cadila healthcare ltd Management discussions

<dhhead>Management Discussion and Analysis</dhhead>

Global Economy

Year 2021 was an encouraging one for the global, economy as it made a strong come-back from the pandemic- induced recession with outputs in many countries making a strong re-bound. In 2022 also, the global economy continued to grow though it faced several headwinds. As a result, the global economy is likly to have grown by a modest 2.9% during the year following a robust 5.9% growth during the preceding year. Elevated inflationary trend globally has compelled the nations to resort to rapid and synchronous monetary policy tightening to contain the same. Although the policy tightening stabilizes the prices, it has significantly impacted the economic activities.

Growth of the Advanced Economies decelerated sharply as it is estimated to have grown by 2.5% in 2022 against 5.3% in 2021. Economic conditions weakened in the second half of 2022. Higher inflation reduced purchasing power and affected the consumer sentiments and in turn, impacted the demand. Monetary policy tightening to contain the inflation also weighed on demand. Gas supply to Euro area was disrupted on account of an ongoing war of Russia with Ukraine resulting in higher energy prices, hampering industrial production, and in turn, increased the uncertainty.

In the Emerging Markets and Developing Economies (EMDEs) also, activity levels declined sharply in 2022.

Growth rate was nearly half at 3.4% in 2022 against 6.7% in 2021. Difficult global financial conditions, high inflation, weakness in demand from the large economies and spillovers from Russia-Ukraine war adversely impacted the performance of EMDEs.

The table below shows the global growth estimate for calendar year 2022 and forecast for the next two years:

	2022 E	2023 F	2024 F
World	2.9%	1.7%	2.7%
Advanced Economies	2.5%	0.5%	1.6%
- US	1.9%	0.5%	1.6%
- Euro Area	3.3%	0.0%	1.6%
- Ja pan	1.2%	1.0%	0.7%
EMDEs	3.4%	3.4%	4.1%

Going forward, global growth is expected to slow down further before making a recovery and is estimated at just 1.7% in 2023. This will be the third slowest pace of growth in nearly three decades, only behind the years impacted by the pandemic and the global financial crisis. High inflation and the resultant synchronous policy

tightening aimed at containing the same, deteriorating financial conditions and the continued uncertainty from Russia-Ukraine war continue to take their toll of global growth. Difficult economic outlook is likely to impact the investments and any further negative shocks are likely to push the global economy into the recession.

Urgent efforts are needed to mitigate the risks of global recession. Given limited policy space, it is critical that the policy makers ensure that any fiscal support is focused on vulnerable groups, that inflation expectations remain well anchored and that financial systems continue to be resilient (Source: Global Economic Prospects, January, 2023).

Indian Economy

While the global economy faced headwinds during the year, fiscal 2023 was a strong one for India as the economy is estimated to have grown at around 7 percent, ahead of the trend and outpacing the growth of the other major economies. Growing macroeconomic stability, evident from the improved current account deficit, easing of inflationary pressure and a resilient banking system to survive the increase in policy rates, has made the growth trajectory more sustainable. In fact, the World Economic Outlook’s (WEO) update issued in the month of April, 2023 has projected India to be the fastest growing economy in FY2024. As per the Economic Survey 2022-23 and RBI as well, the Indian economy is expected to register a real GDP growth of 6.5% in FY2024.

Even as external stability strengthened, the economy witnessed an improvement in factors contributing to internal stability. Fiscal parameters for the center and the states during the year have been robust as is evident from a strong traction seen in revenue generation and improvement in the quality of expenditure.

Inflation moderated during the year as food and core inflation fell to a 16-month low in March, 2023. Although Consumer Price Index (CPI) for the full year was up by 1.2% from 5.5% in FY2022 to 6.7% in FY2023, it showed declining trend and was much lower in the second half of FY2023 at 6.1% compared to 72% in the first half. The easing of international commodity prices, the promptness of measures taken by the government, and monetary

tightening by the RBI have helped to rein in the inflation.

While the Indian economy is expected to put up a resilient performance in FY2024, there are certain factors which pose the downside risk. Key ones among them are:

OPEC’s surprise production cut and resultant increase in oil prices as seen in April,2023

Uncertainties in the financial sector in advanced economies impeding the capital flows

The likely effect of El Nino on south-west monsoon resulting in drought like conditions and

lowering agricultural output and in turn, elevating the commodity prices (Source: Monthly Economic Reports, Department of Economic Affairs).

The use of medicines across the globe has grown by 36% over the Last decade, driven mainly by increased access to medicines. The global

pharmaceutical market is currently valued at around US$ 1.5 trillion. Global medicine spending is expected to grow in low to mid-single digit and reach

approximately US$ 1.9 trillion by 202L The spending and voLume growth wiLL vary considerabLy across the regions.

Specialty medicines outlook

Share of specialty medicines in global medicines spending has gont up over the last decade from 24% in 2012 to 35% in 2022. Specialty medicines are the ones that treat chronic, complex and rare diseases and are more expensive than the other traditional medicines. The ten largest developed and other high and upper-middle-income countries were the drivers of specialty medicines. Contribution of pharmerging countries remained low on account of higher cost.

Over next 5 years, share of specialty medicines is likely to go up to 43% of the total spending with more than half of spending likely to come from major developed markets (Source: IQVIA Global Use of Medicines, 2023).

Global biotech outlook

In 2022, spending on biotech products accounted for 30% of global pharma market and stood at US$ 431 bn. Over the last decade, biotech segment grew at a robust CAGR of 14%. The biotech products cover a range of therapies such as traditional insulin analogues and more complex specialty medicines. Over the next 5 years, the growth is expected to slow down on account of the impact of key biosimilars especially in developed markets. However, continued flow of new medicines will aid the growth of this segment.

Biosimilars will play a crucial role in the overall biotech market going forward as the savings from these biosimilars will have a significant impact on the biotech market through 2027.

Cumulative incremental savings over next 5 years from the use of biosimilars are expected to be around US$ 383 bn as some of the largest biological molecules will have a well-developed biosimilar market by that time. Savings on account of biosimilars is expected to provide the access to biological medicines to more people globally as cost of treatment will become affordable for patients and governments across countries (Source: IQVIA Global Use of Medicines, 2023).

Therapy-wise Outlook

In terms of therapies, two leading therapies viz. oncology and immunology are estimated to grow at a CAGR of 13-16% and 3-6% respectively through 2027 Oncology is projected to add 100 new treatments over five years which will be the key growth driver. Overall, oncology market is expected to double in next 5 years and cross US$ 370 bn. Immunology will face the biosimilar competition. Growth of the segment will be driven by steady increase in number of patients and new products and will be partly offset by entry of biosimilars after 2023 (Source: IQVIA Global Use of Medicines, 2023).

Indian Pharma Industry

The Indian pharmaceutical market is worth US$ 23 bn and is amongst the worlds fastest growing pharmaceutical markets. In fact, the Indian pharma market delivered a double-digit growth on a consistent basis during the last decade except for the couple of years when the growth was impacted on account of macro factors though there was no structural change in market dynamics. The growth posted by Indian pharma market is significant considering the fact that most large markets across the globe grew in mid-single digit during the period. Going forward also, over the next five years, Indian

pharma market is expected to grow in high single digit to low double digit and be amongst the fasted growing regions across the globe. Factors such as increased spend on healthcare aided by increased health insurance coverage as well as increased government and private sector spending on healthcare, rise in disposable income of people with the growth of Indian economy, increase in prevalence of life-style related disorders, increased investment in the sector on account of accommodative Government policy and various government initiatives have propelled the growth of Indian pharma market.

During the year, Indian pharma market stabilized after a period of 2 years when the COVID-19 pandemic impacted the growth of the market. Overall, the market grew by 9.3% during the year. The market was off to a slow start as it grew by just 2.1% in the first quarter on account of COVID-19 led higher base of previous year. However, from second quarter onwards through the year, the market grew in double digit with improving contributions from volume expansion and new launches.

In terms of therapeutic performance, chronic therapies outpaced the growth of acute therapies during the year.

Therapeutic area-wise break of Indian pharma market is as under:

Therapy area	Sales in FY2023 ( bn)	Therapy Contribution	YoY Growth
Cardiac	240.9	13.0%	9.8%
Anti-Infectives	233.2	12.6%	-2.4%
Gastro-Intestinal	215.8	11.7%	11.0%
Anti-Diabetic	167.7	9.1%	5.9%
Vitamins/Minerals/Nutrients	163.9	8.9%	6.9%
Respiratory	153.3	8.3%	12.7%
Pain/Analgesics	130.4	7.1%	11.8%
Derma	124.4	6.7%	15.5%
Neuro/ CNS	112.6	6.1%	12.4%
Gynaecology	61.9	3.3%	20.4%
Others	246.2	13.3%	13.8%
IPM - Total	1,850.1	100.0%	9.3%
(Source: AWACS MAT March 2023 Report)

During the year, the Government of India updated the list of essential medicines known as “National List of Essential Medicines (NLEM-2022)”. NLEM 2022 is a revision of the NLEM 2015, with the addition of 34 drugs and deletion of 26 drugs from the previous list. Total number of drugs under the updated list of NLEM as at 31^st March, 2023 stood at 384 across 29 categories. The ceiling price of drugs listed under the NLEM are fixed by the Government and are changed each year, in line with the Wholesale Price Index (WPI). NLEM plays an important role in ensuring accessibility of cost-effective and quality medicines and contributes towards reducing the out of pocket expenditure on healthcare for the citizens of the country.

Leadership in the global generics market

In terms of production volume,

Indian pharma industry ranks third globally and is known for its generic medicines and low-cost vaccines. In the generic medicines space, India is the largest supplier across the globe. Generic drugs, OTC medicines, bulk drugs, vaccines, contract research & manufacturing and biological products are the major segments of Indian pharma industry. It manufactures about 60000 different generic brands across 60 therapeutic categories and accounts for 20% of the global supply of generics. In terms of production of vaccines, India accounts for 60% of global vaccine

production and accounts for a large chunk of WHO demand for DPT, BCG and measles vaccines. India is known as the “pharmacy of the world” as it supplies high quality and low-cost generic drugs to millions of people across the globe. Indian pharma sector forms a major component of the country’s foreign trade and has been consistently generating the trade surplus over last many years (Source: Annual Report of Department of Pharmaceuticals, 2022-23).

During FY2023, pharmaceutical exports from India stood at US$

25.4 bn. US was the largest

export destination for the Indian pharmaceutical industry. 8 Indian companies are among the top 20 global generic companies.

Zydus Lifesciences Ltd. is one of the Leading innovation driven Life sciences companies in India with presence across the pharmaceutical value chain of innovating (research & development), manufacturing, marketing and selling of finished dosage human formuLations (generics, branded generics and speciaLty formulations, including biosimilars and vaccines), active pharmaceuticaL ingredients (“APIs”), animal healthcare products and consumer wellness products. Innovation is the backbone of the Company as it ensures business sustainabiLity through continuous

avaiLabiLity of new products for various businesses. The Company has a gLobaL presence and markets its products in the United States,

India, Europe and emerging markets incLuding countries in Latin America, Asia Pacific region and Africa. The Company has a manufacturing footprint of 35 facilities that adhere to stringent reguLatory compLiance standards and have capabiLities to manufacture diverse dosage forms at scale, offering cost-effective and high-quality pharmaceutical products to customers worLdwide.

Innovation - the growth engine for future

Continuous innovation is one of the most distinguishing features of the pharmaceutical sector. Innovation enhances patient health outcomes by ensuring patients have access to high- quality, effective medicines that meet their unmet healthcare needs. Zydus success in various markets throughou the world has been driven by its constant pursuit of innovation. The Company will continue to prudently invest in its innovation engine in order to improve patient health outcomes and evolve as a progressive life sciences company. Apart from developing a strong generic portfolio to serve many markets, the Company has made significant strides in other areas of innovation including innovativ* drug research, biosimilars, vaccines, and specialty medicines. Notably, some of the Company’s commercially successful innovative products, such as Lipaglyn? and Bilypsa? (Saroglitazar), Ujvira™ (Trastuzumab emtansine biosimilar), Exemptia™ (Adalimumab biosimilar), Vivitra™ (Trastuzumab biosimilar) and Bryxta™ (Bevacizumab biosimilar) have significantly improved access and availability to patients in need of therapy, achieving a dominant

position in their respective therapy areas.

The Company’s innovation program is spearheaded by distinguished leaders with deep and specialised experience in their respective domains and supported by over 1400 scientists (around 200 of them having doctorate qualification) across its 7 state-of- the-art R&D centres. The Company invests approximately 7 to 8% of its consolidated revenues on research and development. So far, the Company has filed over 1400 patent applications globally across different areas of research and development. Adoption of technological advancement, digitalization, improved knowhow and competencies enable the Company to progress further in diverse areas including NCEs, vaccines, biosimilars, niche technologies and generic product development. The Company’s unwavering commitment to innovation enables it to advance further in its objective to improve human lives via better health outcomes by ensuring that high-quality and effective products reach patients worldwide.

Here is an overview of the Company’s efforts in different areas of innovation:

New Chemical Entity (NCE) Research

The Company has successfully created a pipeline of New Chemical Entities (NCEs) driven by dedicated efforts over the years with an objective of addressing patients’ unmet healthcare needs. Zydus Research Centre (ZRC), a dedicated research arm of the Company based in Ahmedabad, drives the Company’s NCE research activities. The Centre has around 400 highly qualified scientists. It is a state-of- the-art facility capable of advancing a molecule from the concept stage through human trials. NCE research primarily focuses on cardiometabolic illnesses, inflammation, fibrosis and infectious diseases.

The molecules currently in clinical development have progressed along expected lines during the past year. The Company continued to expand patient coverage for the in-market brands Lipaglyn? and Bilypsa? (Saroglitazar Magnesium for multiple indications viz. Diabetic Dyslipidemia, Hypertriglyceridemia, NAFLD and NASH) and Oxemia™ (Desidustat for CKD induced anaemia).

The following is a molecule-by-molecule summary of the Company’s progress during the year:

Saroglitazar Magnesium

Following the successful launch in India for multiple indications such as Diabetic Dyslipidemia, Hypertriglyceridemia, NASH and NAFLD, the molecule is currently undergoing global clinical trials for

the US market for Primary Biliary Cholangitis (PBC) and Non-Alcoholic Steatohepatitis (NASH) indications. The table below gives an update on the development status for each indication.

• Initiated global pivotal Phase II(b)/ III clinical trials viz. EPIC-III™ during FY2022.

• The trials would randomise 138 patients. 92 patients have been randomised so far.

• It would study the effects of a molecule relative to placebo over 52 weeks across 100 sites.

• During the year, received approvals from the Ministry of Health (MOH) of Spain, Iceland and Argentina for the trials for the US market.

• The molecule holds an Orphan Drug Designation (ODD) from both the USFDA and the EMA and Fast-Track Designation from the USFDA.

• Hepatic impairment studies also going on in 24 Cirrhotic Cholestatic patients to understand the pharmacokinetics and safety of the molecule in mild, moderate and severe disease population.

• USFDA approved Phase II(b) clinical trials protocol in FY2022.

• The protocol encompassed 76 weeks paired biopsy study in the US and Argentina to evaluate resolution of NASH and F2/F3 Fibrosis.

• Phase II(b) clinical trials viz. EVIDENCES-X™ trials to evaluate the efficacy and safety of the molecule are going on at present.

• The trials would randomise 210 patients. 76 patients have been recruited so far.

• During the year, received permission from Turkish regulatory authority to conduct clinical trials for NASH indication for the US market.

• Completed hepatic impairment studies in NASH and normal PBC patients in FY2022. Submitted the trials’ data to the USFDA.

• Clinical trials currently underway in the US.

• Recruited 55 patients so far out of the total requirement of 90 patients.

• Only trial in the world going on at present for these indications.

Desidustat

In FY2022, the Company received marketing authorization from the Drug Controller General of India (DCGI) for its second NCE viz. Desidustat for the treatment of anaemia in Chronic Kidney Disease (CKD) patients both on dialysis and not on dialysis. Subsequently, the molecule was launched under the brand name Oxemia™. The molecule provides an alternative to injectable Erythropoietin-Stimulating Agents (ESAs), thereby giving CKD patients a convenient option for the treatment of anaemia. The table given below captures the developments for the year gone by.

• Initiated Phase IV clinical trials viz. DREAM-CKD to generate real world evidence of the molecule in patients with CK induced anaemia.

• It would enrol 1004 patients (502 dialysis dependent and 502 dialysis independent) in India.

• The study would evaluate the safety of the molecule over a period of 52 weeks.

• Published two manuscripts in the prestigious American Journal of Nephrology detailing the Phase III results (conducted in India).

• Completed Phase I(b) clinical trials in the US for Chemotherapy Induced Anaemia (CIA) in cancer patients. CIA can potentially be the second indication for Desidustat.

• Phase III clinical trials currently going on in China for management of CKD.

ZYIL1 (NLRP3 inhibitor)

The Company is developing a novel, oral small molecule ZYIL1 to treat the patients with Cryopyrin Associated Periodic Syndrome (CAPS) by selectively supressing inflammation caused by the NLRP3 inflammasome. During the year, the Company completed recruitment of patients for Phase II clinical trials of the molecule in Australia and achieved a positive Proof-Of-Concept (POC) in Phase II clinical trials in CAPS patients. As per the study, the molecule is beneficial in the treatment of chronic inflammation in CAPS patients. Recently, USFDA granted on Orphan Drug Designation (ODD) to the molecule.

ZY19489 (Potential single dose anti-malarial drug)

ZY19489 is a novel anti-malarial compound which is fast-acting and effective against both P. falciparum and P. vivax strains of malarial parasites. It is being developed to provide an effective alternative to the current front-line antimalarial drugs, as artemisinin-based combination therapies (ACTs) face the risk of resistance. During the year, the Company completed additional Phase I clinical trials of the molecule and initiated Phase II clinical trials in India. On the global development front, it is being positioned as a combination treatment with Ferroquine for malaria in the endemic regions with heavy disease burden.

ZYBK2 (HLA-DRB1 Shared Epitope inhibitor)

The molecule is currently undergoing Phase I(b) clinical trials in patients of Rheumatoid Arthritis (RA). The molecule is designed to inhibit HLA- DRB1 Shared Epitope signalling which may be the cause for RA. The molecule has the potential to become a safe and effective drug for the treatment of RA.

Biologics

The Companys efforts in biotech research over the years have helped develop a comprehensive and broad portfolio that encompasses 30 compounds, including 8 novel biologics and 22 biosimilars. So far, 13 compounds (including one novel biologic) have been commercialized in India and other emerging market countries. Oncology, autoimmune disease, nephrology, inflammation, rheumatology, hepatology and infectious illnesses are among the therapeutic areas covered by the commercialized portfolio. Oncology will be the most significant therapeutic area for the Company in the future, accounting for the majority of the under-development portfolio, followed by ophthalmology, inflammation, infectious and uncommon illnesses. An update with respect to the progress made on the biotech R&D front for different geographies is given below:

• Rituximab - Applied for marketing authorization in FY2022. Dossier being reviewed by DCGI.

• Initiated clinical trials for 2 monoclonal antibodies (mAbs). Patient enrolment is underway.

• Completed pre-clinical studies for 1 product and applied for Phase III trials permission.

• Ujvira™ (Trastuzumab Emtansine biosimilar)

- Launched in FY2022 in India. It is the first biosimilar of an Antibody Drug Conjugate (ADC) Kadcyla?.

- Sole player to launch the biosimilar of Kadcyla?.

- It has further strengthened the Company’s presence in Oncology space.

- It is a key differentiator considering the benefits offered and the challenges associated with the development and manufacturing.

• On novel biologics front, initiated animal toxicity studies for one of the compounds targeted at Congenital Muscular Dystrophy.

• Continues to file dossiers of various biosimilars, which were developed for India market, in various emerging markets.

• Russia, Brazil, Mexico, and Turkey will be major markets for the Company.

• Received GMP approval for the manufacturing facility from Colombia’s regulatory authority, INVIMA, for three products. Four biosimilar products are in various stages of review.

• Received marketing approval for biosimilar Adalimumab drug substance from the Russian regulatory authority.

Vaccines

The Vaccines Technology Centre (VTC) in Ahmedabad leads the Companys endeavors in vaccine research, development and manufacturing.

The Centre works on developing the vaccines for various infectious diseases and has also ventured into novel vaccines for certain lifestyle disorders. VTC has developed and got the marketing approval for 17 vaccines which include vaccines such as Pentavalent vaccine, Measles containing vaccines, Varicella vaccine, Typhoid Conjugate vaccine(TCV), Typhoid Polysaccharide vaccine, seasonal Flu vaccines etc. VTC also has a robust pipeline of vaccines under development, including Hepatitis E vaccine, Hepatitis A vaccine, MMRV vaccine and Bivalent HPV vaccine, as well as a few vaccines in the early development stage.

With respect to measles containing vaccines, during the year, the Company launched MMR vaccine in India and became the second Indian Company to indigenously develop and launch the product. The Company also initiated post marketing surveillance study to evaluate

the safety of MR vaccine in subjects aged nine to twelve months. CDSCO approved multi dose presentation of MR vaccine during the year. The product will be used to meet the requirements of public market in India.

The Company completed the post-marketing surveillance study to evaluate the safety and immunogenicity of Typhoid Conjugate vaccine in healthy subjects. Enrolment of subjects for a Phase IV clinical study to evaluate the immunological non-interference of Typhoid VI Conjugate vaccine with Measles and Rubella vaccine in healthy infants was also completed during the year. The Company received marketing authorization for the age extension study of Typhoid Conjugate vaccine in 45 to 65 years age group. During the year, the Company submitted the dossier of Typhoid Conjugate vaccine to WHO for pre-qualifying the vaccine.

During the year, the Company successfully completed an age extension Phase III clinical trials for a full dose of Vaxiflu-4 vaccine in the age group of six to thirty-five months. With this approval, full dose of Vaxiflu-4 vaccine can be given to the pediatric population in the age group of six to thirty-five months. During the year, the Company received an approval from DCGI to initiate Phase II clinical trials of Hepatitis E vaccine.

In the near future, the Company intends to penetrate the high volume public market in India. Post WHO pre-qualification, the Company intends to service the global markets in the medium term.

Specialty and Complex Generics

The Company has been building a portfolio of specialty products in an effort to address unmet needs for the patients and provide additional offerings to the customers. The specialty portfolio is being built through in-house development efforts as well as by pursuing inorganic opportunities.

On the in-house development front, the Company has developed a portfolio of 10 products including 1 in orphan diseases space. The focused therapy areas are Pain Management, Neurology, Metabolic Disorders and Liver Diseases. In FY2023, the Company filed two New Drug Applications (NDAs), one

each in metabolic disorder and pain management space. NDA for one more product is expected to be filed soon. The Company also filed pNDA for one product during the year.

Orphan and ultra-rare diseases is the niche focus area of Company’s US Specialty business. As a part of the strategy, the Company’s wholly owned subsidiary Sentynl Therapeutics Inc. USA (Sentynl) has made two acquisitions in this space so far. The table is given below which contains the status of two acquired assets:

Molecule Name	Indication	Current Status
NULIBRY™ (Fosdenopterin) for Injection	Molybdenum	• Orphan Drug Designation by USFDA
	Cofactor Deficiency	• First commercial shipment in FY2023
	(MoCD) Type A	• Received Industry Innovation Award for 2022 from
		National Organization for Rare Disorders (NORD), US
		• Received marketing authorization in EU. Only
		treatment available in EU to treat MoCD Type A
CUTX 101 (Copper Histidinate Product)	Menkes disease	• Orphan Drug and Fast-Track Designation by USFDA
		• NDA submission under process (in collaboration
		with licensing partner)

Post the acquisition of Nulibry™, the first commercial rare disease product in FY2022, the Company built the commercial capabilities for rare disease products in the US market. This platform is aimed at providing all the patient support around Nulibry™ and can be leveraged across multiple products. During the year, the Company continued to expand disease awareness efforts on both Menkes and MoCD-A through various means of communication. The Company also worked towards addition of both these diseases to key genetic lab panels in the US.

The Company is working to extend its expertise from traditional generics to complex generics products which will drive future growth in the US. Development of complex generics poses a number of challenges right from the stage of API availability till the scale-up and in turn, make them attractive, low competition opportunities. Such opportunities help to counter the challenges associated with the US generic market in the form of continued price erosion in the base portfolio. The Company has entered into partnerships for some of these products to expedite the development timelines and favorably balance the associated risks and investments. Currently, several complex generics, such as modified release oral solids, complex injectables, transdermal patches and drug-device combinations are either under registration and/ or under development, for the US market. Till date, the Company has successfully in-licensed 27 products in the complex generics space addressing a market size of ~ US$ 36 bn (Source: IQVIA MAT February, 2023).

Generic Product Development

The Company’s operations are spread across different global generics markets. The Company needs to continuously launch new products to expand the offerings to its customers as well as to mitigate the price related challenges associated with the generic industry. The Company has three Pharmaceutical Technology Centres (PTCs) located in Ahmedabad, India

which drive the R&D efforts for generic development to deliver new products across markets. These centres have a talent pool of over 700 scientists who work towards creating a robust product pipeline in a timely, cost effective and regulatory compliant manner. These centres comprise of different clusters with each cluster made responsible to meet the demand of a specific market to bring in the focused approach towards different markets.

The key markets being served by these centres are US, India and other international markets comprising of different countries of Emerging Markets and Europe. For the US market, over the last few years, the efforts have been made to move up the value chain. The PTCs have filed a higher proportion of complex products including modified release oral drugs with first to file and first to launch opportunities as well as other dosage forms such as injectables, transdermals etc. For Indian market, apart from delivering me-too kind of products, the Company focuses on delivering innovative solutions like packaging, drug delivery solutions etc. to satisfy the unmet needs of the patients as well as target day one launches for Loss of Patent Expiration (LOE). This approach has ensured that the Company will either be the only player or amongst a few players in the market for new product introductions in the first wave of launch. For other international markets, the Company leverages its existing rich pipeline to expedite filings in different countries to support them in expanding their product offerings in those markets.

PTCs have adopted an approach of Leveraging and Harmonization.

If during the early stage of development of a product, it is identified as a product to be supplied to multiple markets then, the product development meets the requirements of all geographies. This approach is known as Harmonization. If a product is already developed for a particular market and subsequently, it is identified for another market then, the Leveraging approach is followed. Under this approach, the development knowledge and dossier developed for one market will be extended to other markets with minimum changes.

Digital Initiatives - To Empower and Enrich the Future

Adoption of digital tools and leveraging the technological advancements are of paramount importance in today’s rapidly evolving business landscape. Embracing digitalization offers multiple benefits in the form of enhanced customer satisfaction, improved operational efficiency, competitive advantage and faster growth. Over the years, the Company has made a significant progress towards digitalization of various processes and functions through the adoption of various digita tools and practices and in turn, has successfully delivered greater value to all the stakeholders. By leveraging the digitalization, the Company aims to bring in greater efficiency, effectiveness, agility and transparenc in its operations and in turn, realise its true potential by delivering better health outcomes for its patients globally.

Here are the key digitalization initiatives being undertaken by the Company across different functions:

India Formulations Business

The Company is one of the largest players in the Indian pharmaceutical market with a strong presence across key therapies. The Company has adopted various digital measures to enhance the engagement with all the stakeholders. A summary of key initiatives being undertaken in the digital space across functions is provided below.

Field Force Management

Use of digital analytics tool to generate meaningful insights for improved engagement with the prescribers and create better brand visibility and re-call.

Various customer centric developments provided better understanding of customers and in turn, helped to serve them better.

Feedback from the prescribers helped to drive improvement in brand communication and strategy.

Brand Management

Building digital content creation and content delivery capabilities to create system based, cogent and consistent content which is customer centric. This has helped to create a content which is easy to consume and deliver.

Establishing the platform to shape and drive coherent articulation of core value proposition across brands in a compelling, systematic and strategic manner.

Knowledge Dissemination

• Connecting healthcare professionals with subject matter experts to provide updated scientific information on various therapeutic approaches through digital tools.

Supply Chain

The Company has leveraged multiple digital tools and techniques to enhance the efficiency and agility of its supply chain operations. Key ones among them are Planning And Collaboration Excellence (PACE), a project which is aimed at optimizing the supply chain to deliver greater value to customers and project SEED which aims at strengthening master data structure of various functions.

Project PACE

• Advanced data analytics and machine learning algorithms provide detailed insights about demand and forecast patterns, production capacities and material shortages.

• Effective data driven decisions, resulting in improved accuracy in forecasting and reduced stock-out situations leading to enhanced customer satisfaction.

• Long-range planning modules help to optimize sourcing, production, storage and distribution by proactively anticipating the disruptions and in turn, create an agile supply chain.

Project SEED

SAP based centralized solution to strengthen the master data of various functions to ensure greater control, accuracy and accessibility to critical information.

In the first phase, rolled out centralized “21 CFR compliant” material master which ensured

• Enhanced regulatory compliance.

• Streamlined processes, reduced manual errors and real-time data sharing, resulting in improved decision-making and operational efficiency.

In the second phase, nine cross functional masters have been taken up along with SAP S/4 HANA journey to further strengthen the master data framework and making it the backbone of transformation journey.

In addition to the above, the Company has deployed various analytical tools viz. SAP BI-BO, power BI and Tableau to help leverage the power of analytics and implemented SAP ARIBA - a digitized sourcing platform with an integrated vendor network.

SAP S/4 HANA Implementation

The Company is in the process of transforming its ERP system through the greenfield implementation of SAP S/4 HANA across the enterprise. The project is expected to become operational from the next financial year. Key benefits of this initiative are:

Productivity improvement through enhanced speed of execution.

Harmonization and simplification of practices across the functions.

Use of analytics that will aid decision-making.

Research and Development

The R&D team has developed and implemented a new Project Management Tool “IRIS” which covers New Product Development (NPD) and New Product Launch (NPL) activities. It provides real-time visibility in project milestones. IRIS is a customized digital tool that is positioned for cross functional collaboration for developing and launching new products in different markets. IRIS helps to manage the projects in a more effective manner by ensuring timelines and accountability for new product development. It provides management dashboards for tracking the status of various projects and the risks and costs associated with them. Efforts are being made to enhance the utility of this digital tool and in turn, make it the single source of information in the generic development space.

Manufacturing

The Company has undertaken number of initiatives to digitize various shop floor operations through the adoption of advanced technological tools. These initiatives, which focus on real time data generation, lead to well-informed decision making and in turn, ensure reliable and responsive operations. Here is the list of key digital initiatives taken by the Company in the area of manufacturing operations:

In the area of digital performance management, made significant investments to upgrade the machines to make them digitally communicative

In the laboratories, implemented Laboratory Information Management System (LIMS) to connect all the systems to software and ensure data integrity

Installed documentum software to ensure that every person has access to the latest version of SOPs.

Adoption of Dynamic Workforce Automation Tool to ensure that right talent is assigned to right machine and product.

HR Analytics tool to visualize organization structure and span of control across each layer and suggest structural changes based on comparison with industry benchmark.

In a new facility being put up in Ahmedabad SEZ (known as SEZ II), the Company will manufacture the products without any human intervention and achieve the highest standards of quality and automation in manufacturing drug products.

Consolidated Financial Highlights

The financial statements for the current financial year and the comparative financial statements of previous financial year have been prepared in accordance with the Companies (Indian Accounting Standards) Rules, 2015 (Ind AS) prescribed under Section 133 of the Companies Act, 2013 and other recognized accounting practices and policies to the extent applicable.

Total Operating Revenues

The total income from operations grew by 14% to 172.4 bn from 151.1 bn last year. US formulations business, which was the largest contributor to the consolidated revenues, grew by 28% and registered sales of 74,451 mn during the year. India geography, which comprises formulations and consumer wellness business and which was the second largest contributor to the consolidated revenues, grew by 5% to 71,449 mn.

Profits and Margins

EBITDA (Earnings before Interest, Taxation, Depreciation and Amortization) grew by 16% to 38,599 mn from 33,407 mn last year. EBITDA margins expanded during the year despite the high base and stood at 22.4% of revenues, which is an improvement of 30 bps over the previous year. Adjusted for one-time COVID related inventory provision, EBITDA margin for the year stood at a robust 23.1%. Net profit for the year, adjusted for certain exceptional and non-recurring items and the impact of discontinued operations, stood at 26,608 mn, up 16%.

Return on Net Worth

Return on net worth, excluding exceptional items and profit from discontinued operations improved by

50 bps for FY2023 and stood at 14.9% viz-a-viz 14.4% during FY2022.

Interest Coverage Ratio

Interest coverage ratio has gone up to 29.7 in FY2023 from 26.3 in FY2022. The increase is mainly on account of increase in EBITDA as finance cost has gone up by just 2% during the year.

Debt

The Company continued to hold net cash position as on 31^st March, 2023 as it had a net cash of 5,462 mn as on 31^st March, 2023 vs. 632 mn as on 31^st March, 2022. Net debt-equity ratio was -0.03 as on March 31, 2023 as against nil as on March 31, 2022. Net debt to EBITDA ratio for the year was -0.14 as against -0.02 in FY2022.

Fixed Assets and Capital Expenditure

The consolidated gross block (including capital work in progress) at the end of the year was 189.4 bn, up by about 5.7 bn, from 183.7 bn last year. Net capital expenditure including capital work in progress but excluding Annual Report 2022-23 acquisition related spend during the year was 9.6 bn. The capex during the year was incurred mainly for creation of new facilities and up- gradation and capacity expansion of existing facilities.

Capital Employed and Operating Efficiency

The total Capital Employed (CE) at the end of the year was 208.5 bn, down from 232.5 bn, at the end of the previous year. Reduction in capital employed was mainly on account of reduction in debt and buy-back of 1.13% of pre buy-back paid-up equity share capital. Return on Capital Employed (ROCE = Adjusted earnings before interest / Average CE) for the year improved by 190 bps during the year and stood at 15.5% viz-a-viz 13.6% registered during the previous financial year. Improvement in ROCE was driven by growth in profit and reduction in capital employed on account of reduction in debt and buyback of equity as mentioned above.

An analysis of the performance of different business verticals of the Company is given below.

India Geography

Formulations Business

The Company’s formulations business in India has been one of the prominent pillars in its growth journey over the years. It was the second largest contributor to the consolidated revenues during the year, accounting for 29% of business. The Company continued to expand the business consistently over the years through various focused brand building initiatives, enhancing the reach, launching new therapies, introducing new products and by leveraging its innovation engine to offer new healthcare solutions.

FY2023 was an encouraging year for Company’s formulations business in India as the business consistently posted double digit growth through the year, adjusted for COVID related revenues.

In terms of secondary sales, the Company grew faster than the industry with a growth of 10.7% during the year viz-a-viz the market growth of 9.3%. The Company continued to maintain its ranking in IPM and was ranked 5^th in terms of revenues during the year. Twelve of the Company’s brands were amongst the top 300 brands of IPM during the year. Out of all the brands currently being marketed, 12 brands recorded sales in excess of 1000 mn, 23 brands recorded sales between 500 to 1000 mn and 38 brands recorded sales between 250 to 500 mn

(Source: AWACS MAT March 2023 Report).

The Company further strengthened its presence in focused therapeutic areas of Cardiology, Anti-Diabetes, Gynaecology, Respiratory, Gastro-Intestinal, Dermatology and super specialty areas of Oncology and Nephrology. This helped the Company grow faster than the market in both chronic and sub-chronic segments during the year, thereby improving its ranking in these segments viz-a-viz the preceding financial year (from 10^th to 9^th in chronic and from 7^th to 6^th in sub-chronic). Contribution of chronic and sub-chronic segments to overall secondary sales went up from 46% in FY2022 to 48% in FY2023. The Company was ranked amongst the top 5 Companies in Cardiology, Oncology, Respiratory, Gynaecology and Pain management segments during the year (Source: awacs mat March 2023 Report).

Zydus: Therapy wise performance and Ranking (vs IPM) in FY2023

		IPM			Zydus		Zydus Ranking
bn	MAT Mar 23	MAT Mar 22	% Gr.	MAT Mar 23	MAT Mar 22	% Gr.	MAT Mar 23	MAT Mar 22
Anti-Infectives	233.2	238.9	-2.4%	9.6	9.7	-1.1%	9	8
Cardiac	240.9	219.4	9.8%	11.4	10.3	10.9%	5	5
Derma	124.4	107.7	15.5%	3.7	3.5	3.3%	10	9
Gastro-Intestinal	215.8	194.4	11.0%	7.6	7.1	7.8%	8	8
Gynaecology	61.9	51.4	20.4%	4.3	3.5	23.9%	4	5
Pain/Analgesics	130.4	116.7	11.8%	5.5	5.1	7.7%	4	5
Respiratory	153.3	136.0	12.7%	7.7	6.9	12.5%	5	5
Oncology	37.2	31.6	17.5%	6.5	5.1	26.6%	1	1
Others	653.1	596.4	9.5%	16.3	14.5	13.0%
TOTAL	1,850.1	1,692.4	9.3%	72.6	65.6	10.7%	5	5

The Company has created a rich pipeline of New Chemical Entities (NCEs) and biosimilars to cater to the unmet healthcare needs of the patients. The Company continues to leverage its innovation capabilities to enable sustainable growth for the business. The Company’s first NCE viz. Saroglitazar Magnesium is approved for multiple indications viz. Diabetic Dyslipidemia, Hypertriglyceridemia, NAFLD and NASH and is marketed under the brand names Lipaglyn? and Bilypsa?. Lipaglyn? brand since its launch a decade back, has gained a significant momentum and it was the 62^nd largest brand in the IPM during the year, a gain of 47 positions viz-a-viz the preceding year. The brand registered 37% increase in patient base during the year alone, evidencing the effectiveness and relevance of the Company’s innovative product for the patients.

Bilypsa? brand made significant strides in terms of prescriber base and volumes since its launch and registered secondary sales of 639 mn during the year. Indian National Association for the Study of Liver (INASL) has now included Bilypsa? brand in the recently released guidelines for NAFLD and NASH. The guidelines have prescribed minimum duration of one year for the therapy.

To ensure that unmet patient needs get addressed at a faster pace, the Company has made concerted efforts to improve the diagnosis of NAFLD and NASH. This has been done through liver scanning across the country via the liver screening project viz. Shear Wave Elastography Liver Scan. Over 1 million people have been screened under the project.

The Company has identified select flagship brands also referred to as Growth Booster brands which will be the key growth drivers. These brands registered improved volume traction due to concerted efforts and will continue to be the mainstay for strategic growth.

During the preceding financial year FY2022, the Company launched its second NCE viz. Desidustat under the brand name Oxemia™ for the treatment of Chronic Kidney Disease (CKD) induced anemia. The launch of Oxemia™ further bolstered the Company’s leadership position in the Nephrology segment. The Company focused on increasing awareness about CKD and anemia through multiple webinars and doctor-patient outreach sessions. The Company also created Oxemia™ website (http://www. oxemia.com/) which is a one-stop solution for health care practitioners seeking information about the therapy. Through well-carved out market awareness and market-shaping initiatives, the Company established a strong footing in the CKD anemia market with Oxemia™. During the year, Oxemia™, which is the first novel oral alternative to Erythropoietin Stimulating Agent (ESA) provided relief

to more than 25000 CKD anemia patients from injections.

During the preceding financial year FY2022, the Company launched Ujvira™ brand for the treatment of breast cancer. Ujvira™ is the world’s first biosimilar of an antibody drug conjugate Kadcyla?. The brand was launched with an aim to make the treatment affordable to a larger pool of patients who were unable to afford the cost of the innovator drug. The patient centric approach helped in rapid volume expansion for Ujvira™ since its launch on account of the affordability of the product compared to the innovator brand. Over 5000 patients have benefited from Ujvira™ since its launch. The drug which was accessible to less than 5% of the patients have now benefitted over 20% of eligible patients, thanks to patient friendly pricing and improved availability of Ujvira™.

Overall, the Company’s formulations business in India registered revenues of 49,111 mn during the year, up 2%. Excluding the COVID opportunity revenues from the base, the business grew by 12% during the year.

Consumer Wellness

Zydus Wellness Limited (ZWL), the Company’s subsidiary which spearheads the group’s operations in the consumer wellness space, has a portfolio of leading brands built organically over the years as well as acquired ones.

Normal summer season and increased level of commodity inflation were the key macro factors which impacted the business performance during the year. Two summer heavy brands viz. Glucon-D? and Nycil? registered sales revival, driven by normal summer season, after being hit by the pandemic for two consecutive years i.e. FY2021 and FY2022. In fact,

both the brands could re-gain pre-covid level of sales on the back of continued marketing support and recruitment of new consumers. Inflation remained at an elevated level during most part of the year. As a result, consumers continued to down trade towards lower priced products especially in the rural areas. Demand in urban areas started to improve from the second half of the year however, rural demand remained muted for the most part of the year. Various cost optimization measures undertaken by the Company coupled with calibrated price increase taken across brands helpe the Company to counter the impact of inflation and protect the margins.

Five out of six brands of the Company are market leaders in their respective categories. The Company continued to strengthen its competitive positioning and market share across brands through strong distribution, category expansion and investments in product innovations, media campaigns, sales promotions and digital initiatives. The company has more than 50 million consumers which is a testament to brands that are engraved in consumers’ daily needs and shopping basket.

The Company continued to work on three key pillars to grow the business and unlock the value for all the stakeholders. They are:

A. To accelerate the growth of core brands

The Company continued to support existing portfolio and new products through various marketing initiatives and expansion of distribution network.

During the year, Glucon-D? brand made a strong come back with good summer season. The Company worked towards building the daily relevance of the brand as an “Energy Drink”. New variants of the brand were also launched during the year.

Nycil? brand witnessed strong traction post the COVID-19 pandemic. The brand was repositioned with new packaging to highlight “coolness factor”. The Company re-launched new variantviz. Body Mist, a water-based product which offers same cooling and prickly heat solution as talcum powder.

On Complan? front, the Company continued to support the brand with various campaigns highlighting superior nutrition with the highest protein content in the segment. The Company highlighted the difference in nutritional value being offered by the brand in its communication.

On the sweeteners front, the growth was driven by stevia based natural variant of SugarFree™ brand viz. SugarFree Green.

The Company continued to promote the use of SugarFree Green through the thematic communication “Fitness Ka Pehla Kadam” along with various social media digital initiatives.

Nutralite Doodhshakti dairy portfolio delivered robustgrowth during the year driven by focused celebrity engagements, well planned digital and print media campaigns and on-ground activations.

B. To expand international presence

The Company aims to build the scale in international business by focusing on key regions viz. South Asian Association for Regional Co-operation (SAARC), Middle East and Africa (MEA) and South East Asia (SEA), entering new geographies and introducing suitable innovations and extensions to cater to the needs of different markets. The Company aims to achieve 8-10% contribution from international markets over next five years.

During the year, the Company operationalized the subsidiary in Bangladesh viz. Zydus Wellness BD Pvt. Ltd. which will help to further expand the presence in Indian subcontinent.

C. To grow the scale and improve profitability

The Company has taken number of initiatives to increase consumer base and improve profitability. Large number of customers continue to shift towards modern trade and e-commerce platforms on account of increasing influence of digital and social media. The Company is ready to leverage changing customer behavior by building stronger presence in organized trade and by managing the spends on visibility and promotions in an efficient manner.

The Company achieved an important milestone during the year as the availability of the products crossed 2.5 mn stores with equal split between urban and rural distribution. Direct reach across sub-channels crossed 6 lac stores during the year.

The Company is confident to drive growth and increase the market share of its brands through innovation, leveraging distribution channels and expanding portfolio. This will enable to grow customer base with increased penetrations.

*In January, 2019, the Company acquired business of Heinz India which led to significant jump in revenues in FY2020.

Overall, the consumer wellness business grew by 13% and posted revenues of 22,338 mn, accounting for 13% of consolidated revenues in FY2023.