Management Discussion and Analysis
(All amounts in Indian Rupees thousands, except share data including share price andamounts expressed in foreign currency) This discussion may contain forward-lookingstatements that involve risks and uncertainties.
1. Industry Overview, Opportunities and Outlook
India has attained global acceptance as a key pharmaceutical manufacturing hub with thelargest number of USFDA and EMEA approvals outside the US and EU. Good technical expertisecombined with an increasing number of drugs turning generic has enabled the IndianPharmaceutical Industry to emerge as one of the worlds largest producer of genericdrugs with annual exports worth $ 11 Billion in 2010.
Drawing from this success, the Indian Pharmaceutical sector is now aiming for the nextbig opportunity in pharmaceutical manufacturing viz. Biologics, especially bio-similars.India therefore has the opportunity to become the global bio-manufacturing hub thusenhancing its stature as the worlds apothecary.
The biopharmaceutical market is currently worth nearly US $137 billion and growingrapidly. Industry experts estimate that it could be worth US $319 billion by 2020.Moreover, at least 48 biologic products with combined sales of nearly US $60 billion aredue to come off patent over the next decade. Today Indias share of theBio-pharmaceutical market is a mere 1.4% but the potential for India to become amanufacturing hub for biopharmaceuticals is enormous.
2. Business and Operational Overview
During this year, Biocons total revenues increased by 17% from Rs. 24,048 millionto Rs. 28,136 million. The growth in biopharmaceuticals sales was driven by a significantincrease in sales across business segment including statins, immunosuppresants andinsulins. The immunosuppresants segment grew over 30%. The domestic branded formulationsbusiness grew 36% on key brands successfully increasing market share and the introductionof new products in two new divisions Immunotherapy and Comprehensive Care.
Biocon has successfully developed comprehensive portfolios of statins andimmunosuppressants as generic APIs in the small molecule space and this has contributed to75% of our revenues and delivered a sustainable 5-year CAGR of 24%. The path ahead is toexpand our small molecule portfolios to prostaglandins and peptides. Biocon is selectiveabout the portfolios that it chooses and hopes to move up the value curve from APIs todossiers, especially in the ANDAs. We believe that this approach will give us and drivemuch higher value growth for us in the year ahead. Our approach in large molecules hasbeen, again, a portfolio approach where we have focused on 2 broad portfolios; the firstis the insulins which includes recombinant human insulin and insulin analogs, and thesecond portfolio is the monoclonal antibodies basket. In the large molecule space,however, we have chosen to straddle both biosimilars as well as novel programs as arisk-balanced strategy where we believe that the novel programs have the potential oflarge upside, if successful. Our portfolio approach has yielded good financial returns andhas allowed us to forge very strong partnerships.
Research and Marketing partnerships are the way to go
We have sought both research and marketing partnerships as a way to access globalmarkets and we have forged key strategic partnerships this year. The most visible andhigh-profile partnership that we recently announced was with Pfizer to commercialize ourinsulins portfolio which is going to be a very important growth driver for your Company inthe foreseeable future.
Industry reports cite the insulin market at about US$ 15 billion today and estimated togrow to a size of US$ 20 billion by 2020. The insulins space accounts for 46% of thediabetes drug segment. We estimate this business will continue to grow at about 6% perannum going forward, factoring in the advent of biosimilar insulins. Of course, it iswell-recognized that insulin analogs are rapidly outpacing recombinant human insulin andit is also well-accepted that biosimilar insulins are inevitable.
We think there are compelling reasons for biosimilar insulins to enter the regulatedmarkets, driven by escalating concerns on cost of therapies in these markets, clarity onregulatory path ways and expiry of patents on product analogues.
We highlight them below
1. Cost compulsions are likely to escalate in the regulated markets over the next fewyears with ageing populations and this makes a strong case for biosimilars;
2. Regulatory pathways for approval more or less clear;
3. Product patents on the analogues expiring through 2019.
Market data indicates the growth of diabetic population across the world and morepronounced in developing economies specifically in Asia and MENA. In the age group of 20to 79 years, it is estimated that 7.8% of the Worlds population will be diabetic by2030.
Prevalence of diabetes in people aged 20-79 years.
Biocons partnership with Pfizer aims at addressing this very large opportunityfirst in the emerging markets, which themselves offer sizeable markets and then at a laterstage, enter the U.S. and European markets. Clinical trials for recombinant human insulinfor the European Market are currently underway with the aim of an entry within the nextfew year.
Biocons insulin business in India is also beginning to gain traction and althoughour insulins business is merely seven years old, we have steadily gained market share involume. In volume terms, we have around 11% share in the insulin vial segment and 13%market share in the Glargine vial segment. We expect to roll out devices in the secondhalf of 2011 and this, we believe, will enable us to increase market share. At a growthlevel, we have outpaced both the market and the market leader in the insulin vial segment.While the market has grown 11%. Biocon has grown by 13% in value terms. We also are goingto be sharing the Indian market with Pfizer starting this year, and this co-exclusivemarketing arrangement is expected to help get us higher market share going forward.
We have made considerable progress in our partnership with Mylan for developingbiosimilar monoclonal antibodies for the global markets. In addition to this, we have somevery key strategic research partnerships with Amylin, Vaccinex, Center for Immunology inHavana, and IATRICa. All of these programs are developed, leveraging Indias costsand clinical base in a cost-effective manner. We expect to initiate discussions forpartnering many of these programs in the coming fiscal.
Another supply partnership in this past year is with Optimer Pharmaceuticals for thesupply of Fidaxomicin API. Biocon is the sole supplier of this product for North America.Biocon has been involved with this project from 2005 and has been able to successfullyscale up the process. Fidaxomicin is used for the treatment of CDI ClostridiumDifficile Infection, which is a major threat in hospitals across the US.
Late-stage Novel programs to see unlocking of value
Our novel pipeline comprises of products in diabetes, oncology and auto-immunediseases.
Within our novel pipeline, your Company released encouraging preliminary data from arecently concluded clinical study conducted in India, on IN-105, its novel oral insulincandidate for the treatment of diabetes. Initial data analyses show that an unexpectedlyhigh placebo effect prevented IN-105 from meeting its primary end point of lowering HbA1clevels by a marginal effect as compared to placebo. However, multiple secondary endpointson both efficacy and safety were met, further strengthening the emerging profile ofIN-105.
Our coveted T1h program for a novel Anti-CD6 targeting monoclonal antibody is in PhaseIII clinical trials for Psoriasis. The target indications are expected to address a marketsize of US$ 20 billion by 2015. Additionally, our novel anti-CD20 molecule has completedpreclinical studies and is expected to get into the clinic in India this year. Our novelprograms are expected to unlock substantial value upon licensing.
Emerging Markets are large and offer great growth opportunities
The emerging markets are going to be high growth, high-return markets for Biocon. Wehave already delivered a 40% growth in our emerging markets business this year and weexpect to improve on this in the years ahead. Biosimilar insulins are certainly going tobe very important for these emerging market strategies. The current emerging marketestimate for this insulin business is about US$ 1.5 billion with a 5-year CAGR of 15%.Estimated at US$ 5 billion by 2020, the insulin market in the emerging economies accountfor 70% of the worlds diabetic population they offer us quick market entry.Biosimilar Mabs in the emerging markets are also a very important opportunity for us.Generics, again, are going to be extremely important for this as APAC alone accounts for16% of the US$ 124 billion generics market with the fastest growth rate.
Trend of Externalizing R&D continues on a firmer path
The research services landscape continued to be challenging this year. While Big Pharmais still externalizing over 22% of its R&D, we also see risk sharing and resourcesharing models evolve along with a move from component to integrated discovery programsand from chemistry to biologics. It is no longer cost, time and productivity arbitragethat are rationales for externalizing research. Finally, although Big Pharma canin-license from small biotechs in order to fill up the research pipelines, it is amplyclear that this is not adequate. This is the main reason why externalizing the developmentof biologics is becoming a big opportunity for our research services companies, Syngeneand Clinigene. Both are very well-positioned to offer this integrated platform ofend-to-end solutions for both NCEs and NBEs. An important partnership that we havedeveloped in this risk sharing integrated model is BBRC, which is a dedicated, integratedR&D hub customized for Bristol-Myers Squibb to pursue pipeline development. Thisfacility has over 450 scientists and it works in a seamless way with its labs back in theUS.
People are our key assets. Our goal is to create a culture of excellence. Our humanresource department strives to hire the best talent available, keep them engaged andcompetitive and create a harmonious, satisfactory work culture.
Some key initiatives taken this year
Launch of leadership development initiative targeted at middle and seniormanagements
Establishing recruitment alliances with tier-1 business schools (ISB, IIMs,XLRI, NMIMS, NITIE, MDI) and reputed engineering/pharmacy colleges (IITs, BITs-Pilani& Goa, NIPER and UICT) to ensure a steady stream of high quality talent.
Strengthening the goal-setting process by dovetailing vertical goals withindividual objectives.
An online training tool for technical and behavioral training programs wasdeveloped in house.
Conducting an all India assessment program for Healthcare Marketing to build astrong talent pool.
A breakup of the talent profile across the group is as below:
|Education ||2009-10 ||2010-11 |
|PhD ||273 ||260 |
|Post Grad ||2035 ||2328 |
|Graduate Engineers ||102 ||210 |
|CA/MBA/ICWA/CS/LLB ||172 ||214 |
|Graduate / Undergraduates ||1896 ||2573 |
|Total ||4478 ||5585 |
The following priorities have been identified for 2011:
Strengthening the brand value of Biocon leadership through Phase 2 of theLeadership Development Initiative.
Setting up collaborations with finishing schools to develop a pool of qualitytalent.
Strengthening the performance appraisal process
Reinforcing training design and delivery process
Implement strategies to aid in attracting quality talent
Employee engagement and organization development programs.
3. Financial Performance
The financial statements have been prepared in compliance with the requirements of theCompanies Act, 1956, and Generally Accepted Accounting Principles (GAAP) in India.
| || || ||(All amounts in Indian Rupees thousands) |
| ||March 31, 2011 ||March 31, 2010 ||Change |
|Sources of Funds || || || |
|Shareholders Funds || || || |
|Share capital ||1,000,000 ||1,000,000 ||0% |
|Reserves and surplus ||18,468,091 ||14,662,867 ||26% |
| ||19,468,091 ||15,662,867 ||24% |
|Loan Funds || || || |
|Secured loans ||740,643 ||896,834 ||-17% |
|Unsecured loans ||945,743 ||1,021,228 ||-7% |
| ||1,686,386 ||1,918,062 ||-12% |
|Deferred Tax Liability (Net) ||395,518 ||410,408 ||-4% |
| ||21,549,995 ||17,991,337 ||20% |
|Application of Funds || || || |
|Fixed Assets || || || |
|Gross Block ||10,924,574 ||10,018,002 ||9% |
|Less: Accumulated depreciation ||4,262,198 ||3,418,093 ||25% |
|Net Block ||6,662,376 ||6,599,909 ||1% |
|Capital work-in-progress ||1,032,909 ||583,344 ||77% |
| ||7,695,285 ||7,183,253 ||7% |
|Intangible Assets ||134,490 ||184,062 ||-27% |
|Investments ||4,858,229 ||4,186,382 ||16% |
|Current Assets, Loans and Advances || || || |
|Inventories ||2,747,374 ||2,447,986 ||12% |
|Sundry debtors ||4,181,044 ||3,836,444 ||9% |
|Cash and bank balances ||2,102,320 ||771,218 ||173% |
|Loans and advances ||4,086,880 ||4,030,711 ||1% |
| ||13,117,618 ||11,086,359 ||18% |
|Less: Current Liabilities and Provisions || || || |
|Current Liabilities ||3,153,719 ||3,816,243 ||-17% |
|Provisions ||1,101,908 ||832,476 ||32% |
| ||4,255,627 ||4,648,719 ||-8% |
|Net Current Assets ||8,861,991 ||6,437,640 ||38% |
| ||21,549,995 ||17,991,337 ||20% |
The Company has only one class of shares i.e. equity share capital comprising of200,000,000 equity shares of Rs. 5 each. During the year there has been no change in theequity capital of the Company.
Reserves and surplus
The total reserves and surplus has increased from Rs. 14,662,867 in March 31, 2010 toRs. 18,468,091 in March 31, 2011. The increase is primarily on account accumulations ofprofits made during the year of Rs. 4,592,495 net of Dividend distribution.
There has been a decrease in total loans outstanding from Rs. 1,918,062 in March 2010to Rs. 1,686,386 in March 2011.
Unsecured loans decreased by Rs. 75,485 primarily on account of decrease in short termborrowings from the banks.
During the year, the Company received financial assistance of Rs. 62,100 underIndustrial Partnership Programs and Drugs and
Pharmaceutical Research Programs sponsored by government bodies for financing itsresearch projects. The loan is repayable over a period of 5-10 years from date ofcompletion of the projects.
As at March 31, 2011, the Company has utilized Rs. 648,624 under deferred sales taxpayment facility. The sales tax liability is repayable in ten half yearly installmentsfrom August 2012.
Secured loans decreased by Rs. 156,191 due to decrease in bank borrowings.
| ||2011 ||2010 ||Change |
|Cost ||10,924,574 ||10,018,002 ||9% |
|Less : Accumulated depreciation ||4,262,198 ||3,418,093 ||25% |
|Net Block ||6,662,376 ||6,599,909 ||1% |
|Add : Capital work-in-progress ||1,032,909 ||583,344 ||77% |
|Net fixed assets ||7,695,285 ||7,183,253 ||7% |
|Net Asset turnover ratio ||1.72 ||1.57 ||22% |
During the year 2011, the Company has capitalized fixed assets to the extent of Rs.942,162. The primarily additions are in plant and machinery of Rs. 532,874 and researchand development equipments of Rs. 250,320.
The capital work in progress as at March 31, 2011, represents advances paid towardspurchase of fixed assets and the acquisition costs relating to assets not put to use.
The Company has a capital commitment of Rs. 405,066 as at March 31, 2011 as compared toRs. 947,617 as of March 31, 2010.
The Company as at March 31, 2011 held current investments in mutual funds of Rs.3,939,289 as compared to Rs. 3,526,917 as of March 31, 2010. During the year, the fundsgenerated from operating activities were invested in current investments as reflected inLiquidity section below.
The long-term investments have increased from Rs. 659,465 to Rs. 918,940 over theprevious year. Additional investments during the year include investment of Rs. 121,552for purchase of 49% stake in Biocon Biopharmaceuticals Private Limited (BBPL).As at March 31, 2011, the entire share capital of BBPL is held by the Company.
During the year 2011, Biocon Sdn.Bhd was incorporated as wholly owned subsidiary inMalaysia.
The joint research collaboration program with Vaccinex Inc and IATRICa Inc. are ongoing.
The Company continues to hold its investments in its subsidiaries Syngene, Clinigene,BBPL, Biocon SA, Biocon Research Limited and joint venture NeoBiocon.
During the year ended March 31, 2009, the Company acquired marketing rights of certainproducts from BBPL for a sum of Rs. 128,850. These rights give the Company an exclusiveright of marketing the products outside India. The Company has during the year made anapplication for registration of the products and consequently commenced amortisation ofthese intangibles over a period of five years from April 2010.
As at March 31, 2011 net value of intangibles assets are Rs. 134,490.
Current assets, loans and advances
The current assets, loans and advances have increased from Rs. 11,086,359 to Rs.13,117,618 an increase of 18% over the previous year. This was mainly due to
- Increase in cash and bank balances from Rs. 771,218 to Rs. 2,102,320.
- Increase in inventories from Rs. 2,447,986 to Rs. 2,747,374 largely on account ofincremental growth in sales.
- Sundry debtors stood at Rs. 4,181,044 (net of provision for doubtful debts of Rs.69,136) as at March 31, 2011 as compared to Rs. 3,836,444 (net of provision for doubtfuldebts of Rs. 71,537) as at March 31, 2010. These debtors are considered good andrealisable. Debtors represent an outstanding of 109 days and 110 days of revenue as atMarch 31, 2011 and March 31, 2010 respectively on a moving average of trailing 3months sales.
Current liabilities and provisions
The current liabilities and provisions have decreased by 8.5% from Rs. 4,648,719 as atMarch 31, 2010 to Rs. 4,255,627, as at March 31, 2011.
This decrease in current liabilities is primarily due to
- Decrease in deferred revenues from Rs. 1,313,624 to Rs. 751,906 largely on account ofincome being recognized over time based on completion of obligation.
- Decrease in sundry creditors from Rs. 1,856,471 to Rs. 1,834,522 primarily on accountof decrease in creditors for raw materials.
The increase in provision from Rs. 832,476 to Rs. 1,101,908 is mainly on account ofincreased dividend to Rs. 900,000 for the year ended March 31, 2011 as against Rs. 700,000in the previous year.
Profit and Loss Account
Biocons total income for the year ended March 31, 2011 comprised of threecomponents:
Sales of Biopharmaceuticals products;
Licensing and development fees; and
The following table sets out the contribution of each of these components ofBiocons income expressed as a percentage of Biocons total income for the yearsended March 31, 2011 and March 31, 2010:
| ||March 31, 2011 ||March 31, 2010 ||Change |
|Income || || || |
|Gross sales ||13,644,384 ||11,580,976 ||18% |
|Less: Excise duty ||393,724 ||300,281 ||31% |
|Net sales ||13,250,660 ||11,280,695 ||17% |
|Licensing and development fees ||2,064,963 ||350,130 ||490% |
|Other income ||605,716 ||658,327 ||-8% |
| ||15,921,339 ||12,289,152 ||30% |
|Expenditure || || || |
|Manufacturing, contract research and other expenses ||9,824,660 ||8,709,669 ||13% |
|Interest and finance charges ||23,778 ||19,910 ||19% |
| ||9,848,438 ||8,729,579 ||13% |
|Profit Before Depreciation and Taxes ||6,072,901 ||3,559,573 ||71% |
|Depreciation/Amortisation, net ||901,691 ||797,290 ||14% |
|Profit Before Taxes ||5,171,210 ||2,762,283 ||87% |
|Provision for income-tax ||578,715 ||278,713 ||108% |
|Profit for the year ||4,592,495 ||2,483,570 ||85% |
|Balance brought forward from previous year ||9,470,267 ||8,009,190 ||18% |
|Profit Available for Appropriation ||14,062,762 ||10,492,760 ||34% |
|Dividend and tax thereon ||990,783 ||774,136 ||28% |
|Transfer to general reserve ||459,250 ||248,357 ||85% |
|Balance Transferred to Balance Sheet ||12,612,729 ||9,470,267 ||33% |
| ||2011 ||2010 |
|Biopharmaceuticals ||83% ||92% |
|Licensing and Development Fees ||13% ||3% |
|Other Income ||4% ||5% |
|Total Income ||100% ||100% |
Share of revenues from net sales between domestic and export markets are as follows:
Share of revenues
| ||2011 ||% ||2010 ||% |
|Domestic ||8,007,257 ||60% ||6,404,589 ||57% |
|Exports ||5,243,403 ||40% ||4,876,106 ||43% |
|Total ||13,250,660 ||100% ||11,280,695 ||100% |
Biocons net sales grew by 17% to Rs. 13,250,660 in 2010-11 while the licensingand development fees grew by 490% to Rs. 2,064,963. Companys domestic revenues fromproduct sales have increased by 25%, and exports sales have increased by 8%. The increasesin domestic sales are mainly driven by increase in sale of bio-pharmaceutical products andbranded formulations.
4. Segment-Wise Performance
Our business focus is on the manufacturing and marketing of biopharmaceuticals thatrequire fermentation and synthetic chemistry skills.
Statins and Orlistat:
Statins are cholesterol-lowering agents used to treat and prevent coronary diseases andare amongst the largest selling drugs worldwide. Our statins portfolio presently comprisesSimvastatin, Pravastatin, Atorvastatin, Fluvastatin, Lovastatin and Rosuvastatin. Bioconis primarily selling Statins across India, USA and Europe. Our Statins segment grew 13%YoY despite pricing pressures owing to enhanced capacity enabled by improved productivity.The Statins portfolio witnessed a changing product mix in this financial year.Atorvastatin and Rosuvastatin gained share in Statins portfolio. Orlistat a drug in theanti obesity saw a significant sales growth primarily an account of ban on itspeers.
Insulin is a hormone that regulates the energy and glucose metabolism in the body.Biocon markets recombinant human insulin in India under its own brand name INSUGEN and hasalso registered the same in several emerging markets. In addition, Biocon has supplyarrangements with pharmaceutical majors and other companies to supply recombinant humaninsulin for use in their novel insulin formulations.
Insulin sales have been growing steadily by 12% YoY in the ROW markets. The formulationsales business recorded the highest growth in last 3 years.
Immunosuppressants prevent organ and tissue rejection in transplants and require hightechnology based manufacturing capabilities. Currently Biocon produces mycophenolatemofetil (MMF), sirolimus and tacrolimus. This segment posted a 35% YoY growth driven bypatent expiry despite pricing pressures.
Branded formulations are finished dosages currently sold in India and emerging marketgeographies. Our Company is present in six therapeutic areas Diabetology, Oncology,Cardiology, Nephrology, Dermatology and Comprehensive Care. Branded formulations grew 36%YoY on the back of strong sales in diabetology and oncology segments.
Our Company is positioning itself as a key player in diabetes therapy on a globalscale. There was significant revival in the insulins franchise both in the Insugen andBasalog. The launch of Insugen 100, the global standard, has been widely accepted bydiabetic fraternity. Biocon has focused its efforts to improving diabetes care in Indiathrough an awareness campaign on monitoring and control of blood glucose and earlydetection of the disease. The Comprehensive Care and immunology division was launched inthe current fiscal with a vision of providing quality and affordable therapy in thecritical care segment.
Biocons pipeline of innovative and biosimilar molecules as well as marketingpartnerships will be the driving force to expand in India and other markets in the yearsto come.
The Biocons formulation division dedicated marketing team of over 1,100 peoplefor the finished dosages business.
5. Other Financial Data
Licensing and Development Fees
These fees represent income received by Biocon towards transfer of proprietarytechnology with respect to certain bio-generics under long-term contracts andout-licensing its proprietary products. During the year, the Company has a registeredlicensing income of Rs. 2,064,963, an increase of Rs. 1,714,833 as compared to previousyear. This includes transfer of certain intangible to subsidiary within the group.
The Other income has registered a decrease of 8% compared to the previous year. Otherincome consists primarily of dividend income from investments amounting to Rs. 167,114 ascompared to Rs. 98,604 in fiscal 2010. It also includes cross charge of utility and othercommon costs towards use of Biocon Park facility (SEZ Developer) to subsidiaries which hasdecreased from Rs. 336,046 in the fiscal 2010 to Rs. 297,690 in the fiscal 2011.
Materials costs have increased by 17% from Rs. 5,472,390 to Rs. 6,392,513 over theprevious year. As a percentage of sales, the material cost has remained constant at 48%YoY.
Staff cost comprises:
Salaries, wages, allowances and bonuses;
Contributions to provident fund;
Gratuity and leave provisions;
Amortisation of Employees stock compensation expenses; and
Welfare expenses (including employee insurance schemes)
Staff costs have increased from Rs. 997,275 for the fiscal year 2010 to Rs. 1,460,020for the fiscal year 2011. The increase in employee costs is due to a) Staff incrementwhich was 15% YoY. b) Addition of employees.
Operating and other expenses
Operating and other expenses comprises traveling and conveyance; communication;professional charges; power and fuel; lab consumables; repairs and maintenance; sellingexpenses like freight outwards; sales promotion and commissions; research and developmentcosts, provision for doubtful debts; exchange fluctuations and other general expenses.
Operating and other expenses have decreased by 12% from Rs. 2,240,004 for the year 2010to Rs. 1,972,127 for the year 2011 mainly on account of a) Foreign exchange gain of Rs.262,377 as compared to loss of Rs. 33,179 in the previous fiscal. b) 16% decrease inprofessional charges from Rs. 175,928 to Rs. 148,242 c) The decrease is offset by a 41%increase in selling expenses from Rs. 401,733 to Rs. 564,493 primarily on account ofincrease in freight charges; and d) 21% increase in power charges from Rs. 672,485 to Rs.816,291and 19% increase in repair and maintenance charges from Rs. 280,911 to Rs. 334,686.
Interest and Finance Charges
Interest and finance charges have increased from Rs. 19,910 in fiscal 2010 to Rs.23,778 in fiscal 2011 due to increase in bank charges.
During the year depreciation has increased by Rs. 104,401 an increase of 13% on accountcapitalization of assets. Depreciation as a percentage of sales has remained constant at7%.
Provision for Taxes
Provision for current tax in the year ended March 31, 2011 was Rs. 578,715 as againstRs. 278,713 net of provision for current and deferred tax The Company availed tax benefitin respect of profit from its EOU and SEZ operations.
Net profit for the fiscal year 2011 has increased by 85% to Rs. 4,592,495 resulting ina basic EPS of Rs. 23.49.
Our primary liquidity requirements are for financing working capital requirements andfunding capital expenditure. The financing needs are met primarily through cash flows fromoperations and short term borrowings.
| ||2011 ||2010 |
|Net cash generated from operating activities ||3,649,661 ||2,307,341 |
|Net cash used for : || || |
|Capital expenditure ||(1,232,442) ||(806,524) |
|Dividend including dividend tax ||(767,584) ||(701,970) |
|Investments in associate / subsidiary companies ||(121,552) ||(48,100) |
|Loans to subsidiaries / joint ventures companies ||121,548 ||(39,580) |
|Borrowings from banks ||(286,359) ||301,491 |
|Others ||343,121 ||359,005 |
|Net cash equivalents ||1,706,393 ||1,371,663 |
|Net (purchase) / redemption of current investments ||(412,313) ||(638,339) |
|Cash at beginning of year ||793,751 ||60,427 |
|Cash at end of year ||2,065,298 ||793,751 |
6. Performance of Subsidiaries, Joint Ventures and Associates
Syngene International Limited
Syngene is a 99.99% owned subsidiary of the Company. Syngene was incorporated onNovember 18, 1993. Syngene operates in two main research areas: Synthetic Chemistry andMolecular Biology. Syngene is also involved in custom chemical synthesis. During the year,Syngene has confidently moved into Integrated Drug Discovery services.
Syngenes total income primarily consists of net sales from Contract research andmanufacturing services income. Substantially all of Syngenes contracts are based ontime and material management. Revenue from these contracts is recognized when services arerendered, in accordance with the terms of the contract. Syngenes total revenue hasincreased from Rs. 2,675,660 to Rs. 3,231,378 representing a growth of 21%. The growth inoperations is supported by increase in revenues from existing and new customers.
Syngenes expenses mainly comprise of raw-material costs and staff costs. Rawmaterial cost consists of lab consumables used for research. The raw material costsincreased by 27% from Rs. 688,117 to Rs. 876,148 in fiscal 2011 and the staff costsincreased by 20% from Rs. 666,393 to Rs. 800,278. Increase in material cost and increasein staff costs are due to a growth in sales. Other costs increased by 24% from Rs. 443,585to Rs. 550,195.
Net profit for the year has decreased by Rs. 25,400 from Rs. 308,144 to Rs. 282,744mainly due to increase in depreciation by Rs. 58,277 from Rs. 450,872 in the year endedMarch 31, 2010 to Rs. 509,149 in the year ended March 31, 2011.
Clinigene International Limited
Clinigene is a 100% owned subsidiary of Biocon Limited. Clinigene was established toundertake clinical and other trials and validation for drugs and pharmaceuticals and toconduct research in the area of medical sciences for development of new and improve uponexisting medical diagnostic, surgical and therapeutic techniques.
Clinigenes total income principally consists of income from clinical researchfees and also Bio-analytical and Bio-equivalence studies. Clinigene enters either intotime and material contracts and/or fixed price arrangements. Revenue from time andmaterial contracts are recognised on a monthly basis as services are rendered inaccordance with the terms of the applicable contracts. Revenue from fixed price contractsis recognized based on the percentage completion method. For the year ended March 31,2011, Clinigene has total revenue of Rs. 289,337.
Clinigene is continuing to evolve and adapt its capability platforms and serviceofferings against a background of continued macro market pressure as global R&D spendsare being reduced, consolidation of market players continues and the shift to globallycapable preferred partnerships accelerates. During the year, the Company has identifiedseveral more specialized services for example patient based early studies, complex BA/BEstudies and bio-analytical services. These new specialty services, which have relativelyhigh entry barriers, will drive new and differential revenue opportunities. Studiesconducted by Clinigene were successfully audited by the USFDA and EMA.
Biocon Biopharmaceuticals Private Limited
BBPL was incorporated on June 17, 2002 and currently has paid-up share capital is Rs.176,000. In April 2010, Biocon SA acquired the 49% equity stake held by CIMAB SA in BBPL.In March 2011, Biocon purchased the 49% equity stake in BBPL from Biocon SA. Consequently,as at March 31, 2011 all the equity shares of BBPL are held by Biocon.
For the year under review, BBPL earned revenues of Rs. 491,611 as against Rs. 381,302in the previous year. BBPL has commenced full fledged operations and for the year underreview posted a net profit of Rs. 192,047 as against Rs. 26,062 in the previous year. Asat March 31, 2011, BBPL had accumulated losses of Rs. 159,238.
Biocon Research Limited
Biocon Research Limited (BRL) was incorporated in 2008, as a wholly ownedsubsidiary of Biocon Limited and is engaged in carrying out research and development ofnew drugs, drug delivery systems and contract research.
Total revenue of BRL increased from Rs. 392,944 to Rs. 649,591 in fiscal 2011.
BRL spends in research and developments expenses increased from Rs. 416,649 to Rs.940,991 in fiscal 2011.
NeoBiocon FZ LLC. is a research and marketing pharmaceutical Company based in AbuDhabi. Incorporated in January 2008, NeoBiocon is a 50:50 joint venture with Dr. B.R.Shetty, of NeoPharma.
Financials of NeoBiocon were consolidated based on the Accounting Standard 27 Financial Reporting of Interests in Joint Venture issued by ICAI. Accordingly, only 50% ofthe operations incorporated for the consolidation purpose. NeoBiocons turnover hasincreased from Rs. 23,927 to Rs. 59,608 representing a significant growth in business andnet profit has increased from Rs. 2,713 to Rs. 21,243 for fiscal 2011.
Biocon has made a strategic investment of Rs. 138,470 in a US based research CompanyIATRICa Inc to jointly develop novel immunoconjugates for the treatment of cancer andinfectious disorders. As at March 31, 2011, Biocon has a 30% stake in IATRICa. Theresearch initiatives of IATRICa are underway and it has initiated work on two molecules.
Biocon SA a wholly owned subsidiary was incorporated in year 2009 in Switzerland.Biocon SA undertakes development and marketing of biopharmaceuticals and pursue investmentopportunities in Biopharmaceutical sector.
Germany. During the year, the Company has made significant progress in clinical thedevelopment of insulin for the European markets. In October 2010, Biocon SA has enteredinto a global alliance with Pfizer for commercializing biosimilar Insulin and Insulinanalogs. During the year ended March 31, 2011, the Company earned revenues of Rs. 732,248and profit of Rs. 69,465.
During the year 2009, Biocon SA acquired 71% stake in AxiCorp GmbH, Germany. AxiCorp isa specialized marketing and distribution Company established in 2002 to address thelucrative generics and parallel distribution market in Germany. Axicorp operations areconsolidated with the financial results of the group with a 3 month lag. The Companyregistered revenue of Rs. 9,800,683 and PAT of Rs. 353,225 for year ended December 31,2010 as against revenue of Rs. 9,117,360 and of Rs. 299,322 for year ended December 31,2009. Axicorp has contributed 35 % to the group revenues and 8% to the group net profitfor the year ended March 31, 2011.
Consequent to an offer made by the minority shareholders of AxiCorp, Biocon woulddivest its stake in its German subsidiary, AxiCorp GmbH, to the existing group of promotershareholders.
Biocon had entered into a global alliance with Pfizer in October 2010. This divestmentis in line with the objectives of the global alliance wherein the synergies derived fromglobal development and investments can be leveraged for the German market as well.
Consolidated financial statements
Biocon has prepared consolidated financial statements in accordance with Indian GAAP byconsolidating its subsidiaries Syngene, Clinigene, BBPL, Biocon Research Limited,Biocon SA and AxiCorp and Joint Venture Neo Biocon and associate Company IATRICa Inc. Theabbreviated consolidated Indian GAAP profit and loss account is as under:
Abbreviated consolidated profit and loss statement Indian GAAP
| ||2011 ||2010 |
|Total Income ||28,136,602 ||24,048,363 |
|Profit before tax (PBT) ||4,471,689 ||3,514,742 |
|PBT margin ||15.9% ||14.6% |
|Profit after Tax ||3,675,150 ||2,932,442 |
|Net margin ||13.1% ||12.2% |
7. Risks and Concern
The Generic Industry is subject to patent litigation and regulatory issues. Patentchallenges or delay in receipt of regulatory approvals could delay our product launch inkey markets. In addition significant additional competition in key products could erodeour market shares and result in reduced prices and profitability. The consolidation of thegeneric industry could result in larger generic players acquiring manufacturingcapabilities thereby reducing the market for third party manufacturers. The failure toobtain regulatory approval for new drugs under development could affect long-term businessopportunities. Other key risks related to our business include loss of key personnel,increase in input costs and adverse movement of the Indian Rupee against the majorcurrencies (US$ & Euro). Risk of managing research partnership and commercialisationof novel molecules, regulatory delays and clarity on regulatory pathways could affectproduct launch.
The Company carries out a detailed Risk Management exercise or purposes ofidentification of risks and putting in place processes and controls to mitigate theserisks. The audit committee reviews the Companys risk management framework andapproves risk management action plans.
8. Internal Controls
Biocon has well established internal control systems for operations of the Company andits subsidiaries. The Finance Department is well staffed with experienced and qualifiedpersonnel who play an important role in implementing and monitoring the internal controlenvironment and compliance with statutory requirements.
The Internal Audit is conducted by an independent firm of Chartered Accountants.
The Audit committee addresses significant issues raised by the Internal and StatutoryAuditor