Venus Remedies signs out-licensing pact; stock up 20%

Shares of Chandigarh-based Venus Remedies hit upper circuit on Wednesday, on heavy volumes. Speaking to CNBC-TV18, Dheeraj Aggarwal, CFO of Venus Remedies says the company’s antibiotic drug 'Elores' received tremendous response from medical fraternity.

“We have out licensed Elores in South Korea to a company named Goodwills Limited. This deal would be for next 25 years. That is a very positive development for us,” he told the channel. The company plans to launch more OTC products going forward. Also read : Ranbaxy Q1 profit likely at Rs 173cr; revenue seen down 31% Below is the verbatim transcript of his interview to CNBC-TV18 Q: Are we missing something. Your financials were good but that’s quite some time back. Why such a spike in price and volume? Are you going to make some inorganic announcement? A: No, not at all. We cannot comment on whatever is happening in stock market. However, I can update you about the recent announcement about our flagship product which is Elores. Elores is an antibiotic product which caters to antimicrobial resistance. It is a unique and patented product. It has patent in 45 countries. We have out licensed Elores in South Korea to a company named Goodwills Limited. This deal would be for next 25 years. That is a very positive development for us. Q: How much money will it bring for instance in FY14? A: FY14 would be very less upfront amount. However, 2014-15 would be a good year in which we can see this transaction getting good revenues, both in terms of product sales as well as milestone payments. Q: When was this signing up done? A: It was done in this week itself. Q: I am reading a recent report which says that within three years, you will be making almost USD 45 million annually from this product going forward. Is that correct? A: USD 45 million is the figure which will accrue to our partner. Normally, when a partner sells, he has to incur lot of marketing cost. We expect that revenue which will generate to that revenue to be in the range of around USD 15 million plus upfront milestone payments. Q: What would be the milestone upfront payments? A: Milestone payments are total around USD 5 million. That also includes cost of clinical trial which will be borne by our partner. Q: Can you tell us a word or two about over the counter (OTC) product Ezenus? A: Ezenus is our first OTC product, which is a stress reliever. It works for reducing anti-toxicants in the body. It is an herbal product. It is an outcome of our research. We have entered into OTC through this product. In times to come, we are planning three-four other products into OTC category. To market this OTC product, we have launched a separate division within our marketing set up. We are already operational in 10 states of country. So, we are getting very good response from the entire channel partners about this product. Q: Just to go back to that South Korean market because that’s something a bit new for us. Are you looking at anything else apart from Elores in South Korea? A: Venus Remedies is a R&D oriented Pharma company though in midsized space. We believe that our larger growth would come out of out licensing deals which we are targeting in various territories. We have a product portfolio of 25 R&D products. I  am not talking about generic products as of now. Out of that, 12 products are already commercialised. We are open for out licensing deals with respect to all these 12 products and all territories because these products have patents in all regulated world, USA, Europe, Canada, Australia, Japan. Q: You said that the USD 45 million that your marketing company in Korea makes will translate into USD 15 million in terms of earnings for you. That would be Rs 82 crore or thereabouts. Does that come directly to your bottomline? A: It will have its manufacturing cost as well. Q: What might be the additions to profit you think on this? Would it be a 50 percent profit, manufacturing cost will not be that much since the other costs have already been met? A: I think talking product-wise would be very difficult at this stage. We have always maintained that we should be able to keep our EBITDA to around 26-27 percentage. Our R&D sales as a percentage of total sales will keep on increasing which is as of now around 27 percent. Out of our topline, 27 percent revenue comes from our own R&D products, which are patented products. In next three years from now, this percentage should reach to around 45-50 percentage. That’s what our business plan is. Q: Do you expect this 26-27 percent growth in profits to remain for the foreseeable future? When did you speak about this USD 45 million, two years down the line? A: Around three years down the line. Q: Would you be therefore expecting a Compound Annual Growth Rate (CAGR) in your net profit of about 26 percent? A: 26 percent which I mentioned is EBITDA margin. Q: Your profit growth also was 26 percent if I look at the nine months. Would you proceed at that tick for the next two-three years as well since you have some visibility? A: Taking a conventional wisdom because as far as generic share of the business is concerned, that has its own pressures as far as pricing is concerned. We believe that there would be certain price erosions in that but as far as our R&D products are concerned, we would be able to command premium. That’s why we would be able to maintain our EBITDA margins. We would strive to increase EBITDA margins.