Shilpa Medicare Limited (530549) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Shilpa Medicare Limited Business Update Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Diwakar Pingle from EY IR. Thank you, and over to you, Mr. Pingle.

Thank you, Rico. Good morning, everyone. Welcome to the conference call hosted by the management of Shilpa Medicare Limited to discuss the recent milestone achieved for the CDMO business of the company. Representing the company on the call today, we have Mr. Vishnukanth Bhutada, Managing Director; and Mr. Alpesh Dalal, the Chief Financial Officer. Detailed information regarding the update has been made available on the stock exchange as of July 4, 2024. In case anyone requires any extra information, you can reach out to us, and we'll be happy to provide the same. The management will initiate the call with further details on the dynamics involved and the milestone achieved by the CDMO business, followed by a Q&A session with participants in the call. I would like to state that some of the statements made on today's call could be forward-looking in nature. A detailed disclaimer in this regard has been mentioned in the conference call invitation available on the stock exchange. With that said, I would now like to invite Mr. Vishnukanth Bhutada, the Managing Director of the Shilpa Medicare Limited to take this discussion forward. Thank you, and over to you, sir.

Yes. Very good morning to all. Welcome to this conference call. Today's call is specific only for the development of our CDMO business partner, Unicycive. I'll just brief on the OLC, which is the oxylanthanum Carbonate, which is NCE. And this has been bought by the Unicycive. And with this, their approaches in late 2020 for the development of the end-to-end of this particular product means from API, manufacturing validation, DMF and thereafter, develop the formulation which can be used for the -- reduce the hyperphosphatemia and help the kidney patients on this. It was not a simple task. We have taken the challenge. And with the expertise in our API, which has always expertise in the development of the complex API, and a formulations team, we have completed the drug master file for the API and made the formulation and given to them. They have done the human clinical study and it has been passed recently, which have announced recently also. They will file the NDA now in this particular quarter. With this, we have requested them to make a binding agreement for the supply of the finished formulation, including API manufactured at our site. They agreed to this. And along with this, they have agreed for the USD 10 million milestone payment. Now they are placing the binding agreement order for the 5 million tablets to be delivered before the June '25 and 15 million tablets before the December '25. With the -- We need to supply them the product in next -- and with these binding agreements totally, the agreement is there for next 4 years. Along with this, they are also funding us to creating the dedicated block for them, which shows how important this product for them. We are also equally committed them for the timely delivery of the API and formulation as early as possible. So we have given the brief on the -- what is the molecule, how it is used. This is used into the hyperphosphatemia and which it normally happens in the -- when the phosphate levels increases, which damage the kidney because of the increase in the phosphate level in the blood. And this particular drug is used to bind the phosphate and help making the kidney patients healthier in this. This is what the most important functions of the particular product. This is what from my side. Yes. Now I'm open for the Q&A.

[Operator Instructions] The first question is from the line of Rahil Dasani from MAPL.

So my first question has 2 parts. Primarily among the 6 phosphate binders, although OLC seems the most efficient across parameters of adverse events and binding capability and volumes required, the nearest competitor in terms of these factors is Fosrenol, and that is a very widespread generic. So first of all, what would be the pricing difference between the 2? And what's the incentive to upsell OLC against Fosrenol? This may be more of a question for Unicycive, but this would be impacting our volumes. So -- and since you have worked so closely on this product, maybe you can share some idea.

Definitely, once they are doing on this, the most important what I -- and whatever the information we had, it is like rest all phosphate binders, they have to take 8 tablets a day. Here, they have to take only 2 tablets a day. This is the most important. And this is not -- they have to take it every day. And it's very painful when it is going to be for the kidney patient to swallow 8 tablets a day, against which OLC has the advantage of taking only 2 tablets a day. So the pricing and all probably will be done by the -- them only. It's not under our purview. But definitely, they are doing all these things, they must have taken this into the consideration.

Yes, sir. So for the other binders, you are right at 8 to 12 tablets. But for Fosrenol, it's 3 tablets and same is for OLC. So that's why I was trying to understand from the Fosrenol point of view.

Main product is sevelamer carbonate, you are talking or what now?

Not sevelamer. This is also lanthanum carbonate.

No, lanthanum carbonate is not 3 tablets a day. It's 8 tablets a day.

Sir, this announcement has been made by Unicycive itself in one of their preclinical trials where they have made comparisons with Fosrenol. The tablets are 3 for both of these.

No, no, no. It's 8 tablets a day.

Okay. That's fine. Sir, the second question is, first of all, where are they filing this product initially? And where do they plan to file it for the coming 2, 3 years?

Which one?

Where are they filing OLC for now initially? And where will they be filing OLC in the next 2 to 3 years?

It's only OLC that are filing it. They are filing for U.S. only currently.

And is that the only plan? Or will they also target other geographies?

Of course, that is for the Japan and the China, for other all countries also, they are equally seeing because these patients are available all over the world. They will be deciding how this will be for the global. But the currently main target is for U.S.

Okay. And what would be your total phosphate binder sales being currently done in the U.S.?

I think it's more than $1 million.

More than $1 million, that's extremely light. Sir, the last question is Unicycive is to place the binding orders from June. And like you said, you will get 5 million of tablets pre-June and 15 million post-June. So if you could exactly separate the visibility, and you said you will get a binding contract for 4 years. So what will be the volume for each of those years?

Each of those years, it will be a multimillion. So initially, they are giving us -- I think it's by June '25, they are giving this 5 million, and December '25, it's 15 million. So -- and every year, definitely, once the patient takes more and more, probably they're -- with this -- without getting this filing and without putting the approval, they are placing these orders. That shows that how confident they are on their product.

The next question is from the line of Krishna Kansara from Molecule Ventures PMS.

Sir, first of all, congratulations on getting this very important contract, Shilpa getting selected by a U.S. pharma company and too for such a critical drug. It's a very good news for the shareholders. So congratulations on that.

Thank you.

Sir, my first question is regarding the broad timeline of this contract with Unicycive. So if you could just walk us through the entire timeline of, let's say, each milestone or the approval timeline or the commercial sales period. So just a brief idea of when will we achieve each of these milestones? And when will the actual revenue from commercial sales will start coming in? So for example, let's say the U.S. FDA approval is expected to come by mid 2025. So before that also can we expect some portion of the milestone fees to be received? If you could just give us a brief idea of the breakup of the milestone fee as well as the commercial sales, that would be helpful.

Like from this quarter, we are getting the signing milestone. Then on the filing and acceptance, we have 1 milestone. And probably on approval, we have a bigger milestone. And then on the launch.

So this $10 million is the cumulative milestone fees that we will receive over a period of time? Or is this the up-front fee that we will receive?

No, no, it's not up-front fee. It's a cumulative fee.

Okay. Okay. And sir, when will the actual commercial sales, when will they start exactly? So when will they contribute to the revenue?

Their actual sales will start mostly by -- if they file it in this quarter, normally, the -- it's an NDA filing. So their approval will get in 10 months. So even if you take 12 months approval time line because this -- already, they have done enough discussions with FDA. So probably, they will be more confident of getting the products maximum 1 year approval. When that is done, before that, we have to start the commercial supply. Because after getting the approval, they will not wait for the supply. So before getting the approval, probably we'll need to manufacture, give them enough supply in the market. So the supply will start from next year for sure.

Next year. Okay.

Next year, first quarter onward, it will start.

Okay. Understood. And sir, you mentioned there's been...

Our financial year.

Sorry?

Our financial year, I was mentioning, not their financial year.

Sorry. Perfect. Correct.

Yes.

And sir, you mentioned that the current agreement is of 4 years. So is this agreement extendable to, let's say, next few years once the initial agreement tenure is over? Or is this only for 4 years as of now?

No, it's a 4 years plus automatically renewal for 4 years, provided with some riders. That depends on what we need to perform, what they have to do. I think with that, but totally, it is 4 years plus another 4 years.

Okay. Okay. And sir, what would be the tenure of the new drug application that Unicycive will file? Is it 5 years? Or is it more? I'm just trying to understand the runway that is available for us.

So it is -- definitely, it is more than that 5 years. So now, they have 20 years. I think the -- it will be not less than 10 years or 12 years for sure. But I'm not knowing exactly, frankly, but I think once it is a NCE molecule, so you can understand. They have enough runway.

The next question is from the line of [ Deepak Sharma ], who's an investor.

Congrats for the achievement. Can you please put some color on the EBITDA margin in this molecule?

It's a NCE molecule, so I think -- and we're the exclusive supplier for them. So we have enough -- like CDMO margin, like we have the margins in this. That much we can tell you, about 50.

About 50, 5-0?

Yes.

Okay. And please, you are talking about the 4 years' contract. So the numbers you have just given there, 15 million tablets...

15 million is only for the sales supply we're to supply before December. It will go to multimillion later on every year.

So the total...

Initial signing, they have given it.

Okay then. So the total revenue, which we are expecting there, is it $10 million for the 4 years, right?

No, no, no. $10 million is only license fee. And the sales volume and that figures are different than this. $10 million is only licensing fee.

Okay, license fee. Okay.

Which will be completed before the launch. So after that, there is a sales revenue.

The next question is from the line of Neha Kharodia from Abakkus PMS.

Sir, I just wanted to understand like how big the revenue generator can this project be for Shilpa?

It is a multimillion, but I think we are today, projecting for the next year, we have some indications from them. But currently, telling will be difficult. But it's a substantial revenue for Shilpa, that much we can tell you.

Okay. Can we quantify it in some way?

No, currently, I cannot do that, but it's substantial, that much I can tell you.

Okay. And sir, when you mentioned that the CapEx will be funded by the innovator. So is it like totally [Technical Difficulty] the CapEx amount is that we are expecting for the project?

Totally almost, they are giving around $6.5 million.

And that will be the total CapEx done? Or like we also will have to do some of the...

No, no, no. We are not doing. This is for 1 dedicated block we are putting it, only for that.

Okay. And sir, in terms of asset [Technical Difficulty] this project?

Asset turnover is...

So Neha, I think you're asking the same question in a roundabout manner, when you talk about the revenue potential and all. I think Mr. Bhutada has already indicated that we may not be able to provide or quantify the amount exactly. I think we'll have to -- you'll just need to wait and see how it progresses.