Bafna Pharmaceuticals Ltd Management Discussions.

Economic & Industry Overview

As per the International Monetary Fund, global economic growth was expected to rise from 2.9 percent in 2019 to 3.3 percent in 2020, slightly weaker than earlier projections. Economic weakness in certain emerging market economies, especially India led to this revision of growth prospects. Stronger multilateral cooperation, more balanced policy mix at national levels and impact of monetary policy easing could help strengthen economic activity and prevent downside risks.

However, the coronavirus (COVID-19) outbreak has brought considerable human suffering and major economic disruption with the growth prospects of the global economy becoming highly uncertain. Adverse impact on global business confidencehas been witnessed in the first quarter of 2020, with financial markets demonstrating high volatility and capital flight, especially in emerging market economies where investors have been major sellers in stock markets. IMF predicts that global growth is expected to fall below 2019 levels.

Economic growth, an expanding global population, rise in incomes and technological change are expected to contribute to growth in the pharmaceutical industry. However, social, economic and political challenges remain in meeting unmet medical needs. The global healthcare market continues to grow, despite signs of economic slowdown in some countries.

Global medicine spending is expected to rise from US$955 billion in 2019 to over US$1.1 trillion by 2024, per IQVIA.

Pharmaceuticals sector overview opportunities to service the healthcare needs of a growing The global pharmaceuticals industry offerssignificant and ageing global population. The Industry has witnessed major investments in developing innovative medicines like monoclonal anti bodies, immunotherapy drugs and gene therapies. Many of these medicines have seen significant success as they are serving the unmet medical needs of patients, resulting in improved medical outcomes and thus changing the lives of patients.

The industry will have to adapt to thischangedscenario,althoughitalsoofferssignificantlearning opportunities. These changing dynamics are also likely to have an impact on competition since return ratios on investments in the European and emerging generics business are growing up and down and not every generics company will be able to remain economically viable at the current rate of price.

Pharma outlook : positive factors

The new financial year comes with a new set of challenges in the midst of the ongoing COVID-19 pandemic. However, we are confident of emerging from the current situation stronger and more determined than ever to deliver on our commitments.

India

India is the largest provider of generic drugs globally. Indian pharmaceutical sector industry supplies over 50 per cent of global demand for various vaccines, 40 per cent of generic demand in the US and 25 per cent of all medicine in UK.

India enjoys an important position in the global pharmaceuticals sector. The country also has a large pool of scientists and engineers who have the potential to steer the industry ahead to an even higher level. Presently over 80 per cent of the antiretroviral drugs used globally to combat AIDS (Acquired Immune Deficiency Syndrome) are supplied by Indian pharmaceutical firms.

Indian pharmaceutical sector is expected to grow to US$ 100 billion and medical device market expected to grow US$ 25 billion by 2025. Pharmaceuticals exports from India stood at US$ 19.14 billion in FY19 and US$ 13.69 billion in FY20 (up to January 2020). Pharmaceutical exports include bulk drugs, intermediates, drug formulations, biologicals, Ayush & herbal products and surgicals.

Indian companies received 304 Abbreviated New Drug Application (ANDA) approvals from the US Food and Drug Administration (USFDA) in 2017 and received a total of 415 product approvals in 2018 and 73 tentative approvals. The country accounts for around 30 per cent (by volume) and about 10 per cent (value) in the US$ 70-80 billion US generics market.

Indias biotechnology industry comprising biopharmaceuticals, bio-services, bio-agriculture, bio-industry and bioinformatics is expected grow at an average growth rate of around 30 per cent a year and reach US$ 100 billion by 2025.

Indias domestic pharmaceutical market turnover reached Rs 1.4 lakh crore (US$ 20.03 billion) in 2019, growing 9.8 per cent year-on-year (in Rs) from Rs 129,015 crore (US$ 18.12 billion) in 2018.

Cost efficiency-

Low cost of production and R&D boosts efficiency of Indian Pharma Companies, leading to competitive exports

Indias pharmaceuticals exports stood at US $ 13.69 billion in FY 2020. The exports are expected to reach US $ 22 billion by 2020.

Economic drivers

High economic growth along with increasing penetration of health insurance to push expenditure on healthcare and medicine in India.

Policy Support

Government of Indias ‘Pharma Vision 2020 aims to make India a global leader in end to end drug manufacturing. In this sector 100% FDI is allowed under automatic route.

Increasing Investment

Increasing private sector investments in R&D and acquisitions are driving the sectors growth. In FY 18, Indian Pharma Companies invested 8.8% of their sales in R&D.

Indian drugs and pharmaceuticals sector has received cumulative FDI worth US $ 16.39 billion between April 2000 and December 2019.

Note: source https://www.ibef.org/industry/pharmaceutical-india.aspx

Risks and concerns

Risk is a potential event or non-event, the occurrence or non-occurrence of which, can adversely affect the objectives or strategy of the Company or result in opportunities being missed. A risk could be categorized into financial, operational, strategic, regulatory/ statutory, reputational, political, catastrophic/ pandemic etc.

The global pharma business is marked by a variety of risks. Pharmaceutical companies struggle to globally enforce IP protection, particularly in some emerging markets. Enhanced regulatory scrutiny is set against a backdrop of increasing patient advocacy, social media and affiliate marketing programs. The digitization and proliferation of electronic medical records, networked medical devices, mobile health applications, cloud-based technologies and data-sharing among industry stakeholders have increased the complexity of managing information assets, particularly protected/patient health information and intellectual property. The success of new products in the global pharmaceutical industry will more than offset global pricing pressures, supporting an outlook change from stable to positive for the industry

Your company constantly reviews its policies and procedures to adhere to ensure conformity to the various regulatory approvals for its manufacturing facilities.

Company Overview

Internationally, our focus is on expanding the revenue from registered products and applying for registration of products enabling for more revenue generation opportunities.

Your company continues to work towards optimizing the capacities of its manufacturing facilities and also on adding additional capacities aimed at the business opportunities available in line with its strategy. Your Company will try to ensure that it remains competitive in market, in costs and will manage the business more dynamically.

Bafna Pharmas Global footprint

S.No Name of Country No. of Products Approvals No. of Application Pending for Regis- tration
1 AZERBAIJAN 1 2
2 CAMBODIA 2 10
3 CAMEROON 6 -
4 ETHIOPIA 5 7
5 GUATEMALA - 1
6 GHANA - 2
7 HOUDURAS 4 9
8 KAZAKHSTAN 2 3
9 KENYA 2 6
10 MYANMAR - 8
11 NICARAGUA/COSTARICA/EL SALVADOR - 2
12 NEPAL 10 20
13 NIGERIA 32 19
14 PERU 4 6
15 PHILIPPINES 20 19
16 RUSSIA 3 1
17 RWANDA - 2
18 SRI LANKA 43 51
19 TAJIKISTAN 3 -
20 TANZANIA 10 13
21 UK 16 -
22 UKRAINE 20 18
23 VIETNAM - 6
24 YEMEN 3 11
25 ZAMBIA - 2
26 UAE - 1
TOTAL 186 219

Performance and operations review Consolidated Operating Results

The consolidated revenue from operation was Rs. 4272.79 Lakhs in comparison to Rs.4401.26 Lakhs of the previous year. The consolidated net loss for the year 2020 was Rs. 2472.93 Lakhs as against FY 2019 of Rs. 1887.05 Lakhs.

Standalone Operating Results

The sales and operating income was Rs.4272.78 Lakhs in comparison to Rs. 4401.25 Lakhs in the previous year. The operating Loss for the year under review is Rs.2520.36 Lakhs as against Rs. 1973.04 Lakhs for the previous year

Internal Control Systems

The company has reasonable internal control systems, with defined guidelines on compliance, which enables it to run its facilities and head office with a fair degree of comfort. Internal Audit is being undertaken by Independent Auditor M/s.

Soleti Associates, Chartered Accountant, Chennai, for the Financial year 2019-20 and 2020-21.

Internal controls are implemented to safeguard its assets, to keep constant check on cost structure, to provide adequate financial and accounting controls and implement accounting standards. The system incorporates continuous monitoring, routine reporting, checks and balances, purchase policies, authorization and delegation procedures and audit etc. Internal controls are adequately supported by Internal Audit and periodic review by the management.

The Audit Committee meets periodically to review with the management, statutory auditors and with the internal auditors, adequacy/scope of internal audit function, significant findings and follow up there on and findings of any abnormal nature. The system is improved and modified continuously to meet with changes in business condition, statutory and accounting requirements.

Material Development in Human Resources / Industrial Relations Front

The number of employees as on 31st March, 2020 was 264.

The growth attained by the Company is largely a function of the competence and quality of its human resources. The work environment is very challenging and performance-oriented, recognizing employee potentials by providing them with adequate opportunities. We have made efforts to discipline our hiring process. Acquisition and retention of talent which is in line with your companys goals continues to be a major thrust area.

On behalf of the Board of Directors
For BAFNA PHARMACEUTICALSLIMITED
Sd/- Place: Chennai
Bafna Mahaveer Chand Date: 25.06.2020
(DIN01458211)
Chairman & Managing Director