Alpa Laboratories Ltd Management Discussions

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Jul 23, 2024|12:59:58 PM

Alpa Laboratories Ltd Share Price Management Discussions

To, The Shareholders

Industry Structure and Development:

The pharmaceutical industry is responsible for the research, development, manufacturing and distribution of medications. The entire world recognized the importance of healthcare and pharmaceuticals as the world battled the Covid-19 pandemic in the last 3 years. The pharmaceutical industry product landscape has since changed. New molecules such as cell and gene-therapy and mRNA have increased in the drug development pipeline. This change is likely to bring newer technologies, supply chain and unique product life cycle. Now out of crippling effect of pandemic, the pharmaceutical industry is estimated to grow to about US $ 2.4 trillion by 2030. Indian pharmaceutical sector supplies over 50% of the global demand for various vaccines, 40% of the generic demand for US and 25% of all medicines for UK. According to the Indian Economic Survey 2021, the domestic market is expected to grow 3x in the next decade. Indias domestic pharmaceutical market stood at US$ 42 billion in 2021 and is likely to reach US$ 65 billion by 2024 and further expand to reach US$ 120-130 billion by 2030. In terms of overall revenue, the Indian pharmaceutical market increased by 13.9% in January 2022. India is the largest producer of vaccines worldwide, accounting for ~60% of the total vaccines, as of 2021. As of August2021, CARE Ratings expect Indias pharmaceutical business to develop at an annual rate of 11% over the next two years, to reach more than US$ 60 billion in value. The Indian pharmaceutical industry has seen a massive expansion over the last few years and is expected to reach about 13% of the size of the global pharma market while enhancing its quality, affordability, and innovation. The FDI inflows in the Indian drugs and pharmaceuticals sector reached US$ 21.22 billion between April 2000-December 2022.Indias drugs and pharmaceuticals exports stood at Rs. 2,08,231crore (US$ 25.3 billion) for FY23, as per the data by Pharmexcil. Indian drug & pharmaceutical exports stood at US$ 2,196.32million in September 2022.Medical Device industry is expected to reach US$ 50 billion by2030 growing at a CAGR of 15%.

ECONOMIC OUTLOOK

The last two years have been difficult for the world economy on account of the COVID-19 pandemic. Repeated waves of infection, supply-chain disruptions and, more recently, inflation have created particularly challenging times for policy-making. The ongoing Russia- Ukraine crises have only exacerbated the situation. Faced with these challenges, the Government of Indias immediate response was a bouquet of safety-nets to cushion the impact on vulnerable sections of society and the business sector. It next pushed through a significant increase in capital expenditure on infrastructure to build back medium-term demand as well as aggressively implemented supply-side measures to prepare the economy for a sustained long-term expansion. The Economic Survey 2022-23 tabled in the Parliament by the Union Minister for Finance & Corporate Affairs Nirmala Sitharaman stated that the industry sector witnessed modest growth of 4.1 percent in FY23 compared to the strong growth of 10.3 per cent in FY22. This is likely on account of input cost-push pressures, supply chain disruptions, and the China lockdown impacting the availability of essential inputs and slowing the global economy, added Sitharaman. The Survey highlighted that Indian pharmaceutical exports achieved a healthy growth of 24 per cent in FY21. It expressed hope that Indias domestic pharmaceutical market is estimated to grow to US $65billion by 2024 from estimated US $41 billion in 2021 and is further expected to reach US $130 billion by 2030.Carrying forward this growth momentum, drug and pharmaceutical exports during April-October 2022 was 22 per cent higher than the corresponding pre-pandemic period of FY20, noted the Survey. It added that Cumulative FDI in the pharma sector crossed the US $20 billion mark in September 2022 and FDI inflows have increased four-fold over five years until September 2022, to US $699 million, supported by investor-friendly policies and a positive outlook for the industry.

INDUSTRY REVIEW:

Over the past year, the pharma industry has witnessed greater collaboration, adapted quickly, and adopted innovative approach to deliver high quality medicines continuously during the pandemic and beyond. The industry has shown unwavering commitment to support the countrys healthcare needs as well as enhance its footprint across the world. According to a recent EY FICCI analysis, with a rising consensus on offering new breakthrough cures to patients, the Indian pharmaceutical market is expected to reach $130 billion in value by the end of 2030. A bright future stands ahead for Indias pharmaceutical business in 2023, with a greater emphasis on quality manufacturing, medicine affordability, and the use of innovation and technology. However, to combat certain challenges like low R&D spending, scarcity of skilled labor, intellectual property (IP) regulations and rights, and potential export contraction, a high level of agility and resilience is required. Following are some of the key trends that the industry is likely to experience in the coming year.

1. Proactive Quality Management System

The medicine manufacturing and distribution supply chain is a long and complex one. But in the coming years, the Indian pharmaceutical industry should look more closely at advanced tracking systems and introduce better tracing-related technologies. This is nothing new for Indian pharmaceutical manufacturers and exporters. The government previously had implemented a comprehensive tractability system known as Drug Authentication & Verification Application (DAVA) for both export and domestic markets in 2015. The program provided consumers and regulatory authorities with easier ways to prove drug authenticity and safeguard Indias brand image in international markets. However now the Pharma companies will progressively focus on strengthening their self-monitoring systems recognizing their moral need to do more.

2. Digital Technologies

India, known as the ‘Pharmacy to the World, already has expertise in low-cost generic patented medications as well as end-to-end production. As the countrys footprint grows, pharmaceutical companies are progressively adopting technology to upgrade their manufacturing capacities while also harmonizing regulatory requirements to meet global standards. The International Society for Pharmaceutical Engineering (ISPE) Pharma 4.0 framework also recommends the use of digitalization, cloud technologies, and process automation to enable efficiency, consistent quality, and right-the-first-time manufacturing while being sensitive to the environment. Pharma businesses in India are going beyond overall operations of pharmaceutical manufacturing and leveraging digital technologies to communicate with key stakeholders including the healthcare professionals and patients in addition to drug research. Through data analysis, companies can now have entire visibility into a patients path, from diagnosis to disease care, thanks to clever automation. This data-driven knowledge, in turn, aids in drug development and, as a result, has the potential to improve patient outcomes in future.

3. Precision Medicine

Precision medicine is increasingly becoming an area of focus in the Indian pharmaceutical industry, which arose from the concept of personalization and customization of medical care. The most important component of this is to diagnose and treat each patient as an individual. Precision medicine is all about offering real-time insights into how a specific patients body is responding to pharmaceuticals by combining data management, data privacy, and data analysis through Machine Learning. This knowledge is proposed to improve advanced clinical manufacturing procedures, such as establishing drug exposure models to predict pharma cokinetic and pharma codynamic features to prepare the needed dosage depending on age, comorbidities, and other clinical parameters.

4. Emerging Markets Drive Innovation

With the flattening of growth in pharma sales in developed countries, drug makers are increasingly looking to emerging markets for new sources of growth and revenue. This means pharmaceutical companies will focus on global competencies with strategies tailored for local markets to stay competitive. Market research firm IMARC projects that the global “pharmerging” market which includes countries that presently have a low position in the market but are rapidly growing will experience a compound annual growth rate of 10.4% from 2021 to 2026. IMARC cites the following reasons for growth in the pharmerging market:

The prevalence of chronic diseases and an increase in consumer awareness about treatment Government actions aimed at lowering the cost of treating chronic diseases Aging populations that face issues such as cardiac failure and hypertension Growth in health insurance in pharmerging countries

In addition to these trends, the sector this year was marked by a greater degree of collaboration between the government and industry, with both playing a pivotal role in helping the sector further strengthen its position in the global market. Because of the pandemic, the pharmaceutical sectors entire landscape has shifted, with collaboration between the government and the industry increasingly viewed in a positive light. In 2023, these partnerships are most likely to grow as we see an increase in government schemes and initiatives for manufacturing, skill development and other crucial areas of growth for the industry. All of this can tremendously help the industrys growth rate in coming years, while enhancing Indias potential to become the worlds preferred pharmaceutical investment destination.

EMERGING TRENDS: Following are some key emerging industry trends.

Pricing Pressure: With rising demand for healthcare and falling budgets, governments and payers are exerting pressure to drive down prices. Governments, insurers and patients are requiring greater transparency around drug pricing. Channel consolidation in the US continues to exert pressure on generic pricing. One of the challenges facing drug manufacturers is to build closer relationships with patients. This has many benefits including better understanding of patient experience and improved adherence. However, the industry has some way to go to become a trusted part of the healthcare ecosystem. Speciality Pharma: Specialty medicines are those which treat chronic, complex and rare diseases, and while they have a range of characteristics including the complexity of disease management or distribution the most commonly noted attribute is that they are more expensive than other more traditional medicines. Specialty medicines have been increasing as a share of spending in higher-income countries and upper middle income countries. Globally specialty medicines will be 45% of global spending by 2025, with more than half of Spending on these products in major developed markets. Complex Generics: A complex generic is a generic that could have a complex active ingredient, complex formulation, complex route of delivery, or complex drug device combinations. Complex generic drugs are cheaper than branded drugs and offer the opportunity to capture additional value to patients by addressing additional unmet needs and enabling complex drug manufacturers to achieve market differentiation and earn higher margins. Opportunities for generics remain strong and positive across the globe, with an increasing demand for affordable healthcare and government focus on cost control and expansion of medical infrastructure. The availability of cost-effective, safe generic alternatives offers a tool, that can be used to balance access to and affordability of many major therapies required to maintain a healthy population of patients across multiple disease areas. Biosimilars: Bio similar products are an identical copy of an original product already authorized for use and offer new therapeutic options with the potential for cost savings to the healthcare system. The introduction of regulatory frameworks for bio similar over the past 15 years has finally begun to contribute to systemic savings in a tangible way, and 2020, in particular, contributed a significant boost in bio similar impact from the U.S. for the first time. In the next five years, biologics will see $52 billion in lower brand spending, compared to $15.8 billion in the past five.

Growing incidence of Chronic & Sub-chronic therapies: With changing lifestyle, aging population

and improved diagnosis, incidence of chronic diseases or life style therapies are significantly increasing. This includes therapies such as Cardio-vascular, Anti-diabetic and Central Nervous System. This trend is even more prevalent in emerging markets such as India and Brazil. Digital healthcare: Digital is the future in all sectors of the economy and society and healthcare is no exception. Digital delivery will become integral to healthcare provision, and something that people have embraced after being driven indoors by the pandemic. For India, this is a solution to the vexed problem of providing healthcare to a massive population confronted by inadequate hospital beds, doctor and nurse coverage ratios. Change is anyway on the horizon. Reorganization of supply chains through digital adoption, innovation and value-based procurement, and promising applications of big data technologies are emerging. Ayushman Bharat Digital Mission (ABDM) aims to create a national digital health ecosystem that supports universal health coverage in an efficient, accessible, inclusive, affordable, timely, and safe

LONGER LIFE EXPECTANCY:

With declining fertility and increased longevity, the relative size of older age groups is increasing, Individuals are becoming increasingly health conscious and medical science continues to advance, number of older people is growing faster than the number of people in younger age groups. Older people (representing aged 65 and older) is projected to increase from 9% in 2019 to 16% by 2050. In Todays Modern era many youngsters are very health cautious and development in medical science also supports the human health.

CHANGING LIFESTYLES:

In todays world, lifestyle of individuals is increasingly becoming hectic and stressful leading to unhealthy eating habits, lack of exercise, less sleep and other lifestyle choices. This change in lifestyle has resulted in higher obesity, hypertension, depression, diabetes, cardiovascular diseases and other physical problems. sedentary lifestyle, changing dietary habits, hectic and stressful life, less sleep and certain environmental factors causes higher incidence of chronic diseases. This includes obesity, hypertension, depression, diabetes, cardiovascular diseases and other physical problems.

RISING DISPOSABLE INCOME:

Disposable income, also known as disposable personal income (DPI), is the amount of money that households have available for spending and saving after Income Tax have been accounted for. Disposable personal income is often monitored as one of the many key economic indicators used to gauge the overall state of the economy. In emerging markets, long term economic growth will lead to rise in disposable incomes. Due to this, the demand for better healthcare solutions will gradually increase.

IMPROVING PURCHASING POWER:

The middle-class population as well as per capital income continues to expand, driving demand for healthcare solutions. This expansion is likely to be more prominent in emerging markets.

TECHNOLOGY & INNOVATION:

Patients are better informed and aware of the healthcare choices available to them through technological advances such as mobile apps and healthcare devices. A new wave of innovation continues to replenish the product pipeline and will provide essential therapeutic advances for patients. In addition to novel medicines, there will be an ongoing flow of new mechanisms that will see their first human uses in areas such as genome-editing, micro biome as well as regenerative cell technologies that include stem cells harvested from one part of the body to use against a disease in another part.

HEALTH INSURANCE & INFRASTRUCTURE:

Penetration of health insurance is expected to surge with the government sponsored initiatives and programs. Increase in private sector insurance will also play an important role in affordability for higher cost. Moreover, medical infrastructure due to setting up / renovation of hospitals and healthcare centers, procurement of medical equipment and devices and improvement in medical education is expected to give healthcare providers the tools and resources necessary to treat their patients.

REGULATORY POLICIES:

Regulatory agencies have set a high priority to improve the drug review process to increase competition to reduce prices. Policies imposed by regulatory will be a significant growth driver to achieve success.

PERFORMANCE SNAPSHOT:

During the financial year under report, the Company registered a total income of 8893 Lakhs as against 8305 Lakhs in the previous financial year, a growth of 7.08% has been noticed. Since the company is moving on a strong path to achieve the highest milestone in the pharmaceutical industry for this company has started new market in overseas countries so that turnover can be maximized through supplies in overseas market. As during the year company has also been noticed that order from government department has been significantly increased as compared to the previous year it may impact on the turnover also.

SEGMENT REPORTING:

The Company operates in a single segment of Drugs and Chemicals, which is the primary reportable segment, and the same is given in the notes to the financial statements.

THREATS, RISKS AND CONCERNS

DRUG PRICE CONTROL: Currently 380 drugs and 899 formulations are covered under National List of Essential Medicines [NLEM]. It is likely that the government may bring more such drugs and formulations under price control or change the mechanism of calculating the ceiling price of the drugs which are under the ambit of Drug Price Control Order 2015 [DPCO 2015], which in turn will have impact on the margins of the Company. The Company manages its product portfolio so as to minimize the product weightage of drugs under price control.

LITIGATION RISKS:

The Company is producing various products and the risk of future litigation may exist due to very complex terms and conditions of the agreements, at present there are few litigations are pending which may do not have any impact on the company as the litigation is not much have such depth to effect the affairs of the company.

COMPETITION RISK:

Indian Market is growing rapidly and the new players in the Pharma industry may create new challenges for existing Pharma companies. Competition is an integral part of all industries and pharmaceutical is no exception. Different markets / businesses have different intensities of competitions and Company has a robust framework to identify its competitive advantages like early-to-market, niche new product launches through identifying unmet medical needs etc.

REGULATORY RISK:

Pharmaceutical is among one of the highly regulated industries across the world and rightly so as it deals with evolving human life. These regulation impact development, manufacturing, approval, marketing and distribution of products, while throwing new compliance challenges. A strong quality assurance mechanism and compliance monitoring network at Alpa ensures strict compliance at every level.

FOREIGN EXCHANGE RISK:

Due to the impact on COVID 19 Import/Export has effected very adversely on the industry and the company has witnessed the shortage of foreign currency due to lack of export sales during the March 20 to June 20. The Company earns a vital part of its revenue in foreign exchange, thus exposing it to the volatility in the exchange rates. The Company follows a conservative and disciplined hedging policy which ensures protecting the desired exchange rate for sustaining the profitability.

PRODUCT LIABILITY RISK:

The business is exposed to potential claims for product liability. These risks are sought to be managed by appropriate laboratory and clinical studies for each new product, compliance with Good Manufacturing Practices and independent quality assurance system. The Company also has an adequate insurance cover for product liability.

MANUFACTURING & SUPPLYING RISK:

Although a major portion of the Companys finished formulations are being manufactured at in-house facilities, the Company also depend on third party suppliers for sourcing for some of the markets. Any significant disruption at in-house facilities or any third-party manufacturing locations due to economic, regulatory political & social factors or any other event may impair the Companys ability to produce, procure and/or ship products to the markets on a timely basis and could expose the Company to penalties and claims from customers.

OVERSEAS MARKETS:

The development of the business in overseas markets is a critical factor in determining future ability to sustain or increase global product revenues. This poses various challenges including volatile economic conditions, IP issues, developed market compliance standards, inadvertent breaches of local / international law and interventions by national governments or regulators restricting access to market and / or introducing adverse price controls. However, the Company carefully monitors the business scenarios of these markets, prepares the business plan and undertakes various researches to reduce the risk at the minimal level.

CURRENCY FLUCTUATION RISKS:

Currency risks mainly arise out of overseas operations and financing activities. Exchange rate fluctuations could significantly impact earnings and net equity because of invoicing in foreign currencies, expenditure in foreign currencies. The Company has a defined foreign exchange risk management framework to manage these risks excluding translation risks.

DEPENDENCE ON INFORMATION TECHNOLOGY:

The Company is highly dependent on information technology systems and related infrastructure. Any breakdown, destruction or interruptions of this system could impact the day to day operations. There is also a risk of theft of information, reputational damage resulting from infiltration of a data center and data leakage of confidential information either internally or otherwise. The Company keeps on investing appropriately on the protection of data and information technology to reduce these risks

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

The Company has recently set up the new software system to enable to track the real time information at any time with the clear picture. We try every possible manner to protect the safeguards of assets of the members of the company. The Company is currently having strong system of internal controls in supervision, checks, policies and procedures, which are being tested on routine basis by the management and the internal auditors. The system is being reviewed and updated on an ongoing basis. Moreover, the company continuously upgrades these systems in line with the best accounting practices. The Audit Committee also reviews the adequacy of internal controls systems and the compliance 56 thereof. Further, the annual financial statements of the company are reviewed and recommended by the audit committee for the consideration and approval of the board of directors. The committee also reviews internal controls systems, significant accounting policy, major accounting entries, related party transactions, etc.

HUMAN RESOURCE

The human resources are assets for the organization and plays a crucial role in the growth and success of an organization. Company has a policy to retain talent at its high priority to enable achievement of organizational goal and vision. The organization takes pride in its human capital, which comprises of people from diverse backgrounds and cultures. Guided by the core values which are deeply imbibed in each of the employees, the organizations achievements are an outcome of efforts, dedication and conviction demonstrated by its people.

The company has 318 permanent employees as on 31st March, 2023 against 393 employees as the end of March 2022, a decrease of 75 employees has been noticed.

2022-2023 2021-2022 % Change

PARTICULARS

Rs. In Lakhs Rs. In Lakhs

Total Income

10236.36 12306.00 (16.82%)

EBITDA

1748.45 2136.80 (18.16%)

Depreciation

132.92 165.67 (19.77%)

Interest Charges

22.34 24.29 (8.02%)

Profit Before Tax

1593.19 1958.05 (18.64%)

Exceptional Items

- - -

Income Tax and

330.75 545.46 (39.45%)

Deferred Tax

Profit After Tax

1241.45 1412.58 (12.11%)

CAUTIONARY STATEMENT:

Certain statement in the management discussion and analysis may be forward looking within the meaning of applicable securities laws and regulations and actual results may differ materially from those expressed or implied. Factors that would make differences to companys operations include competition, currency fluctuations, regulatory issues, changes in government policies with in India and the countries in which the company conduct business and other incidental factors.

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