May 15 2017 -Q4FY17 Earnings Conference Call Transcript

Suven Life Sciences Limited

Earnings Conference Call May 15, 2017‌

Moderator Ladies and gentlemen, good day, and welcome to the Suven Life Sciences Limited Q4 and 12 months FY’17 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference, please signal an operator by pressing * and then 0 on your touchtone telephone. Please note that this conference is being recorded. I now hand the conference over to Mr. RabindraBasu from CDR India. Thank you, and over to you, sir.

RabindraBasu Thank you. Good day, everyone, and thank you for joining us on this call to discuss the financial results of Suven Life Sciences for the quarter and 12 months’ ended March 31, 2017. We have with us Mr. VenkatJasti – the Chairman and CEO; and Mr. Venkatraman Sunder – Vice President, Corporate Affairs. Before we begin, I would like to mention that some of the statements made in today’s discussion may be forward-looking in nature and may involve risks and uncertainties. Documents relating to the Company’s financial performance have been mailed to you earlier, and I trust you have had a chance to go through the same. I would now like to invite Mr. Jasti to share some perspective on the performance for the quarter and 12 months and his outlook for the year ahead. Over to you, sir.

VenkatJasti Thanks one and all for logging into our financial results con-call for , the year ending March 31, 2017. As you could see, year-on-year growth on the income is 8.85%owing to addition of the commercial quantity that happened this year. Otherwise, the EBITDA margins are much better at 25% and growth is also thereby 25% and net profit has also gone up by 23.5%. The disappointment is mainly due to lack ofgrowth in the basic CRAMS business, but that has been compensated by the small portion of the commercial quantity which was sold. We hope to achieve the 10% to 15% growth on the basic CRAMS, but we have a better visibility on the commercial projects, which may double in comparison to the amount sold last year. Last year, we sold about Rs. 34 crore. This year, it will be in the range of Rs. 60 crore toRs. 70 crore as of today based on the estimates we have. And that is mainly with respect to the CRAMS side of the business.

In Specialty Chemicals, the volumes remain the same as last year. Practically, there is no growth on that as I was telling you always this is a fully mature project. As a matter of fact, there is a 2% to 3% increase even though volume is little bit more because of the dollar-rupee valuation. So, the final sales value is same as last year and hope to have the same thing for the next year also.

With respect to the innovation pipeline, SUVN-502 is undergoing the clinical trials forPhase II, 40% of the enrollment has happened, still it is a disappointment in a way, we expectedto finishmore enrollment by this time, but this may delay the

process and now the estimate is middle of next year to complete the trials in third quarter maybe the results readout that is 2018. And with respect to the SUVN- G3031, we are preparing for the Phase II trials. The protocol design and other aspects are being taken care of.

With respect to the 4010, the long-term safety toxicology is undergoing after Phase

I. And with respect to the 911, we’ll be starting the clinical trials within this month, and that will be ongoing. We are also strategizing another two more compounds, I think, it will be in the next three to four months we will have another two compounds coming into the clinical stage.

I think with this, I’ll hold on to this and wait for your questions so that I can answer.

Moderator Thank you very much, sir. Ladies and gentlemen, we will now begin the question- and-answer session. Our first question is from the line of Amey Chalke of HDFC Securities. Please go ahead.

Amey Chalke I had two questions. First is obviously, can you give us or provide the segment wise breakup for this quarter between CRAMS, Specialty and the Services?

Venkatraman Sunder Yes. For CRAMS for this quarter Rs. 61.45 crore, specialty chemical Rs. 101.59 crore, and contract technical services Rs. 11.96 crore.

Amey Chalke Okay. So what was the main reason for growth in this quarter. Is there any molecule which has moved from Phase II to Phase III or any other significant change which has happened?

VenkatJasti Actually there is no growth, if you see in the CRAMS side of the business this last quarter we did Rs74.39 crore, this time it’s Rs. 61 crore. But as you know the specialty chemicals, the amount is Rs. 101 crore because as you know this is a seasonal one, the deliveries will be staggered. So, this quarter, always the last quarter, if you see last time also this quarter we sold about Rs. 88 crore. So similarly this quarter, this is the higher quarter ever for that volume. The total sales remains the same as last year.

Amey Chalke Okay. So and how much is the one-off commercial sales for this quarter?

VenkatJasti Nothing.

Amey Chalke So, you said that going ahead the visibility on the commercial sales has improved from Rs. 34 crore to Rs. 60 crore to Rs. 70 crore, I guess, previously you had guided for Rs. 45 crore. So, what is the reason for it, is it because more than one molecule is getting commercialized or?

VenkatJasti No, Amey, the molecules got commercialized, but this is for one molecule only. Last year, we have supplied two different molecules. So this one molecule only we got visibility as the sales are doing good and they have given an indication, this maybe the requirements that’s why I gave you that numbers.

Amey Chalke Okay. So, the sale is coming from only one molecule?

VenkatJasti Yes.

Amey Chalke The visibility on other two will increase going ahead?

VenkatJasti It will take time. It looks like because as I said in the next four to five months only we willhave clarity, as of now I don’t have any guidance.

Amey Chalke Okay. And the status of Phase III molecules is two only right even in this quarter?

VenkatJasti Yes, it remains the same.

Amey Chalke Okay. And one quarter specific question on financials, our depreciation increased substantially. Is there any specific reason? Is there one-off there on sequential basis it has increased?

Venkatraman Sunder See, the depreciation increase is basically because of our commercialization of the Vizag plant.

VenkatJasti But that’s not this quarter now. Are you talking annual year-on-year basis or quarter-on-quarter basis?

Amey Chalke I was looking at a standalone quarter number.

Venkatraman Sunder Yes, from Rs. 5.5 crore last year, it has gone up to Rs. 7.18 crore. That’s a very small increase because of some more additional equipment that would have been brought.

Amey Chalke Okay. And the reason for staff costs increase maybe of the same reason because of this facility, is it?

Venkatraman Sunder Correct.

Amey Chalke Okay. And related to the Phase II trials of 502, I guess you had guided for middle of FY ’18, is it?

Venkatraman Sunder Yes. For completion of the trial. But by the time, the results will be out, it will be end of the year.

Amey Chalke Okay. So what is your view when we got to know from the Lundbeck that they have discontinued those trials after Phase III failure.

VenkatJasti The reason why they have discontinued is because of the toxicity. And because of the toxicity, they reduced the dosing in the next level and that gave negative results on the effectiveness. So in our case, as of now, there is not even a single serious adverse event out of the 219 subjects we have enrolled based on the study molecule. So that is a good sign for us. Of course, the data for the efficacy will be known only post the completion of the study because this is a double-blind study. So we are very happy because with 40% of the enrollment, there has not been even a single serious adverse event, whereas for the Lundbeck, they have 10% liver function abnormality in the Phase II trial, which led them to decrease the dose, which made the molecule worthless because it lackedefficacy.

Amey Chalke Okay. And on RD guidance basically for next two years, because now, I guess, one more molecule is entering into Phase II and there are a few more molecules which will go into clinics.

VenkatJasti And our standalone, we are still saying about $10 million or Rs. 65 crore. Even though we have guided you for roughly $22 million to $25 million with 502. As you

could see, fiscal 2016 we have spent only $4.5 million and fiscal 2017, we have spent only $5.5 million. In the initial stages, the amounts will be less. But at the end of the study when the data is generated then the burden is much more. So when you start a second Phase II study also you will not have that much of a burden, it is just USD 4 million per year, first year at least. So only thing is for 502, yes, it can increase next year, which is not for fiscal ’18, it will be for fiscal ’19.

Amey Chalke Okay. So, FY’19 could be the higher RD year.

VenkatJasti Yes, naturally. That’s on a consolidated basis, not on a standalone.

Amey Chalke And that would be more than Rs. 100 crore then?

VenkatJasti Yes, we don’t know yet.

Moderator Thank you. Your next question is from the line of Rashmi Sancheti from AnandRathi. Please go ahead.

Rashmi Sancheti Sir, you said $5.5 million, we have spent on SUVN-502 this year, right?

VenkatJasti Yes.

Rashmi Sancheti Okay. And what about the earlier, I mean, till date, how much we have spent on this?

VenkatJasti USD9.61 million.

Rashmi Sancheti Okay. And we have budgeted around $22 million to $25 million, right?

VenkatJasti Yes.

Rashmi Sancheti So, as the earlier participant said that currently we are doing around Rs. 100 crore of RD expenses in the consolidated financials. So one or two molecule maybe added. So you will not see any increase in RD expenses in FY’18?

VenkatJasti Yes, you will see maybe 10% to 15% increase in RD expenses in FY ’18.

Rashmi Sancheti 10% and 15% on current Rs. 100 crore you are saying.

VenkatJasti Right, but fiscal ’19 we will have a little bit substantial because other molecules will be starting Phase II and also the closing of the first molecule would take much money at that time roughly 40% of the requirement of the budgeted amount.

Rashmi Sancheti Okay. And sir, why is the cash balance so low cash on bank balance so low in FY ’17 compared to FY ’16?

Venkatraman Sunder FY ’17 cash on bank balance is too low because it is an investment.

Rashmi Sancheti Okay. So if you can give more color on it, like, what investment?

Venkatraman Sunder See the thing is that whatever the cash we have will go towards investing in various strategic funds. Last year, probably everything was in cash, it was not in investment. It is all in current investments, which are realizable in three to six months’ kind of time frame, mostly short-term investments.

Suven Life Sciences Limited published this content on 15 May 2017 and is solely responsible for the information contained herein.
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