Zydus Lifesciences Limited (ZYDUSLIFE) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the tele-call of Cadila Healthcare Limited, which is scheduled to discuss the ZyCoV-D vaccine which has recently been granted an emergency use approval by DCGI. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vishal Gor, Senior Vice President from Corporate Finance team of Cadila Healthcare Limited. Thank you, and over to you, Mr. Gor.

Thank you. Good afternoon, ladies and gentlemen, and welcome to the Cadila Healthcare Limited teleconference to discuss on ZyCoV-D vaccine, which has recently been granted the emergency use approval from DCGI. For today's call, we have Dr. Sharvil Patel, Managing Directorate of Zydus Cadila; and Mr. Alok Garg, Senior Vice President from MD's office. This call is only to discuss the ZyCoV-D vaccine opportunity. And if you have any other questions on any other businesses, kindly reach out to us separately, and we shall be happy to address the same at the earliest. With that, I now hand over the call to Dr. Sharvil Patel.

Thank you, Vishal, and good afternoon, ladies and gentlemen. As you all are aware, on the 20th of August, we have received the emergency use authorization from the Drug Controller General of India for our COVID-19 vaccine candidate, the ZyCoV-D. With this approval, it has become the first-ever plasmid DNA vaccine for human use approved anywhere in the world. The DNA plasmid platform, because of its rapid plug-and-play technology, can be easily adapted to the deal -- to deal with the new mutations in the viruses, which is a big concern with COVID-19. Also being a plasmid DNA vaccine, the ZyCoV-D doesn't have any problem associated with vector-based immunity. The Phase III clinical trials were conducted in over 28,000 volunteers, including 1,400 subjects in the age group of 12 to 18 years of age. Hence, with this approval, besides the adult population, ZyCoV-D has become the first approved vaccine for adolescents in the age groups of 12 to 18 years in India. The vaccine has an excellent safety profile. No subjects had any serious or severe adverse events reported during the conduct of the study. None of the subjects discontinued the study due to the adverse events. In the interim analysis, no moderate cases of COVID-19 disease was observed in the vaccine arm post administration of the third dose, suggesting 100% efficacy for the moderate disease. And no severe cases or deaths due to COVID-19 in the vaccine arm after the second dose of the vaccine have been reported. The results of the Phase I, part of the Phase I, Phase II clinical trials have already been published in the eClinical Medical Journal of Lancet. ZyCoV-D is now a 3-dose vaccine, which will be administered on -- administered first on day 0, day 28 and then day 56. The vaccine will be administered intradermally using the PharmaJet Needle-Free applicator known as Tropis, which ensures painless vaccine delivery. We also plan to seek an approval for a 2-dose regimen of the vaccine as well. The ZyCoV-D is stored at 2 to 8 degrees Celsius, but has shown stability at temperatures of 25 degrees Celsius for at least 3 months. The thermostability of the vaccine will help in easing transportation and storage of the vaccine and reduce any cold chain breakdown challenges, thus minimizing vaccine wastage. We have already begun stockpiling the vaccine, and we will be able to supply the vaccine starting from middle to end of September. We plan to manufacture 10 crore to 12 crore doses of the ZyCoV-D annually from our new facility that we have built. Thank you. And now we move over to the coordinator for the Q&A.

[Operator Instructions] The first question is from the line of [ Forum Parekh from Choice Institutional Broking ].

Congratulations on getting the approval for the first DNA-based vaccine. I just wanted to know like what would be the price of the vaccine? And how much do you expect it to contribute to the EPS growth?

So I think today, we don't have -- thank you, first, for the acknowledgment. I think we don't have a clarity on pricing yet. As I have said in my earlier press briefing also that we do believe that in this coming week, we should see discussions with the government on the pricing and the quantity of the doses that will be procured. And once we are able to know all of that, we can come back to you with the pricing as to what it would be. So as of today, we are not able to talk about that. We have talked about what we'll be able to produce, which is about 1 crore doses monthly.

Okay. So out of this, could you just help us break like how much would you be supplying to the government? And how much would it be to the private hospitals?

So currently, that is also unclear because from the current -- original policy that the government has followed, they looked at 75% for buying [ bit ] I mean for the center and state and then they have allocated 25% quantities for the private sector. So that's the current precedent that is there. So once we are clearer on that, we can also discuss that. But that is what currently the government has done for the 2 vaccines that have currently been approved.

Okay. So can we take the 75 to 25 ratio on a monthly basis also?

I don't have clarity yet on that, but as I said, this is the current condition that the government has done for the last 2 vaccines.

The next question is from the line of Anubhav Aggarwal from Crédit Suisse.

Yes. So one question was on this adolescent version, so when you start supplying in mid-September to end September, how, let's say, initially itself, you will start supplying for the adolescent piece? That's 1 question. And secondly, how the mix will change between the adults and the adolescent population? The context in I'm asking is, would it happen that intuitively, I think about parents would think that the vaccine has been used in adults for some portion of time, then they would be more eager to get their kids vaccinated with this vaccine? Or you think right from the word go, adolescents will be a larger portion for you?

So intuitively and whatever we have currently understood, I believe the adolescent population will probably be the larger part of it because one is there is no vaccine approved today, and we know that there is a challenge in opening colleges and schools and other things. So there is a high probability that there will be larger news for the adolescent population knowing that there are no vaccines currently available. But obviously, there will be some share of that, which will be also made available for the adults also because the choice is there for people to make and we have also a lot of requests from -- I mean, there are a lot of people in the ages of 18 and above who also want to choose a vaccine that has been different from the current.

Okay. And Sharvil bhai, can you also talk about what is the data which SEC has asked on 2 dose, et cetera. So what do you need to do incremental on 2 dose to get it approved?

So that's clear -- we don't have a clarity yet. We have submitted, as I said, 3 things. We submitted the 2-milligram arm 3 dose for both the adults and the adolescents and then we submitted the 3-milligram 2-visit arm also. So they have finished the immunogenicity and that was purely an emergency work. So once we have that discussion, which we believe can be happening in this next 5 to 7 days or 8 days, then we can give more clarity as to what may be gaps are further required. I can at least definitely say that the immunogenicity work has shown that the vaccine has shown equal or better immunogenicity compared to -- immune response compared to the 3-dose arm.

But do you get a feeling that you'll have to do a full trial for that or maybe just a small...

No. It won't be a full trial, for sure.

The next question is from the line of Charulata Gaidhani from Dalal & Broacha.

Yes, congrats on the approval. My question pertain to, you have a capacity of 1 crore per month. So if you could indicate the volume of doses in September and October onwards, by what time could we reach 50%, 60% utilization?

So our endeavor is that from the month of October, we start delivering 1 crore doses in terms of drug substance and drug product. Obviously, it goes through the whole process of sterility testing and also the testing with itself each of that constitutes 14 days. But our endeavor is that October month -- from the month of October, we start delivering 1 crore doses in terms of drug substance.

Okay. And in terms of profitability, if you could indicate some internal estimates, whether it will be better than the corporate level profitability?

So I don't think I'll be able to talk about that, but definitely for the current financial year, this vaccine will become a significant part of the contribution for the company, both in terms of sales and also on the bottom line. Exact numbers only can be given once we are able to formulate the pricing and other things. But we do believe that from the October quarter onwards projection, we can see a INR 300 to -- INR 200 crore to INR 350 crore kind of a number, which can be scaled up to INR 500 crores per month. But I think more will get clarity once we are able to firm up the pricing and the logistics and the supply.

The next question is from the line of Surajit Pal from Prabhudas Lilladher.

Yes. Congratulations for getting that approval. My first question is that what could be the total population of adolescent age between 12 to 17 which you are targeting currently?

So today, the current census talks about 40 crore population between the ages of 12 to 18.

Okay. And in terms of giving them or offering them any government schemes there or it will be only through private?

So today, as you know, right, as of the current vaccination program, which the Government of India has taken up as the largest vaccination program, what -- they are giving vaccines free for at least the amount of vaccine doses they procure and the rest is for private and the private is a very small percentage of the overall vaccination. So I think it would not follow any different pattern in this in my opinion.

Clearly my point is that currently, what they are offering that is mainly for adult population. So do you...

Yes. But they will do the same -- I think they will extend the same for the children. I don't think they would differentiate between adults and children.

Okay. Okay. As far as vial is concerned, out of 1 vial, how many dosage you can offer?

10 doses.

10 doses. And do you think that the pricing will be at par with the double dose guys in terms of considering the 2 dose equivalent or 3 dose, so the per dose will be equivalent to that level over a total cost?

We haven't had the discussion yet, and every vaccine is different. And ours is a 3 dose. So obviously, it will be -- per dose will be the pricing and not absolute pricing.

Okay. And the last question is, sir, see, by the time you will be coming out with your product, say, for example, September-October, there is a possibility that one of your peers would come out with a single dose regimen. There is a possibility given the DCGI, what they're considering. Do you think your product will have attractiveness in that market, too?

Yes. We -- from whatever we are currently aware of, we do believe that will happen. So we are very confident on the current opportunity size that we are talking about. I don't think it's a question of being able to sell because even if the other dose, if -- I don't know what you are hinting to, but whatever vaccine gets available even as assuming a single dose, there aren't going to be large quantities available, if that is the case.

The next question is from the line of Sameer Baisiwala from Morgan Stanley.

And Sharvil bhai, a big congratulations on the approval. Just on pricing, I understand, and like you said, the government pricing will be decided later or in consultation. But what about the private channels? You are free to set the prices over there? And what are you thinking on this?

So thank you, Sameer bhai. The -- see, as the pricing is a composite pricing, right? It all depends on the procurement of quantities between the -- and the allocation of quantities between the buying of the center in the state. So the pricing will be a methodology of those 2 decisions, and that's how we'll get decided. So I think until that gets done, I -- we have no clarity on the private market also. One thing consciously we have made a choice that we will definitely price it more economical in the private market, but we don't have a current pricing decided yet on that.

Okay. And I missed your comment on whether the pricing would be on the full regimen, which is for others INR 215 into 2 divided by 2 and your's would be x into 3 divided by...

To my best estimate, the pricing is decided by per dose. So somebody may be given 1 dose, somebody may be given 2 dose, somebody may be given 3 dose, but the pricing that is today's format is per dose, and we believe that will be the same format that will be followed.

Okay. So it's independent of the regimen, that's what you're saying? It's on a per dose only?

Yes, yes. Because if -- every manufacturer, every vaccine is different. So you can't equate every vaccine as the same. So...

Okay. It's not the total cost of vaccination. Okay. Thank you, Sharvil bhai, I get that. But now just -- it's a very hypothetical question, but an important one, so I'll ask. Assuming the current government prices -- pricing, which are in INR 215 for 1 and INR 225 for the other, if you're there somewhere close to that -- those numbers. At that price point, how good are the margins? I mean, do you breakeven? Do you make some money? Any color on that?

So I think I'll answer that question in -- I mean, I understand these questions are very important and until the pricing gets done and the quantities -- see, I think pricing is also a factor of quantity also and the contracted quantities also. So I think it's very difficult to just answer it that way. But I can definitely say that from our point of view, with this approval for ZyCoV-D, this definitely becomes a very critical part of what we want to do on vaccines. We also believe that this is not something that's going to stay there for just a few months or a few quarters. We are, as we've already talked about it, we are upgrading the platform also to the new variants. And all of that work is also underway. So I believe this will definitely become a very sizable opportunity for the company for the coming financial years for sure, but also in the future also. And with respect to pricing and with respect to margins, definitely, if the quantities -- if all the quantities have picked up and we are able to scale it up further, this will definitely be a valuable product from the profitability point of view also. But the exact profitability, I will not be able to answer today. But from both the [ commerce ] sales revenue point of view and obviously, adding to the company's profitability, it will be important.

Okay. Great. I've got 1 or 2 more, if I may? Sir, the other question I had is what's the limiting point in your capacity? Is it the drug substance or is it the drug product? And I presume you are the only manufacturer for drug substance.

So currently, we are the only manufacturer for drug substance and drug product and device. So there are 3 factors that make -- we have to solve for when we talk about increased capacity. As I said, once we get to the pricing decision, we will look at more CMO partners to produce more drug substance. I think currently, we do believe we can still manage drug product on our own. But if we need to go outside, this is a simple liquid fill in a 2 ml vial, so it's not very complicated. So we can find enough capacity if we need to from outside from the drug product point of view. On the device and applicator and all of that, we have scaled it up currently to up to 1 crores to 1.5 crore doses. And if we need to further scale it up, we will also have to do some further investment. So that decision, again, as I said, we will take once we get the pricing clarity because if we get a pricing that we can suitably give to a CMO partner in terms of pass on cost to them also or margin to them also, then we will also have a few CMO partners established. We have already partnered with -- already in final discussions with 2 of them, we are just waiting for pricing to be clear.

Okay. Great. And my final one, Sharvil, is there are already 45 crore individuals who've got at least 1 shot and I think we should be hitting 60 crores, 65 crores by October end individuals. So that's -- so therefore, do you see there's enough urban opportunity for your vaccine? Or do you think you necessarily will have to go down to smaller towns and even villages to get the required volumes?

So I think it's an important question. Now there are 3 to -- 2 to 3 things that are happening, right? One aspect we have seen is that the countries are talking about with the current platform, the booster dose, which is talking about that 1 needs to do a third dose potentially because the antibodies wane away over a period of time. The second aspect of this is also that there have been studies now that are showing that mixing vaccines gives you higher antibody or better production of immunogenicity. And the third is that the -- with related to the -- all the vaccines, with the new Delta variant, we've seen that the efficacy for more mild cases is low, it's not as good as it was for the Wuhan strain. So I think the upgradation for the platform, which we are also trying to do with using the new Delta variant as the new spike region, will also happen. So if you look at all of that, I think while what you say is right, but I think this is still going to be an evolving field, and I believe there will be enough opportunities created for better protection against COVID, which could include a booster dose, which could include mixing or which could include a new platform -- or sorry, a new Delta variant vaccine, which is -- which everybody is trying to sell, and we are also in advanced stages to do so. So I think putting all of those things together it is an evolving science, but I see is still a good amount of opportunity to do. So having said all of this, if you look at from my current capacity and expectation point of view, obviously, we are nowhere near to what is the requirement. So I don't think those are immediate concerns for us in terms of finding a place to -- I mean finding enough volunteers to administer this vaccine as of now.

The next question is from the line of [ Ketan Sanghvi from CSO Investment ].

Yes. Congratulations on getting the approval. I just had a couple of questions on the opportunity that exist outside India. So if you could just throw some light on can you enter into some sort of manufacturing partnerships and licensing arrangements for sale outside of here? And what would be the approval process for that thing? And the other question is, are we also looking at the opportunity within India for those [indiscernible]?

Sorry, I maybe didn't get your last part, but if I got it right, for India, as I said, we have reached to at least 3 CMOs who can potentially manufacture this vaccine. And we have -- I mean, we've finished all the discussions, we are waiting for our pricing so that we understand what kind of cost expectations we can give to our CMO partners. So that's the first part. With respect to outside India, we have requests from a very few very large manufacturers who have large-scale capacity even a little bit larger than us for the DNA plasmid platform. And they all have shown a very keen interest to partner this. What would be the regulatory pathway will be different for every country and for some of them, they do believe that after they do so, they will do local bridging studies where required. And maybe for some countries, there could be direct commercialization or drug product filling and commercialization. So I think that's an evolving field. But currently, we do have requests, and we are in discussions with 1 or 2, at least 2 large manufacturers for this platform. Also, I think what has been very heartening and important is there has been a lot of research happening on DNA plasmid and vaccines related to DNA plasmid technology. And with this being the first approved vaccine now, we have also a lot of requests from research companies and manufacturers who have been doing work on this and partnering to see how do we create the next platform or the next generation of the DNA plasmid vaccine. So I think a lot of good science and a lot of, I think, future development will happen in this field, and we are very excited that we may have the opportunity to participate in doing so and working with other manufacturers and other research firms to really shore up the development of this platform and bring the next version of it, which could even be much better than what we are doing today.

So just to clarify, the government of India should not have any problems in you using capacity outside India for sale outside India and that should not be a constraint, if I understand correct? Will be...

If our technology transfer outside of the country, there would not be any concern, I would assume.

Okay. And sir, the second question was more about the opportunity for [indiscernible] in India. This is the question.

So that study, we are going to file in the next 7 days for doing the work for children below the ages of 12. And as soon as we file that and if we get approval to conduct the study, I believe it will not be a very long study, and we can do it very soon. But once we are updated with that in terms of starting the trial, we'll uprise everyone about it.

The next question is from the line of Surajit Pal from Prabhudas Lilladher.

Yes. Is there any data about this 40 crore population of adolescent age in terms of income group households? How many of them belong to middle-income group household and above?

I won't have that data on me at this present, but I'm sure there are certain data available, but I don't have it for right now to share.

Okay. And if everything goes fine, when do we expect these 2 to 13 years -- sorry, below 12 years of age when this could be approved if everything goes fine as planned?

So I think it's very difficult to make that estimate, but I think if everything goes well, we can finish the trial in 3 months.

In 3 months. As far as production is concerned, I think you are -- already you have certain inventory. What should be the quantification of that?

So we are -- so currently, our inventory is produced at a smaller scale at our current manufacturing site. The new site, as I said, it just got commissioned and started making batches. So you would see the 1 crore doses start coming out of that facility, which I believe will be fully scaled up by October, and that's what our current capacity is and the existing plant will then be allocated to the other manufacturing because we had to stop other manufacturing to do this.

Okay. And when you -- your third party will start manufacturing your products in India?

So I think if everything goes as per plan, then they can do so in 2 to 3 months.

Okay. So basically, actual state of selling the product in volume could happen post October times, right?

Yes. October onwards.

And your vaccine -- new plant utilization will be around 20%, 30% this 1 crore of per month?

No, no, it will be 85%, 90%.

And is it possible that very first year itself, you can reach to the 85% utilization in a plant?

Yes, that is what our current plan is to produce 18 to 20 batches a month. The whole production cycle for this is a 4-day cycle, and we have 2 streams. So we should -- I mean, that is what we have to do. And vaccine, you cannot produce at 20% capacity and do any justice to it. So all vaccine manufacturing is generally has to be having a utilization of at least about 75% to 80% for you to sell vaccines at this kind of pricing.

Okay. As far as you -- since you have a technology partner, so the government has fixed INR 215 for normal producers. So since you have a partner, so government is planning to give you extra for their partner because you have to share with your partner?

We still have to finish that dialogue with them, but we do have a partner for device also whom we have to also share certain royalties with.