Cohance Lifesciences Limited earnings call

Thank you very much. We will now begin the question-and-answer session. The first question is from the line of Mehul Panjuani from 40Cents. Please go ahead.

Thank you so much for the opportunity. I have two questions. First question is, can you elaborate on the rationale behind the acquisitions of Sap ala and NJ Bio? That was my first question. And second question with the current emphasis by the U.S. President on manufacturing in the U.S., do we foresee that we will add more manufacturing sites in the U.S. apart from the NJ Bio thing?

Let me just try to answer that. Rationale for acquisition of Sapala and NJ Bio, I think we have been consistently saying as a tech, as CEO, we wanted to expand our capabilities on technology and both ADCs and Oligo are fast growing capabilities, fast growing modalities that a lot of pharma companies and biotechs are investing and investment in these capabilities have allowed us to enter and expand our tab that we are now playing in a bigger space. This has allowed us to get us access to customers, biotech as well as large pharma that we would not have otherwise been able to at fast pace, a nd we can now go ahead as well as grow these capabilities and then sell them our existing offerings. Both these sites are going through capital expansion. With Sapala, since we acquired, we are adding GMP capabilities to cater to customers that are looking for GMP capabilities. And at NJ Bio, we are investing capital to expand their conjugation capabilities so that we can offer more services to the existing customers , then grow that business. As you know, we had ADCs before through our site in Hyderabad and now with the acquisition of NJ Bio, we can now offer more integrated East and West combination as well as linker payload and conjugation capability. So , that's the rationale for getting into technology to really our vision towards $ 1 billion business by 2030. So, this is a key piece in that space. In terms of U.S. , I think we as a company had made that investment before the government in U.S. changed it, before the new president actually came. And then we continue to believe our vision of having an East -West combination and having the capabilities where the talent is. With the acquisition of NJ Bio, not only we got a business, we got capability, but we also added about 100 plus scientists. And as a science driven company, we were really excited with what NJ Bio brings, and we will continue to invest in expanding there. In addition to that, as a company that has grown through M&A and organic both, we are constantly looking for assets, which makes sense. There may be more investment, more assets, if you find the right one in the geographies. Right now, we are very excited and continue to invest capital in NJ Bio as well as in Sapala to grow the technology as well as invest in it.

Just one follow-up question. Sapala is also in the United States.

No, Sapala is not in the United States. Sapala is an India- based company. We are expanding the capabilities. They have customers in the United States. They have significant presence from customers in the United States. But the capabilities and the offerings are all in India. We have commercial resources based in the United States that help and support some scientific advisors based in the United States. But capability-wise the delivery is all from India right now.

Our next question is from the line of Abdulkader Puranwala from ICICI Securities. Please go ahead.

Hi, thank you for the opportunity. My first question is with regards to the four interviews you talked about supply starting. So, could you provide us some color as to when the supply starts and some bit of a color on the therapeutic category which the molecule pertains to?

Thank you for asking this question. Abdulji, at the current stage, we can only share with you that the Phase -3 pipeline has actually grown healthy. And today we are sitting with 9 products as opposed to 1.5 years back, if you can recollect, it was only at 2. Specific, we were told by our innovative partner that one product has four intermediates which are getting commercial. At this stage, we would be only able to share the details up to this extent. As you understand, we are governed by the CDAs and we would not be able to mention beyond these details. I hope you understand our situation.

Sure, sir, fair enough. And, into your guidance for next year of double- digit growth, so just wanted to understand what would be the key growth drivers, including your Pharma CDMO versus the Specialty Chemicals? How should we look at FY ‘26 from a growth perspective between both these segments?

I think we have guided that Spec Chem is a business which is turning around. And we see that in Quarter 4, it has poised a healthy growth. So, with Spec Chem coming around, we expect all the three engines, so, as you would recollect, we have created three engines of growth , t he Pharmacy CDMO, Spec Chem as well as API. We expect all the three engines to fire. Some stronger, some weaker, but all the three engines would be on a double-digit growth.

So, in terms of enhancing your technical capabilities , s o what are the kind of capabilities which you like to add, say from a 2 to 3 years perspective, which are currently missing in the Suven portfolio or Cohance portfolio?

So, this is an ongoing effort, Abdulji, as maybe our past, if you can recollect, as our Chairman was mentioning. When we started, we were only in one part of the antibody drug conjugates, which is more of a payload. NJ Bio has actually brought in bioconjugation and even linker capability , same is the case. We also feel advanced modalities within Oligo can be a potential possibility. And we keep monitoring very closely whatever is relevant which will accelerate the growth of the existing business while it becomes an additional advantage to us. We have been constantly scouting. Once we have a better answer, we will come back to you.

Our next question comes from the line of Mehul Panjuani from 40 Cents. Please go ahead.

Can you please elaborate on the timeline for commercialization of the 9 molecules which we are actively working on?

I think in commercialization, we are expecting that it will start soon. I mean, as you know that it depends a lot of factors. These are customers' molecules. So, they have Phase-3, they have to wait, they have to file. There's a lot of effort. But we have said that one molecule with four projects is getting commercial this year. And we hope that others will start on that progression path. It is a lot of external factors actually that are dependent on, but the fact that we have provided the Phase-2, Phase-3 material for the customer, there is discussions around a lot of these things as they get a good readout and then they file for commercial. But right now the guidance we are giving is one product, four projects getting into commercial and we are hoping that others will also follow soon.

Is it possible to let us know which areas are these molecules in?

So again, we are slightly agnostic for any therapy. We are predominantly science and technology-based product. Having said that, some of the products are in fast track and breakthrough therapy starting from CKD to even oncology also. To that extent, we can give a general response as of today.

And are all these 9 molecules with different innovators or there is a concentration as well?

Multiple innovators.

Our next question is from the line of Shyam Srinivasan from Goldman Sachs. Please go ahead.

As I said that, I think I responded to an earlier question from Abdul, that we are looking at double-digit growth for the platform and with Spec Chem turning around, which we have mentioned, we are looking at a double- digit growth across all the three business verticals that we have very carefully crafted in the FY '25. So, that's the guidance I would like to give you.

Himanshu, helpful. In terms of , since we are also looking at the EBITDA margin guidance, I know we ended Q4 at 31% and looks like the guidance for Fiscal 2016 seems to be the low end of that. So, what explains that from an integration perspective, I noticed a Rs. 30 crore one-time expenses in pro forma consolidated financials. Does that continue to remain for some more time, and which is why the EBITDA margin dragged down? If you could help us, please.

I think EBITDA margin is a temporary decline that we have called out that FY '26 would be a low 30s EBITDA. And there are multiple factors. I think predominantly I would say that there is a business mix that is there which will play. There is also operating leverage which will take time for it to play in. As you know we have invested ahead of the curve and that would kind of play. There is also an NJ Bio which we are integrating. And that is a fast growth acquisition for us. It does come with a lower EBITDA than the average EBITDA for the business. So, there are actually multiple aspects. I think we have also called out that there is an inventory de- stocking that is there in the business as customers have come back and said that for a few commercial molecules they do hold the inventory, and they are looking at pausing for FY '26. As I said, there are multiple levers which is playing for this temporary dip in EBITDA of low 30s for FY '26. As I said that for mid- term, we will start growing and our mid- term guidance of mid 30s holds as it is. I will recall and I will call it back again. It is a temporary dip for multiple factors. And we will start climbing EBITDA thereafter.

Yes, it does. Just on CAPEX , lastly. Sorry, I am not sure whether I got the full year number on a pro forma basis for Fiscal '25, and what is the outlook for '26?

So, as we have called out, there is a Rs. 314 crore of CAPEX that is there on the Pro forma P&L for FY '25. As you know that we had put in a growth CAPEX for NJ Bio, which we have started spending. So, as I have called out in the communication, we are looking at NJ Bio's expanded conjugation commercial facility being set up along with the regular CAPEX at the platform level and hence it will be slightly higher than Rs. 315 crore that we have spent in the year FY '25.

So, you are not calling out a number here, right, Himanshu?

I mean, it will be difficult to call out a number at this stage.

Helpful.

We have the next question from the line of Foram Parekh from Bank of Baroda Capital Market. Please go ahead.

My first question is on the ADC segment. So, we read a lot of news of ADC drugs like NR2 and all are being qualified in their late- stage clinical trial for the first line of treatment. We know that right now these are in the second line of treatment. So, once they are qualified for the first line of treatment, how do we see our ADC segment panning out? And currently, what would be the ADC proportion in the Pharma CDMO? And on the base of this positive outcome, where do we expect the ADC pie to grow into three years down the line?

Thank you, ma’am, for asking this question. We will give some industry related comments before we come back to a specific product. As you understand, 13 plus 2, 15 products which are approved as of today, there are two major products as of January of 2025 which have antibody drug conjugates with camptothecin- based payloads as an approved product. Out of which one product is becoming a gold standard product because of a variety of reasons. More selectivity, as you have rightly alluded to. Across head to positive, negative to even additional non- small lung cancer also, therapy expansion is happening specifically for that molecule. There is also an anticipation that it becomes a second line to first line therapy. When such kind of development happens, anybody who supplies the payload to such kind of a molecule, obviously along with the therapy expansion, volume uptake also happens going forward. That's a broad way that we have it. In terms of overall ADC, as what we learned in the last 7 to 8 years, while there is enough focus on various payloads, which includes PBD dimers, Orestatin-based and camptothecin-based. Camptothecin-based payloads are found to be the gold standard products with a drop rate projected to be less than 1%, whereas others are in the range of around 55% to 60% plus. Good news is we are there very deeply in commercial scale. We have unique competencies of producing the product on scale from a regulatory approved site using our expandable OEB capabilities. Hence, we feel we will continue to be staying relevant in the expanded market going forward.

My second question is, right now we know that in Phase-3, we have like 9 molecules. So, on the basis of the reading of Phase-1, Phase-2, is it possible for us to give a guidance to next one, two years line , how much increase in the Phase-3 molecules can be from current 9 molecules?

Ma'am, if I may request, as you have heard from us, we have been heavily investing time and effort in terms of expanding our outreach to our customers. Past should set the precedence for future . Our starting point was two products. Now we have reached to nine products in less than two years' time frame. And our endeavor is to expand the basket further. We are quite hopeful that this basket will be further expanded.

And lastly, I heard that you have not called out for the FY '26 CAPEX number, but can you just give us like what can NJ Bio CAPEX be in FY '26?

Before I request our CFO to comment, I just wanted to also say this. We have taken to monitor what is more difficult to achieve, which is Phase-3. But we also have active pipeline of Phase-1 to Phase-2, meaningful higher double-digit number. So, that sets the tone that we will continue to expand our Phase-3 molecules. With this, I would request Himanshu to answer this question on the CAPEX side of it.

Foram, I think given the interest of everyone on the CAPEX, I think our sense is that it will still be in the range of around Rs. 350 crore as a total CAPEX for FY '26.

Our next question is from the line of Hemaant Soni, an individual investor. Please go ahead.

Congratulations on merger and thank you for providing me the opportunity. Sir, I have one question. I read in your presentation that we are guiding for a double- digit kind of revenue growth in FY '26. Will you be able to quantify it?

So, Hemaant, this is Himanshu. I think I will reiterate what I have been saying in the call, that in FY '25, we had very categorically said that Spec Chem was on the wrong side of the business cycle, and it will recover, which it has in as we see for the fall. And having that recovery in, we had also established three engines of growth for us, which is Pharma CDMO, Spec Chem CDMO, and API. Our understanding is that all three engines of growth will fire and deliver double- digit growth for t he revenue. Obviously, one would be higher, and one would be lower relatively , but they will all fire and deliver double-digit growth.

I got your point that we are looking for a double-digit kind of revenue growth, but I just wanted a number or maybe a range.

So, unfortunately, Hemaa nt, we do not give guidance beyond what we are communicating. So, you will have to allow us time.

Any range is also fine. I am not looking for the exact number. Maybe, are we looking for number in early teens or maybe mid-teens or late teens?

I think it would be certainly in the teens. So, we will define as to what it is. I don't want to get into early teens or mid-teens at this stage.

Thank you. We have no further questions. I would now like to hand the conference over to the management for closing comments.

Thank you, Dorwin, and thank you, everyone, for joining and thanks for your time. We will wait for the next quarter to join you back. Thanks a lot, everyone.

Thank you, all of you.

Thank you.

Thank you. On behalf of Cohance Lifesciences Limited, that concludes this conference. Thank you all for joining us. ----------------------------------------------------------------------------------------------------------------------------------------------- Please note: We have edited the language, made minor corrections, without changing much of the content, wherever appropriate, to bring better clarity.