Shilpa Medicare Ltd Q3 FY2024 Concall Summary

Key Takeaways

• Fifth straight quarter of EBITDA improvement: EBITDA reached ₹68 crores, driven by cost optimization and R&D rationalization, and the company turned PAT-positive at ₹4.7 crores versus a loss last year.
• Non-oncology and CDMO are filling the oncology gap: A dip in oncology API revenue from the Intas channel is being offset by substantial growth in non-oncology APIs, CDMO, polymers, and peptides.
• The pipeline is converting into approvals and launches: Pemetrexed RTU got a J-Code and launches in April; Phase III permissions were received for NAFLD and alopecia assets; and the first peptide CEP was filed.
• Biologics turned EBITDA-positive this quarter: The segment hit a positive EBITDA inflection, while the albumin Phase I dosing finished and the large-scale BioCare fermentation facility is on track for a July-August commission.
• What to watch next quarter: The pace of resolution on the US FDA OAI status for the Jadcherla facility, the commercial launch of Pemetrexed in April, and whether the non-oncology growth engine sustains its trajectory to keep offsetting the Intas-led oncology softness.

The Top-Line Mix Shift: Offsetting Oncology

• Oncology revenue dipped on a single-customer issue: Intas, a large oncology API buyer, received 483s and is working on remediation, which directly reduced Shilpa's oncology offtake. Management expects the dip to continue into the next quarter.
• Non-oncology API is scaling fast: The company is focusing on import-substitute and complex products, adding Ursodeoxycholic acid and Tranexamic acid as two main projects. Whatever capacity was scaled up was sold, with subsequent demand already visible in the market.
• CDMO is adding a layer of sticky, diversified revenue: More than 10 clients are now in development for intermediates or APIs across Phase I, II, or III supply, and the business is growing every quarter.
• Polymers and peptides are emerging growth vectors: The specialty polymer business, focused on pegylated products for drug delivery and ADCs, is growing double-digit every quarter. The first peptide CEP for Desmopressin was filed, with an Octreotide CEP to follow in March.

Alpesh Dalal: "this is the fifth consecutive quarter where we have seen improvement in our sequential EBITDA. So quarter-on-quarter, we have been improving our EBITDAs in the past 5 quarters. And this is on account of our continuous endeavour to optimize our costs and enhance operational efficiency, whilst rationalizing our R&D investment."

Formulation Milestones & Near-Term Launches

• Pemetrexed RTU is ready for an April launch: The product received US FDA-NDA approval in June, secured a J-Code, and is partnered with Amneal. Shilpa will supply quantities in March for an April market launch.
• Bortezomib is the next ready-to-use NDA in line: The site transfer is finished, an additional site filing is planned for February, and the product will be the first ready-to-use subcutaneous option on the market.
• Prucalopride ANDA carries a competitive generic therapy designation: The company filed the US generic product and is continuously working with the agency to secure approval in the next year.
• Two novel assets cleared Phase III gates: SMLNUD07 for NAFLD received permission to start Phase III studies and patient recruitment has already begun, with a study completion target of June. SML TOP09 for androgenetic alopecia finished Phase I and received permission to start Phase III, with a study start planned for April or May.
• Transdermal patch pipeline is advancing toward a filing: Registration batches are finished and the clinical study has started, with a product filing on track for September of FY25. A licensing deal with a European partner for PAN-Europe and ROW markets has already been signed.

Biologics: The Inflection Quarter

• The segment turned EBITDA-positive this quarter: Management attributed the shift to a focused effort in the biologics space, where it sees significant opportunity, and stated it is working to improve EBITDA every quarter going forward.
• Adalimumab is in commercial supply and launched in India: Two commercial supplies have been completed for Sun Pharma, with binding forecasts received every quarter. The product has already been launched in the Indian market.
• Aflibercept is moving into the clinic on two fronts: Permission to start a Phase III study in India was received, with clinical trial batch scale-up underway and a study start planned for April. European scientific advice was filed this quarter, with a response expected in March or April.
• Recombinant human albumin hit a Phase I milestone: Patient dosing is completed and the bioanalytical phase is ongoing, with a plan to finish by March. A Phase III study start is expected sometime in June.
• The BioCare fermentation facility is on a mid-year timeline: The large-scale facility is on track for commissioning sometime in July or August of this financial year, after which validation and a commercial launch will follow.

Regulatory Overhang: US FDA Status

• The Jadcherla facility remains under OAI: A US FDA inspection in November 2023 resulted in 10 observations, and the facility is still classified as Official Action Indicated. The company is working with the agency on the way forward and waiting for updates.
• No repeat observations or data integrity findings: Management noted that the recent inspection did not produce repeat observations or any data integrity issues, a detail that may matter for the eventual resolution path.
• The European front is cleaner: The Jadcherla formulation facility had a European authority audit and was cleared with only 2 minor observations.

Keshav Bhutada: "And currently, the status is the facility is still in OAI, and we are working with agency how we should move forward and what is the way forward. So we are waiting for the updates from the US FDA."

Capital Allocation: Capex Discipline & Debt Reduction

• Capex is now narrowly focused on albumin: The majority of ongoing capex is directed at the albumin project. For the next two years, no significant capex is required in other segments, with spending limited to expansions that promise an immediate return within 1 to 1.5 years.
• The albumin excipient DMF is ready to file: The drug master file for excipient-grade albumin is prepared, and the company plans to file it in March. Management cautioned that the commercial timeline is at least one year, as clients must review the product, take small initial supplies, and incorporate it into their drug product filings.
• A group-wide debt-free target is set: The company is working systematically on a debt reduction plan, using internal cash generation and other initiatives, with a goal of making the full group debt-free in the next 2 to 3 years.
• Licensing revenue is being structured for capital-light development: For assets requiring large clinical study costs, the company will partner with end partners. Upfront licensing fees will fund part of the study, while internal cash flows from next year will cover steady-state costs.

Alpesh Dalal: "Yes. That's Chetan, we are working very systematically on a debt reduction plan, and we are working on certain initiatives including the internal cash condition that we are having, that we are working towards making the full group debt free in the next 2 to 3 years' time period."

Segment Trajectories & Capacity

• API business optimism is high: Management expressed confidence that the API business will grow quarter-on-quarter, driven by non-oncology, CDMO, polymer, and peptide revenues.
• Polymer business is on a path to ₹100 crores-plus: The company stated that in the next two years, the polymer business will "surely touch above ₹100 crores," with two large clients starting commercial supplies in the next financial year after receiving pilot quantities.
• Biologics and transdermal capacity is underutilized: Significant available capacity remains in the biologics facility that can be converted into revenue. The transdermal patch facility is also being filled progressively with client projects each quarter.
• Transdermal breakeven is expected from FY26: The company provided a timeline for the transdermal plant to reach breakeven, with licensing milestones tied to product filing and subsequent launch.
• Biosimilars will see one new launch per year: Management committed to a cadence of one new biosimilar launch every year going forward.

Keshav Bhutada: "company is very focused and we are seriously focusing on monetizing of each of the assets. And every segment, we are trying to see that we build it and convert it into a positive growth segment or a positive EBITDA so that it will not hit our balance sheet and it will grow."

Guidance & Commitments

Key Metrics