Lotus Pharmaceutical Co Ltd

TWSE:1795

Earnings Call Transcript 2020-Q1

[Angela Luan, executive]

[Foreign Language]

[Unknown Executive]

[Foreign Language], Angela. [Foreign Language]

[Angela Luan, executive]

[Foreign Language] We will have Mr. Vazharov, our CEO, to highlight what to watch for 2020.

[Petar Vazharov, executive]

So good afternoon, everyone. I will just go quickly through our key priorities for the rest of 2020, which obviously will be something that you should be following up throughout the year with us.

In terms of business -- existing business, I mean definitely, our focus is Suboxone, generic Suboxone in U.S. So we -- our objective for -- I think we are on a very good track to -- at least to maintain our existing market share of 33%.

In Asia, I mean obviously, we have a lot of confidence and a lot of expectation in Qsymia. This is a proprietary anti-obesity product, which we launched end of 2019. So we will continue to increase our market share and basically to maintain our leadership position in this anti-obesity market in Korea.

[Angela Luan, executive]

[Foreign Language]

[Petar Vazharov, executive]

Another focus area for us is integration and development of Southeast Asian markets. As you know, we have acquired this setup, commercial setup from Alvogen, and we will be consolidating this business after second quarter this year. So we are expecting a very positive development this year, which will be driven by important launches in Vietnam, also Thailand and also markets like Philippines, Malaysia, Bangladesh and Sri Lanka.

[Angela Luan, executive]

[Foreign Language]

[Petar Vazharov, executive]

So another important development for Lotus will be a possible extension into China. We have set up a team in China, which is a business development team and regulatory in 2019. And the objective of our team and, of course, our strategy is to build strategic partnership with several Chinese companies to launch our products. And we have been successful in it. So we think that we should be able to announce a couple of partnerships throughout the second and third quarter. China is obviously a lucrative opportunity being the largest pharmaceutical market in Asia and the second largest pharmaceutical market worldwide. In the same time, we are taking very conservative approach to our channel in our business plan. China is not included in the plan because of the uncertainties related with regulatory approval process. But we have a lot of faith and believe that China could be a very strong upside to our plan, and that's why we are keeping our efforts into this front.

[Angela Luan, executive]

[Foreign Language]

[Petar Vazharov, executive]

This year, actually, the most important product launch as far as our Asian business is concerned is the launch of Orion CNS portfolio. It's a deal which we finalized literally in the last days of 2019. So we are on a good track to launch Orion products within third quarter of 2020. This will straighten further our CNS franchise, especially in Korea, where we have Seroquel, but also here in Taiwan. And also, it will add critical months to our Southeast Asian business particularly Indonesia, Malaysia, Philippines and also Hong Kong.

[Angela Luan, executive]

[Foreign Language]

[Petar Vazharov, executive]

On the operational side, a big priority for us is second sourcing program. It has to do with active pharmaceutical ingredients. As you know, Lotus is not manufacturing active pharmaceutical ingredients. So we are sourcing the APIs from third parties. So what we have decided to implement -- and we've already done this, is a dedicated team, which is focused on implementation of second sourcing program for the key products. The objective here, #1, is to mitigate the risk of failure to supply for the principal API supplier; and secondly also is to improve our cost position because if you have 2 or 3 API suppliers, then obviously, it creates much better leverage in negotiations with them down the road. The focused products are obviously the oncology products, which is the backbone of our export business. But also, we have targeted and we included in this project scope some of the large existing products, which are currently being sold in Asia.

[Angela Luan, executive]

[Foreign Language]

[Petar Vazharov, executive]

One of our biggest priorities this year and also this will continue in next year is the upgrade of manufacturing facilities here in Taiwan, which is related with our export business. So we are on a good track. So we have 2 major projects to deliver Area C modification, which is the oncology area. So we are ready basically and to restart this commercial manufacturing as of the end of May. The other big project with also significant importance for the business is the new warehouse building. So it is also on track, and we are targeting to have it operational by the end of 2020.

[Angela Luan, executive]

[Foreign Language]

[Petar Vazharov, executive]

So the purpose of this investment on the site is -- I mean, #1, is we have to improve further our ability to serve multiple markets, multiple customers, multiple deliveries because, I mean, we are launching products basically throughout more than 100, 120 countries in the next 2 to 3 years. Also, we will improve our ability to deal with different order volumes and also unexpected demand. And last but not least, we will improve our cost structure.

[Angela Luan, executive]

[Foreign Language]

[Petar Vazharov, executive]

In terms of more long-term -- creating more long-term value and objectives, obviously, portfolio diversification on pipeline are key focus areas since the beginning for us. So we will continue being focused on growing our pipeline through internal R&D resources but also through business development. So as far as the business development is concerned, our focus area will be in licensing of complex products, complex generics, proprietary products like Qsymia and also brand acquisitions like Mercilon and Aclasta and Evista.

[Angela Luan, executive]

[Foreign Language]

[Petar Vazharov, executive]

So in terms of site master plan, we will continue with the upgrade of equipment in Lotus facility, particularly in oncology area. Again, the objective here will be to improve our delivery performance up to maintain our high customer service level and, of course, to optimize our manufacturing cost.

[Angela Luan, executive]

[Foreign Language]

[Petar Vazharov, executive]

I think with this, we finish our presentation.

[Angela Luan, executive]

Okay. [Foreign Language]

[Unknown Executive]

[Foreign Language]

[Angela Luan, executive]

[Foreign Language]

[Unknown Executive]

[Foreign Language]

[Angela Luan, executive]

[Foreign Language]

[Unknown Executive]

I think you should ask Petar this question.

[Angela Luan, executive]

Could you discuss about the specific time line in terms of lenalidomide approval and also the follow-up sales plan once we are allowed to launch the product?

[Petar Vazharov, executive]

Yes. So the question is for the U.S. market?

[Angela Luan, executive]

Right, right.

[Petar Vazharov, executive]

Okay. So the approval, we are expecting the approval 2020 this year. So I think it was in the previous slide, the target action date by U.S. FDA is set for second, third quarter this year. So we are expecting around July the approval to come. I think you are aware -- I think this is a public information, about the settlement with BMS. Celgene now is obviously part of BMS. So we cannot launch the product before 2022. And we have a very strong confidence in lenalidomide. You know very well this is the largest small molecule by sales, and the U.S. is obviously the biggest market for lenalidomide. So I mean we think that lenalidomide will become one of the top contributors to our business in terms of sales and also gross profit.

[Angela Luan, executive]

Okay. [Foreign Language] And I guess the next question is about Qsymia contribution in first quarter and also what's our outlook for Qsymia throughout 2020.

[Petar Vazharov, executive]

Yes. So in terms of sales, we achieved almost $5 million in the first quarter, and gross profit is around USD 4.1 million. So it is -- as you can see, it's a high-price, high-margin product for us. And the product took off very nicely despite of the COVID situation, which somehow impacts it, obviously mainly the [ non-imbursed ] product because Qsymia is a [ non-imbursed ] product. But despite of this COVID situation, the product took off nicely and already achieved leadership position in anti-obesity market in Korea. The good news is that one of our key competitor, Belviq, has been withdrawn from the market because of safety issues. Initially, it was withdrawn in U.S. and then Korean FDA and also Taiwan FDA. They followed the U.S. So they've withdrawn Belviq. So -- I mean this is creating opportunity for us. So we think we have a very strong outlook to achieve at least our budget in 2020, which is quite ambitious.

[Angela Luan, executive]

[Foreign Language]

[Unknown Executive]

[Foreign Language]

[Angela Luan, executive]

[Foreign Language]

[Unknown Executive]

[Foreign Language]

[Angela Luan, executive]

[Foreign Language]

[Unknown Executive]

[Foreign Language]

[Angela Luan, executive]

[Foreign Language] I guess the last question is regarding the supply -- API supply shortage due to the COVID-19. So have we -- is Lotus impacted by this kind of -- the API shortage due to the overall coronavirus?

[Petar Vazharov, executive]

Yes, yes.

[Angela Luan, executive]

And also, what [ are major ] for us to manage those API shortage situation?

[Petar Vazharov, executive]

Yes. I mean we haven't been so far impacted by COVID. And the reason is not that we were lucky but because basically, we implemented this strategy 2 years ago to mitigate our dependence on China. Because since 2 years, we have seen in China, a lot of chemical plants have been shutting down or experiencing some disruption because of the environmental reasons. And this created a lot of disturbance with the API supplies from China. That's why we decided to basically go for the options India and also rest of the world. I mean we have also API supplies from Europe. We have also some API supplies from U.S, and not only API support but also excipients.

So in terms of further mitigation, I already mentioned about our second sourcing program. I think this is the key. Basically, we cannot be dependent only on India, only on China for the key products. So we need to have at least 2 API sources, of course wherever it's possible, because some of the -- for some of the products especially in the pipeline, so far, there's only one API source available with adequate quality. But for those which allow more options, we are trying to validate at least 2 sources. And this is not easy because you have to comply with a lot of regulations. And it's an interdisciplinary task, including manufacturing, quality and also R&D. And that's why we created a special team leader to oversee this and to manage these activities since recently.

[Angela Luan, executive]

[Foreign Language] Thank you.

[Petar Vazharov, executive]

Thank you. Bye-bye.