Shilpa Medicare Ltd Q4 FY2024 Concall Summary

Key Takeaways

• Sixth straight quarter of EBITDA improvement: Sequential gains driven by business mix, cost rationalization and operational efficiency, with PAT swinging to a Rs. 24.5 crores profit from a year-ago loss.
• First NDA product launched in the US: The partnered launch with Amneal under a J-code marks a commercial milestone, while the novel pipeline advanced with NUD07 entering Phase-3 and SMLTOP09 completing Phase-2.
• Balance sheet reset via QIP: The Rs. 500 crores equity raise in April was used to deleverage, with a significant NCD repayment planned for mid-August, leaving only a small residual to settle over the next 1.5 to 2 years.
• Albumin facility nears trial batches: Construction is largely complete and equipment is in place; trial batches begin next quarter, though material revenue is not expected until after March next year.
• What to watch next quarter: The pace of Pemetrexed profit-share realization, progress on the Jadcherla USFDA compliance resolution, and the start of albumin trial batches.

Novel Pipeline & Proprietary Products

• NUD07 Phase-3 underway: Dosing in the NAFLD study (F2/F3 fibrotic patients) is expected to complete by end-Q1 FY25, with the study likely concluding by end-Q2 FY25.
• SMLTOP09 advancing to Phase-3: The topical androgenic alopecia lotion completed Phase-2; Phase-3 initiation is planned for July-August 2024.
• First NDA product commercialized: Launched with partner Amneal in the US market under a J-code, representing the company's first NDA product to reach the market.
• ODF licensing deals signed: Signed licensing and supply deals for ODF products in key emerging markets, with further partnerships being explored and a Paracetamol film targeted for the US.
• Rotigotine progressing toward EU filing: Clinical studies for the EU market are complete; skin irritation studies on Indian subjects are done and ongoing abroad, with completion targeted in Q2 FY25 followed by filing in the EU and emerging markets.
• Two additional products partnered: Partnered another two products for the EU and emerging markets, expanding the partnered portfolio.
• Rotigotine US ambition: The company plans to take Rotigotine, its most complex product, to the US market for Parkinson's disease.

Bhutada: "We take enough precautions while doing the licensing agreement that the importance is not getting the more licensing fees importance is getting the licensing fees at this stage and then increasing the ultimate sales is more important in this."

Biologics & Biosimilars

• Aflibercept cleared for Phase-3: CDSCO approval received; manufacturing of clinical trial batches will be done in Q2.
• Recombinant albumin Phase-1 completed: Phase-1 studies are done; the company is working on submitting data to CDSCO for the Phase-3 pathway.
• Albumin facility readying for trial batches: Almost all construction is complete and the majority of equipment is in place; trial batches start next quarter, with excipient-grade DMF filing expected by end-Q1 or early Q2 FY25.
• Albumin revenue still distant: Stabilization and exhibit batches will consume the current financial year; material revenue is not expected until after March next year.
• Albumin pricing stance: The product will carry a premium over blood-derived albumin due to 99%+ purity and consistency, though management intends to price below blood-derived levels.
• First biologic CDMO project advancing: A microbial fermentation project has moved to the second stage, and one more CDMO project has been signed in biologics.
• Biologics regulatory focus outside the US: The company is prioritizing Europe, ROW markets including ANVISA and peak countries; the US will be pursued only if a good partner is found.
• Adalimumab additional indications filed: Licensed to SUN Pharma; additional indication approvals have been applied for with Indian authorities.

Bhutada: "First of all, definition of significantly lower itself is questionable, but I can tell you that this is a shortage product. Once you have this quality of the product with the 99% plus purity and consistency of not having any impurities from the other blood derived products, definitely our product will be little premium, not the more premium on this in the therapeutic grade also."

API & CDMO Business

• Oncology API pipeline building: Almost 8 APIs are being developed to reach plant level before FY26, aimed at API CDMO services which management sees as having great growth potential.
• Non-oncology API moving up the value chain: The company is exploring products with high growth potential or import-substitute potential.
• UDCA volume pickup accelerating: Significant volume improvements are underway; with USDMF and EU GMP filing completed, further volume improvement is expected.
• Polymer initiative gaining traction: One product has been developed for US-based clients, with pilot and validation quantities already supplied.
• CDMO business development staffed: Three business development people have been appointed across the US, Europe and ROW regions to drive CDMO business.
• Korean client NCE completed: Successfully completed one NCE for a Korean client, who has now given a second-stage project.
• Fermentation CDMO opportunity: The 230 KL fermentation facility represents a large opportunity; at current albumin prices, the size can be calculated.

US Market & Regulatory

• Import alert remediation nearly complete: The company is almost finished addressing all USFDA expectations; risk mitigation for key US products like Pemetrexed and Bortezomib has already been shifted to other sites, and the largest chunk of complex products have parallel second sites.
• Jadcherla compliance submitted: All compliance responses for the 10 observations from the November 2023 USFDA inspection have been submitted; additional consultants have been appointed for GAAP reports flagged by the FDA.
• AGES Austria certification secured: The Jadcherla facility received GMP certification from AGES, Austria in January 2024, enabling continued EU supply.
• Pemetrexed profit share to begin in Q1 FY25: Material was shipped to the US in March on a transfer-price basis; profit share will be booked after reconciliation of profits generated during the quarter, with sales expected from Q1 FY25 onward.
• Lenvatinib litigation ongoing: The company has not settled and believes it is non-infringing; litigation continues with no timeline for resolution or launch.

Bhutada: "So, any products which we feel have a risk mitigation, we already have two sites. So, whatever the largest chunk of our products which are like a 505(b)2 or very complex, we are parallelly keeping one more site also, so that is the reason I don't think that any such risk we are caring for our future growth."

Peptide Pipeline

• Three molecules at validation stage: Methotrexate, Liraglutide and Teriparatide have been added at the validation stage, with validation likely to complete during Q1 FY25.
• Liraglutide exhibit batches completed: The third peptide molecule has completed exhibit batches but has not yet been filed in the US.
• Semaglutide and Tirzepatide under development: Both GLP-1 molecules are in development, with a minimum of 1 to 1.5 years before they reach a filing stage.

Financial Position & Capital Allocation

• QIP proceeds deployed for deleveraging: The Rs. 500 crores raised in April was subscribed by marquee investors; a substantial chunk is going toward debt reduction.
• NCD repayment timeline: A partial repayment is planned for mid-August; a significant chunk of NCDs will be reduced, with a small portion to be settled over the next 1.5 to 2 years maximum.
• Operating cash flow generation: The company generated Rs. 172 crores in operating cash flow during the year, reflecting improving financial performance.
• Formulation base established: Rs. 72 crores can be assumed as the new quarterly base for the formulations segment going ahead.
• Tranexamic acid capacity expansion: Capacity is being enhanced from 15 to 25 metric tons per month, with tentative completion in 2024.
• No guidance provided: Management explicitly declined to provide guidance on revenue, segment margins, or the quantum of future licensing revenue.

Guidance & Commitments

Key Metrics