Orchid Pharma Limited

Orchid Pharma reported a challenging Q3 FY26 with sales of INR 207 crores, a 5% decline year-on-year from INR 217 crores. The 9-month sales also saw a significant drop of 16% to INR 574 crores compared to INR 684 crores in the previous year. EBITDA for the quarter stood at 6%, a sharp decrease from 17% last year, reflecting continued stress in the global antibiotics market and lower contribution from higher-margin regulated markets.

The core antibiotics market continued to face pricing pressure, with the oral segment experiencing approximately 12% price erosion and 10% quantity erosion on a 9-month basis. The gross margin for Q3 FY26 was around 31%, primarily due to a reduced share of regulated markets, which historically contribute 40-65% margins, now accounting for only about one-fourth of sales. Management noted some green shoots of recovery in January, with Cefixime prices showing improvement.

Progress on differentiated products is gaining momentum. Exblifep sales have commenced in Spain and Italy, showing over 200% growth on a small base, and has been launched in UAE and Kuwait. The company is in advanced discussions for licensing Exblifep in 3-4 large markets and aims to sign a US deal within the year. For Teflaro and Ceftazidime/Avibactam, partner agreements are in advanced stages, with filings expected this year or early next, targeting US markets of $125-150 million and $300-350 million respectively.

The 7ACA project is progressing as per the revised execution plan, with all fermenters erected and mechanical completion targeted by September 2026. Commercial production is expected 1-2 quarters thereafter. This project is strategically critical for enhancing backward integration and achieving long-term cost competitiveness, with the objective of becoming the lowest-cost producer of cephalosporins by next year.

In response to the challenging environment, Orchid Pharma critically reviewed its cost structure, resulting in a 10% reduction in non-employee costs on a 9-month basis. Despite cost optimization, R&D investments increased to approximately 1.5% of sales, up from less than 1% last year. These investments are focused on differentiated products and FDF development for regulated markets, aiming for long-term competitiveness and future benefits from the operational FDF plant in Chennai.

The Cefiderocol project is on track, with API production already underway and on stability. The company expects to start production of the finished formulation in December 2026, followed by 5-6 months for registration. Management is confident of receiving a clinical trial waiver for India, citing the urgent need to address AMR, and believes it would be an injustice to patients if access is delayed.

For the 7ACA project, INR 170 crores of the planned INR 450 crores debt has been drawn down. The company maintains a healthy liquidity position with INR 75 crores cash in hand, comprising INR 60 crores from QIP funds and INR 15 crores in fixed deposits, with unused working capital limits. This provides financial flexibility for ongoing projects and operations.