Orchid Pharma Q3 Results Review - Big Surprise On Margins: Systematix

Systematix Research Report

Orchid Pharma Ltd. reported stronger than expected Q3 FY24 revenues, which were up 10% QoQ and 38% YoY. Gross margins expanded by 456 basis points YoY and 627 bps QoQ, which aided Ebitda margin expansion of 749 bps YoY and 430 bps QoQ.

Orchid Pharma has stated that gross margins should be in the guided range (40% +/- 2%) and the current quarter had some extraordinary benefit from low cost inventory. During the quarter the company commissioned the new sterile block which led to higher operating expenses on a QoQ basis.

Employee costs and other expenses increased 9% and 24% respectively on a QoQ basis. As the sterile block utilisation expands over the next few quarters, we should see a favorable benefit from operating leverage. The company has added about 50% capacity on the base. The base business should continue to build on from current levels led by these new capacities (sterile and rejig of cephalosporin block) and potential contribution from royalties led by commercialization of new chemical entity molecule – Enmetazobactam in FY25 (U.S. and Europe).

We revise our forecasts on Orchid Pharma, as we revise our forecasts on Enmetazobactam (post recent positive recommendation received from EUCHMP).

The positive opinion removes uncertainty around the commercial sales from Enmetazobactam.

Orchid Pharma is also in active discussion with the Indian regulator for a waiver on clinical trial.

We currently do not assume a waiver and build a FY26 launch for Enmetazobactam in India. Based on our revised forecasts we arrive at a target price of Rs 960 and recommend at hold at current market price.

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