ECONOMY
The global economy remains subdued due to unprecedented high inflation,
ongoing war in the Eurozone, and financial sector turmoil. Monetary tightening among the
advanced economies central banks has been faster and sharper than seen in recent history.
This has affected the global economy adversely with many advanced countries slowing down
and expected to grow half as fast as last year with consumption being squeezed by higher
cost of credit and inflation.
Before the Ukraine war, the global recovery from the pandemic was
expected to continue with the progress of global vaccination and supportive macroeconomic
policies in the major economies. Global trade was impacted due to renewed bottlenecks in
the supply chain, increased energy prices, and aggravating inflationary pressure. Thus
leading to a slowdown in trade growth.
The global economy is now showing signs of improvement but remains
fragile. There has been some respite with lower energy prices, and earlier than expected
reopening of China from the zero-tolerance COVID policy, providing a boost to global
activity. However, the impact of higher interest rates is increasingly felt across the
economy. As the world grapples with economic uncertainty, India though bounds to be
impacted by global developments is still predicted to grow highest at around 6% this
fiscal year. This has been made possible through a combination of structural reforms,
prudent regulatory actions, and smart policy manoeuvrings including Production Linked
Incentives to boost the manufacturing sector.
GLOBAL PHARMA MARKET
The pharmaceutical sector has grown quickly in recent years, and by
2023 it is anticipated to reach US$ 1.5 trillion. With the use of cutting-edge digital
platforms, big data analytics, cloud computing, and Artificial Intelligence (AI), the
sector is undergoing a transition. Indias pharmaceuticals industry is at the global
forefront as ‘the Pharmacy of the World, ranking third in terms of
pharmaceutical production by volume.
The market size of the Indian pharmaceuticals industry is expected to
reach US$ 65 billion by 2024, and US$ 130 billion by 2030. According to government data,
the Indian pharmaceutical industry is worth approximately US$ 50 billion with over US$ 25
billion of the value coming from exports. About 20% of the global exports in generic drugs
are met by India.
Research & Development (R&D) will be the core that will power
the pharma sectors future growth. Indian companies as compared to advanced countries are
spending low on R&D, an effective fiscal incentive for research by the government can
provide a necessary boost to the research expenditure in the sector.
Currently, the pharma sector in advanced economies is growing at a
slower annual rate due to lesser new product approvals, price erosions due to generics
competition and loss of exclusivity. In contrast, emerging pharmaceutical markets is
growing at a faster rate driven by improved per capita income, increased access and rising
awareness of modern medicines and strengthening of healthcare infrastructure.
Indias pharmaceutical exports to the African market dipped 5% in
FY23. African continent contributed 18% to the total US$ 19.9 billion in exports of
finished pharma products. The exports in this region had suffered due to political
uncertainty, currency issues and poor economic growth. The growth in Sub-Saharan Africa,
Latin America baring Brazil and the Caribbean continues to remain fragile.
Today, India is a leader in the global pharma landscape, particularly
when it comes to formulations. An estimated 40% of generic formulations to the US comes,
from India. The Indian pharmaceutical companies have faced strong headwinds, and
particularly in the US led by higher competitive intensity, and supply chain constraints
due to China zero COVID approach restricting cargo supplies impacting growth of the sector
during the year under review.
GENERICS AND GENERIC FORMULATION
The global generic pharmaceuticals market is expected to grow from
US$360 billion in 2023 to US$450 billion in 2027 at a CAGR of 6.0%.
Indian pharmaceutical industry is known for its generic medicines and
low-cost vaccines globally. A recent report by Candle Partners has revealed that for the
past five years, the sales growth rate of generic formulation companies in the sector has
been low with the US business largely remaining flat.
The market for generic business will grow as the government is expected
to invest more in the health sector and increase the expenditure to reduce their budgets
by showing more inclination towards generic formulations.
The rising incidence of chronic diseases is one of the major drivers of
the generic pharmaceutical market. Branded drugs come at a premium price, while generic
drugs are available at a lower cost and have the same chemical composition as branded
drugs. Unichem has a strong footprint in the generic business for more than seven decades
and has been at the forefront of supplying affordable medicines for patients and it offers
a wide array of medicines in various therapeutic segments. The Company is exclusively in
international business and the products manufactured are exported to many developed as
well as developing countries.
India accounted for 48% of the total Abbreviated New Drug
Applications (ANDAs) approved by the FDA in 2022. The country ranks
first when it comes to the number of USFDA approved plants outside the US at over 530. The
US imports $7.3 billion worth pharmaceuticals products from India.
API MARKET
The Active Pharmaceutical Ingredients (APIs) market is expected to
cross US$ 300 billion by 2028 showing a growth rate (CAGR) of 5.6% during the period
2023-28. Currently, India has 85% import dependency on APIs from other countries,
especially China. The country imports APIs worth
35,000 crore each year from China, which is dominant in APIs.
The API market has undergone immense changes due to supply chain
disruption during COVID. Countries such as India are being preferred under the China+1
policy as entities attempt to mitigate the risk of dependency on a single territory for
such products. The global demand for APIs is currently exhibiting strong growth. One of
the major drivers of this market is the rising number of blockbuster patent expiries,
creating a significant opportunity for generic APIs. Moreover, there has been a strong
demand for APIs for biologicals.
The global market for biologicals is currently exhibiting strong growth
catalysed by their high potency and ability to treat diseases beyond the scope of small
molecule drugs. This is creating a strong demand for APIs for branded biological drugs and
their biosimilar versions. Other factors catalysing the global demand of APIs include
aging population, rising expenditures on healthcare, increasing prevalence of lifestyle
diseases, etc.
During the year the Company has sold its stake in Optimus Drugs Private
Limited which is engaged in the business of APIs and intermediates as it has built up the
capacities at its APIs plant in Kolhapur, Roha, and Pithampur.
MANUFACTURING OPERATIONS
During 2022-23, all our plants continued to deliver as per the
strategic plans. US being our core market started showing higher demand in the later part
of the year. Your Company continued its focus on compliance commitment under various
governmental health authorities including United States Food Drug Agency (USFDA) at its
plants. Brazil has shown significant northward demand. During 2022-23, 90 % of supply to
Africa, Commonwealth of Independent States (CIS), and Asia countries was catered from
Baddi. Additionally, Goa Unit-2 got into commercial manufacturing.
Unichems manufacturing operations are heavily regulated by
governmental health authorities around the world, including the USFDA, Medicines and
Healthcare Products Regulatory Agency (MHRA), Ministry of Health of the Russian
Federation, European Medicines Agency (EMA), Health Canada etc, which endorse the quality
and safety of the product. The Company has continued improving Environmental Health and
Safety
(EHS) capability by sustained functioning of state-of-the-art Multi
Effect Evaporator (MEE)/Agitated Thin Film Dryer (ATFD) and Reverse Osmosis Systems at all
three API sites.
Unichem has been successfully maintaining high-quality standards as per
the cGMP (Current Good Manufacturing Practice) guidelines issued by USFDA, European Union
(EU) and other global regulators. During the year under review, Unichem successfully
underwent SAHPRA, JAZMP Slovenia, NPRA Malaysia, EMA Hungary, and Kenya audits at the
Baddi manufacturing site and Kenya Audit at Ghaziabad location. Your Company not only
delivered multiple debottlenecking projects but also carried out multiple GMP upgrades.
OPPORTUNITIES AND THREATS
The pharma sector growth will be driven by improved access to
healthcare, new product launches, and burgeoning hospital infrastructure. The global race
to develop effective treatments and vaccines coupled with increased spend on healthcare
facilities should continue to provide growth going forward. Increasing use of
pharmaceutical generics in developed markets to reduce healthcare cost should provide
attractive growth opportunities to generics manufacturers and thus Indian pharmaceutical
industry is poised for an accelerated growth in the coming years.
India will continue to be the fastest-growing major economy, supported
by increasing consumption and investment. Slowing global growth may act as a drag on
output, but our rising share of global manufacturing should provide buffer and insulation.
Climate change is gaining prominence as a cause of concern, impacting
cost profiles and supply chains. Companies will need to adjust supply chains to mitigate
exposure to geopolitical conflicts, innovating climate-friendly products or processes to
contain cost profiles and supply chains. Organisations in order to remain viable will need
to reinvent, reconfigure, and invest in technology transformation for their businesses and
work culture to thrive. Improving R&D investments and productivity is going to be one
of the major challenges for companies in this sector.
India is offering itself as an alternative manufacturing base to China
in a growing list of industries including the pharma sector through investment incentives.
Public investment in infrastructure and logistics could facilitate manufacturing exports
on a broader level.
Pharmaceutical companies in view of geopolitical developments are
pushing to make their supply chains more affordable, sustainable, and efficient. Working
on the vision of reducing import dependency through indigenous production, the government
is also focussing on the production of high value pharmaceuticals by providing incentives
under the Production Linked Incentives (PLI) scheme to remain cost-efficient.
Indian economy is expected to grow more than the rest of the countries.
It is assumed that things should only improve from now on as the business returns to
normalcy after the pandemic. As technology shapes the future, the pharma sector is looking
at Industry 4.0 manufacturing techniques as solutions to rising complexity and costs in
manufacturing. Smart autonomous factories managed with data and machine learning should
lower pharma manufacturing costs. With access to many analytical, Artificial Intelligence
(AI), and machine learning tools to gather and analyse data, we believe it is time for
pharma companies to employ digitalization at a much greater scale and move beyond the
conventional models to solve future challenges and reap more benefits.
Your Company has built new capacities across locations and has
strengthened its product portfolio including drug discovery and development, drug
production, smart process automation, and supply chain management. With this, your Company
is confident of unfolding market opportunities in the future.
RESEARCH AND DEVELOPMENT
Over the years, Unichem has invested significantly in Research and
Development (R&D) to create state-of-the-art R&D facilities. Unichem has
constantly strived to inculcate advanced therapies and cutting-edge technologies for the
benefit of its stakeholders.
To accelerate Generic research, Unichem brought all its facets at a
centralised location in the Centre of Excellence [CoE], Goa since the year 2012, which
includes API Process Research, and Analytics, Formulation Development and Analytics,
Clinical Research, and Intellectual Property Management. This ensures seamless technology
transfer, testing, and roll-out of new products.
Formulation research is a major thrust area in the development of
generic formulations and has a self-contained product development laboratory that meets
the current Good Manufacturing Practice (cGMP) requirements. It is fully equipped to
conduct pre-formulation studies, prototype development, scale-up and optimisation, and
technology transfer of oral solid dosage forms. The developmental activities are supported
by a proficient Analytical Research Development team and a well-equipped laboratory. The
R&D facility aims at developing formulations so that products can be sold in regulated
markets as well as pharma-emerging markets apart from selective contract formulation
development for generic companies to tap regulated markets.
R&D till date had developed 72+ ANDAs and 76 DMFs across markets
and therapeutic categories. We expect an increase in the number of filings and approvals
in time to come. During the year under review, Unichem had filed three Certification of
Suitability of European Pharmacopoeia (CEP), one China DMF, two Canadian DMFs and
initiated new API development for API Marketing purposes.
This financial year, the R&D efforts were strategically focused on
reverse engineering, launch planning and cost rationalization efforts. The sustained
efforts of R&D over the years resulted in five ANDA approvals and four launches in the
largest generic market of USA and two launches in South Africa. We have submitted one
ANDA, two Brazil submissions and five dossiers in emerging markets. We expect an increase
in the number of filings and approvals in time to come.
FINANCIAL PERFORMANCE
Consolidated Operations
The Company registered Revenue from Operations of
1,34,302.22 Lakhs during the financial year 2022-23 as against
1,26,983.22 Lakhs in the previous year, representing
a growth of 5.76%.
The loss after tax for the financial year 2022-23 (including
exception items of 3,856.64 Lakhs) is 20,222.76 Lakhs as compared
to the profit of 3,306.17 Lakhs in the previous
year.
Standalone Operations
During the financial year 2022-23, the Company registered
Revenue from Operations of 1,07,243.22 Lakhs as against
94,292.66 Lakhs in the previous year, representing a growth by
13.73%.
The loss after tax for the fiscal year 2022-23 (including
exceptional items of 11,266.44 Lakhs) is 29,970.19 Lakhs against
the loss after tax in the previous year of 5,542.96
Lakhs.
Capital expenditure carried out during the financial year
2022-23 was 4,204.82 Lakhs.
The gross profit margin at the Consolidated level for the financial
year 2022-23 was lower by 8% over the previous year mainly due to pricing pressure and a
change in product mix.
The US business is critical to Unichem as it contributes over 57% of
revenues and has been a key growth driver for the Company. The year was marred by price
erosion (amid inventory destocking) in the US generics business, elevated prices of
intermediates, and persistently higher freight costs which abated as we moved towards the
end of the year. Increased stability in US generics was a respite but sustained momentum
will be critical to drive overall growth.
Your Company is confident that with the strong processes in place and
all plants being fully compliant with various regulations across the globe, we will be
able to leverage our manufacturing excellence from the future economic upswings.
As we march into the upcoming year with strong momentum leveraging our
vast product portfolio and knowledge, along with 70+ years of hard work, innovation, and
dedication, we will continue to create significant value for everyone associated with us.
Details of significant changes (i.e. change of 25% or more as compared
to the immediately previous financial year) in key financial ratios, along with detailed
explanations is being provided under note no. 56 of the standalone financial statements.
RISK AND CONCERNS
In todays world, the external and internal environment is
changing at an ever-increasing pace which, in turn, requires businesses to not only manage
the existing risks but anticipate emerging risks and deploy mitigating strategies on a
continuous basis.
The pharma sector is highly regulated and subject to pricing authority,
maintaining and complying with regulatory changes will always remain a challenge. The
major factor affecting growth includes drug price control policies across various
countries, frequent changes in stringent regulatory policies, and on the administrative
front such as delayed receipt of input tax credits resulting in a working capital mismatch
on the full supply chain as Company is fully into international business.
Focus on quality assurance assumes greater significance now as Indian
drug exporters have come under the scanner in semi-regulated countries for making
substandard or contaminated drugs.
Another high risk such as cyber attacks could result in the loss of
data and confidential information having an adverse impact on the companys
operations. Off late, many pharmaceutical supply chains have been affected by
cyber-attacks leading to investing more money in cybersecurity measures. Your company has
developed a comprehensive and multilayer security system in place to identify any possible
breach of security. The Company uses technology to standardise operations, access
restrictions, firewalls, and backups. As technology advances, artificial intelligence or
smart software solutions will be the driver to improve the processes including supply
chain and manual processes will be further digitalised.
Your Company has constituted a Risk Management Committee, which
oversees risk management activities. The Companys risk management initiatives are
periodically updated to the Committee. The Companys assets continue to be adequately
insured against various risks.
OUTLOOK
As the world grapples with the prospect of a slowdown, India
is emerging as a heroic expander of output. Indias share of
global exports is currently at just over 2%, a figure where Government aims to raise to
10% by 2047. As Chinas economic expansion tapers off after a sustained run of near
double-digit expansion, Indias economy is being seen as a candidate for a similar
trajectory. The Government with its PLI scheme for various sectors including for pharma
and its efforts on structural reforms in critical areas such as labour, logistics, health
and education is expected to provide a boost to the manufacturing sector, which will also
contribute to increasing the exports.
The government has further identified research, innovation and
technology as the key drivers of its Vision India@2047 and is making significant efforts
to increase investments in these areas.
Given Indias advantage in scientific excellence, the country can
innovate and drive technology to boost productivity and efficiency in the sphere of
healthcare. The roadmap to achieve lies in our abilities to pursue cutting-edge research
and innovation, having a robust regulatory framework, attractive Research Linked
Incentives for providing the impetus to increase R&D investments for the necessary
growth of the pharmaceutical industry.
The industry is pinning hopes on reduced competitive intensity in the
US and also new launches to help drive performance, though remain cautiously optimistic.
Given the scale of Indias requirements and potential in the
sector to increase output and create jobs, government focus on creating enabling
conditions should help the manufacturing and pharmaceutical sectors in general.
INTERNAL CONTROL SYSTEMS
The Company has an adequate internal control system commensurate with
the nature and size of its business operations. The Company views internal audit as a
vital part of its management control system that keeps management informed about the
working and processes of the organisation. These systems provide reasonable assurance that
(i) the transactions are authorized, recorded, and reported diligently (ii) the internal
policies and procedures are adhered to (iii) it safeguards the resources and assets of the
Company (iv) it maintains accuracy and completeness of accounting records, and (v) it
mitigates operational and business risks.
Internal audit and the Information Technology functions are
indispensable parts of management control systems, responsible for keeping the management
updated about the adequacy and efficacy of the control systems. As part of continuous
upgradation, we have in place the latest technology (encrypted) of hardware to maintain a
back-up of data. This is also applicable for ‘Data restoration activity within
a few hours instead of days to establish the Business IT continuity plan. In case of
cybersecurity, state-of-the-art firewall technology is installed and monitored centrally
to secure our infrastructure and data. A disaster recovery mechanism is in place for
business applications and quality instrumental data.
The Company, during the year, reviewed its Internal Financial Control
(IFC) systems and strived to establish a more robust and effective IFC framework. The
Internal Audit function reviews the adequacy of controls of the processes. Suggestions to
further strengthen the processes are shared with the respective process owners.
The internal audit plan is made at the beginning of the year after it
is duly approved by the Audit Committee and its reports are shared with the statutory
auditors. These plans are executed by the internal audit team with the support of external
audit professionals wherever required. The management duly considers and takes appropriate
and timely actions on the recommendations made by the audit committee, statutory auditor,
cost auditor, and internal auditor. The Audit Committee reviews significant observations,
along with management response and status of action plans.
HUMAN RESOURCES
“In the middle of every difficulty lies opportunity.” Albert
Einstein
This quote explains how turbulent times turn into new paths and lead us
to open new doors and opportunities and keep moving forward. Post COVID, Companies across
the world found ways to overcome challenges, navigate through the situation, ensure
safety, and still maintain business continuity.
Unichemities also persisted in steering their efforts toward business
continuity and safety. The mindset of safety is now embedded in the culture of the
organization. Unichem ensured double vaccination for all employees and covered most
employees for booster doses as well. This ensured the safety of our employees and their
families.
Upskilling employees and helping them shape their career aspirations
has been a focal point of the organization. To facilitate this objective, regular programs
like Train the Trainer, multiskilling of shop floor technicians, skill upgradation
platforms, and communication elevation programs were arranged. We continued to engage with
technical educational institutes to source skilled talent. Post-pandemic, industry visits
were also re-initiated to provide students of pharmacy, science, and management an
opportunity to visit manufacturing facilities.
Our cross-functional implementation team has successfully implemented
SAP Success Factors Learning Management System (LMS) across all our sites under Unichem
Learning Academy and all employees have been onboarded. More than ten thousand courses
have been completed by our employees through LMS and acceptance of the system has been
high. Since its implementation, there are significant improvements in training
compliances, with ease of obtaining accurate and simplified training records. It aids in
tracking and accessing the records seamlessly. The flexibility, consistency, and
personalization received through the digitalized learning system has provided enhanced
learning experiences. Analytics of training records helps us be efficient and
cost-effective.
Rewarding employees and fuelling their motivation is the backbone of
any organizations growth; this was ensured by our rewards and recognition program.
To strengthen the bonds with the employees, Unichem extended warm gestures to their
families by rewarding their meritorious children and meeting their families on several
occasions.
The online compliance dashboard, developed in-house to manage statutory
labour law compliances, has facilitated presenting of a complete overview of the
compliance process in an easy-to-use manner. It aided in gathering and interpreting the
data and identifying any anomalies to take immediate action to avoid noncompliance.
Unichem continued to have harmonious relationships with its Union
representatives. The number of employees as on 31st March, 2023 was 3,123. On behalf of
our leadership team we thank all our employees for their trust and ongoing support.
|
Dr. Prakash A. Mody |
| Mumbai |
Chairman & Managing Director |
| 9th August, 2023 |
(DIN: 00001285) |
+91-9892691696
