Orchid Pharma Q1 FY27 earnings call

Orchid Pharma commenced FY27 on a positive note, reporting a 15% year-on-year increase in revenue from operations, reaching INR304 crores in Q1 FY27, up from INR263 crores in Q1 FY26. The combined gross margin saw a 3 percentage point improvement, rising to 33% in Q1 FY27 from 30% in the corresponding prior-year quarter. This led to a significant increase in EBITDA, which grew to INR25 crores in Q1 FY27 from INR10 crores in Q1 FY26, indicating a better financial footing after a challenging FY26.

The company's FY26 results, restated to include Dhanuka Laboratories, showed a revenue from operations of INR1,233 crores, a decline from INR1,398 crores in FY25. This was attributed to a difficult year for the cephalosporin business, which faced 15-20% declines in both volumes and pricing across key products and markets. Consequently, the combined gross margin moderated by 4 percentage points to 32% in FY26 from 36% in FY25, despite employee and other operating expenses remaining broadly flat at INR353 crores.

Orchid Pharma is actively pursuing two major strategic projects: 7-ACA backward integration and Cefiderocol access. The 7-ACA project, with a total cost of INR750 crores, is targeted for commissioning by December 2026, with validation and initial batches expected between January and March 2027. Commercial revenue contribution is anticipated from FY28, with a long-term utilization target of 80% in-house and 20% for third-party sales. The Cefiderocol project, costing USD20-25 million, also aims for commissioning by December 2026, with first product approval in India expected by Q3 FY28, contingent on a clinical trial waiver.

The company continues to build Exblifep as a global commercial platform. In Europe, volumes demonstrated strong growth, increasing by 300% in Q3 FY26, 170% in Q4 FY26, and 50% in Q1 FY27. The estimated 10-year value of the Russian licensing arrangement is USD178 million, with registration and launch expected within 1.5-2 years. While Middle East launches are affected by regional conflict, discussions are at an advanced stage for partnerships in South America, Mexico, Philippines, Thailand, Morocco, and Australia, with hopes for 3-4 agreements by the end of FY27.

Management acknowledges that the industry still faces overcapacities and competitive pricing, particularly in non-regulated markets. However, they anticipate improved demand from regulated products in the next two to three quarters. The company's strategy focuses on growing volumes with discipline, improving product mix, maintaining tight control over operating costs, and progressively strengthening profitability. They aim to improve margins through volumes and product mix, and expect initial benefits from integration projects to be visible in the next financial year.

Cefixime is currently experiencing maximum stress on margins, especially in high-volume world markets. In contrast, Cefuroxime and other 7-ACA-based products appear more stable. The company is working on other products, including those from Dhanuka, to create a more diversified portfolio and reduce dependence on volume-driven, low-margin businesses. The strategy involves backward integration into 7-ACA and forward integration into finished dose markets to de-risk from traditional API business competitiveness.