Suven Life Scie.

The company has demerged into Suven Life Sciences (SLS) and Suven Pharmaceuticals (SPL) to cater to different investor risk appetites. SLS is now a pure-play drug discovery and development entity, focusing on its pipeline of 14 molecules. SPL is expanding its Contract Research and Manufacturing Services (CRAMS) business to become a full-fledged pharmaceutical solutions provider, including API manufacturing, formulations, and specialty chemicals. Management stated that SPL will no longer provide segmental reporting, moving to an overall pharmaceutical performance metric.

SUVN-502, a key drug candidate, failed its primary endpoint in Phase III trials, which was a 'big disappointment.' However, secondary endpoints show 'positive implication' for other indications, and the company plans to pursue a separate clinical trial for these, with a decision expected within 45-60 days. The SUVN-G3031 narcolepsy trial is in Phase II, with approximately 20% patient enrollment, and is now expected to conclude by March 2021, later than initially anticipated. SUVN-D4010 is in the final stages of indication finalization, expected within two months.

Suven Pharmaceuticals projects a 20-22% revenue growth for FY20 compared to the previous year, with Q4 FY20 revenue expected to be similar to Q3, showing a 5-10% quarter-on-quarter growth. For FY21, the company anticipates 15-20% growth, driven by new ANDA activities and expanded infrastructure. The total capital expenditure for FY20 is Rs. 320 crore, with Rs. 160 crore already spent and the remaining Rs. 160 crore to be utilized by year-end. An additional Rs. 50 crore is planned for replacement CAPEX in FY21.

Suven Life Sciences currently has sufficient cash to fund its operations for the next 18 months. However, management acknowledges the need for new income sources within one year, exploring options like strategic partners, monetization of assets, or a potential US IPO for its wholly-owned subsidiary, Suven Neurosciences, in 2.5 years. Suven Pharmaceuticals holds Rs. 213 crore in cash and has working capital debt of Rs. 32-35 crore. The Rs. 7.6 crore interest expense in SPL's Q3 was due to interest paid on cash held for SLS, at an 8% rate.

Suven Pharmaceuticals has 11 ANDAs currently filed (3 Suven-owned, 6 with customers, 2 ANADAs), with most under review. The company expects some approvals in Q3 calendar year 2020, with the bulk in 2021. An additional 10 ANDAs are in the developmental stage, and another 10 are under evaluation. Management estimates the volume of business for each ANDA to be $2-3 million, which represents the profitability. The company aims to maintain an average EBITDA margin of around 40% for the next year, despite the introduction of generics.

Management highlighted a potential risk from raw material sourcing, particularly from China, due to the Coronavirus outbreak. While volume dependence from China is less than 10%, even a 1% critical raw material can halt a project. The company is actively working with customers to find alternative sources and is backward integrating some critical commercial and specialty chemicals. While Q4 FY20 is expected to be okay, the outlook for the next quarter is uncertain, with a '50-50 chance of problems' depending on the severity of the situation.

Post-demerger, significant related-party transactions (RPTs) exist between SLS and SPL, primarily involving lease agreements for facilities (effective January 9, 2020) and services based on equipment availability, all conducted on an arm's length basis. Suven Pharma's 25% stake in Rising Pharma Holdings will also lead to RPTs for ANDA development and marketing. The listing of Suven Pharmaceuticals is awaiting clearance from SEBI and stock exchanges, with management stating it is not in their hands to provide a specific timeline.