Shilpa Medicare Ltd Q4 FY2023 Concall Summary

Key Takeaways

• A year of reset, with a Q4 uptick: FY23 revenue fell 8% to ₹1,068 crore, but Q4 EBITDA improved to ₹40 crore on a better business mix and lower remediation costs.
• The Jadcherla import alert is the overhang: Since February 2021, the FDA alert has pressured cash flow; remediation is complete and the agency has been asked to inspect, but the timeline is out of the company's hands.
• Pemetrexed RTU is the near-term catalyst: The first NDA approval, for a room-temperature-stable product, opens a $50–80 mn market via a partnership with Amneal; launch strategy firms up next month.
• Albumin carries the long-dated upside: Phase-1 for recombinant Albumin has begun, with a pharma-grade launch targeted for end-2024; management sees negligible risk of project rejection given NBE status and patents.
• What to watch next quarter: The Pemetrexed RTU launch timeline, any FDA communication on the Jadcherla reinspection, and whether the promised double-digit revenue growth starts to materialize.

The Jadcherla Import Alert & Remediation

• Two-year drag: The FDA import alert on the Jadcherla facility, in place since February 2021, has badly impacted cash flow and blocked new product approvals into the US.
• Remediation complete: Management stated that almost all remediation measures are completed and submitted to the FDA, with the agency indicating it will try to visit the facility, though no dates are known.
• Cost relief arriving: Lower remedial costs at Jadcherla, plus reduced plant-related expenses, contributed to the Q4 margin improvement and should continue to help.
• No timeline commitment: The company has communicated with the FDA and is now awaiting action; management was explicit that the resolution date is not known to them.

Dalal: "I think Vishnuji just mentioned in his opening remarks that we have communicated with FDA and now are awaiting action at their end. That's something which is not known to us. We will just have to wait it out."

Pemetrexed RTU: The First NDA Win

• Differentiated product: Shilpa received its first NDA approval for Pemetrexed RTU, a room-temperature-stable version; the comparable product from Eagle Pharmaceutical, which requires 2–8°C storage, is a $50–80 mn market.
• Amneal partnership: The product will be launched in the US with Amneal; management expects to have a clear launch strategy by the 10th or 15th of the next month.
• Revenue recognition: Licensing revenue will be recognized per the terms of the agreement, though specifics were withheld as confidential.
• Launch timing: The product is launch-on-approval; management estimated 1–2 quarters before it reaches the market, pending tech transfer and Amneal's marketing preparations.

Bhutada: "Frankly, we are not knowing it, but we can launch it because we have to transfer this, again get it manufactured, and they will also gear up for their marketing and all. We will be knowing it by the next month around 10th or 15th, a clear strategy on this."

Albumin & the Biologics Pipeline

• Recombinant Albumin progress: Phase-1 trials have started for recombinant Albumin, which is produced without blood plasma; the company holds NBE status and patents from several countries.
• Two-stage launch: Pharmaceutical-grade Albumin is targeted for end-2024, with excipient or microbiological grade following around mid-2024.
• Market expansion thesis: Management expects the product to expand the Albumin market rather than merely capturing share from plasma-derived incumbents.
• Other biologics: Aflibercept Phase-3 permission has been received for India, with trials starting in 1–2 months; Adalimumab high-concentration is awaiting clearance and could launch this quarter or next, with a conservative revenue target of ₹20–25 crore this year.
• Pipeline depth: Abatacept, Prezalumab, and Tenecteplase are under development, with completion targeted over this year and next.

Bhutada: "No, project rejection I don't think there is a remotest possibility. Rather, there is a very negligible possibilities in this because we completed we have received the NBE (new biological entity) status. We have granted patent from the several countries."

API & CDMO: The Cash Engine

• API as cash generator: The API division is described as the cash-giving division, with non-oncology API holding high potential for growth and import substitution.
• Oncology focus: Oncology API carries normally high margins; molecules expiring between 2023 and 2027 are already covered in API development and filings, supporting a visible growth runway.
• CDMO returning customers: Some CDMO customers have returned with second or third projects; the business is expected to begin contributing revenue from this year onward, spanning onco, non-onco, polymer, peptide, and fermentation capabilities.
• Double-digit API growth: Management stated double-digit growth is definitely possible for the API division, with each sub-segment expected to grow as intermediate prices stabilize and offtake improves post the Corona-era destocking.

Formulations: Turnaround Bets

• Geographic expansion underway: Approvals from Canadian authorities and Australia's TGA, plus the completed TGA inspection, are expected to help build sales in new regions.
• New facilities coming online: The Bengaluru facility received UK MHRA approval for film formulation and transdermal patches; five nutraceutical products have already been launched in the US from film formulation, with meaningful revenue expected in 1–2 years.
• Peptide exhibit batches: Exhibit batches of two peptide products are completed, with Liraglutide and Semaglutide API exhibit batches to be completed this year.
• Commercial team built: A commercial team has been assembled to exploit formulation opportunities across geographies; management expects a decent turnaround from hereon.

Financial Position & Cost Reset

• Cash flow turned positive: Tightened operations generated over ₹250 crore in operating cash flow for FY23, up from ₹140 crore last year, including a working capital release of about ₹148 crore.
• Cost structure reset: R&D costs are being reduced by shifting focus to FTF, a wholly-owned division; plant-related expenses and remediation costs have been cut; no further major CAPEX is required except ₹75 crore for the Biocare fermentation facility and minor API investments.
• No dividend: The Board recommended no dividend, citing negative operating profit and the need to conserve cash.
• Debt deleveraging in focus: Management is actively working on plans to bring down leverage, though it declined to specify a comfortable absolute debt level at this stage.

Guidance & Commitments

Key Metrics