should position Gufic as a pioneer in therapeutic Botulinum Toxin applications, and we're also offering hope to patients with very complex neurological conditions. Now coming to Sparsh division. So Sparsh division is designed to serve a broader spectrum within the injectable market [Technical Difficulty] a wide basket of essential and specialized injectables for smaller and midsized hospitals across India. Now unlike Gufic's Criticare division, which targets high-intensity critical care needs, Sparsh provides cost-effective solutions to cater to the day-to-day therapeutic requirements for smaller hospitals and nursing homes. These includes essential treatments for gastroenterology, nephrology, radiology and even critical imaging support. We have some niche products in our basket over here such as S-Panoriya which is a unique alternative to the widely used Pantoprazole. We are also soon to tap [Technical Difficulty].

Ma'am, we are getting -- yes, sir, please continue.

Yes. So Sparsh's direct-to-hospital approach, enables deeper engagement with the hospitals. It provides us visibility into their purchasing trends and their therapeutic requirements. Now this strategic advantage allows us to identify emerging needs quickly, and it also allows us to introduce relevant products, which effectively expands our portfolio and which deepens the relationship with our hospital partners. Now one of the short-term challenges of this approach is an increase in the debtor days due to the direct credit to hospitals. However, the long-term benefits significantly outweigh the downsides in our opinion by fostering direct relationships with hospitals, especially in India's growing health care infrastructure space, Sparsh will position itself as a reliable partner in their journey. This model not only builds loyalty and trust, but also offers the ability to scale the product portfolio strategically, that should ensure a comprehensive coverage of hospital needs as they grow. So additionally, Sparsh's wide therapeutic coverage from dual-chamber bags to niche products like contrast media soon should position it to capture a significant share of the hospital budgets. And this approach aligns with our vision of becoming an indispensable partner for hospitals offering both value and convenience. Now on Spark, Stellar and Healthcare divisions, these divisions continue to drive growth through innovative product launches and strategic initiatives in their domains. Stellar's recent introduction of VonPHa which is a novel PPI has gained significant traction, reflecting our ability to capture market opportunities in niche segments. Spark's patented Stretchmark Meter is revolutionizing how gynecologists approach stretchmark prevention boosting our brand Stretchnil and Healthcare division with its Sallaki Range has achieved top market ranking, cementing its leadership in orthopedic and pain management. Now on the international business front. Our international business division is seeing growth driven by our strategy of investing in regulated market registrations. We very recently received approvals in Thailand, Sri Lanka, Lithuania, and we also won a tender with U.K. NHS. By owning registrations, we enhance market visibility, ensure supply chain stability and gain better control over tender participation. This strategy positions us as a reliable global player with plans to scale production at the Indore facility to support further international expansions. With this, I'll open the call up for questions. Yes. Thank you.

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

So just had 2 questions. My first question is, wanted to understand, has there been any loss of revenue because of the transfer from Navsari to Indore?

Bhavya, Pranav here. So there has been no loss of revenue as such during the transfer process. There has been a loss of revenue in the quarter because Indore started in October -- October 3 to be precise. So that's why the capacity which was not available at Navsari could not be met by Indore in the last quarter because the production started in the first week of October. So that is the thing. Also, during the transfer also, there will be 3 batch validation. So the batch size has been kept in such a mind that the orders do not get lost, whatever validation samples have to be removed, those will be kept on the site. So there will be no loss in the transition process.

Okay. Understood. And my second question, I think in the presentation, you had mentioned that the Board took a decision to do for the U.S. FDA documentation. So just want to understand what percentage of this procedure have you already completed in terms of documentation, if that's possible to answer?

Yes. So what we mean by that statement that if you see a year ago in October, the facility was ready for commissioning subject to limited test. So at that time, when we had some external audits done by, I would say, experts from the pharma industry and ex regulatory chiefs or ex regulatory inspectors, they gave us a lot of suggestions about improvement in certain process parameters and certain utility parameters. I'll just give us a few examples. Electricity, steam and, what do you call -- electricity, steam primarily and then water. These are the main 3 factors which come in the injection factory and normally based on the background what we have and details what we have, we had started the designing in 2021. EU Annex 1 had come up. And now also U.S. guidelines will be changing in the next 2 years as per what the draft copies is available online for everyone to see. There are certain modifications, which we needed to be done to ensure that we comply this not only now, but in the years to come, so assuming there will be no further guideline change in the next 2 to 3 years. So to incorporate that, if we started the production, it would be a little bit difficult for us to revalidate the entire process using the new guidelines. Hence, we took it on ourselves to spend those 6, 8 months, finish those modifications and requalifications. And answering your question, as of now, all those things have been done. And hence, in -- on October 3, 2024, we have started the production from the Indore facility.

Okay. Understood. Just a clarification. I think Avik mentioned that whatever -- whichever high demand products that we had and that's been shifted to Indore. So did we need any approval for this? And going ahead, what is the time line and procedure for a EU GMP and all the other just to start up a CDMO and also international?

Yes, so I'll answer your first question. So the FDA license of -- most of the products as tech transfer already has been taken in the last, I would say, 8 to 9 months as the side-by-side the qualification studies were going on because of the R&D data and the tech transfer data which we have from Indore, plus, we had taken some batches, like I said, that's the reason we got delayed in terms of commercial production. So all the molecules' license are in place. The EU -- I mean, let's say, the first thing for a CMO or a CDMO option, we have audits which started all the way in May, June, July and audits are ongoing. Even today as we speak, as Avik is there in Indore, is there where we have another big Indian MNC also is getting the audit done, plus we have a visitor from Saudi Arabia also. So they -- all the audits are in place right now going on. So we assume that the Gufic's own manufacturing will happen October onwards. And we foresee that the CMO, CDMO business will be initiated in December, I mean, November end, December to start off with and then go on and so on -- I mean, go on. We are hoping that the EU audit will be triggered -- I mean we already have triggered the EU audit with 2 molecules, and we're hoping that they would come and visit us by around June 2024 to September 2024 (sic0 [ June 2025 to September 2025 ] based on their dates. And we should have an EU, I would say, approval, hopefully, before the end of next year, that is 2025. Coming to the U.S., like I said, our focus is purely CMO, CDMO based. So that would be depending on our clients in terms of their investments and their time lines for validation batches. So even if we take the validation batches in the -- from the next month till March, when they will trigger it will be depending on their regulatory department's thing, but we are looking at a calendar year of 2026 where we see some action in the U.S. FDA front.

Okay. Understood. So is it fair to assume there wouldn't be much of a revenue contribution from Indore at least for this year? And...

Yes. Bare minimum would be because, like I say, validation batches would still contribute something. Yes, but the real potential of the Indore facility would be seen in the next 2 to 3 years. Yes.

The next question is from the line of [ Midhun James from Cuperintro Investments ].

Yes. So I think we -- the big elephant in the room is Indore. So I think even in the last con call also, we had given a projection of Indore starting operations and contributing to the revenue from the current quarter, which have not seen -- we have not seen that happen. So my first question is, when do you see Indore contributing to some revenue? Is it from the current quarter, the running quarter or from the next quarter? When can we see some revenues from Indore happening? Because without that, the overall revenues is like stagnant for almost 4, 5 quarters now.

Yes. So answering your first question. The revenue would be captured from Indore from this quarter itself. And already, like I said, from October 3 the manufacturing has started. So the revenues of Indore would be seen in the books financially from 2024 December quarter. Answering your second question. Yes, if you see last year, there were multiple factors apart from the capacity constraints, which we have. There were -- also around 20% of our revenue is contributed by around 6 to 8 molecules. Now the 6 to 8 molecules, what we had in the last 3, 4 years, they actually got eroded by almost 35% to 50% in terms of API pricing in the last 1 year from China. And that's why what you see right now also, there has been a unit increase in terms of these 20% of our revenue. But yes, you're absolutely right, they are not reflecting in the value, again, because of the reason mentioned above because the erosion of the API and that goes through. At the same time, yes, the capacity constraint would be the reason -- I mean, a primary reason why the flat revenue is there. However, with Indore coming in is not -- actually, I would say, Indore is not only the elephant in the room, there has to be other things like the Botulinum Toxin and the Penem and other things also start kicking in. We were a little bit more guarded in terms of our revenues in this first, second quarter, reason being also the debtor cycle we did not want to push out. So one of the reasons that we were a little bit more, I would say, conservative and we'll continue to do so going forward without affecting the revenue or the profitability point of it is something in certain institutions in India, we have taken a strategic role because if you also see other companies in our same sector the debtor window has almost blown up like us by almost 35, 45 days extra than what was a normal norm. So that is something which we are taking up and -- to ensure that not go through that level of credit -- I would say, credit spread out at the cost of revenue. So that's the reason is there. But yes, Indore definitely plays a big role apart from other factors.

Okay. Got it. My next question is regarding the Botulinum Toxin product. So recently, I think there was a filing wherein which there seems to be -- there is some arrangement between Dr. Balram Singh's entity. I think he has moved out from the Board. So can you give some more clarity on what has happened on that regard? And how does it impact you as a company?

Sure. So Dr. Balram Singh was a Board of Director of Gufic Biosciences. And we -- you must have also read in the news that we formed a separate subsidiary where Gufic and Prime Bio, that is Dr. Balram Singh's entity, came together to form a subsidiary of Gufic Biosciences. And in order to make the Board a little bit more clean and in terms of governance, since he was also the Board of Director of Gufic Prime Bio, which is a subsidiary of Gufic Biosciences, we had asked him to resign from the Board of Biosciences and attend the -- and become like a little bit more aggressive Board of Gufic Prime Bio. So relationship and entire the arrangement doesn't change. It's just to keep the -- because apart from Botulinum Toxin, there are some other projects which we are working on. And for that matter, we are looking at some movements happening in that sector in the next 3 to 6 months, which we will announce in due time. So for us to make a separate clean entity for the projects which we are doing overall with Dr. Balram Singh made sense. And hence, he's still full fledged with us, but he is just right now on the Board of Gufic Prime Bio, which is a subsidiary of Gufic Biosciences, so that is just the change that we have done.

Okay. So meaning there is no difference in basically the working arrangement, it's just a...

Yes.

Okay. I understood the point. And last -- next question is regarding the Selvax. Can you give some color on what -- where are we on Selvax? What is the research going on in that front, please?

Right. So I think Selvax, firstly, just for people who might not be aware, was an investment which we had done on -- in the oncology space, I think to be more precise, immuno-oncology space, which is a very interesting mechanism in terms of treating certain solid tumors, where it's a combination of anti-CD40 antibodies and interleukins come together and that results in, I would say, canines, that is dogs, and also another animal species has been very, I would say, promising. Currently, if you see the update as Avik has also -- I mean, in the -- I would say, in our presentation in the company presentation we have given them, there have been some additional studies which have been done, which further, I would say, clarify that the product has some significant role. However, this is on a very small scale where the dose determination studies are still pending. So we are clear that Selvax is sort of, I would say, a 5-year, 6-year window. However, it provides a very unmet need in terms of treating certain solid tumors. So just to -- if I summarize the entire development as on today, in the last 2 quarters, there have been some additional studies done on mouse, which have shown positive results. Now the main question was the scalability, so the initiation of the scalability of these studies have been done where like I think if you read the -- I'm reading out a line from that excerpt that out of 24 animals around 92% have a -- the cure rate of 92% was achieved which is something unheard of in oncology. However, like I said, I would not like to put our hopes very high. I'm saying -- no, I have my hopes very high, but just let the data come out on a little bit single-based large study, then I think I can comment on that further. And we also have now -- I mean, the company has -- Selvax has started working on the, I would -- cell line in terms of the scalability in terms of the production on a big scale. So the expression was done on a small scale and a large scale. Now the expression of the same vector of the anti-CD40 antibodies will be done on a bigger scale to see whether this technology can be actually scaled and show relevance over -- like making it in commercial production scale. This is where the current update is of Selvax.

[Operator Instructions] As there are no further questions from the participants, I would now like to hand the conference over to Ms. Ami Shah, Company Secretary. Thank you, and over to you, ma'am.

Thank you. Thank you, everyone. We apologize for the Internet connectivity issue. I appreciate all of you joining us today. And if you have any questions, which have remained unanswered, you can get back to our Investor Relations team, and we'll be happy to take those separately. With that, we conclude today's call. Thank you.

On behalf of Gufic Biosciences Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.