Orchid Pharma Limited (ORCHPHARMA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Orchid Pharma Limited Q4 FY '24 Earnings Conference Call hosted by Systematix Institutional Equities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vishal Manchanda from Systematix Institutional Equities. Thank you, and over to you, sir.

Thank you, Manav. Good evening, everyone. On behalf of Systematix Institutional Equities, I welcome you to the Q4 and Full Year FY '24 Earnings Call of Orchid Pharma. We thank the Orchid Pharma management for giving us an opportunity to host the call. Today, we have with us the senior management of Orchid Pharma represented by Mr. Manish Dhanuka, Managing Director; Mr. Mridul Dhanuka, whole-time Director; and Mr. Sunil Kumar Gupta, Chief Financial Officer. I'll now hand over the call to the company management for opening remarks. Over to you, sir.

Thank you Vishal. Good evening, ladies and gentlemen. This is Manish Dhanuka, the Managing Director. I welcome you all to this discussion of Orchid Pharma's results for the Fourth Quarter and for the Full Financial Year 2024. Firstly, I'm pleased to share some of the key financial achievements for Q4 Financial Year '24 and then the entire year. In the fourth quarter, our sales reached INR 217 crores, up from INR 210 crores in the same period of the last year. Our EBITDA for Q4 was INR 42 crores compared to INR 41 crores in the previous year. For the Full Financial Year of '24, we achieved the sales of INR 819 crores, a significant jump from INR 666 crores last year. Our full year EBITDA stood INR 142 crores. However, this includes INR 15 crores of interest income. Therefore, the EBITDA from the normal business stands at INR 127 crores, up from INR 103 crores in financial year '23. This growth is reflected in our strong compounded annual growth rate of 22% in sales and 26% in EBITDA over the past 3 years. These figures highlight our continuous progress and ability to adopt to the market demand. Efficiency and productivity remain at the core of our operations. Employee expenses have decreased from 9.8% of sales last year to 8.5% this year. Similarly, our other expenses as a percentage of sales have dropped from 19.9% to 18.9%. Our gross margins have remained stable with the slight slip from 42% last year to 41% this year. These improvements underscore our commitment to [indiscernible] financial management and operational excellence. Moving on to the operational update. I'm thrilled to announce the regulatory milestones on Enmetazobactam. This typical drug has received approval from both the U.S. FDA and the European Medical Agencies. This approval marks a significant step forward for Orchid Pharma. It will open the doors to royalties from these lucrative market. In India, we have also been granted waiver for Phase III clinical trials, and we will be conducting Phase IV trials post launching the product. Our initial expectation for launching, which were mid-2025 have now been advanced, and we anticipate starting sales by the next quarter. This accelerated time line will enhance our revenue streams in the current financial year. For the Indian market, Orchid will partner with a third party with comprehensive Orchid progress while also utilizing our own newly formed AMS division for product distribution. In addition to Enmetazobactam, I'm pleased to report that we have filed an abbreviated new drug application, ANDA for [ Cefuroxime/Enmetazobactam ] in the U.S.A. This strategic filing is expected to significantly contribute to our own growth in the near future, rebuilding our position in the U.S. market. Regarding our ongoing projects, the 7ACA project in Jammu is advancing steadily. We have almost completed the land acquisition, which was a hurdle in the past. The technology transfer is completed and trial batches have been successfully produced at our pilot plant in Chennai. The key government permissions required to start the construction have been obtained. However, the dealers in land acquisition have shifted our commissioning time lines for Jammu facility to March '26 from the original planned September '25. We have utilized the time during this delay to complete the design work of the facility, which should help in better execution and commissioning. Other noteworthy projects include small capacity [indiscernible] in-house which is progressing as per schedule and is expected to be commissioned in the second quarter of this financial year. This expansion will provide us with necessary capacity to support our growth over the coming years. Additionally, we are making significant progress on the project of downstream products of 7ACA and the Cefiderocol project, which is in collaboration with GARDP, of Shionogi. With these -- while these projects are still in their early stages, we anticipate their commissioning sometime in 2026. Looking ahead, our primary challenge will be ensuring the timely and budgeted delivery of these projects. However, with the steadfast support of all our stakeholders and the dedication of our employees, I'm confident in our ability to meet these goals. Our robust project management practices will help us navigate any potential risks and ensure successful outcomes. In conclusion, I am optimistic about the future of Orchid Pharma Limited. Our strong financial performance, coupled with significant regulatory approvals and progress on key projects positions us well for the sustained success. I would like to extend my heartfelt gratitude to all our stakeholders, employees, investors and partners for their unwavering support. Together, we will overcome the challenges and seize opportunities, ensuring the continued growth of our Orchid Pharma Limited. Thank you for your attention. I now open the floor for questions and look forward to a fruitful discussion. Thank you.

[Operator Instructions] We have our first question from the line of -- from [ Simple ].

Am i audible?

Yes, [ Nikhil ] we can hear you.

Yes. Congratulations on a very good year. And congratulations on that fast-track launch of Enmetazobactam in India. One or 2 data-keeping questions. Can you give a breakup of our revenue between regulated market and nonregulated market and specifically between India, Europe, U.S. and ROW.

Yes. Nikhil, we don't give country-wise breakup. But I can share with you the regulated and nonregulated breakup for Orchid. The numbers are 40% for regulated and 60% for unregulated markets. And I can also give you the other number that we share typically, that is a split between Sterile and Oral business. The Oral business for Orchid is 75% now and 25% is the Sterile business.

Okay. One more question, see, last quarter, we said the sterile facility was commercialized in November. And we were looking at utilization of close to 40%, 50% and probably 100% in FY '25. But on the revenue, if you look at between the quarter, there is no significant change. So can you talk about what is the utilization levels we are operating on the Sterile? And additional question was on the Oral also, we were talking about the facility should come up. So what are the time lines for that facility? And post these 2, what is the overall capacity addition we have done both on Sterile and Oral?

Yes. So this -- the facility was -- commissioned in November. We commissioned it, I think, in December. And you see in Sterile operations, generally, you have a lot of validations and other things to be carried out. However, the last quarter, we have operated at 80% capacity. And I think it is evident partly from the sales also, and the products have started moving to the nonregulated markets. As you understand, it will take some time to register the product in the regulated markets. So the products are already selling in the nonregulated markets. And I -- we are very hopeful that this year, we should be able to do complete production -- total production in this newly commissioned facility of the sterile product. With respect to the nonsterile products, like we mentioned, the capacity increase in one of the products is already in production. And the second one, like I said in the speech, is going to be commissioned probably in this quarter or early in the next quarter -- early part of the next quarter. That is going to bring further growth into the company.

Okay. And one last question. See, on the new initiatives we've talked about on Cefiderocol and 7ACA and Enmetazobactam, but just if we have to understand the base business, what we've been operating, how should we look at the growth in the base business, like based on the opportunity side and the filings, what kind of a growth do you think the base business can sustain over the next 3, 4 years?

Our guidance has been making around 20% CAGR. So we are maintaining that at least for the next couple of years.

[Operator Instructions] The next question is from the line of Vidit Shah from Spark Private Wealth Management.

My first question was on the Enmetazobactam approval that we've got under warranties, the Cefovecin will start kicking in from year. When this kicks in, does this fully [ translate ] to addition to EBITDA? Or do we have any expenses that we incur to realize this royalty.

No expenses. Whatever we start the sales and we earned the royalty on those sales, those two directly [indiscernible] EBITDA.

Okay. Got it. And on the 7ACA project, I may have missed your commentary, but did you mention that the time lines have been shifted to March 2026.

Yes. So because of the land acquisition delay, it is shifted by 6 months. Earlier, we were targeting August and September '25, which shifted by 6 months.

And so once this is commissioned in March '26, we'll start seeing the ramp-up of production in FY '27, how easy is it to ramp up 7ACA facility there? And does it take time? Or can we start seeing about 75%, 80% utilization from the first year, given that our trials have only been successful and completed?

Yes. So definitely, it's not going to be easy, but our intention is at least to have 2/3 utilization within the first year.

Sorry. How much utilization?

2/3, 66%.

2/3. Okay. Okay. Got it. In terms of the benefits that are likely to accrue the IRR is expected to be -- I mean, the payback is expected to be 3 to 4 years. So that still holds true?

Yes, that still holds true.

[Operator Instructions] We have our next question from the line of Jainil Shah from JM Financials.

My first question is on the royalties that we're going to receive. So how is it going to accrue? Is it going to be spread out evenly or will it be lumpy?

Yes. Jainil, typically, the royalty, our understanding is an NCE sales will take 3 to 4 years to reach the peak. So once it reaches the peak, I think the number should be stable, but it will take 3 years. So it's going to be exponential increase starting from a very low base in the first year to increasing significantly the year after.

No, no, that I agree. It's anyway variable. But I'm saying you're going to record it every quarter or probably fourth quarter, just have a -- I mean, recorded in fourth quarter...

So the [indiscernible] for recording would be every quarter. Once we get the sales performance report from Allecra. When they share their royalty calculations with us and that's when we will record it. So there might be one quarter we lag from their reporting versus our reporting, but it's going to be reported every quarter.

Sure. And about the Hospital division, if you can share some of your thoughts, how much investment are we -- and how many employees are we appointing. What's the investment there?

Yes. Manish sir will answer the question.

Yes. So we are starting with a small team of about 40 to 50 sales professionals. And we are expecting to launch this division in the second quarter. The major products will be all antibiotics, which will, of course, the flagship product will be our innovative product of Cefepime and Enmetazobactam. And we shall be targeting the Tier 1 and Tier 2 cities with the hospital multi-specialty as well as the nursing homes. This is our plan for the first year.

Okay. Very helpful. And any -- what's the incremental cost that we should build in?

I couldn't understand. Incremental cost means here.

For the sales team, it would be reflecting in our employee costs, right?

Yes. So that -- we are expecting that division to be independently -- working independently as a business unit. But yes, we do expect some investment related to manpower cost, which was partly built into this quarter also because all the design work and preparations were going on. So that would be there during the year. At this point of time, it's difficult to say how much would be the negative during the whole [indiscernible].

We have our next question from the line of [ Nikhil from Simple ].

Just 2 questions I missed. One is the product launch. So what are the time lines of the launch in Europe and U.S.? Any like which you can share or Allecra has shared with you?

No. Sorry, Nikhil, we don't have visibility on that, but I think it should be launched very shortly. I think within a couple of months, we should see the product in the market, but that's only my guess. I don't have any information.

Okay. And secondly, see early in our past discussions, we had talked about that once the commercial launch and all is closer, we may look at going in as a second source. So any updates over there or any discussions?

With respect to you are saying supplying to Allecra?

Yes, yes, yes.

Yes. So only after the launch, those discussions will start.

Okay. So as of now, no update.

As of now, nothing. Yes.

So Allecra has also out licensed the product to the third parties. I believe we'll have -- it will take some time to start those discussions.

Okay. And one last question. See, on the private entity, we had looked at products other than antibiotics. And there was this non-penicillin product range, which we were working. And not at the near term over the next 2, 3 years, but beyond 3, 4 years, when you are thinking in Orchid, would you look at going beyond cephalosporin range because if you look at our presentation 2 years back, the first target was to complete the basket of products. And probably, I would believe now we are close to closing the basket around cephalosporin. So beyond cephalosporins, are we looking at any new segments or -- how are you thinking about this.

Sir, please take sir.

Yes. While we believe that cephalosporin actually have a vast potential considering the new molecules that are in our radar. And we wish to really consolidate our position in being a leader in cephalosporin, but I think your point is very valid, and we've already started to pick up an R&D for peptide-related [ synthesis ]. And hopefully, we should be able to enter into the new technologies for 2 or 3 years down the line.

Okay. And just last question. See, this 7ACA production would be a largely fermentation-based production, if I'm not wrong, and what we've seen is that there is a lot of fermentation capacities which are coming in India and probably many suppliers are shifting from [ China ] also. You talked about peptide, but other than peptides, on the fermentation, would you say that probably on Orchid, we can create an edge on the fermentation production or any thought process on that.

Sure, Nikhil. So that's at intent level right now. So definitely, the idea of setting up a pilot plant in our Chennai facility itself is to ensure once we commercialize 7ACA, we get good experience on fermentation and other related products. So our lab is equipped to handle other products as well. But that's going to be 3 to 5 years after from today. But yes, that thought is there, that fermentation is an area that Orchid will be coming [ in the future ].

We have our next question from the line of Viraj Parekh from Carnelian.

Congratulations on your results. A few questions from my side. So first is on our new sterile facility which commissioned last quarter. We've achieved 80% capacity utilization with concentrated sales in emerging markets. Just wanted to understand that once we are achieving full capacity utilization, is it only the 20% which we target for regulated market? Or do we see more share coming from regulated markets for the sterile facility?

See, we don't generally target as such in terms of -- while manufacturing, we don't target any market. It depends on the order availability that we decide on the production plan. And like you understand, getting this new block registered and approved from the U.S. and Europe authorities will also take about a year or 2. So we start by manufacturing the products and doing the stability and other validation activities, and then only we file the documents in regulatory markets. Until then, we utilize the facility for nonregulated markets. So I would say, at least for this financial year, we will continue to supply in the nonregulated markets. And we hope from next year onwards, we will have some registrations coming in the regulatory market.

Sure. The second question is, what is our line of communication with Allecra. We are getting the [ installations ] whatever filings are happening in the public domain. But in terms of actually when the sales happen and when there are -- liabilities, collect our royalty. So what is the line of communication you have with them as what sales will happen in and as and when we see the royalty and how frequent is this?

So until now, we have been in communication directly with their CEO and the MD. But we will develop the lines of communication now at all the levels as the sales become evident. But we are in communication with the top management there.

The next question is from the line of Rupesh Tatiya from Intelsense Capital.

Hello sir, can you hear me?

Yes, Rupesh, we can.

Yes. I have several questions. So first one, sir, is the Dhanuka. Can you give full year revenue, EBITDA, PAT, some indication there? And then when will Dhanuka merger be consumed? What is the progress on that?

So I can share the revenue numbers, Rupesh? Because Dhanuka is a private company, the numbers of PAT and others will be finalized only by September. So revenue is upwards of INR 500 crores this year. And in terms of the merger time line, we are still waiting to hear from the Stock Exchanges. Once we get the NOC, we have to apply to NCLT, and that may take about 12 months.

Okay. Okay. I see. So it was INR 275 crores, I think, in half year. So it is above 500 crores is what you're saying?

It's INR 550 crores exactly.

INR 550 crores.

It's INR 550 crores.

Okay. Okay. I see, sir. Okay. And second question, sir, is Enmetazobactam. Can you maybe update on India launch? I joined the call a few minutes late. If even it is repeat, please pardon me, but where are we on India launch of Enmetazobactam?

Yes. So for India, we have been granted the Phase III trial waiver by DCGI, and we expect to launch it within the next quarter. Earlier our expectation was early next year, but due to the clinical trial waiver of Phase III, we'll be able to launch it this year itself.

That is very good to hear, sir. Another question, sir, is we launched, I think, Avibactam about a year back. So can you maybe give some color on that. How the sales are panning out? What is our market share? Some color on Avibactam.

So I can tell you that we've done well in Avibactam. Last year also, we sold about [ INR 10 crores ]. This year, we sold more than [ INR 15 crores, INR 16 crores ] [indiscernible] . And some of the top brands use our API. So I think we were probably the market leader in this product in India.

And has there been some price compression sir in this space or we are holding on to price?

Yes, that's very common in all APIs. The prices do fall, but so do the cost with time. So it's following the same progression. But we are very hopeful that now our export markets will open up and that will further increase the sales of this product.

Okay. Okay. I see, sir. Another -- next question, sir, is Cefiderocol. Can you maybe give some update on how much we have spent? Where are we on the CapEx front? And what are commercialization time lines?

Yes. So right now, we are involved basically in R&D and development of the API. And we are going ahead and designing the plant, which will be the basically injection manufacturing facility for the Cefiderocol injection. The design work is going on. So the investment has not been significant as of now it's just some [ consulting fee ] and all. The investment should start from next quarter onwards when we start the construction of the facility.

And what would be the CapEx outlay for that project?

$15 million is what we have announced.

Did you say $3 million, sir?

$15 million, 1-5.

1-5. Okay. And sir, we -- if we go through older presentation, you had talked about there are 2 products, I think they were ready to be launched. One of them was I think Cefovecin and another one was Ceftaroline. So can you maybe talk about where are we on launch of these products?

Yes. So Ceftaroline is a product that we are going to launch in India now where have manufactured the API, and we are going to be getting the FDF manufactured in India, and we will launch it in the AMS division, and that will probably be the first generic in India. For the Cefovecin, we are ready with the process and technology, and we are tying up with the partner to develop the finished dose formulation for the U.S. market. The technology is ready.

I see. Okay. Okay. So just one clarification on Cefiderocol. Can we expect some commercial revenue in FY '26 from Cefiderocol?

FY '26.

Yes. Financial year '26.