JUBLPHARMA — earnings call

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Prepared remarks

Moderator · Conference Operator

Ladies and gentlemen, good day and welcome to Jubilant Pharmova

Questions and answers

Moderator · Conference Operator

Thank you.

We will now begin the question-and-answer session.

The first question is from the line of Amit Goela from Rare Enterprises.

Please go ahead.

Amit Goela

Yes, sir.

Hi, good afternoon and thank you for the opportunity.

Sir, firstly thank you for breaking out the business in so many different manners.

It makes it so much easier to keep track of it.

So that is a really nice presentation sir.

That really appreciated sir.

Sir, a couple of questions I have and if you feel, I'm running out this thing, please tell me and I'll come back on -- in the queue.

Regarding radiopharmaceuticals, good to see the radio pharmacy number and EBITDA over there.

One is when do you expect breakeven over there.

And next question is that why the numbers would decline sequentially in terms of topline for radiopharma business and is the margin decline only because of volume decline, or there some pricing pressure or a premium product mix?

Pramod Yadav

On your first question about the pharmacy, we have been indicating that we expect breakeven in FY24 and if you look at the numbers and the trend, we are on track.

We are confident that in FY24, the business will be break even.

Amit Goela

That would be great, sir.

Pramod Yadav

With regards to sequentially lower volume in radiopharmaceuticals, lower revenue, if you recall in the last quarter also, we indicated that in Q1, the performance or the volumes were higher because of some customer scheduling which will get corrected in Q1 of this year and as we had predicted, so that has happened.

This is more of a scheduling and really nothing much to read into that, and that's what I mentioned in my opening remark also that in such business, the quarter-to-quarter variations will be there.

It will be good to see overall the annual numbers.

Amit Goela

Okay.

Do you expect the margins to go back to historical margins in this business as the COVID effect goes away and the business settles down?

Pramod Yadav

You are talking about radiopharma or radiopharmaceuticals?

Amit Goela

Radiopharma

Pramod Yadav

The radiopharma, as our losses of the radiopharmacies keep on coming down, we expect the margins to continue to improve.

Then we also have launches of the new products in the pipeline.

We are also ramping up the Ruby-Fill.

So these 3 action plans keep on getting implemented, the margins will definitely continue to improve from the current levels.

Amit Goela

Regarding the sterile injectables, when do you expect the new capacity to come on line and when do you think that the entire COVID business will be nullified, then we'll be back to normal case?

Pramod Yadav

So entire COVID business had almost nullified in this quarter.

There is very little revenue left which we have to recognize in rest of the 3 quarters of this financial year.

But at the same time, let me assure you that when we look at the business non-COVID, in that term, the business is very stable with healthy margins.

In FY23, we expect to be better than what it used to during the pre-COVID levels when we exclude the COVID days.

Amit Goela

You think this business will be better than FY 2020 level?

Pramod Yadav

Yes, from FY20 levels, I'm talking because FY21 onwards, we had the COVID impact.

Amit Goela

Sir, when the new capacities come in place?

Pramod Yadav

We had made announcements in 3 phases.

One additional line for Spokane, which was our first announcement that will be coming up by end of CY24.

Then we made the announcement, for another line which takes the Spokane capacity to 100% from the current level, that line is expected in FY27 and for Montreal expansion also, the first line will be up and running in FY27.

Amit Goela

By FY24 end, in terms of vials, if you could break out the -- what would be the capacity in terms of number of vials or whatever?

I'm not asking for the price or volume value, but in terms of vials, what would be our capacity?

Pramod Yadav

It's very difficult to calculate that way because it will also depend upon the vial size.

There are the various vials from the 2.5 mL going right up to 50 ml.

So it will depend upon which vial size are you using and whether you are filling the liquid or the lyo, the different products have the different batch times.

Anyone who talks about the capacity in terms of the vials, is little, I will say theoretical because it will depend upon the various factors.

Amit Goela

Fair enough point accepted.

Coming down to this drug discovery business, it is reasonable, it would be a very stable business.

So why would there be quarterly volatility like INR 142 crore and INR118 crore and that kind of stuff?

Giuliano Perfetti

Thank you for your question.

The CRDMO business has shown a robust growth versus last year.

The sub-sequential quarter 1, Quarter 4 is slightly below.

This is due to the cyclicity of the business.

So every Q1 is typically less robust than Q4 and that's the only reason.

We foresee still a robust growth for the rest of the year.

Amit Goela

Okay, given your expansion, which is going on, by the fourth quarter of FY24, what would be exit rate in this business?

What would you looking at?

Can you guide on that?

Giuliano Perfetti

Yes.

We are running a very large and robust CapEx plan.

In addition to the Greater Noida site, which was commissioned at September 2021, we are expanding Greater Noida site and this will be completed in Q2 FY24. So overall we are trying to position ourselves in the better way to support the growth and to keep the same pace of the growth, we registered in these last quarters.

Overall, I would say that in the range of 20% to 25%, it would be the kind of capacity we want to add.

Amit Goela

Okay, So annually, we can look at 25% growth?

Giuliano Perfetti

That should be the range, we expect.

Amit Goela

Okay, two more questions, one in your CapEx of INR750 Cr, you said you will be doing product development of INR250 Cr. Is this your normal R&D and will this be written off or will be capitalized?

Arun Sharma

It depends most probably if we do in dosage, it will capitalized and in API, it will be written off.

Amit Goela

Okay, lastly, whenever you get an opportunity, maybe today or in the next call, if you could give us a little bit more color on your generic strategy that would be very helpful, because that is one of the weaker business, maybe next call or today or whenever, if you could just give a little bit more color on how you plan to make grow that business and more profitable?

Pramod Yadav

Yes, I can give you little bit insight right now, as I mentioned that the USFDA has completed the audit and they have issued 6 observations.

But if you ask me, I will say that the audit outcome is very good because in 6 of the observations, there is no observation, which is related to data fraud.

There is no repeat observations and most of the observations are related to the process improvements and such type of the things.

So we will be engaging with the FDA and we are hopeful, but we will get to know the outcome after about 3.5 months saying that you are already aware that we are spending money into the R&D, because we have focused more and more into development of the complex generics which are difficult to enter into the market.

So that as and when the sites are out of the compliance, we are able to launch the products with the higher margins.

In the meantime to de-risk our business for our existing products, we are already moving them to the CMO sites where we expect to start generating revenues in this financial year itself.

And at the same time, we are also focusing on non-U.S. markets where we do not have any compliance issue and we will be increasing the volume.

We are implementing all those strategies properly and as of now the generic business, the differentials are a kind of a drag, but we think that it's for the short term.

Amit Goela

Okay, So you think you will be able to see a turnaround by the end of the year, or it will take longer?

Pramod Yadav

I will say that there is a very high probability or quite a good chance that by end of this year, it should be breaking even because we are hopeful for the USFDA outcome, but as it's the regulatory agency, so we should keep the fingers crossed.

Moderator · Conference Operator

The next question is from the line of Rahul Veera from Abakkus Asset Manager LLP.

Please go ahead.

Rahul Veera

Good evening.

I would like to really appreciate the team because of the detailed presentation.

Couple of questions on the generic side.

In Q1 FY '22, if you see, we've done INR400--430 Crs of top line with EBITA at INR53 crore.

So I wanted to understand, like what would be the contribution of remdesivir out here?

Was there any contribution of remdesivir out here?

Pramod Yadav

I mentioned that remdesivir in Q1 was INR133 Cr Vs. zero this year.

So that had an impact and then there was the impact of the import alert and impact of the Sartan prices and impact of overall the pricing pressure in the U.S. market.

Rahul Veera

Sure just wanted to understand like before this sartan price rise happened since 2018-2019 when the ratio started moving up and the prices started moving up, were we making money in this business on the generic side or we were at EBITDA loss?

Pramod Yadav

You are asking when the Sartans prices are higher?

Rahul Veera

Yes.

Before that.

Before the sartans price started moving up.

Pramod Yadav

Yes, of course, we have been making good money into the generic business.

It's only after the import alert and the pricing pressure into the U.S. market, the impact came in, but as I just explained to Mr. Goela that we feel that we should be out of the compliance soon and we are also working on the various other strategies.

This should be a short-term and the business will be breaking even sometime by the end of this year and as soon as the site is out of the compliance, so we have lot of pending ANDAs for which we will start getting the approvals and we have the launch plans in place to keep launching the products.

Moderator · Conference Operator

The next question is from the line of Nikhil Mathur from HDFC Mutual Fund.

Please go ahead.

Nikhil Mathur

Yes.

Thanks a lot and good evening, everyone.

So first question is, I have on the radiopharmacy business.

I've not checked today's presentation, but in couple of recent presentations, it has been mentioned that the company has presence via 48 pharmacies in the U.S. Can you give some sense out of this 48 pharmacies, what percentage of these pharmacies would be breakeven or would be generating positive EBITDA at this moment?

Pramod Yadav

So far we have not been discussing business wise, the revenue and EBITDA.

Now we have started giving business wise revenue and EBITDA.

So that itself is quite a lot of disclosure from our side.

Going pharmacy wise, the EBITDA margin, gross margin or the product wise contribution, etc., then we are also ending up giving too much information to the competition.

So let's avoid it.

Nikhil Mathur

Sir, I'm not looking for exact numbers here.

I mean, what I'm trying to softly understand is that, if there is a certain proportion of pharmacies, which are kind of profitable today, there might be some commonalities between those pharmacies and that can give some understanding on the ones which are not generating positive EBITDA today.

What it might take to bring them up and running in terms of generating positive EBITDA?

So that the only I'm trying to understand is there a decent proportion of pharmacy which are today EBITDA positive?

I'm not looking for any specifics there.

Shyam Bhartia

Definitely some of the pharmacies are more profitable, some of the pharmacies are less profitable, some of the provinces are incurring losses.

That is where the whole system is incurring losses.

Now our -- what we are trying to do to improve profitability is the pharmacy which are incurring losses, either we convert them to be profitable or if they not possible to be profitable, we review that operation differently , but those who are less profitable, we want to make it more profitable and there are 2 ways to make it profitable.

One is the increase in sale of existing products and add new products.

So by both these method, we are trying to make it profitable because if every pharmacy is profitable, then we would not have incurred losses.

Nikhil Mathur

Okay, so our question attached to this.

Let's say, do you have a hard timeline in your mind, that the pharmacies, which are today not generating cash flow, you would take a hard stance and actually right size or downsize your pharmacy network if the turnaround doesn't happen, what we are envisaging over the next 10, 12, 15 months, any timeline that you have in mind?

Shyam Bhartia

You see, we have a complete program that is how we will become breakeven, complete program of converting these pharmacies -- some of the pharmacies who are less profitable, make it more profitable, some of pharmacies, we are making losses, make it profitable and rest, we will review every month and every quarter, what is going forward.

So our strategy is always very flexible and we keep on reviewing it and that is how we have promised that by next year, it will be breakeven.

You will see quarter-on-quarter a better result in this.

Nikhil Mathur

Understood, sir.

That's fair enough.

Sir, on the generic side, if I look at this quarter numbers INR178 crs of revenues and INR70 crs of EBITDA -- negative EBITDA that we have generated.

If you were to breakeven in this business.

I would imagine that minimum INR160 crore to INR170 crore of more revenue would be required to kind of be EBITDA neutral in this particular business and that amounts to almost INR700 crs of incremental revenues.

Do you think that 8 months down the line or 9 months down the line whatever sales today is happening, there might be competition that is coming into the products, which are not able to sell today, you can immediately generate this INR770 crore of sales once your import alert gets lifted and that itself, the timeline can be quite extended?

Pramod Yadav

This quarter, our overall revenue of the generic is low, not only because we have not been able to sell the volumes.

We had for purpose reduced the volume, because our site was busy in doing all those remediation activities.

We had committed to FDA that we will be completing the remediation by end of July and we have been seriously working on that and FDA did walk in as a surprise inspection towards the mid of July.

So since due to the remediation of our volumes were low, now the remediation work is completed, USFDA inspection is over, now, we need to increase the production and get back into the market, especially into the non-U.S. market where we have been going slow.

Nikhil Mathur

So would it be fair to assume that there is some cost sitting in the INR74 crore loss, which is kind of non-recurring in nature, may be little remediation or exceptional closure of certain lines?

Pramod Yadav

Yes.

They were unabsorbed cost for the overheads since plant was not running at the capacity.

It was running at a much, much lower capacity, there was unabsorbed cost.

Nikhil Mathur

Okay.

And sir, one final question on the radio pharmaceutical manufacturing business.

You've also talked about certain launches that have taken place in this business.

Can you give some sense annually in '22, '23, '24, '25, how many launches are you planning in this particular business and some update on the market potential for MIBG and then when is the data due for that particular initiative?

Pramod Yadav

So as of now, we have planned to launch at least 4 products.

Probably we are trying, one in FY23 and 3 in FY24, within these 2 years, the running year and the next year, at least 3 to 4 products we will be launching and then we will be launching 1 or 2 more later.

So once these products are launched which already have a market quite a lot and there are very few players, we expect that we will be able to very easily close to 30% to 50% market share from the year one onwards, at good prices and good margins.

Nikhil Mathur

Can you throw some light on the existing competition in this product.

Is it a 1 or 2 player market or there are 2 or 3 players, so some color here?

Pramod Yadav

In nuclear medicines, for most of the product, there is only 1 or 2 player.

There are few products where they are more than 2 players.

Nikhil Mathur

Got it.

And the sales potential from these products.

I'm not sure how many products you are manufacturing today, but whatever the run rate today per product excluding MAA and DTPA, would these products have the same potential as rest of your products excluding MAA and DTPA?

So what I'm trying to understand is that if I exclude the 2 big products, MAA and DTPA, whatever run rate you have on sales for the remainder of the portfolio on a per product basis, would that same run rate apply to these launches as well that you are planning in '23 and '24?

Pramod Yadav

So other than MAA and DTPA, even in the other products what we have, there is one product where there's only one more small competition, otherwise, we are the only one.

For the other products, there are some more players, but when we launched these products which are in the pipeline and at least some of them have quite a good market size and very few players, these products will have much higher run rate.

Nikhil Mathur

Got it.

One final question, on the Spokane CapEx that you are undertaking, any broad sense that you can give on the return on capital employed that the Spokane initiative can generate for the company and what can be the risks to what the current expectation you have on the ROCE that you believe this business can generate?

Pramod Yadav

So if you already looked at our CMO business, even without COVID deals, it's been very healthy margins.

The CapEx what we are incurring, generally in any sterile business, the ROCE remains little low because the payback period is longer.

So it takes time for you to create the capacity almost 4 and 4.5 years and then you build the pipeline after getting the product approved.

In our case, the story is different.

Out of USD285 million, which will be spending in Spokane, almost USD150 million is kind of the grant, which we don't have to pay back.

So our -- the investment in terms of the CapEx is much lower and hence these expansions will have very healthy ROC and also very healthy EBITDA because lot of existing cost of the existing infrastructure and of the existing talent pool will be utilized.

So the incremental costs will be much lower than the current operations.

So it will have higher EBITDA as well as higher return on capital.

Moderator · Conference Operator

The next question is from the line of Vinay Jain from Karma Capital Advisors Private Limited.

Please go ahead.

Vinay Jain

Just wanted to understand when was this Roorkee inspection conducted by USFDA?

Pramod Yadav

So it concluded yesterday and it was for 10 days.

Vinay Jain

Understood and the other thing was what happens to the import alert status?

So this continue still we hear again from USFDA?

Like you said, it would take around 3 months.

Pramod Yadav

Yes.

How FDA works is that once their inspector gives the observations, those observations company has to give their response in 15 working days.

So that will be somewhere 24th, 25th of August.

Then FDA generally takes around 3 months to take the decision, basis inspector observations and the company's response that what should be the compliance status of the site.

So with that timeframe in the mind, it will be sometime in the month of November.

Vinay Jain

Okay.

So even if -- so as you said in your opening remarks that there are no repeat observation, there are no observations related to data integrity, so even if it is an OAI, the import alert could be removed, right on the site?

Pramod Yadav

Yes.

FDA has 2 options.

If they are satisfied with our -- all the GMP standards, they can downgrade from import alert to OAI and in that case, our exports to U.S. market will start, but the new approvals will still remain on hold and FDA can also directly go to the VAI where they can remove the import alert as well as OAI in one go.

It will depend upon the type of observations, our response to the FDA and the review by Cedar in FDA, how they view overall compliance status of the sanction.

Vinay Jain

And any incremental cost, which would be incurred towards remediation in the coming quarters?

Pramod Yadav

No. For the observations which has, they are -- most of the observations are leading to the minor improvements into our practices.

They are not going to incur any remediation cost.

Vinay Jain

Understood.

And lastly, any update on the Nanjangud inspection by USFDA?

By when can we expect that?

Giuliano Perfetti

You know that probably you may have in mind that we got the last inspection few years ago, precisely it's more than 3 years.

We basically after that inspection, we apply to FDA and based on strong and I would say dedicated plan for willingness for next inspection, we were expecting FDA to come in any time from now on.

Of course, we don't know when the FDA would come for another inspection, but we basically issued a letter to kindly ask to inspect us.

Vinay Jain

Okay.

Giuliano Perfetti

And that was the result of this preparation work where we're engaging also specific consultants to any kind of capability which would be subject to the inspection.

Moderator · Conference Operator

The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.

Please go ahead.

Tushar Manudhane

Yes.

Thanks for the opportunity.

The sartans, what is net the price fall in sartans?

Is it to do with the inventory in the channel or some new competition that has come out?

Pramod Yadav

So in the sartans, there was earlier some impurity issues because of which the number of players had gone down, and the companies had to invest money in cleaning up the processes.

But now, since most of the companies have done that, and some other companies who saw the opportunity because of the higher prices have also jumped into the game.

Now, there are the more number of players who are able to provide the product without impurity and hence there is a price deduction.

Tushar Manudhane

Approximately like how much price reduction would have happened because of this situation, let's say over past 3 months or when we finance?

Pramod Yadav

It would be little difficult to quantify because the price is different from customer to customer and market to market.

Then, they are the different sartans like valsartan and the Losartan, Losartan HCTZ, but yes each product has faced the pricing pressure in almost all the markets.

Tushar Manudhane

Okay.

Considering the Q1 overall EBITDA of approximately INR200 crore, and at the end of FY22, we had commented about at least maintaining the overall performance for FY23 -- FY22 as EBITDA of roughly INR1100 crore to INR1150 crore.

Considering the Q1 performance, considering the import alert situation and continuing for 3 months -- I mean at least 3 months till regulatory outcome comes through and certain operational issues in the CRDMO segment.

So how are we thinking on the overall FY23 EBITDA?

Pramod Yadav

So I think on EBITDA front, we had mentioned earlier that FY23 will be slightly muted than FY22, but in terms of the quarterly trend, I'll say in -- generally in our business, the second half is better than the first half.

So in Q2, you will see performance more or less closer to the Q1 and then you will see improved performance in Q3 and Q4.

Syed Kazmi

That is in Jubilant Pharma.

Pramod Yadav

Yes, that is for Jubilant Pharma, sorry.

And then for the other businesses, Giuliano comment for CRDMO.

Giuliano Perfetti

Yes, I think on CRDMO, particularly on the drug discovery services, I already mentioned that typically Q4 is a more robust than Q1. So subsequently -- I mean sequential Q1 should be getting lower than Q4. Then along the years, I think the majority of those opening in Q3, Q4. I think on the API business, quarter analysis is not right, so this should be analyzed in the perspective of longer-term consistently with the production cycle and the typical dynamic of the business.

So this should be treated on a yearly basis or at least half-yearly basis and the specific for the API, we do expect the second half, which is higher than previous halves for FY '23 and that is consistent with the actions we are taking, which are set for achieving higher volume, which is driving the growth.

Tushar Manudhane

Got it.

And just wondered royalty inspections, what triggered the inspection?

I mean it's really appreciating that on the import alert, the USFDA inspectors have come quite fast at the site.

So what triggered the inspection?

Pramod Yadav

The USFDA now has started doing surprise inspections in India also.

Earlier, they used to do the inspection with the prior information.

In some other countries that is globally like especially into the North America, anyway they do the surprise inspections.

So from the last 2-3 months.

If you recall, the USFDA, the Congress has also passed a special bill for the funding to the USFDA to start the surprise inspections.

So it's part of their -- that's a revised strategy.

So nothing specific which according to us, which had the trigger.

It was just where we had come into the priority of the USFDA.

Tushar Manudhane

Interesting.

And just lastly, if you could comment on how much would have been the quarter-on-quarter increase in the number of installations for Ruby-Fill?

Pramod Yadav

So in Q1, our Ruby-Fill installs were -- I will say one of the highest in any of the quarter we have done.

Tushar Manudhane

Okay.

Pramod Yadav

So there were higher than year-on-year, they were higher -- they were also higher sequentially and as such also, one of the highest in the quarter.

Moderator · Conference Operator

Ladies and gentlemen, that was the last question for today.

I now hand the conference over to management for closing comments.

Vineet Mayer

Thank you everyone for joining the call.

Have a good day.

Moderator · Conference Operator

Thank you very much.

On behalf of Jubilant Pharmova Limited, that concludes this conference.

Thank you for joining us and you may now disconnect your lines.

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