Cohance Lifesciences Limited — Q2 FY25 earnings call

Call held 9 Dec 2024

Management summary

Suven Pharmaceuticals announced a strategic acquisition of a 56% stake in NJ Bio to become a global leader in the high-growth ADC CDMO market. The deal completes Suven's ADC value chain by adding linker and bioconjugation expertise to its existing payload capabilities. Management is leveraging a strong cash position to fund the $64.4 million investment, targeting significant operating leverage and margin expansion in the mid-term.

Highlights

  • Acquisition of 56% controlling stake in NJ Bio, Inc. for a total investment of $64.4 million

  • NJ Bio reported CY24 revenue of $32 million, representing a 70% CAGR over the last 4 years

  • Transaction valued at a pre-money equity value of ~$100 million (low to mid-teens EV/EBITDA for CY25)

  • Suven maintains a strong cash reserve of ₹6.5 billion as of September 2024 to fund the deal

  • Strategic expansion into end-to-end ADC (Antibody Drug Conjugate) services, expanding addressable market by 5-7x

  • Targeting EBITDA margins of 20%+ for the NJ Bio business starting CY25

  • Primary capital infusion of $15 million earmarked for GMP expansion at the Princeton, NJ facility

Key financials

  1. NJ Bio Revenue (CY24) $32 Mn +70%YoY
  2. Total Acquisition Investment $64.4 Mn
  3. Suven Cash Reserve ₹6.5 Bn
  4. NJ Bio 4-Year Revenue CAGR 70%

What they filed

Q1 FY27: revenue down 25.6%, net profit down 97.3% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue594 653 769 484 498 −16%482 −26%568 −26%360 −26%
EBITDA204 233 223 104 131 −36%103 −56%117 −48%26 −75%
Net profit139 154 123 53 94 −32%47 −69%35 −72%1 −97%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • NJ Bio (Acquired Entity)
    $32 Mn Revenue140 employees Headcount100 scientists Scientist Count

Guidance & targets

Margin

  • EBITDA Margin Margin · CY25 onwards · High confidence 20%+
    going forward CY25 onwards, we should be looking at a margin profile of 20% plus EBITDA.

    — Himanshu Agarwal, CFO

Capex

  • Primary Equity Infusion for GMP Expansion Capex · FY25-26 · High confidence $15 million
    US $15 million as primary equity infusion that will be mainly used for future growth requirements that are the GMP expansion at the existing Princeton facility.

    — Himanshu Agarwal, CFO

Other

  • Transaction Closing Timeline Other · Q3 FY25 · High confidence December 2024
    The transaction is expected to close before the end of December, subject to regulatory approvals.

    — Himanshu Agarwal, CFO

Market Share

  • Addressable Market Expansion Market Share · Mid-term · Medium confidence 5-7X
    the addressable market... has actually got expanded by almost 5-7X higher than what it was when it is standalone Suven business.

    — Dr. Prasada Raju, Managing Director

Risks & concerns

  • Competitive Intensity in ADC Space

    medium

    Analysts questioned the rising competition from Indian peers and global CRDMOs adding ADC capabilities.

    Analyst acknowledged

  • Integration and Execution of US GMP Expansion

    medium

    The $15M expansion in Princeton needs to be executed to support the transition from discovery to clinical/commercial supply.

    Both acknowledged

  • High OPEX during Growth Phase

    low

    Management noted that high CAPEX typically comes with associated OPEX, which may weigh on near-term margins before scaling.

    Management acknowledged

Areas of evasion (1)

  • Specific revenue split between discovery and GMP manufacturing was not provided.

Q&A highlights

2 direct
Missing pieces in the ADC value chain (mAb and Fill-Finish) Direct
we strongly believe in leveraging with our strengths... we have not included that as well because there are better strong players who can do these activities outside of us.

Clarifies that Suven is focusing on high-value chemistry (payload/linkers) rather than becoming a fully integrated biological manufacturer immediately.

Asked by Harith Ahamed, Avendus Spark

Revenue split between linkers and conjugation Partial
it is never differentiated between linker, how much of the revenue from linker, how much from a conjugation... This is the bundle project.

Reveals that the business model is largely FTE-based and bundled, making it difficult to track individual component margins but ensuring customer stickiness.

Asked by Girish Bakhru, OrbiMed

Profitability and Margin Profile Direct
you can imagine companies growing at 70% CAGR and they were also in the phase of high CAPEX... we certainly feel confident that it will be improved going forward.

Explains that current lower margins are due to aggressive growth and investment phases, with a clear path to 20%+ EBITDA as operating leverage kicks in.

Asked by Surya Patra, Phillip Capital

1 min read 4 chapters

Detailed narrative

Strategic ADC Value Chain Integration

Suven's acquisition of NJ Bio is a transformative move to capture the high-growth Antibody Drug Conjugate (ADC) market. By combining Suven's existing expertise in payloads (Camptothecin and Tubulin inhibitors) with NJ Bio's specialized linker and bioconjugation technologies, the company now offers a seamless discovery-to-commercial solution. Management expects this integrated platform to expand their addressable market by 5-7x compared to their standalone business.

Financial Structure and Valuation

The deal involves Suven acquiring a 56% stake for $64.4 million, valuing NJ Bio at a pre-money equity value of approximately $100 million. This represents a mid-teens EV/EBITDA multiple based on CY25 projections. The investment is split into $49.4 million for buying out minority shareholders and a $15 million primary infusion for growth. Suven has secured a call/put option to acquire the remaining stake after five years, ensuring long-term control.

US Market Expansion and R&D Synergy

The acquisition provides Suven with a critical state-of-the-art R&D and GMP facility in Princeton, New Jersey, the global hub for ADC innovation. NJ Bio brings a talented team of 140 employees, including over 100 scientists with a high PhD-to-scientist ratio of 3:1. This dual-location strategy (USA and India) allows Suven to balance innovation-led research in the West with cost-efficient manufacturing in India.

Growth Outlook and Margin Expansion

NJ Bio has demonstrated exceptional growth with a 70% revenue CAGR over the last four years, reaching $32 million in CY24. While current margins reflect a high-investment phase, management has guided for EBITDA margins to exceed 20% from CY25 onwards. This improvement is expected to be driven by operating leverage as the new GMP suites come online and the business scales from discovery-stage projects to clinical and commercial manufacturing.

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