Q2FY25:

• US Market H1 FY25 revenue at ₹170 Crores; an increase of 40.8% YoY
• Free Cash Reserves at ₹1,039 Crores

• Gross Margin for Q2 FY 25 is 60.9% vs 60.0% in Q2 FY24 and H1 FY25 is 60.3% vs 57.4% in H1FY24, aided by new product launches across existing and new markets.

EBITDA margins @36.8%

• Geographical revenue composition between Latin America & Rest of World and US for H1FY25 is in the range of 82% and 18% respectively.

Business Highlights for Q2 FY25:

Emerging Markets:
• Caplin One Labs – the company’s Oncology business which commenced exports in Mar, clocks ₹12 Cr in revenue in the first half of the year. Entity expected to turn profitable in first full year of operations – FY-25.

• Company has filed 23 (vs 22 in Q1) products in key target market of Mexico, which is a combination of in-house and outsourced products. Dossier compilation and review ongoing for 40+ products (vs 35 in Q1), to be filed in the next 12-18 months

• Company ties up with partners in China for entry into Biologics/Biosimilars for Emerging Markets initially, with specific focus on Insulin Analogues and Biosimilars. Clinical studies, if needed, will be done in-house at Amaris Clinical.

• Amaris Clinical, CRO wing of Caplin Point, continues good progress, with completion of BE/BA studies for 15 in-house products till date (vs 12 in Q1), with a further 30+ studies planned in the next 12-15 months, for submission in larger LatAm countries. This is in addition to the 9 products completed for US since inception.

• Company’s API R&D division completes development of 90+ molecules (vs 80+ in Q1) both in General Category and Oncology segments

• Capacity expansion nearing completion at CP-1 (Puducherry site) for higher Lyophilized Injection capacity due to enhanced demand from markets. Part of the expansion includes installing unique Dual Chamber Pre-Filled Syringe line, a segment with limited competition at LatAm.

US and regulated markets:

• Company currently sitting on 25 (24 in Q1) own ANDA approvals (30 in total along with partners), with another 14 under review with FDA (10 in Q1), all to be approved within the next 12-15 months. Plans to file another 15 ANDAs (8 in Q1) in the next 12 months, a mix of Vials, Pre-Filled Syringes, Ready-To-Use (RTU) Bags and Ophthalmic products.

• Company targets launch of first RTU Bag product in US by Jan ’25, both with partner and under Caplin’s own label.

• Qualifications for Pre-Filled Syringes line (Line-6) completed. First exhibit batches from this line targeted in Dec ’24, with first ANDA to be filed in July ’25.

• Company continues focused drive towards overall digitalization of CSL plant, with Quality Control and Microbiology sections targeted to go fully paperless by Q1-FY26. All manual Logbooks to be converted to e-Logbooks by Q2-FY26, a move that will further aid the company’s compliance record.

• Multiple CSL products filed in Non-US markets of Canada, Mexico, South Africa, with filings targeted in Brazil and EU by FY26.

• Update on Caplin Steriles USA Inc,- company’s own label in the US:

o 49 out of 50 state licenses received, as company launches first 14 products in the US. Products have already been shipped to 3PL warehouse in US.

o – Company has entered into contracts with the 3 largest Wholesalers in the US, with 2 more mid-level wholesalers to be completed in Nov ’24.

o – Company enters into supply agreements with 10 direct buyers (IDNs and Hospital Systems) in the US, with discussions ongoing on forecast for CSL’s products.

o In discussions with 23 more direct buyers ongoing, aiming to onboard all by Mar ’25.

o Company in active discussions with various CMO’s for in-licensing/acquisition of Injectable and Ophthalmic products for CSL USA Inc.

o Company aims launching 30+ products within the first full year of operations

(API facility, Oncology API and OSD facility capex delayed by 2 qtrs)

CONCALL NOTES:

New long-term projects with a horizon of 3 to 5 years:

• ONCO OSD: We have already identified two niche onco products for BE studies with hospital patients. The free hospital that we will complete in the next 3 to 4 months’ time will be used for our BE study with the patient volunteers.

We also plan to go for patented products where the patent expires in 2 to 3 years from now.

• PEPTIDES: You are aware that some of the peptides are ruling the U.S. and the other regulated markets. Now we are also developing the peptides which are used for obesity and diabetes. These peptide injectables and tablets are for regulated and ROW markets.

• INSULIN: We are in the process of signing an agreement with a leading Chinese company that not only manufactures the drug substance, but also the formulation. This will be imported and we will manufacture in Caplin Steriles. Once the DMF is ready the Chinese company will give the DMF and we will supply the drug substance and we will scale up and execute in our current facility. And also, we’ll conduct most part of our clinical studies using our US FDA approved CRO and our free hospital.

• BIOSIMILARS: There are a few midsized companies in China manufacturing and marketing biosimilars in Chinese market. Now that we also renewed our relationship with our erstwhile partner Jointown, which is the major distributor for many big and small companies in China. They cater to 18,000 hospitals in China. They also gave us a list of companies, and our COO met one such company in his recent visit, and we initiated the discussion for a partnership with this biosimilar company and our erstwhile partner with whom we renewed the relationship, we are also interested in this type of joint venture opportunities for regulated and ROW markets.

• NCE-1: Nowadays, the Chinese companies are increasingly becoming stronger in NCE-1 areas, which is nothing but challenging the patent with a change in process. And we also met a couple of people who are interested in these things, but we are still in the nascent stage and the discussions are on. And here, these networking opportunities are mainly due to two factors: A) we have been branding our office in China for the last 18 years. B) as I told you before, we reconnected with our erstwhile partner, Jointown, who is the second biggest distributor in that country. The access to these companies becomes easy for them because they distribute most of these medicines in the Chinese market. They also told us there are companies who don’t have the wherewithal to export their products. Hence, they need partners, especially from India.

• SPECIALITY CHEMICALS: Jointown is also interested in identifying one particular specialty chemical, which is of huge volume in China itself. He has also connected us to a private R&D Promoter who worked as an R&D head in China for 12 years in a multinational company. Now he has created his own private R&D in India. He has the exposure of developing this chemical in the past. We are working on a proprietor partnership model for this chemical.

• MEDICAL DEVICES AND HOSPITAL PRODUCTS: We found some niche products, mainly the medical devices, in China and India, and these products can be taken to our warehouses in years and which can be supplied to the hospital after we do some market study about these products, prices and the sale.

• Finally, we are also looking for more and more private R&D companies in addition to our own R&D for complex and specialty products.

• The Phase 1 is the intermediates in China that is Jointown facilities. The same can be manufactured in the form of intermediate in the Jointown facilities of China. And we will do the API, especially in the factories which we are going to complete in Vizag and Thervoy Kandigai and this will be used for our general and oncology injectables for captive consumption.

LATAM:
• What has been driving some of this growth in the existing markets itself would be introduction of new and more innovative products in markets where we already have established an excellent platform. Some of these would be prefilled syringe products where the existing product is in either an ampule or a vial, introducing a pharmaceutical soft gel in a space where the existing product is either a regular capsule or a tablet. So, these are all areas in which we are directly launching our products in branded generics segment where the margins are also high. and the viability lives for a longer duration.

• BRAZIL: We have also filed our first dossier in Brazil within a couple of months of passing the ANVISA inspection. We are comfortable that our latest partner in Brazil is the right fit for us, because this is a company that is also into injectables. But the complementarities are there. They are into large volume injectables whereas we are into small volume. And we know them quite well on a personal level. They are one of the top 5, top 6 companies out of Brazil. So, we are positive on this partnership.

US:
• FRONT-END: The current B2B business that’s been continuing well for us is slowly going to be transformed into more of a B2C. We have already set up partnerships with 3 of the biggest wholesalers in the U.S. because almost 80%, 90% of the volumes are moved from these.

Obviously, we need to be a little bit patient here, because as we aim to work predominantly outside of the big GPOs and IDNs, there will be some amount of slow progress in the beginning. But once we start establishing direct connections with the hospitals, with the clinicians, pharmacies, etc we feel that this is going to be very much more sustainable and where pricing can be firm, the forecast can be much firmer and we are much more in control of our destiny over there.

When it comes to our B2C, we are also not going to go with the partners that we have because the partners that we have are very large players, very well-established players. And their areas are the GPO sales and the very large wholesaler sales and things like that and which are the areas that we are not going to be present in. We are going to be moving away from that and then trying to be direct to hospitals, albeit it might take a little bit longer time to establish, number one.

Profitability indeed will be better than the B2B business once the Caplin Steriles label gets established in the U.S. Because remember, today, for all the licensing deals that we are doing, we are sharing 50% of the profit with our partners, right? So technically speaking, that should be accruing to us when we start doing it on our own

• The B2B business continues to grow well. As we have expanded our capacities through Phase II, we will also be approaching our existing and new partners for some more progress in this field as well. We have launched 5 out of the 5 approved ophthalmic products in the last quarter. So that has also been helping in driving our top and bottom line from Caplin Steriles.

• Operating revenue of Caplin Steriles for September quarter is INR92.42 crores. PAT for the quarter is INR12.60 crores. Gross margin is 63% and EBITDA Margin is 37%.

• BIOLOGICS: We have already tied up with a large and midsized company with regards to entry into biosimilars and biotechnology products for us. We are going to be focusing on insulin and first & second-generation monoclonal antibody products to begin with. In the first stage, we are going to be targeting specifically the markets where we are already present in because the platform is already set over there, and we feel very confident that the uptake would be welcomed. But overall, we would be aiming towards the larger markets of Latin America and eventually the U.S. as well, as we move from being a generic-only product company to the next level of growth, which is into biologics.

• When you combine our entry into the larger markets of LatAm, our own label in the U.S. and our entry into oncology space and also backward integrated with our own API, many of these are exciting growth segments for us. We will have to be patient, like I said before, over the next, I would say, 18 to 24 months where it’s going to be a stabilization and an evolution period for us. But post that, I think the company is really embarking on an exciting phase of growth.

• ON CHINA RISK: What we are planning to do or trying to do is, as I told you before, most of the places we will buy the API or drug substance or something in the form of semi-finished products. We will do the final activity in India, which means the product will be exported as an Indian product.

100% of Caplin Steriles products are manufactured in-house. And less than 20% of the APIs that we use in our ANDAs have Chinese source

• So, when entering the U.S. market, you would like to cater to smaller players and not competing with the big ones. So, what would be the opportunity size and the target market share?

Vivek Partheeban: Yes. So obviously, it depends from product to product, right? But if I were to go by a general rule of thumb, you can assume that the three largest buyers in the U.S., the group purchasing organizations, they call them, the GPOs, control about 60% to 70% of the market. Having said that, if you look at whatever is the latest shortage list in the U.S., close to 70%, 80% of the products are injectables only, right? So obviously, the rule of thumb doesn’t give you a very clear picture because we feel and from whatever that we’ve done research so far, we feel that close to 40%, 50% of the market is not well serviced, right?

So, while we talk about establishing direct contact with hospitals and all of that, the only thing we need to ensure is to make sure that the switch happens, right? It might take a little bit more time because the whole market is very entrenched in the current system that they’re operating in. But obviously, pretty much every buyer that we speak to is unhappy with the way the consolidation has happened especially the mid to smaller players are not getting the right amount of focus. They’re not getting the right amount of interest from these larger selling companies. So, while it will depend on a product-to-product basis, I would say that there is a meaningful percentage of the market that is outside of these 3 large companies.

• What is important is keep the goods next to the customer. If the customer is a part of middle or bottom of the pyramid, one way or other, they are bound to come. What is important is we have to increase the number of products over a period of time. Once we do that, automatically, the volume and value will come to the company when we create the value for the customer.

• We took the road less travelled and went to the smaller markets. While it took a little bit longer for us, what we have right now is much, much more sustainable. It’s repeatable, measurable, etc. So that is also something similar to the question you asked. Why aren’t many people looking at the smaller to midsized hospitals and health care clinics and stuff like that because it takes a little longer to do that.

• We are more interested in the distribution concept actually. So, if we were to invest into something like that in the U.S. or even Latin America, we’ll be much more comfortable in the distribution aspect of it, not so much in retail per se.

• We’re going to be eventually setting up 3 to 4 warehouses of our own in the U.S. and strategic points.

THINGS TO TRACK:

• CAPLIN STERILES B2C DIVISION PROGRESS

• MEXICO, BRAZIL AND CHILE MARKET PROGRESS

• NEWER GROWTH INITIATIVES PROGRESS (BIOLOGICS/INSULIN, CHINA PARTNERSHIP, SPECIALITY CHEMICAL)

• ONCOLOGY DIVISION PROGRESS

• CAPLIN STERILES B2B DIVISION PROGRESS

• EXISTING LATAM MARKET GROWTH PROGRESS