claris lifesciences ltd Management discussions

Global Injectables Outlook

The global injectable drug delivery market, in terms of value, is projected to reach USD 624.50 Billion by 2021 from USD 362.38 Billion in 2016, at a CAGR of 11.5% during the forecast period. US Generic Injectable market expected to grow at 10% CAGR 2015-2020. [Source: MarketsandMarkets.com]

The injectable drug delivery market is segmented based on type, formulation packaging, therapeutic application, usage pattern, site of administration, distribution channel, facility of use, and regions.

*Other therapeutic applications include pain management, allergies, anesthetic treatment, hepatitis C, and helophillia.

** Other usage patterns include blood transfusion, inoculation, blood products, and contraceptives.

*** Other facilities of use include diagnostic labs and institutions, academic and research institutions, and other healthcare provides.

As per ICRA research, during the 2015-19 period Injectables drugs worth ~US$16 billion are expected to go off-patent in the US alone. While significant price erosion is normal once the drugs go off-patent, the injectable segment still holds a sizeable opportunity to gain meaningful revenue growth for Indian generic companies because the upcoming patent expiries. In addition, increase in manufacturing costs, required as part of complying with USFDA cGMP norms and drug shortages, has led to price increases in the past and the trend is expected to continue forward - contributing to the overall market growth. Supported by the patent expiries and favourable pricing environment, the US generic injectable market is expected to grow at a CAGR of 10% over the next five years. Stringent USFDA cGMP regulations have led to supply issues for various injectable players and focus on maintaining quality remains critical.

Drug shortages are led by supply disruptions because of USFDA cGMP violations as well as consolidation of in-house manufacturing facilities. Several warning letters had been issued by USFDA in the past to generic injectable players, though sorted out over period.

USA remains a challenging market due to high entry barriers and established incumbents. The generic injectable market is characterised by high capital investments and operational costs coupled with relatively higher compliance requirement owing to the sterile nature of the products. These factors have resulted in high barriers to entry and, thus, a limited number of competitors relative to other segments. These have further reduced due to mergers and acquisition ("M&A") activities within the sector over the last few years. For the US Generic Injectable market, 70% of the market (by value) has three or less than three companies compared to five or more players for the oral solids generics corroborating high level of entry barriers owing to high upfront capital investments, compliance issues and economies of scale requirements. In 2015, the top five generic companies controlled ~52% of the market share by value and ~73% of the market by volume (source: Industry). Any new entrant is required to have a relatively large basket of products and cost advantage to gain traction with customers.

Over the past few years, manufacturing units of several large players operating in the US generic injectable market have faced regulatory interruptions due to non-compliance to cGMP guidelines. Injectables, being sterile products, require stringent manufacturing processes across development, formulation, packaging, storage and transportation phases and attract greater scrutiny from regulatory agencies. Approximately 65% of the drug shortages in the US are because of quality manufacturing/ delays or capacity constraints and thereby making them one of the critical success factors to build sustainable business.

Opportunities:

US$16 billion worth of drugs going off-patent 2015-19

Drug shortages: Maximum number of drug shortages reported for Injectables in the US

Improved pricing trend led by increased investments in manufacturing facilities to maintain cGMP (USFDA) norms Challenges:

Maintaining USFDA-compliant manufacturing facilities

High barriers to entry due to complex manufacturing process, high operational & capital cost and compliance requirements

There has been a sizeable number of acquisitions in the US generic injectable market over the last few years. The acquisitions were driven by the need to acquire product portfolio, development pipeline and manufacturing capabilities of existing injectable players to consolidate market share or accelerate entry into the promising US sterile injectable market. With the upcoming patent expiries, we expect continuing trend in M&A to acquire development and manufacturing capabilities for complex injectables / novel drug delivery systems.

Regional Break up

The market is dominated by North America, followed by Europe, Asia, and the Rest of the World. While North America is expected to dominate the market in 2016, Asia is expected to grow at the highest CAGR during the forecast period. The growth in this market is attributed to rising incidence of chronic diseases and growing aging population. In addition, high penetration of self-injection technologies in Asian countries such as China, Japan, and India adds to the demand for injectable devices.

The major countries are U.S, Canada, Germany, U.K, China, India, South Africa, Saudi Arabia, Brazil, and Mexico. The North America region is technologically better equipped to handle a large patient base, thus making them more competent in this market. With the prevalence of chronic disorders increasing in this region the need to develop newer and better drug delivery systems was witnessed here.

Countries like China and India dominate the Asia market with various options in their product range with specific alterations made to the products to suit the exact needs of the patients. With a large population in the Asian region, the need for drug delivery systems is large in this market thus augmenting the necessity for injectable systems.

India Outlook

Stable Profitability Supports Stable Outlook: It is expected that a stable outlook on the pharmaceutical sector for FY18 will be maintained, on the expectation that the sectors profitability will remain stable. Domestic market growth to remain brisk and compensate for weak export growth.

Exports continue to Support Profitability: Though export revenue growth remained weak, the profitability of companies exporting to regulated markets improved during FY16 and FY17. Indian companies received close to 200 abbreviated new drug application (ANDA) approvals each in 2015 and 2016 (2014: 122) from US Food and Drug Administration (USFDA). A higher proportion of revenue from new products during this period aided in margin expansion. The intensity of new actions by the USFDA was lower in 2016. Eight warning letters and three import alerts (2015: 17 and 12, respectively) were issued and the number of facilities under import alert has now increased to 45. Increased regulatory actions by the USFDA has resulted in export revenue going down to 6.6% CAGR for the three years ended FY16 as compared to the 13.7% CAGR for the six years ended FY16.

M&A can delay deleveraging: It is anticipated that the pharmaceutical companies may engage in M&A to overcome regulatory and competition headwinds. The high intensity of competition among peers to acquire attractive assets can lead to an overheated market. We also expect companies with strong balance sheets to take advantage of favorable credit market conditions and use debt to fund acquisitions, which can delay deleveraging. A sustained improvement in export growth of the sector and/ or an increase in the proportion of revenue from differentiated generic products resulting in a sustained improvement in operating profitability can be positive for the sector.

(Source: India Ratings Report)

Sale of Global Generic Injectables Business to Baxter International Inc.

The injectable generics sector has been through a sustained period of consolidation over the last few years as the leading companies have increased their presence through acquisition. Interest in this specialist sector has come from both established generic manufacturers and major pharmaceutical companies.

We had announced on December 15, 2016, that we have entered into definitive agreements with Baxter International Inc. (Baxter) for the sale of our global generic Speciality Injectables business, carried on by us through our subsidiary Claris Injectables Limited (CIL) and our other identified indirect subsidiaries, at an enterprise value of US$ 625 million on a cash free debt free basis.

CIL manufactures and/or markets products across multiple delivery systems, markets, and therapeutic segments including anesthesia, anti-infectives, critical care and nephrology. A significant majority of these products are generic drugs, capable of being directly injected into the human body, predominantly used in the treatment of critical illnesses. The customer base primarily includes government & private hospitals, aid agencies, and Group Purchasing Organizations. With emphasis on quality, technology, and innovation, we offer a range of niche technology-driven injectable products across delivery systems such as glass bottles, vials & ampoules, and non-PVC/PVC bags.

The Injectables business, has been growing rapidly over the last few years and has been attracting significant interest. The business encompasses several specialty high entry barrier products and it has capabilities and technologies that enables an integrated business model from research to marketing with an advantage of lower cost of production in India as compared to the other developed countries. We believe that this strategic partnership with Baxter will create a very promising future roadmap for the business including for the team and the stakeholders. Over the last 5 years, the management and team at the Company have scaled up and created significant value across both their businesses - the earlier infusions business and now the Speciality Injectables.

Baxter International Inc. is a US$ 10 billion (FY2015) revenue company, employing around 50,000 employees worldwide with manufacturing presence in more than 27countries world-wide. Baxter provides a broad portfolio of essential renal and hospital products, including home, acute and in-center dialysis; sterile IV solutions; infusion systems and devices; parenteral nutrition; bio-surgery products and anesthetics; and pharmacy automation, software and services. The companys global footprint and the critical nature of its products and services play a key role in expanding access to healthcare in emerging and developed countries. Baxters employees worldwide are building upon the companys rich heritage of medical breakthroughs to advance the next generation of healthcare innovations that enable patient care.

Baxter is a company with a very deep and long history and roots in the hospital business with a focused strategy to grow in Injectables market and is perfectly suited to take our business forward. It has the requisite expertise and the resources along with its global reach to leverage the business as a strategic platform and to catapult its R&D, manufacturing and people capabilities and build it into a world class Injectables story. After achieving this milestone of signing definitive agreement, we along with Baxter are working towards closing the transaction and make it fully effective.

Our Board of Directors in their meeting held on December 15, 2016, has approved sale and transfer of the Injectables Business carried on by us in India and overseas, through our subsidiary Claris Injectables Limited and our other identified indirect subsidiaries, through one or more transactions involving the transfer of ownership of the subsidiary(ies) to the Baxter Group at an aggregate enterprise value of USD 625 million for the said transaction relating to the sale of Injectables business, subject to agreed adjustments, permitted under applicable law, including for repayment of lenders debt, certain inter-group transactions, and other closing adjustments, which may be substantial. We have taken the approval of our Companys shareholders through the postal ballot on February 17, 2017. Accordingly, the Injectables business is considered as Discontinued Operations in terms of Ind-AS 105 in our standalone and consolidated financials. We intend to repatriate a significant majority of the net cash proceeds (post taxes and expenses) to our Companys shareholders.

Sale of 20% stake in JV with Otuska

We entered into a definitive agreement on May 8, 2017 with Otsuka Pharmaceutical Factory, Inc. (Japan), to sell our 20% stake in the joint venture Otsuka Pharmaceutical India Private Limited (formerly known as Claris Otsuka Private Limited), for a total consideration of USD 20 million. The closure of the transaction is subject to regulatory approvals, including approval from Foreign Investment Promotion Board. After closure of this agreement, we will not have any stake in Otsuka Pharmaceutical India Private Limited.

Financial Performance

Our financial statements have been prepared in accordance with Indian Accounting Standards (Ind AS) notified under the Companies (Indian Accounting Standards) Rules, 2015.

For all the periods, up to and including the year ended March 31, 2016, we prepared our financial statements in accordance with the accounting standards notified under the section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 (Indian GAAP). We have adopted IND AS for the year ended on March 31,2017 with transition date of April 1,2015. Accordingly, these financial statements are our first financial statements prepared in accordance with Ind AS. The financial statements for the year ended on March 31,2016 are restated in accordance with IND AS.

The following table details out the consolidated statement of total comprehensive income for the year ended on March 31,2017 and 2016.

		(Rupees in Lacs)
Particulars	For the year ended on March 31, 2017	For the period ended on March 31, 2016
Income
Revenue from operations
Sale of products / services	1,289.51	11,621.41
Operating income	1,263.36	1,694.84
Total revenue from operations	2,552.87	13,316.25
Other income	3,745.88	4,584.75
Total income	6,298.75	17,901.00
Expenses
Purchase of Stock-in-trade	821.60	10,239.67
Employees benefits expense	3,262.46	2,236.94
Finance cost	398.32	547.92
Depreciation and amortisation expense	396.84	385.73
Other expenses	4,780.00	8,635.44
Total expenses	9,659.22	22,045.70
Profit/(loss) before share in profit/(loss) of associate and tax	(3,360.47)	(4,144.70)
Share in Profit/(Loss) of associate	(2,609.27)	(9,212.10)
Profit/(loss) before tax	(5,969.74)	(13,356.80)
Total tax expense/(benefit)	(1,955.48)	(2,291.50)
Profit/(loss) from continuing operations - A	(4,014.26)	(11,065.30)
Profit before tax from discontinuing operations	22,216.31	10,144.41
Tax expense - discontinuing operations	7,209.55	3,022.61
Profit from discontinuing operations - B	15,006.76	7,121.80
Profit/(loss) for the year C=(A+B)	10,992.50	(3,943.50)
Total other comprehensive income/(loss), net of tax	(804.67)	(496.73)
Total comprehensive income/(loss) for the year, net of tax	10,187.83	(4,440.24)

Management Discussion & Analysis

Total income break up

The table below provides the break-up of our total income from continuing operations for the year ended on March 31,2017 and 2016.

Particulars	For the year ended on March 31, 2017	For the year ended on March 31, 2016
Sale of products / services	20.47%	64.92%
Operating Income	20.06%	9.47%
Other Income	59.47%	25.61%
Total	100.00%	100.00%

Summarized Consolidated Profit and Loss Statement

(Rupees in Lacs)

Particulars	For the year ended on March 31, 2017	For the year ended on March 31, 2016
Sale of products / services	1,289.51	11,621.41
Other operating income	1,263.36	1,694.84
Other income	3,745.88	4,584.75
Total income	6,298.75	17,901.00
Earnings before interest, tax, depreciation and amortisation (EBITDA)	(2,565.31)	(3,211.05)
EBITDA (% to total income)	(41%)	(18%)
Profit/(loss) before tax from continuing operations	(5,969.74)	(13,356.80)
Profit/(loss) from continuing operations	(4,014.26)	(11,065.30)
Profit from discontinued operations	15,006.76	7,121.80
Profit/(loss) for the year	10,992.50	(3,943.50)
Total other comprehensive income/(loss), net of tax	(804.67)	(496.73)
Total comprehensive income/(loss), net of tax	10,187.83	(4,440.24)

On consolidated basis, our total income for the year ended on March 31, 2017 was Rs.6,298.75 lacs as against Rs. 17,901.00 lacs for year ended on March 31,2016. We continued to pass through sales on behalf of Otsuka Pharmaceutical India Private Limited and Claris Injectables Limited during the year ended on March 31,2017.With the transfer of product registration to Otsuka Pharmaceutical India Private Limited and Claris Injectables Limited, the quantum of pass through sales was reduced substantially during the year ended on March 31,2017 as compared to the previous year.

EBIDTA was reduced to (41%) for year ended on March 31,2017 as against (18%) for the year ended on March 31,2016. Such decrease in EBIDTA was largely due to decrease in pass through sales of Otsuka Pharmaceutical India Private Limited and increase in employment costs due to additional recruitment of manpower and annual increments.

For the year ended on March 31,2017, there was a profit of Rs. 10,992.50 lacs as compared to a loss of Rs. 3,943.50 lacs for the year ended on March 31,2016. This was largely due to share in loss of associate of Rs. 9,212.10 lacs on account of impairment of intangible asset carried out by Otsuka Pharmaceutical India Private Limited alongside loss on business operations during the year ended on March 31,2016.

The above chart does not include the figures pertaining to discontinued business.

Purchase of stock-in-trade

There has been a reduction in the purchase of stock-in-trade as a percentage to total income, from 57% of total income for the year ended on March 31,2016 to 13% of total income for the year ended on March 31,2017. Such decrease is mainly on account of reduction in the pass through sales of Otsuka Pharmaceuticals India Private Limited.

Employee benefits expenses

Employee benefits expenses have increased by Rs.1,026 lacs for the year ended on March 31,2017 as compared to the year ended on March 31,2016. This increase is mainly due to additional recruitment of manpower and annual increments.

Other expenses

During the year ended on March 31,2017,other expenses have decreased by Rs. 3,855 lacs as compared to the year ended on March 31,2016. Such decrease in the other expenses is mainly due to one-time expensing of assets not eligible for recognition under IND AS in FY 16, decrease in legal & consultancy expenses in FY17, increase in foreign exchange loss in FY17 and increase in provision for doubtful debt in FY17.

Finance cost

During the year ended on March 31,2017, the finance cost has gone down by Rs. 150 lacs as compared to the year ended on March 31,2016. Depreciation and amortisation

There has not been any significant change in the depreciation and amortisation expenses for the year ended on March 31,2017 and 2016.

Tax

There was tax expense of Rs.5,254.07 Lacs and Rs.731.11 Lacs for the year ended March 31,2017 and 2016, respectively.

Profit/loss for the year

During the year ended on March 31,2017,there was a profit of Rs. 10,992.50 lacs, as against loss of Rs. 3,943.50 lacs during the year ended on March 31,2016.

Financial Highlights

*Based on Ind AS Consolidated Financial Statements

Net worth of the company, as at March 31,2016, was reduced due to losses incurred by our associate company Otsuka Pharmaceuticals India Private Limited on account of impairment recognised for certain assets and other intangibles. During the year ended on March 31,2017, there was no such impairment and further there was an increase in profit after tax. This has resulted in increase in Net worth as at March 31,2017.

(The graphs below are for FY2015, FY2016 and FY2017)

Debt equity ratio of the company increased, as at March 31,2016, due to additional borrowings by the company during the year for capital expansion.

Claris Speciality Injectables

Provided below is the management representation of the unaudited numbers for the Specialty Injectable Business (SIB):

(Rupees in Lacs)

Particulars	For the year ended on March 31,2017	For the period ended on March 31, 2016*	Growth
Total Income	82 ,348.02	60,689.00	36%
EBIDTA Pre R&D	31,604.98	18,880.15	67%
R&D	2,750.74	2,430.60	13%
EBIDTA Post R&D	28,854.24	16,449.55	74%
EBITDA Margin (%)	35.03%	27.10%
PAT	15,006.76	7,121.80	110%

• Last year numbers were adjusted to provide comparative numbers as per Ind AS

• Revenues for SIB grew by 36% for FY2017 vs FY2016

• Post R&D EBITDA for the year grew by 74% as compared to the previous year.

• EBTIDA Margin for the year has increased by 35% as compared to 27% due to better country / product mix, primarily driven by higher sales growth in USA.

• Comparative PAT has grown by 110%

Region wise consolidated sales			(Rupees in Lacs)
Region	FY 2017	FY 2016	Growth %
USA	51,584.77	31,195.85	65%
Other Regulated (Ex US) - ORM	12,950.09	11,584.47	12%
Emerging Markets - EM	16,711.84	28,756.06	-42%
TOTAL	81,246.70	71,536.39	14%

• USA continues to drive the revenue for the FY17, over the last year revenues to US grew by 65%, US now accounts for 64% of our SIB sales.

• Other Regulated markets has grown by 12%, and are expected to grow next year as well.

• Regional issues in a few important Emerging Markets and sharp reduction in the pass-through sales of Otsuka Pharmaceuticals Private Limited pursuant to transfer of registration in its name has resulted into a de-grow of 42 % over the previous year, we expect EM to remain flat in next year.

International markets Regulated Markets

Sales to the US have shown continued growth, the company presently has 16 ANDAs approved in the US, having an addressable market size of approximately US$ 305 MN and the company is expecting 9-10 additional ANDA approvals during FY2017-18, this could increase the addressable markets size of companys products in the US to around US$ 525 MN. We have increased our management strength in the US in line with the companys estimated growth from the US markets, we now have a 17-member strong team across, sales and marketing, regulatory, quality and finance departments

In non-US regulated markets, sales are made largely to distributors. Non US Regulated markets represent sales to customers in Australia, UK, European Union (including Baltic States - Latvia, Bulgaria, Lithuania, etc.), South Korea, Canada and New Zealand. Sales in these markets are largely tender driven and participation in these tenders by the distributors and pricing decisions thereof are made in consultation with the Company. There are country managers for each country based out of India who are responsible for the growth of this region and the company plans to file new products to the non-US regulated markets which will drive the future growth for this region.

Emerging markets

Emerging markets or Semi-Regulated markets represent the Rest of the World (ROW), these are countries other than those forming part of the regulated markets as mentioned above. These markets are largely trade though in certain countries like Brazil, tender contributes significantly to revenues. In emerging markets, sales are made largely to distributors. Sales in Philippines are managed through a local wholly owned subsidiary which makes onwards sales to distributors. Emerging markets have not shown growth during the year due to a conscious decision by the company to reduce sales in certain markets like Venezuela and certain CIS countries where there have been issues due to political/economic turmoil in these countries. The emerging markets also have certain promising countries like Brazil, Mexico and the Middle East which are expected to do well in future.

Operations

We are focusing on high value product launches tailored to market needs, training skilled sales and marketing people and developing strong customer relationships.

We are continuously investing in our high quality manufacturing facilities to improve the efficiency of our processes, while maintaining control of overheads to maintain highest quality standards. We continuously evaluate our plants and production lines and believe that our current facilities, are sufficient to meet our expected needs.

We are subject to extensive, complex and evolving regulations and increasing oversight by the FDA and other domestic and foreign regulatory authorities. In response, we have developed definitive action plans, implemented remediation programs and modified our practices in an effort to address any issues.

We are continuously investing in the training and development of our people while hiring talented new employees to support our future growth plans. We continue to invest to strengthen our sales teams and enhance our promotional activities. We are constantly maximizing sales force effectiveness.

We work closely with our suppliers to ensure continuity of supply and build redundancy to manage risk. We diversify our sources of materials and continually evaluate alternate-source suppliers.

Our operations and business activities are subject to extensive legal and regulatory requirements that are enforced by numerous governmental agencies in the countries in which we do business. We have implemented compliance programs to support and monitor compliance with these laws.

Technology Up gradation during the year

During the year, the company has introduced new technologies in the manufacturing facilities and the testing labs. Brief of technology upgradation effected during the year are as under:

• Manufacturing automation in PFE (Propofol) line -1, which is 21 CFR compliant, manufacturing process control & data printout through SCADA system will improve the data capturing and recording process for company, this will help the company in the long run with respect to regulatory bodies requirements of having systems in place to ensure data reliability.

• Introduction of 21 CFR compliance in all sterilizers and bung autoclave of CIL1 plant, software implementations will improve the data capturing and recording process for company, this will help the company in the long run with respect to regulatory bodies requirements of having systems in place to ensure data reliability.

• As a part of production capacity enhancement, we have installed new bag filling and sealing machine in bag line filling area, this will help the company to increase production capacity.

• Introduction of Closed System Sterility Testing System at Clarion 1 and clarion 2 microbiology laboratory for regulatory compliance and avoid any chances of human error.

• Introduction of Kinetic Turbidimetric Analysis (KTA) technique for performing Bacterial Endotox in Test (BET) for regulatory compliance and avoid any human chances of human intervention, including capturing real time analysis data

• Started implementation of Laboratory Information Management System (LIMS) to upgrade and automate quality control analysis and documentation system

• Installed automated bacterial identification system equipment to make microbiology laboratory self-sufficient for identification of bacteria. Treasury Management

The Company has also invested its surplus cash into Treasury Funds with objective to generate optimal consistent returns with lowest possible risks and high liquidity while managing the cash requirements of the business.

Accordingly, Investments predominantly made in Debt instruments. The portfolio has a high liquidity where more than 41% of the corpus can be redeemed in a months time. As our major exposure is into fixed income instruments and during the year G-Sec yields have gone down, during the same period company could generate 11% IRR on a pre-tax basis.

Conference Participation

Extended Reach. Enhanced Visibility. - Guided by this simple philosophy, your company continued to widen its marketing horizons by participating in various conferences, globally. Key prestigious conferences that your company participated include:

• CPhI Worldwide, Spain

• American Society of Health-System Pharmacists (ASHP) Midyear, USA

• Health Trust University Conference 2016 by Health Trust Purchasing Group (HPG), USA

• 20th Annual National Pharmacy Purchasing Association (NPPA) Conference, USA

• Philippines Society of Anaesthesia (PSA) Convention, Philippines

• 64th Annual Conference of Indian Society of Anaesthesiologists (ISACON) 2016, India

Enthusiastic participation in such highly acclaimed conferences has helped your company with better brand visibility, stronger corporate image and wider awareness about the products.

Developments in HRM

Your company has been consistently and resolutely striving to ensure optimum talent acquisition by hiring most suitable candidates, developing potential members, and creating a thriving workplace culture. As an apparent outcome of these efforts, your company has been recognised, time and again, by key industry stalwarts.

For the 7th consecutive year, in 2016, your company has been recognised in a study by The Economic Times and Great Place to Work Institute, India. Your company has been ranked first in Healthcare industry and among top 50 in Indias Best Companies to Work For 2016 study. Furthermore, your company has also been endowed The Great Manager Award 2016 and has been mentioned in the Top 20 list of Companies with Great Managers published in The Times of India by People Business.

As a testament of practising and encouraging effective leadership, Shyam Sharma - President, HRM & Corporate Communication, has been conferred Most Influential HR Leaders in India award by the renowned World HRD Congress during their Silver Jubilee Celebration.

Hiring

Your company has continued to use the traditional ways of talent acquisition like member referral programme - Auto Quest, job portals, internal data bank and advertisements. Moreover, being a technology-driven company and considering the ever-changing recruitment dynamics, your company had initiated the use of popular professional networking site LinkedIn during last year. From the success attained, major thrust has been laid on the utilisation of LinkedIn to reach culture-fit candidates.

Leveraging on information technology expertise, your company has been considering automating the hiring process. For the same, efforts have been initiated to explore HRIS tools and thereby increase the efficiency of talent acquisition and management.

Total Man power of the group is 2,662 nos, comprising of 1,640 employees and 1,022 contract workers. Among 1,640 employees, 9 are PhDs, 44 Professionals, 358 are Pharmacists, 438 are Post Graduates, 374 are graduates and 417 are under graduate employees.

Capability Enhancement

As an ongoing process, your company continued to design, develop and execute trainings and exposures to facilitate individual development of members. Various programs have been organised to empower members with enhanced leadership, communication, inter-personal relationship, strategic thinking, emotional intelligence, negotiation, and creative thinking skills.

During the year, the focus has been on Leadership Excellence. Select home-grown as well as new members have been nominated for leadership and managerial development programs at internationally acclaimed business schools. These programs aimed at enhancing managerial proficiency, strategic decision-making abilities, and leadership skills.

Work-Life Balance Initiatives

Furthering the "People-Centric" approach and "people are everything" belief, your company has introduced several new initiatives to ensure work-life balance for the members.

As a novel initiative, an SBI ATM machine has been installed at Clarion to ease operations and increase member convenience for hassle-free cash withdrawals and other ATM services.

During the routine course of work, it becomes difficult to grant simultaneous leaves to members from the same department. It became a bigger concern during festivals. To overcome possible absenteeism and let members enjoy the festive season with their families, your company granted a week-long vacation during Diwali. Further, the concept of compensatory off and flexi-timing has also been introduced.

The Workplace Refresh initiative has been enhanced further by introducing coffeeteria - coffee vending machines and space for a quick break, installing wait-and-weigh, and increasing the green quotient by keeping water-efficient plants within the work stations along with a host of facilities for revamped gymnasium and Gaming Zone at HQ.

To be in sync with the changing fashion trends and mindsets, your company adopted new dressing norms wherein members can wear Business and Smart Comforts to work. Also, bearded look within the acceptable norms has been introduced for male members. The change has been intended to ensure comfort and vibrancy at work place.

Moreover, to reaffirm the sense of belongingness, you company has been dedicatedly and enthusiastically promoting employee engagement activities including festival celebrations, special day celebrations, cultural events, and family factory visits among others.

Internal & External Communication

Your companys interactive and online portal myClaris continued to flourish as a platform for information exchange, member synergy, and knowledge sharing. Through a variety of regular updates including inspirational quotes, motivational stories, key company happenings, company policies, members administrative requisitions, members special days, and milestone achievements, myClaris ensured members stay connected. A storytelling feature, Life Mantras - Stirring Stories, aimed to embed our cultural values through storytelling, has been recognised and published in Greatness Diaries blog and weekly e-newsletter Thank God Its Monday! by Great Place To Work Institute, India.

The widely acknowledged quarterly newsletter, Claris Quarterly continued to apprise members and their families about the company updates, regularly. The newsletter with a variety of infotainment sections found a favour with readers across genres.

Awards And Recognition

Sheer perseverance and performance coupled with able leadership and stringent management frameworks, have time-and-again took your company to the top echelon of organizational and individual recognitions. These awards and citations motivate us to continue striving, harder.

Claris in Fortune The Next 500 List

In its special issue of June 2016 edition, the internationally renowned Fortune India has ranked your Company #393 in the main list of The Next 500 and #22 in the sector-wise list of Drugs and Pharmaceuticals. The Next 500 list is the definitive ranking of India Inc.s most promising mid-sized companies, with respect to their financial health and economic contribution.

Claris receives Gold Award from MedAssets

Your company has been accorded with Gold Supplier Award 2015 from MedAssets, a premier Group Purchasing Organisation (GPO) in the United States of America. The award recognises our market leading value, adherence to compliance with reporting & payment, participation at events, and contribution to clinical & healthcare improvement resources to MedAssets, last year.

Claris: 7th year in a row in Indias Best Companies To Work For List

Your company has been ranked 1st in Healthcare industry and among Top 50 in Indias Best Companies To Work For 2016 study, conducted by The Economic Times and Great Place To Work Institute, India. This is the 7th consecutive year that we have achieved recognition in this study, which is the largest and most comprehensive survey of workplace culture in corporate India. This year, the study surveyed over 800 organisations across 16 industries, to measure the level of trust, pride, and camaraderie among people.

Claris recognised among Indias Top 50 Most Promising Brands

During the annual brand festival, WCRC IdeasFest 2016, your company has been recognised in the Top 50 Indias Most Promising Brands 2016 by World Consulting and Research Corporation (WCRC) in association with iBrands 360. Indias Most Promising Brands 2016 is a brand project that represents the most credible, transparent, and differentiated standard of brand research. The brands in top 50 list have shown tremendous promise and growth over the past few years, and have created a significant impact on consumers mind.

Claris receives Great Manager Awards 2016

In an initiative by People Business and The Times of India, your company has been felicitated with the Great Manager Award 2016, and has been featured in the Top 20 list of Companies with Great Managers. The reputable award recognises the efforts of Claris Managers, who drive meaningful results by aligning people to the organisations vision, enable performance, build effective teams, and maintain individual credibility.

Shyam Sharma conferred Most Influential HR Leaders in India Award

In recognition of his strategic perspective, future orientation, integrity and ethics, and domain expertise amongst other HR competencies, Shyam Sharma has been conferred Most Influential HR Leaders in India award by the renowned World HRD Congress during their Silver Jubilee Celebration. After an intensive research and review the winners for the coveted title have been adjudged by an elite jury.

Opportunities

Growth opportunities in USA injectable generic market is one of key growth drivers for the Company. We presently have 13 Abbreviated New Drug Approvals (ANDAs) approved in the USA, which account for about US$ 200 million of the market size. We already have additional 26 ANDAs under approval, having an addressable market size of around US $ 1.5 billion. The Company expects 5-7 ANDA approvals in the near future, these ANDAs approvals could increase the addressable market size of the Companys products in the USA by around US$ 240 million. The Company has a plan to file 12 - 15 ANDAs every year.

The Company is actively engaged in research & development of the products for USA market to enhance its competitive position. The Company is focused on ensuring quality production and maintain it production facility as per highest regulatory norms.

The Company has initiated the necessary steps to obtain the USFDA approval for its Second Injectable manufacturing facility. The additional plant capacity would cater to the increase market demand due to the pipeline of new approvals. Entry barrier in emerging countries is increasing due to stringent GMP compliances and therefore the company having USFDA approved quality standards stands to gain because of the reduced competition in various emerging countries.

The Company has established distribution network and multi-country presence through our international teams and have enhanced our longstanding relationships with large distributor and other organizations that are built on successful track record of delivering quality products across overseas market. Strong domain expertise help us solidify these relationships and gain increased business from our existing products and country.

Risk Management and Internal Controls

A strong risk management and internal control system forms the backbone for our robust risk management practices. In line with our commitment to provide sustainable returns to all our stakeholders, Claris has clearly defined systems and policies for timely addressing key business challenges and opportunities.

Threats and Enterprise Risk Management

At Claris, Risk Management is a key strategic focus for the Members of Board and the Senior Management Group. Company has formulated an Enterprise Risk Management framework, based on the COSO (Committee of Sponsoring Organisations of the Treadway Commission, USA). The ERM framework includes the process for identification, evaluation, monitoring and mitigation of risks relevant to achieve the business objectives, besides prioritization of risks in terms of their relevance and frequency. This assists the management to prioritize the risks and focus on high priority items which may have significant adverse impact. All key functions of the Company are independently responsible to monitor risks associated with in their respective areas of operations such as production, supply chain, marketing, finance, accounting, treasury, legal and others areas like health, safety and environment. The main purpose of Risk Management is to minimize adverse impacts and to leverage market opportunities effectively. This also helps to sustain and enhance short-term and long-term competitive advantages to the Company. To sustain the risk management, Senior Management Group will be responsible for ensuring periodic reviews in their internal functions and then the risks prioritized based on the ERM framework of the Company will be discussed in the Audit Committee on Annual basis.

The Company in its line of business is susceptible to risks arising out of our business strategy, operations, succession planning and decision on innovation or product portfolio. If there is any significant unfavorable shift in industry trend or pattern of demand, our returns on R&D investments might get affected. We have risks associated with clients and prospective clients dispositions.

Any delays due to changes in regulatory requirement, clearances or executional failures could materially affect the timing and implementation of our strategy. Further, due to higher profitability in the injectables space and price pressure in the orals because of the competition, we have seen more Companies are eying Injectables segment as an area to grow, thus increasing some competition from India in various markets like USA. Emerging countries currencies have become significantly devalued making our products expensive or reduced margins in the emerging countries market.

Regulators across the globe strictly monitor the pharmaceuticals manufacturing facilities. Governing laws across the globe are becoming increasingly stringent over time, with severe penalties or actions in the event of non-compliance or violations to regulatory standards. In the scenario where we or any of our suppliers fail to comply with such regulations, there could be a regulator-enforced shutdown of concerned production facilities, withdrawal of drug approvals previously granted, failure or delay in obtaining approvals for new products, prohibition on the sale or import of noncomplying products etc. Such impact would significantly affect the delivery of our objectives. Given the evolving nature and regulatory complexities relating to Injectables production, there is a continuous challenge in meeting the regulatory requirements. This might also lead to additional requirements from the regulators before granting commercialization approval. The additional requirements would not only increase our financial commitments but also shift the launch timelines, there by impacting Company strategy.

In addition to the above, other key risks relating to our current operations include human capital risk such as loss of key personnel, timely replenishment of critical vacant roles, reliance on third party sole suppliers or service providers including reliance on regional suppliers, disruption of operations from natural disasters, risk arising out of strategic projects, foreign exchange fluctuations, changing landscape of statutory regime etc.

Internal Controls & Internal Financial Controls

The Company has in place adequate systems of internal financial controls commensurate with its size and the nature of its operations. These have been designed to provide reasonable assurance regarding recording and providing reliable financial and operational information, complying with applicable statutes, safeguarding assets from unauthorized use or losses, executing transactions with proper authorization and ensuring compliance of corporate policies. The Company, through its in-house Internal Audit function & the Co-sourced firm of Internal Auditors (KPMG, Ahmedabad), carries out periodic audits to cover all the functions & business segments based on the plan approved by the Audit Committee and bring out any deviation to internal control procedures. The observations arising out of audit are periodically reviewed and compliance ensured. The summary of the Internal Audit observations and status of the implementation is reviewed by Audit Committee of the Board of Directors. The status of implementation of the recommendations is reviewed by the Committee on a regular basis and concerns, if any, are reported to the Board.

Safe Harbour Statement

Statements in foregoing paragraphs of this report describing the current industry structure, outlook, opportunities, etc., may be construed as "forward looking statements", based on certain assumptions of future events over which the Company exercises no control. Therefore, there can be no guarantee as to their accuracy. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those that may be implied by these forward looking statements. Such risks and uncertainties include, but are not limited to: growth, competition, domestic & international economic conditions affecting demand, supply & price conditions, changes in Government regulations, tax regimes and other statutes.