MANAGEMENT DISCUSSION AND ANALYSIS REPORT
Industry Structure and Developments:
According to Frost and Sullivan, the $895mn Indian CRAMS (Contract Research andManufacturing Services) industry is expected to grow to $6.6bn by 2013. IndianPharmaceutical industry is becoming an integral part of the global pharma, value chain andIndian CRAMS are well placed to benefit from the growing outsourcing trend in globalpharma industry.
Impending patent expirations and mounting R&D costs in the wake of decliningefficiency and escalating pricing pressures are forcing global pharma companies to revisittheir operating paradigms. With increasing growth challenges, there is a sharper-than-everfocus on improving operational efficiencies to maintain profitability. It is believed thatthis situation would provide a major boost to outsourcing of pharma activities to low-costoffshore destinations like India and China.
India has several factors going for it to attain global leadership in biotechnology. Wehave varied agro climatic zones that bring to life every conceivable plant, animal andaquatic life. We have one of the largest professional resources trained in biology in theworld. These include several centers of educational excellence in universities andnational laboratories. We have several overseas Indians at the leading edge of biologyresearch in universities in the US and Europe. We have a strong framework of public fundedresearch institutions in biological sciences in medical and agricultural domains. Thebiotechnology industry touched 2 billion dollar mark in revenue for 2006-07 from the
The company, on a continuous basis, scans the market for scalable opportunities and hasover the past twelve months identified some key areas of growth opportunities. Theseopportunities are in the areas of product engineering, utilities, telecom & content.The company is making concerted efforts and investments to move up the value chain in itschosen markets and acquiring new competencies and services. It includes strengthening ofdomain knowledge, hiring highly talented sales and marketing managers, restructuring ofbusinesses, project management and investments in new geographies. The company isexperiencing significant traction from its existing customers and is receiving severalenquiries from potential customers in its chosen markets. The company continues tostrengthen and build relationships with its current and prospective customers as well asits global delivery model to ensure a low total cost of ownership for the customer.
Cost of developing a drug and a genetically modified product is very high in westerncountries. So companies are looking towards outsourcing certain lower end jobs likescreening of molecules, testing genetically modified seeds etc. to India. India with itsunique pharma and biotech skills can cash on this opportunity.
Furthermore, India is considered a preferred destination for Outsourcing ClinicalTrials and Preclinical Research [$13.0 bn Market]
CRAMS (Contract Research and Manufacturing Services) pertains to outsourcing services/products from low-cost providers with world class standards, in line with internationalregulatory norms. Pharmaceutical and Biotech multinationals have traditionally beenoutsourcing services like wet lab research, preclinical, clinical, and contractmanufacturing to low cost destinations like India. Since late 1990s, CRAMS has gained moreimportance, as MNCs have come under pressure to maintain their profitability. If Vivo BioTech is successful in attracting Multinationals for Outsourcing, there lies ahead a hugeopportunity for the company in capturing a significant pie of the huge CRAMS market.
Regulatory agencies throughout the world strictly regulate the drug developmentprocess. Our business involves helping pharmaceutical and biotechnology companies navigatethe regulatory drug approval process. Changes in regulation, such as a reduction inregulatory requirements or the introduction of simplified drug approval procedures, or anincrease in regulatory requirements that we have difficulty satisfying or that make ourservices less competitive, could eliminate or substantially reduce the demand for ourservices. Also, if government's regulatory efforts to contain drug costs andpharmaceutical and biotechnology company earnings from new drugs, companies may spendless, or lessen their growth in spending on research and development. Hence, changes ingovernment regulation or in practices relating to the biotech and pharmaceutical industrycould shrink the need for the services we provide, which might have a negative impact onthe company's growth.
Intense competition - preclinical services
The Indian Preclinical Contract Research market is highly competitive. The market isflooded with players ranging from hundreds of small, limited-service providers to alimited number of full-service organizations with global capabilities. In preclinicalservices, we face competition from established players like Vimta labs, AdvanceTherapeutics, G VK Life sciences, InTox, and Connexios. There is competition for customerson the basis of several factors, including the following: reputation for on-time qualityperformance; know-how and practice in specific areas; extent of service offerings; successin various geographic markets; price; technological expertise and competent drugdevelopment processes; capability to acquire, process, analyze and report data in a rapidand precise manner; and historic experience and relationship.
Intense competition might have adverse effect on Vivo Bio Tech in acquiring preclinicalprojects from international clients, which can alter the company's profitability.
The key elements of the company's business strategy in the fiscal year has beenobtaining regulatory approvals, certifications like AAALAC International and GLP,establishment of Breeding and Canine operations and strengthening marketing efforts
In the next fiscal year, we anticipate -
To receive GLP (India) accreditations for our Small Animal Research Facility
To start operations of our Small Animals Breeding facility
To start operations of our Canine facility
We strongly believe that 2012 will be a far exciting year for Vivo Bio Tech Limited interms of revenues, as we are fully equipped to meet the needs of clients globally, havingestablished state-of-art infrastructure, knowledge teams and business contacts.
Risks & concerns:
Biotech industry cannot be developed in isolation like IT industry as major chunk ofresearch has been done by government labs. So if government does not increase theinteraction between industry and labs we cannot realize value of research which has beendone, and which can give a major head start.
Similarly, Lack of strict implementation of patent laws, single window clearance ofclinical trial / preclinical protocols for regulatory clearances and Over-protection ofdomestic industry can lead to isolation, retaliation & wrong signals to the DevelopedWorld.
Competition from other Asia- Pacific countries like China, Singapore, Malaysia, Taiwanand Hong Kong is yet another major risk.
As our business deals are frequently prepared as fixed price or fee-for-service with acap, we bear the financial risk if we initially under-price our contracts or otherwiseoverrun our cost estimates. Such under pricing or major cost overruns could have amaterial unfavorable effect on our business, results of operations, financial condition,and cash flows.
The increasing demand for outsourcing services (Contract Research and Manufacturing)during the past years has been putting a lot of demand on human resources. Availability oftalented and trained manpower is scarce. However, the company has been successful inemploying skilled and talented people till date.
Internal Control Systems & their adequacy:
The Management Information Systems is the back bone of our internal control mechanism.The Company has adequate internal control systems and procedures in all operational areasand at all levels equipment procurement, finance and administration marketing andpersonnel departments. The Company also has internal Audit system commensurate with itssize and nature of business. The Audit Committee reviews the internal audit reports andthe adequacy of internal controls from time to time. In order to ensure that all checksand balances are in place and all internal control systems and procedures are in order,regular and in-depth internal audit is conducted by the qualified chartered accountants.Internal audit reports are reviewed by the audit committee on a quarterly basis.
Discussion on financial performance with respect to operational performance:
The financial statements have been prepared in compliance with the requirements of theCompanies Act, 1956 and Generally Accepted Accounting Principles in India. The Managementof the Company accepts responsibility for the integrity and objectivity of the financialstatements as well as for the various estimates used therein. The financial statementshave been prepared on a prudent basis to reflect an accurate picture of the Company'sstate of affairs. During the year under review, the total income of your company for theyear 2011-12 was Rs.1252.96 Lacs as against the income of Rs 954.45 Lacs for the year2010-11.
Material Developments in Human Resources/Industrial Relations front, including numberof people employed:
Vivo believes that successful organizations emanate from successful people who achievethat success from within the organization. Hence it's the organization's responsibility todefine the growth & success blue print of every member working for it. At VivoIntellectual Capital is most Valuable asset. It recognizes the importance of linkingemployees to the Company's strategy.
We believe our people are motivated by the Knowledge that they play a key role in ourbusiness growth.
Further, the company recruited senior level and other functional specialists during theyear. The Human relations in the organization have been cordial. The total number ofpersons employed in the company as on 31st March 2012 was 94. Your company workscontinuously towards adopting the best human resource practices in the industry and firmlybelieves in coming out with creative ideas for promoting customer satisfaction of thehighest order. To ensure that employees grow with technology, training programs areconducted by your company at regular intervals to enable all technical & functionalresources be abreast with the latest technologies.
Declaration regarding compliance with the code of conduct and ethics policy ofthe company by Board Members and senior management personnel
This is to confirm that the company has adopted code of conduct and Ethics policy forthe Board of Directors and Associates of the Company, which is available atwww.vivobio.com
I, Dr. A. Sankaranarayanan declare that the Board of directors and senior managementpersonnel have affirmed compliance with the Code of Conduct and Ethics Policy of theCompany.
|PLACE: HYDERABAD ||Dr. A. SANKARANARAYANAN |
|DATE : 30-08-2012 ||Whole Time Director & CEO |
COMPLIANCE CERTIFICATE ON CORPORATE GOVERNANCE
VIVO BIO TECH LIMITED
We have read the report of the Board of Directors on Corporate Governance and haveexamined the relevant records relating to compliance condition of corporate governance ofM/s. Vivo Bio Tech limited, ("the company") for the year ended 31st March, 2012as stipulated in clause 49 of the listing agreement of the said company with the StockExchanges.
The compliance of the conditions of the Corporate Governance is the responsibility ofthe management. Our examination, conducted in the manner described in the Guidance note onCertification of Corporate Governance" issued by the Institute of CharteredAccountants of India was limited to procedures and implementation thereof adopted by thecompany for ensuring compliance with the conditions of Corporate Governance. Ourexamination was neither an audit nor was it conducted to express an opinion on thefinancial statements of the company.
In our opinion and to the best of our information and explanations given to us and onthe basis of our examination described above, the company has complied with the conditionsof Corporate Governance as stipulated in clause 49 the above mentioned Listing Agreement.
We further state that such compliance is neither an assurance as to the futureviability of the company nor the efficiency or effectiveness with which the management hasconducted the affairs of the company.
| ||For P. MURALI & CO., |
| ||CHARTERED ACCOUNTANTS |
| ||FRN: 007257S |
| ||P. MURALI MOHANA RAO |
|PLACE : HYDERABAD ||PARTNER. |
|DATE : 30-08-2012 ||M.No: 23412 |
Certification as required under Revised
Clause 49 of the Listing Agreement
We, Dr. A. Sankaranarayanan, Whole Time Director& CEO, K. Sri Kalyan, Whole-TimeDirector of Vivo Bio Tech Limited to the best of our knowledge and belief, certify that:
1. We have reviewed the balance sheet and profit and loss account, and its schedulesand notes on accounts, as well as the Cash Flow statement and the Directors report.
2. Based on our knowledge and information, these statements do not contain any un truestatement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, notmisleading with respect to the statements made
3. Based on our knowledge and information, the financial statements, and otherfinancial information included in this report, fairly present in all material respects,the financial condition, results of operations and cash flows of the company as of, andfor, the periods presented in this report, and are in compliance with the existingaccounting standards and/or applicable laws and regulations.
4. To the best of our knowledge and belief, no transactions entered into by the companyduring the year are fraudulent, illegal or violative of the Company's code of conduct.
5. The Company's other certifying officers and we, are responsible for establishing andmaintaining disclosure controls and procedures for the company, and we have:
a) Designed such disclosure controls and procedures to ensure that material informationrelating to the company is made known to us particularly during the period in which thisreport is being prepared, and
b) Evaluated the effectiveness of the Company's disclosure, controls and procedures.
6. We have disclosed to the Company's auditors and the audit committee
a) all significant changes in internal control during the year;
b) Significant changes in accounting policies during the year and that the same havebeen disclosed in the notes to the financial statements and
c) any fraud, whether or not material, that involves management or other employees whohave significant role in the company's internal controls.
|PLACE: HYDERABAD ||K. SRI KALYAN ||DR. A. SANKARANARAYANAN |
|DATE :30-08-2012 ||Whole Time Director ||Whole Time Director & CEO |