Suven Pharma ~ Demerged CRAMS Arm of Suven Life Sciences

Stock Opportunities Untested - but worth a good look
244

Suven AGM 19 Notes

Chairman’s Speech

  • Although visibility is limited to forecast about Q2, FY20 on a whole can be a lot better with minimum 25-30% growth in the profits possible.
  • The company expects to do following CapEx over next 24 months - Multi purpose plant at Vizag for 120Cr, Formulations capex of 90-100Cr, 100cr capex at Pashamylaram.
  • The company will be focused on niche molecules in formulations & will be filing ANDAs in 2020
  • The company invested 35mn$ for a 25% stake in Rising Pharma, which is a development & distribution company. The stake was bought during bankruptcy proceedings. It takes ~2 decades to build a company like Rising which works with collaborators to file ANDAs & also owns distribution. The company hopes to gain as & when commercialization happen for ANDAs in Rising. This will take 2-3 or more years.
  • The company will be split into two companies - namely Suven Life Sciences & Suven Pharma with mirror shareholding. Suven Life will have all the IP, NCE molecules etc. Suven Pharma will house CRAMS business & corresponding assets.

NCE business

  • All the expenses are already written off.
  • SUVN-502 - 560 patients were enrolled. 26 week study has completed but CRO could not get the data on time & hence could not publish the data. Now study will be extended for four more weeks & data will be published by Sept.
  • SUVN-3031 - The molecule is focused towards dementia, Alzheimer with a condition called Narcolepsy - excessive day time sleeping. Most current medications are habit forming ones while 3031 will be non-habit forming & with more safety. Patients will be enrolled anytime for 3031 now. It’s a shorter 14 day treatment followed by 7 day washout period.
  • There are two more molecules which are ready to go into clinical phase II trials.
  • The new demerged company will have enough cash for two years. The management feels that the pipeline is good.

Q&A

  • The word CRAMS was invented by Suven during its IPO in 1995.
  • There is one molecule in phase III which is likely to go into commercialization - revenue potential of 15mn$.
  • In specialty business, first molecule is delivering revenue of 20-30mn$ & the recently approved second molecule is delivering 6-7mn$. The company expects more molecules will be approved in 20-21 & the potential of these molecules would be 6-7mn$
  • Can CRAMS business go to 1000Cr sales? - Commercial CRAMS business can double as the company is seeing better traction.
  • MEIS export benefits of (18-20Cr ). The government is thinking of doing away with them? - The company feels that the incentive will remain just that the program will be restructured. Anyhow, the incentive is not make or break for the company.
  • Why is company getting into formulations business? Would it not conflict with CRAMS business? - The company has 13 molecules in pipeline, 4 are in clinical trials. Formulations capacity is towards that. With Rising Pharma, the company will identify niche 25mn$ molecules & align with innovators to produce them on some profit sharing kind of terms, So there is no competition with our innovators.
  • Which is our strong or special therapy? - CRAMS business is therapy agnostic, it is rather based on chemistry skill.
  • Almost ~300Cr of CapEx planned over 24 months, what’s happening? - We are preferred CRAMS supplier for Big 4 pharma companies. This does not guarantee any business orders but it provides more opportunities to bid. The company is seeing good traction in the business.
  • Reason for high margins in Q1 FY20? - High margins are due to product mix & they might be sustained in FY20.

Disc - token position to attend AGM, have not done in-depth work on the story, mistakes in notes above are solely mine, not a buy/sell recommendation

19 Likes
245

Hi Rupesh,
Very well captured details. Just a couple of additional points -

NCE - G3031 - I thought he mentioned a short 40 day clinical trial followed by 7 days washout. But maybe I heard it wrong. If it is 14 day trial period even better. Trials could start as early as September this year. Anyways he said we should hear some update on G3031 trials before next AGM. As per data, Narcolepsy is more prevalent in females in the 18-22 age category and the non-habit forming nature of G3031 would be the differentiator against other current medication available.

The demerged NCE / R&D business (Suven Life Sciences) would have 300 Cr cash that could see it through the next 2 years. Subsequently to look for IPO or PE investments (based on the pipeline of molecules) depending on the requirements then.

Updates for SUVN-502 can be expected sometime in October 2019 after the data locking / SAS analysis post 30 week period. Some 40 of the trial patients did ask for and use the medication after the trial period under EAP (Expanded Access Program), but the company does not track this usage as the safety standards are already established.

Disclosure: Invested. Not a buy/sell recommendation.

7 Likes
246

Any firm timelines were discussed?

247

They are hoping it will be done by Dec 2020.

Edit - I meant Dec 2019 as pointed out by @rajukri

1 Like
248

I believe you meant by Dec 2019 (this year end). The proposal is with NCLT after the required clearances / NOCs from the Exchanges. Hence there can not be a fixed timeline as such, but the company does not expect any hurdles as such in getting the approval for de-merger. Also it was mentioned and assumed that this was probably the last AGM for the combined entity and next year on-wards there should be 2 separate meetings.

1 Like
249

Right. I assume it would be 2019 as that is what the initial plan was. If it is Dec 2020, then it would be bad.

250

Some data to chew on Suven…

Capture
Capture692×629 128 KB

Drivers for disproportionate growth in Fy20 -

  • Commercial CRAMS driven growth; this is high-margin business
  • ~40cr PBT increase post demerger (~40 Cr out of ~60 Cr R&D expense in standalone results today is for own NCEs)
  • Corporate tax rate cut benefit will be retained; knowledge/skill/process based business (not lowest bidder type business)

Post demerger, highly likely Suven Pharma (CRAMS side of the business) will be >200 cr PAT on say ~700 cr equity (and negligible debt) i.e. 25 to 30% RoE/RoCE.

Capture1
Capture11140×480 179 KB

Q2Fy19 and Q3Fy19 seems below normal. Next two quarters will have benefit of relatively low base for YoY comparison.

Disc: Invested. No transaction in last 30 days.

11 Likes
251

Quarterly results announced today. CRAMS seems to have done really well both QoQ and YoY.

Also updates on the ongoing trials from their investor presentation -

•Updates on CRAMS projects: Total –117; Phase 1 –78, Phase 2 –34, Phase 3 –1 and commercial –4.
•Enrolled first patient in Phase 2 study for SUVN-G3031, conducted in USA for the treatment of Narcolepsy associated with or without Cataplexy.
•Suven completed Phase 2A, POC study for SUVN-502, conducted in USA indicated for moderate Alzheimer’s. Since the data lock has occurred, the out-come of the study is expected within 3 weeks and scheduled to present during CTAD 2019 -Alzheimer Congress at San Diego, USA held on December 4-7, 2019.

Link to the quarterly results / investor presentation -
https://www.bseindia.com/corporates/ann.html?scrip=530239#

2 Likes
252

SUVN 502 phase 2 data should be out in a week, chairman & CEO Venkat Jasti told CNBC-TV18 about the drug the company is developing for the treatment of Alzheimer’s disease.

2 Likes
254

Does it mean the 502 isnt happening?

255

Suven Life Sciences announces Top-Line Results of SUVN-502

2 Likes
256

Highlight

Triple therapy of Masupirdine (SUVN-502) with Donepezil and Memantine proof of concept phase 2 study missed its pre-specified primary endpoint.
We are very disappointed with the outcome of this trial but the findings present an important step forward in further exploration of the potential therapeutic effects of Masupirdine (SUVN-502) in Alzheimer’s Disease (AD) and Behavioral & Psychological Symptoms in Dementia (BPSD). We will work with regulators and potential partnering companies in the design and conduct of future studies for further exploration of the potential of Masupirdine (SUVN-502) says Venkat Jasti, CEO of Suven.

1 Like
257

Discussed with someone who has been closely involved in pharma research and subject matter expert.

Following are some of the key takeaways:

“SUVN-502 did not meet the pre-specified primary endpoint”
It is a setback. Disappointing - for Alzheimer sufferers and their families and for Mr. Jasti & team who spent 10+ years on this. New drug discovery is a lengthy and a very low probability process, thus very few do it. However, someone has to do it. Someone has to solve Alzheimer puzzle.

"Sub-population of Masupirdine treated patients showed significant improvement and statistically significant reduction in the behavioral symptoms in the domains of agitation/aggression and delusions /hallucination as assessed by the NPI subscale scores. "
Indicates it is not a total failure. It is part success. One thing is clear from results. This drug is not a treatment for managing Alzheimer; phase 2 trial failed to meet its primary endpoint. However, has met some of the secondary endpoints. Basically, it can treat secondary impact of Alzheimer, not Alzheimer per se. Now these results may be of interest to other companies. Some other co. in their drug discovery may be missing behavioral improvement, etc and find these results interesting, though possibility is very less. Alzheimer still remains enigma. If behavioral improvement data is rock solid, then this could still be quite interesting.

“…important step forward in further exploration of the potential therapeutic effects of Masupirdine (SUVN-502) in Alzheimer’s Disease (AD) and Behavioral & Psychological Symptoms in Dementia (BPSD). We will work with regulators and potential partnering companies in the design and conduct of future studies for further exploration of the potential of Masupirdine (SUVN-502)”
Focus will now change from treating Alzheimer to treating side effect of Alzheimer. This severely dents revenue potential. However, all is not lost. Above statement is saying co has seen some positive impact.

"Subgroup analyses on cognition, function, behavioral, neuropsychiatric inventory and secondary endpoints revealed interesting, statistically significant and potentially beneficial data sets.
Potential beneficial effects and statistically significant results with Masupirdine treated groups on cognition emerged upon considering combinations of Patients Age, Memantine regimen, Memantine plasma concentration, Memantine treatment duration and Alzheimer’s disease duration."
Means positive impact has been seen in some combination. For example: Say IF patient was having Alzheimer from >6 years AND patient was <65 OR >75 years, THEN potential benefit seen, etc, etc.

What next?
Will have to interest someone to be their partner and help in next phase of development. Will have to target particular aspect of Alzheimer.

Probably can continue the march of scientific progress if able to convince FDA based on Phase II collateral data. Will have to give explanation and logic. And ask approval for new trials for a particular indication. Have to prepare Phase III design and go to FDA. FDA may approve or say no we cannot allow. We don’t know would Suven take this forward and what FDA would say.

Now it is a long road ahead. On three aspects - 1) Will have to work with key opinion leaders, scientists, statisticians and design new study, 2) will have to work with regulator - how to present, what logic to give, etc 3) will have to find partner interested in investing with them.

If no partner, then it makes sense to let it go. Saying good-bye to family member (first molecule) is not easy. But is right thing to do here.

Haven’t come across anyone who said he/she is surprised with the Phase 2 results; all knew it was a very low probability event.

25 Likes
259

Suven is an interesting company at this juncture. As sandeep mentioned, the positive outcome for the success for NCE molecule was a very low probability event.

Till date, the NCE business was a big overhang on the stock price. And all this while since past few quarters, the CRAMS business is doing well.

Now with the management having announced de merger, big question is will the 300 crores to be given to the NCE business post de merger be enough to pursue the research business? My guess at some point of time the company will run out of money and business may be worthless. Only optioinality is if atleast one molecule shows some promise and gets some investors interested in it or in a very bullish scenario, shows a lot of promise and company can outsource it to some big guys. For NCE, R&D is a very expensive business and Mr Jasti has been pursuing a very expensive dream since many years. While his enthusiasm should be saluted, it has not done too well for the base CRAMS business as it has lacked in focus and funds and the former business has been a sword around the neck of CRAMS biz.

Now if de merger were to happen, the CRAMS business will take a long time to list and investors will be stuck for a long time with an unlisted stock and will have to worry about the results reported by the company and hope all goes well with CRAMS business till it lists and post it lists.

If demerger doesnt happen, overhang of NCE business will continue to haunt the valuations of the combined entity.

As of now no positions but would be interested post demerger.

26 Likes
261

Few points noted from recent CNBC interaction with Mr Venkat Jesti:

1.Received EIR from USFDA for Hyderabad facility which makes intermediates and API for inhouse consumption. This is 7th audit since 2000.
2.Orders of 200 cr in hand. Having good traction in CRAMS business.
lled 6 ANDA and 2 ANADA which are expected to be approved…these are small molecules which can give 2-3million to bottom line for each molecule from the end of 2020.
3.Expected to receive NCLT order for demerger during January.
4.New tax regimen will be applied retrospectively after the demerger.
5. Looking for strategic investor for life sciences business after demerger…may go for IPO of suven neurosciences in USA
7.SUVN-3031 undergoing phase-2 proof of concept study for Narcolepsy(results in 2020)…SUVN-4010 will go for development in 6 months…9 more molecules in pipeline.
8.100 Cr will be spent every year for innovation business.
9. Based on SUVN-502 study some indications for further study possible.
(may be Mr Venkat jesti hinting about possible monetization based on various subgroup analysis from SUVN-502 study. They have done poster presentation of various subgroups at CTAD conference. If someone interested may refer page no. 102& 103 of below document)
CTAD POSTER 2019-1.pdf (1.5 MB)

Dscl: invested more than 5% of PF.

6 Likes
262

What is implication of this

263

Now that Suven has demerged formally into two independently listed companies viz Suven Life Sciences Ltd(SLSL) & its core CRAMS business (which will be called Suven Pharmaceuticals Ltd) , management expects to insulate & unlock the value of its very profitable CRAMS business. The demerger would help in :
• Improving profitability of the base CRAMS unit by eliminating the heavy R&D costs
which hitherto were mostly consumed by relatively non-performing verticals.
• Creating superior valuation for high margin & high RoC CRAMS unit.
• Keeping a strong and steady growth of CRAMS in a clear focus for investors.
• Attracting prospective investors for their high-risk NCE business by way of their
matured pipeline.

Also, post demerger, management may contemplate moving debt in SLSL to SPL, latter being the more promising revenue-generating entity. That being said, it needs to be seen how long CRAMS business takes to list as rightly pointed out by @hitesh2710 .

4 Likes
264

image
image1859×316 157 KB

Clearly donot understand the Suven Life science at 20 rs. management thinks its 47.54% ~140 Rs. Or Am i understanding this wrongly.

265

This splitting of cost is based on net asset value transferred as per income tax laws and nothing to do with actual/commercial value

5 Likes
270

Suven Pharmaceutical shares have been credited to my account. Any idea when will be the listing on exchange?