Dishman Carbogen Amcis Ltd Management Discussions.

Economic Overview

Global Economy

The Global Economic growth is projected to remain at 3% in the coming financial year. However, the steady pace of expansion in the global economy masks an increase in downside risks that could potentially exacerbate development challenges in many parts of the world, according to the World Economic Situation and Prospects 2019. The global economy is facing a confluence of risks, which could disturb economic activity and in_ict significant damage on long-term development prospects. These risks include escalation of trade disputes, abrupt tightening of global financial conditions, and intensifying climate risks.

India Economy

India has emerged as the fastest growing major economy and is expected to be one of the top three economic powers of the world over the next 10-15 years, led by its strong democracy and bourgeoning population. Indias real Gross Domestic Product (GDP) at constant (2011-12) prices in the year 2018-19 is estimated at 1,40,780 billion, showing a growth rate of 6.81%. The nominal GDP for 2018-19 is estimated at 1,90,100 billion, with growth rate of 11.20% against 1,70,950 billion for 2017-181. With an accelerating growth rate, India has retained its position as the third largest start-up base in the world with over 4,750 technology start-ups. Its labour force is anticipated to touch 160-170 million by 2020, helped by an increase in the rate of population growth; a larger labour force participation; and higher education enrolment; amongst other factors, according to a study by The Associated Chambers of Commerce of India (ASSOCHAM). The interim Union Budget for 2019-20, announced on February 01, 2019, focuses on supporting farmers, economically less privileged population, workers in the unorganised sector, and salaried employees, while continuing the Government of Indias thrust on better physical and social infrastructure.

Industry Overview

Global Pharma Sector

Global health is poised to meet a series of key turning points, and changes seen in 2019, is marking the key in_ections that drive the outlook for the next five years and beyond. The types of medicines being developed, the way technology contributes to healthcare is changing.

Global spending on medicines reached $1.2 trillion2 in 2018 and is set to be just under $1.3 trillion in 2019, also estimated to exceed $1.5 trillion by 2023, with 4%-5% growth globally. According to healthcare reports by KPMG; amidst rising demand for healthcare and falling budgets, government and payers are exerting pressure to drive down prices. A recent example involves Netherlands. Not content with striking volume deals with major pharmaceuticals players, it is looking to utilise the power of the European Union to create even greater economies of scale.

By 2030, the sector is expected to be equipped with advanced technology for targeted therapies. Practitioners are also expected to be able to predict the likelihood of a patient being diagnosed with a disease or health condition, shifting the trend from the treatment of symptoms to prevention measures and complete cures, rather than providing temporary respite.

Source: KPMG Healthcare Report 2030.

Global Oncology Market 2019-2028

The "Global Cancer Immunotherapy Market: Focus on Pharmaceutical Products- Analysis and Forecast, 2018-2028"3 states that the global cancer immunotherapy market was valued at $39.86 billion in 2017 and is anticipated to reach $170.70 billion by 2028. The rising prevalence of cancer around the world and high unmet medical needs of patients with cancer are stimulators for the growth of the cancer immunotherapy market. In addition, the advancements in precision medicine for immuno-

 

1 Ministry of Statistics and Programme Implementation (2018-2019)

 

2 https://assets.kpmg/content/dam/kpmg/xx/pdf/2017/02/pharma-outlook-2030-from-evolution-to-revolution.pdf

 

3 https://www.prnewswire.com/news-releases/global-cancer-immunotherapy-market-2019-2028-rising-rd-expenditure-in-the-immuno-oncology-segment-unmet-medical-needs-of-cancer-patients-driving-growth-300794276.html oncology, and rise in expenditure by pharmaceutical companies on R&D for cancer treatments, are contributing to the rise in demand for cancer immunotherapy as a treatment for cancer. The global cancer immunotherapy market is segmented into three different parts: by products, by therapeutic indication, and by region. The global market value for cancer immunotherapy was estimated using these three different approaches and was validated against one another. These segments are further segmented according to market estimation.

These products have a novel mechanism of action that has revolutionised the cancer immunotherapy market. Based on therapeutic indication, the market can be classified into seven major cancer types, which include breast cancer, melanoma, non-small cell lung cancer (NSCLC), colorectal cancer, renal cell carcinoma, gastric cancer, and others.

North America leads the market in terms of revenue, followed by Europe. Within North America, the U.S. generated almost 96% of the total revenue share, and the rest 4 % of the revenue was generated by Canada in 2017. Within Europe, Germany dominated the market in 2017 with a revenue share of 16.73%. However, the market for Asia-paci_c region is expected to demonstrate the highest growth rate during the forecast period from 2018 to 2028, as compared to other regions.

Source: Global Cancer Immunotherapy Market: Analysis and Forecast 2018 - 2028

Global Medicine Expenditure

Global spending on medicines will reach nearly $1.5 trillion in 2021 growing at 4-7%—only slightly slower than the 5.9% growth over the past five years. This growth is expected to be more uniform and predictable in nature. The last five years included two of the most unusual events in the history of the industry—the so-called "patent cli_" and the launch in quick succession of effective cures for Hepatitis C (Sovaldi and Harvoni). Soon, we expect to see the market growing at a more consistent rate but with much more attention focused on spending, growth and specifically pricing.

According to Global Use of Medicines survey of 2019, there has been a significant increase in the number of and spending on new active substances, particularly in the developed markets. During 2014 to 2018, the average spending on branded medicines was $43.4 Billion. New products launching between 2019 and 2023 are expected to have a slightly higher overall level of spending, approximately $45.8 Billion, probable to represent only 6.7% brand spending, down from 8.2% between 2014 to 2018.

China, Brazil, and India have the greatest medicine spending within the pharmaceutical markets. Turkey, Egypt and Pakistan are forecasted to have the greatest expenditure from 2019 to 2023. Global growth of medicines spending through 2023 are primarily driven by developed markets and adoption of innovative products.

According to Surveys conducted by Informatori.it , spending on medicines is expected to reach over $600 Billion on an invoice basis in 2023, including spending in all channels (such as retail pharmacies, hospitals, doctors, and offices), and on all products types (such as small molecules, biologics, brands, generics, and biosimilars). Net manufacturer revenue growth in the U.S. market is expected to be 2-3% in 2019, down from a high of 10.3% and 9.1% in 2014, and 2015 respectively. A wide range of particularly important treatments are expected to be launched in 2019 and 2020, with the biggest impact of those launches in the following years to come.

Developed Markets

Regional Prescription Drug Sales: United States of America and Europe

The US pharmaceutical industry is highly globalised, dominated by multinational companies that engage in significant business activity in many countries, with products that are distributed and marketed worldwide. However, the pharmaceutical industry in this region is under scrutiny because of rapidly increasing expenditures for drugs in the United States. Drug expenditures are now the fastest-growing component of healthcare costs, increasing at the rate of about 15% per year.

Despite concerns about a trade war between the US and China, China is still viewed as a huge market opportunity for the pharmaceutical industry. China has a large population with a growing middle-class population, and it has become a leader in R&D innovation for medicine, particularly for regenerative medicine, and perhaps even gene editing based on the news from late 2018.

The market for pharmaceuticals is growing persistently. According to a current market report by the QuintilesIMS Institute, expenses for drugs will amount to US$ 1.5 trillion globally in 2021. This equals an average annual growth rate of between 4-7% percent in medication expenses or 3% in doses. Despite political uncertainties regarding general healthcare, the U.S. will record the largest growth, while the so-called pharmerging markets will require about two-thirds of the entire drug volume.

The reasons for this growth are obvious: the global population is increasing by 1.24% per year until 2030 and ageing at the same time. All in all, the proportion of people aged 65 to 80 will rise to 28%, compared to 22% in 2000. Increasing urbanisation and a growing middle class are making drugs available and a_ordable for more people and lead to a higher demand for medication.

Europe

Medicine spending in Europe is expected to increase, from US$151.8 billion in 2016 to US$ 170–200 billion in 2021. Growth in the region is expected to change from 1% to 4% in 2021, as the U.K. grows at a rate of 4% to 7%, Italy and Spain grow at 1% to 4%, France tightly controls growth at 1–2% and Germany grows at 2-5%. Across the countries, 2015 saw the devaluation of the Euro and the British Pound to the U.S. dollar, reducing spending on a U.S. dollar basis by 8.3% from US$ 164.7 billion in 2014 to US$ 151.0 billion, but increasing by 7.7% on a constant US$ basis, which excludes exchange rate effects. The specific devaluation is not tied to nor specifically impacting pharmaceutical usage or spending, however macroeconomic challenges do influence government policies to some extent, especially considering the impact on the value of the British pound to the Euro and other currencies following the BREXIT referendum result.

Crams Industry – Global & India

The global pharmaceutical and bio-pharmaceutical CRAMS market has been growing year on year, with an increasing emphasis on generic alternatives from developed countries. Global pharmaceutical companies are focusing on marketing and discovery, and are outsourcing drug development, clinical trials and manufacturing. Contract services such as manufacturing and research are advantageous to both parties as they provide the supplier with financial stability for the duration of the contract. They also provide the benefit of cost savings, time saved in operating and managing a production facility. Branded drugs worth ~US$ 105 billion in annual sales in US are expected to come off patent until CY2020. Due to many drugs going o_-patent, the top-line growth of pharma companies is expected to come from generic drugs than from patented ones. Hence, pharma companies would be expected to enhance the allocation to R&D to increase the drug pipeline.

Source: International Journal of Pharmaceutical Sciences Review and Research

Challenges to Indian CRAMs Industry

Regulation of drug manufacture and its processes and practices is carried out by the respective Food and Drug Administration Departments at the state level. Due to lack of a uni_ed single Central authority, the enforcement of laws tends to vary from state to state. Such a regulatory framework is inconsistent with the long-term goals of enforcing Good Manufacturing Practices (GMP). Moreover, there is requirement of qualified medical professionals for research into diseases and sub-sectors such as biomedicals.

Growth in Indian CRAMs Industry

The Indian pharmaceutical sector is estimated to account for 3.1–3.6% of the global pharmaceutical industry in value terms and 10% in volume terms. India accounts for 20% of global exports in generics. Indias pharmaceutical exports stood at US$ 26.84 billion in 2017-18 and are expected to reach US$ 30 billion by 2020. During April – September 2018, India exported pharmaceutical products worth

511.3 billion. The countrys pharmaceutical industry is expected to expand at a CAGR of 13.89% over 2015–20 to reach US$ 65 billion. India is the second largest contributor of global biotech and pharmaceutical workforce. The Indian healthcare sector, one of the fastest growing sectors, is expected to cross US$ 472 billion by 2022. The generics market stood at US$ 36.1 billion in 2017-18. Indias generics market has immense potential for growth. By 2024-25, Indias biotech industry is estimated to increase to US$ 170 billion in FY2019-21. By 2020, India is likely to be among the top three pharmaceutical markets by incremental growth and 6th largest market globally in absolute size. Indias cost of production is significantly lower than that of the US and almost half of that of Europe. It gives a competitive edge to India over others. Increase in the size of middle-class households coupled with the improvement in medical infrastructure and increase in the penetration of health insurance in the country will also influence in the growth of pharmaceuticals sector.

Indian CRAMs Market

The Indian Contract Research and Manufacturing Services (CRAMS) players are expected to register strong growth rate of 20% to 27% CAGR to touch US$ 25 billion size by 2021. According to a report by Care Ratings, this would be achieved on the US market and US$ 105 billion o_-patent drug opportunity by 2022. With the Indian CRAMS industry gradually moving up the value chain and players investing in better technology and higher capacities, manufacture of value-added products for biotech and specialty therapy areas may be outsourced to Indian players in future. India is one of the worlds best-known low-cost manufacturing centres, with highest number of US Food and Drug

Administration (FDA)- approved manufacturing plants outside the US. The rise of Indian drug and pharmaceutical industry IDPI in the world pharmaceutical map can be ascribed to the move from product to process patent after 1970. The cutting-edge cost advantage has already resulted in more than 50% of the revenue of Indian Pharmaceutical industry coming from overseas markets. Added to that, innovation in functional distribution and marketing has given a new dimension to the shared services model in India.

Global Pharma and Technology

An increasing number of pharmaceutical firms and indeed, medical device companies, are partnering and integrating with technology businesses. In a bid to tackle the huge and rising plight of diabetes, Sano_ and Verily, the life sciences unit of Google parent Alphabet, announced in September 2016, that they would invest approx. US$500 Million in a joint venture to combine devices, software and medicine.

Software is becoming more and more important in everyday lives, and healthcare is no exception. A recent pharma tech alliance between Varian Medical Systems and Flatiron Health aims to develop cloud-based, electronic health records, data analytics and decision support software geared towards oncology patients.

Genetics: Genetics has moved forward with real pace in recent years, with gene editing fuelling a new wave of potential applications to aid both prevention and real cures. The leading genomics firms are essentially biotech players, acting either independently or through collaboration. In the coming decades, gene editing could revolutionise the treatment of different diseases such as neurological disorders or cancers. This approach enables healthcare providers to alter/replace the problematic gene, to produce a new therapeutic protein or "silence" mutant cells. A few neurological disorders are benefiting from these advances, like Alzheimers, Parkinsons, Huntingtons, and strokes.

Immunotherapy: Many companies are focusing on developing immunotherapies, either independently or in collaboration with big pharmaceutical players, to treat and, ultimately, to prevent diseases. Immunotherapy based drugs are increasingly being used for treatment of various cancers, but companies are also exploring their use in the treatment of various cancers, but companies are also exploring their use in the treatment and prevention of other chronic conditions like diabetes, cardiovascular diseases, Parkinsons and Multiple Sclerosis. For example, Cardiovax, a US based biotech company, is developing immunotherapies to treat and parent cardiovascular diseases such as atherosclerosis. These therapies may potentially be used to predict the risk of cardiac attacks.

Pharma Tech

According to recent study by KPMG, on Pharma Sector 2030, number of pharmaceutical companies are starting to recognise the impact of downward pressure on pricing and the move towards prevention, diagnosis, and real cures. These changes are upsetting the established order, opening opportunities to new competition, and forcing companies to rethink where they play – and who they play with, requiring a growing emphasis on collaboration and partnership. Among others, there are three new response to disruption – pharma tech, genetics, and immunotherapy.

Cancer immunotherapies have evolved significantly, and numerous products have been introduced in the market. Many cancer immunotherapies are being tested in clinical trials for identification of their pharmacological and commercialisation potential. Novel cancer immunotherapies are at different stages of clinical trials which would be introduced in coming years in global market. They could be broadly divided in two classes: specific and non-specific cancer immunotherapy. Basis of this classification is their ability to identify specific antigen related to malignancy. Modality used for developing them may be different but all of them will involve the activation of immune system for elimination of cancer. In some cases, overlapping boundaries may be found which is quite possible because single cancer immunotherapy may have multiple effects. Cancer immunotherapeutic segment seems to be quite dynamic as it has received highly developed products which are absent in other cancer therapeutic category. This category has large number of products belonging to different categories resulting in myriad choices for patients to choose suitable products according to their necessities. They have been able to create dominance in cancer market segment of pharmaceutical industry that is expected to be continued for several years. Some of the products belonging to cancer immunotherapy were introduced few decades ago, while others have received marketing approval in past few years.

Business Overview

About Dishman Carbogen Amcis Limited

The Dishman Group is a global and integrated CRAMS player with strong capabilities across the value chain – from research and development, to late stage clinical and commercial manufacturing. Dishman Carbogen Amcis Limited, the flagship company, includes its Indian and foreign subsidiaries, joint ventures and associate companies across the globe. We are the preferred global outsourcing partner present across multiple continents and countries, including the United States, Switzerland, UK, France, Netherlands, China, Japan, and India.

We render services to our customers from all the key advanced markets including US, Europe and Asia. We specialise in strong chemistry skills and large-scale multi-purpose manufacturing capacities, with a wide range of research competencies and 10 manufacturing capacities and a global presence with manufacturing sites in Europe, India and China. Of these, 4 are in Switzerland; 2 in India; and one each in UK, France, Netherlands and China.

The HiPo facility at Bavla, India, is one of the largest facilities in Asia, and enables us to gain from the high margin HiPo molecules, opportunity in the oncology space and other highly potent compounds. We began our journey as a manufacturer of quaternary ammonium and phosphate compounds, and eventually became one of the fastest-expanding companies in the CRAMS space in India. We ventured into the CRAMS business with a contract to develop and manufacture an Active Pharmaceutical Ingredient for the innovator.

We are the first CRAMS company in India to bring a new chemical entity into India for successful development and commercial manufacturing. Since then, we have entered into multiple contracts with innovator companies. Our growth by way of acquisitions and greenfield projects over the last 13 years has yielded us rich dividends in terms of the exceptional talent pool and unparalleled operational excellence.

Our Business Verticals

Our key segments include CRAMS (Contract Research and Manufacturing Services) and Marketable Molecules. The CRAMs segment is further broken down into Contract Research Services and Contract Manufacturing Services, which we offer to our customers.

Contract Research And Manufacturing Services

Our principal lines of business is Contract Research and Manufacturing Services (CRAMS) and Marketable Molecules, for example, our bulk drugs, intermediates, and quaternary ammonium compounds (quats). We are a CRAMS player with strong capabilities across the value chain. Our CRAMS business assists drug innovators in development and optimisation of processes for novel drug molecules in various stages of the development process.

Once the innovative molecules have passed the test and are ready to go out in the market, this segment explores the possibility of possible large-scale commercial supply tie-ups. We provide end-to-end high-quality CRAMS offerings from process research and development to late-stage clinical and commercial manufacturing DCAL supports its customers along the entire APIs value chain. CRAMS segment contributes nearly 77% to our total revenues. With our unprecedented experience, specialised skills and capacity in place, we are strongly placed to benefit from a significant upside potential in the global CRAMS industry.

A. Carbogen Amcis

CARBOGEN AMCIS is a leader in portfolio of drug development and commercialisation services to the pharmaceutical and biopharmaceutical industries at all stages of drug development. Our specialised services for Drug Substances (DS) and Drug Products (DP) provide innovative solutions to support timely and safe drug development. Our operations are conducted out of Dishman Group facilities in India as well as the seven facilities under the CARBOGEN AMCIS brand: four in Switzerland, one in the UK, one in China, and one in France.

Carbogen Amcis provides services for the development and manufacturing of both non-potent and highly potent drug substances (APIs) and drug products applying state-of-the-art containment technologies. All facilities operate under current Good Manufacturing Practices (cGMP) and can produce material for preclinical testing, clinical trials and commercial use. The large-scale production capacities (up to 8,000 L) allow the efficient production of non-GMP intermediates that can be further processed at the Carbogen Amcis Swiss facilities.

Our operations housed in Riom (France) offers specialised cGMP manufacturing for liquid or freez-dried products including drug delivery, highly potent and antibody drug conjugates (ADC). A wide range of filling volumes and packaging components (vials or syringes) are applied to pre-clinical and clinical studies all over the world. Formulation, process development and upscaling services for liquid and frozen-dried products are also part of our service offering.

We have successfully finished numerous drug linker projects. Since the beginning of ADC project in 2005, many customers, ranging from small biotech to large pharmaceutical companies, expressed a growing interest in our ADC and bio- conjugation abilities. We have handled projects from payload/ warhead manufacturing to drug-linker, then to conjugation and final drug product all in house. Our clean room suites are fully equipped for cGMP manufacturing dedicated to bio-conjugation. To compliment this, we have our state-of-the-art puri_cation technologies and exceptional analytical/fill-and finish capabilities.

B. Dishman India

Dishman India is a global outsourcing partner for the pharmaceutical industry offering a portfolio of development, scale-up and manufacturing services. Dishman renders services to its customers businesses by providing development and manufacturing solutions at locations in Europe and India. Our commitment is to deliver high added value solutions with technical excellence and to be a reliable partner to our customers, protecting their interests as if they were our own.

Dishman offers specialised research and development services in developing processes that are truly scalable through to commercialisation, be this through process research, process development or optimisation. We have a complete household of expert staff operating in continuous three shifts, with R&D operations in state-of-the-art dedicated R&D centres. Our promise is safe, efficient scale-up and problem solving delivering robust, economic processes. Dishman enforces strict IP protection policies. We protect our customers interests as if they were our own.

Marketable Molecules a. Specialty Chemicals

Dishman Speciality Chemicals had a long association with manufacture and supply of Quaternary ammonium compounds (Quats) for use as phase transfer catalysts. Our expertise in solids handling technology has enabled us to expand our offer to include ammonium and phosphonium high purity solid Quats, Phosphoranes and Wittig reagents. These products find applications as phase transfer catalysts, personal care ingredients, _ne chemicals, pharma intermediates and disinfectants. A number of our products are made under GMP manufacturing conditions at our Naroda facility in India. Furthermore, we maintain local stocks of select products in Europe and in the US.

Dishman Speciality Chemicals has significant expertise in providing tailor made solutions. We welcome the opportunity to supply our customers with one of our quality products or to assist the customers on the next project with our world class manufacturing expertise, logistics and competitive pricing.

b. Vitamins and Analogues

Chemically, this Vitamin refers to a group of fat-soluble secosteroids, needed for calcium absorption from the intestinal tract, and for the regulation of blood phosphorus levels, which are essential to grow and maintain strong and healthy bones. Indeed, Vitamin D play a vital role in brain development, muscle function, maintaining a healthy respiratory and immune system, optimal cardiac function. It also strengthens our bodies to resist illnesses such as diabetes, asthma, chronic pains, cancer, infections, multiple sclerosis, psoriasis, depression and much more. However, if there is a Vitamin D defficiency, then it leads to bone disorders such as rickets, osteomalacia and osteoporosis in adults as well as children, alike. Therefore, its presence is a ray of hope to live with an elevated sense of well-being and that is why it is also known as the ‘sunshine vitamin.

Vitamin D, which is ideally present in inactive form in the human body, gets activated in the presence of sunlight to process the release of Calcifediol. This Calcifediol is then metabolised in the kidney to release Calcitriol which is further absorbed by the intestine, kidney and bones. Following this, the bones mobilise the secretion of Calcium and Phosphate in the parathyroid gland to maintain the optimum balance of these elements, prerequisite for strong bones.

Functioning as the global outsourcing partner for other pharmaceutical companies; aiding them in development and scale-up production via its high potency supply of compounds; Dishman first realised the need of the hour with Vitamin D because of its elaborate research on its therapeutic uses that covers wide range of medical conditions. Crucial for every life stage, Vitamin D forms the essence of human health. Hence, keeping wellness as our primary objective, we acquired Solvay Pharmaceuticals Veenendaal, Netherlands plant. This specially focused on manufacturing cholesterol, serving as a precursor to vitamin D & its analogues.

As a multifaceted organisation with a high degree groundwork, we established greener processes to manufacture in a budgeted environment. Hence, we ensure the extraction of this cholesterol from sheep wool, making it a vegan source required to form a strong base for the formulations. Gradually, with a steadfast strategy, entrepreneurial spirit and a rising demand for the application of this raw material in various sectors: as a natural course towards the extension of existing and acquired business, we forayed into developing a wide spectrum of products for the pharmaceutical, nutraceutical and holistic animal nutrition verticals of Vitamin D3. This derivative if taken in the right quantity, can cure to the roots of many diseases, resulting in complete wellbeing.

In the pursuit of developing a world-wide circuit in the supply of Vitamins and its analogues, Dishman has initiated the establishment of WHO-cGMP compliant fully integrated manufacturing unit, at Bavla, based in Gujarat, India, which will also be a ISO 9001:2015 certified. Its core lies in its CRAMs model capabilities that umbrellas an entire gamut of services from production of raw materials to developing the final products as well as market the same. This lead us running in the forefront with the capacity to manufacture 1000 MT annually and simultaneously catering to specifically engineered requirements of our clients, all at one place.

c. Disinfectants

We have a range of hand and body wash, sanitisers and antiseptics, apart from its active pharmaceutical ingredients and formulations businesses. We offer a range of Antiseptics and Disinfectants for application in healthcare and related industries. We shall have a deep portfolio of ‘next generation innovative antiseptic and disinfectant formulations. Our product pipeline specialises in high quality, cost effective, proven anti-microbial products based on Chlorhexidine Gluconate (CHG) and Octenidine dihydrochloride (OCT). We shall provide specialist products for environmental decontamination based on hydrogen peroxide disinfectant.

d. Generic APIs

Dishman has remained focused on its changed strategy around generic APIs where it plans to develop and manufacture niche generic APIs. The Company is working on development of certain generic molecules, which could be potentially profitable for the Company. We are putting in efforts to capture a larger market share of the profitable generic APIs where we have filed the Drug Master Filings or other regulatory _lings. The Company will continue to file for such molecules in the future as well and strive to increase the proportion of these molecules in the marketable molecules business segment.

Our Competitive Strengths

A. Capabilities across the entire CRAMS value chain

Today, the Dishman brand is perceived by global customers as a preferred global outsourcing partner with capabilities across the entire CRAMS value chain, with services ranging from process R&D and pilot supply, to full scale and commercial manufacturing from purpose built and dedicated facilities. The Groups India and Chinese facilities possess strong chemistry skill sets: a large dedicated multiple shift R&D operation; and 26 dedicated production facilities for APIs, intermediates (India, China) with dedicated API manufacturing capacity at India and China.

B. High Potency API Capability

The Dishman Group has invested in world class capabilities to address the oncology and such other highly potent compound therapy markets. Coupled with 14 years of HiPo API experience, the High Potency API business will represent a significant opportunity for step change in the Groups top-line and bottom-line growth. The Group has a strongly differentiated set of capabilities in the HiPo API arena with pre-clinical API, phase 1/phase 2/phase 3 and commercial API and up to clinical Ph2 parenteral dosage form capabilities. All these capabilities remain in house and underwritten by a consolidated project management capability to take customers from pre-clinical stages through to commercial manufacturing of APIs, right through to formulated products.

C. Scientific Advancements

Successful drug development is a balance between speed, quality and costs. We aim to offer our customers a choice of state-of the art tools combined with qualified and experienced staff to best meet these often-changing priorities. CARBOGEN AMCIS has built up a portfolio of specialist services to give customers the highest degree of flexibility possible.

Chromatography – Chromatography often forms part of a fast route to producing initial quantities of material. We offer customized chromatography solutions for the separation and puri_cation of APIs and intermediates, including highly active APIs and impurity isolation. Our dedicated group of chemists have more than 50 years experience in the group expertise in method development and scale-up in a variety of different chromatographic techniques, all in accordance with current Good Manufacturing Practice (cGMP) environment. Cost-e_ective large-scale chromatography is also possible given the correct infrastructure. CARBOGEN AMCIS offers Flash Chromatography (Biotage), SMB and HPLC to effectively produce clinical trial quantities of APIs and commercial products.

Crystallization Services – Defining the best crystalline form of an Active Pharmaceutical Ingredient (API) is crucial in drug development, since it has a significant impact on its bioavailability and formulation properties. CARBOGEN AMCIS has established a service supporting our customers with crystallization investigations including solubility tests, salt screening, and optimization of the crystallization process and the solid/liquid separation in the API isolation process. Polymorphism screening complements the service portfolio. We offer online monitoring of critical parameters such as particle size, turbidity, temperature, and pH value, as well as analytical services dedicated to solid phase characterization including hot stage microscopy, differential scanning calorimetry, Dynamic Vapor Sorption (DVS) and x-ray powder di_raction.

D. Class leading Manufacturing Facilities

Our state-of-the-art infrastructure includes process research and development (PR&D) laboratories and, one laboratory dedicated to conjugation of small and large molecules and manufacturing capabilities. CARBOGEN AMCIS delivers leading process research services that support the drug development process. Early Active Pharmaceutical Ingredient (API) manufacture centres on the rapid synthesis of supplies necessary to perform both toxicology and early phase clinical trials. Typical batch sizes here range from 1 gram to 50 kg scale and are prepared in the highest standard of current Good Manufacturing Practices (cGMP).

We internally optimize each site with all the equipment necessary to help your project to become a success. We provide unparalleled analytical support for research, development and commercial production of late stage intermediates and APIs, including pre-formulation studies to support drug product development. In addition to pre-formulation services, solid state and crystallization services, and analytical support for physicochemical characterization and method validation, CARBOGEN AMCIS offers a complete range of drug product development and manufacturing services at our Riom site in France. Our specialty is the injectables and the hand ling of complex compounds such as highly potent APIs, biological products and drug delivery. This site is exclusively dedicated to the development and the cGMP manufacturing to the fast supply of batches for clinical studies.

Carbogen Amcis utilises the Shanghai manufacturing facility for manufacturing the intermediates for the final API, which gets manufactured in the Swiss facility. This facility is also cGMP approved and the plan is to make it equipped to manufacture the final API as well, which would act as a good alternate manufacturing site for the APIs manufacturing. Carbogen Amcis utilises its UK facility as the one for manufacturing non-GMP intermediates and starting material, which again feeds into the Swiss facility for manufacturing the final API or gets shipped to the customer.

Dishman Carbogen Amcis facilities in India provide the group the large-scale development and manufacturing capabilities, which ensures that the customer does not have to move outside of the Dishman group to get the large volume products developed and manufactured. Thus, the group acts like a one-stop shop for the development and manufacturing of APIs for all types of molecules. Moreover, the HiPo capabilities are unique to the group and differentiates it from its peers.

Recent Developments In the Company

The quarter ended March 31, 2019 was our strongest quarter for Dishman ever in the history, and this is a significant achievement by the entire team of Dishman Carbogen Amcis. The revenue for the company grew by about 21% from 1,695 crores to 2,058 crores. The EBITDA for the year was 552 crores which is a growth of about 24% as compared to what we achieved last year which was 445 crores. The profit after tax was 210 crores which equates to about 10% of our consolidated revenue which last year was 155 crores. This was an improvement by 36% over the last financial year.

Carbogen Amcis grew by about 31% in the last quarter as compared to the last year same quarter and on a full year basis it grew by about 7%. Our Vitamin D business that is carried out of Netherlands grew by 39% in FY2019. The increase in the revenue in India and Carbogen Amcis was driven because of the large amount of commercial orders that were supplied in the fourth quarter. The Netherlands business saw significant orders serviced for cholesterol product line as well as analogues.

There have been several very interesting developments in line with the guidance that we have been giving you over the year. Certainly, our CRAMS platform seems to be very popular still with our clients and we continue to win good work of business. Our quality profile in the CRAMS area has been very strong. We continue to bring molecules at an early phase development into late phase and commercialisation for our clients, and that is continuing to positively impact the business. We expect certain significant molecules of our customers to get approval over the next 12 to 24 months.

Source: Company Website, BSE _ Investor Presentation, Annual Reports Last 3 years

Research and Development

Dishman is a Research and Development driven company. Innovation is a constant factor in all activities undertaken at Dishman; be it processes, technologies or products.

We continue our efforts in bringing more efficiency to processes in terms of environmental impact and to meet the new, stricter regulations from the various regulatory agencies.

As members are aware and informed about our various focus areas viz: Vitamins, disinfectants, oncology products, MRI agents and catalysts. We have made progress on quite a few of these product ranges.

We have been focusing on irradiation chemistry and related products for the past 3 years, in the last year, we made significant progress on this range of products. We have been very successful in optimizing the upstream chemistry which has helped us to improve the mass balance as well as reduce wastes. New irradiation equipment has been installed for niche vitamin D analogues.

We have filed DMF for one analogue and the other products will follow soon.

We continue to invest in our R&D and analytical capabilities. This has helped us to win new CRAMS projects as customers get full service under one roof.

In the last two years, Dishman has developed 4 new disinfectant actives. These are showing excellent antimicrobial e_cacy. Additional trials are underway at globally reputed centres.

With the expanded capacity of disinfectant products, now Dishman will focus on institutional business for these disinfectant products.

We have continued to work on innovative processes for generic APIs. We have been granted two patents last year. Few more patents are filed.

We have developed processes for 5 CNS stimulants. These are under process validation now and we expect the ASMF to be ready within a year.

The Company has completed phase I of development capacity expansion in its new building that it acquired in Switzerland, which would help it to de-bottleneck development capacity constraints in the near to mid-term.

Our soft gel pilot plant is fully operational and is being used for CRAMS as well as own products. We expect to file few dossiers soon. The large-scale manufacturing facility is under commissioning and will be fully operational by Q3 2019.

Financial Overview

Business Highlights (Consolidated)

Particulars

FY2019

FY2018 Growth (%)
Net Sales & Operating Income 2,058.60 1,694.79 21.47%
Other Income 53.82 45.69 17.79%
Total Income 2,112.42 1,740.48 21.37%
EBITDA (without other income) 551.90 445.35 23.93%
Depreciation 240.38 211.42 13.70%
PBIT 365.34 279.62 30.66%
Interest & other Finance charges 56.55 48.83 15.81%
Profit Before Tax 308.79 230.79 33.80%
Tax Expense 98.46 76.22 29.19%
Profit after Tax 210.32 154.57 36.07%
Cash Profit 450.71 365.99 23.15%

During the year, the operating income has gone up to 2,058.60 crore compared 1,694.79 crore resulting a growth of 21.47%. CRAMS segment registered a turnover of 1609.41 crore compared to 1293.69 crore during the previous year. Others segment which includes Vitamin D, bulk drugs, intermediates, Quats and specialty chemicals and outsourced/ traded goods registered growth at 449.19 crore, against 401.10 crore in the previous year.

CRAMS is our largest business segment which caters to the requirements of multi-national pharmaceutical companies internationally. We develop intermediates/APIs based on our customers request. This business involves significant R&D efforts to develop the products, processes. Our wholly owned subsidiary CARBOGEN AMCIS located in Switzerland is spearheading our R&D efforts. Around 1,609.41 of our consolidated operating income is generated from CRAMS segment.

Others segment (which includes bulk drugs, intermediates, speciality chemicals, Vitamin D and outsourced/trade goods) contributed around 449.19 of consolidated operating income in 2018-2019. Out of 2,058.60 crore (previous year 1,694.79) sales, CARBOGEN AMCIS has accounted for sales of 1039.62 crore (previous year

973.33 crore), Vitamin D has accounted for sales of

271.76 crore (previous year 196.26 crore) and CARBOGEN UK Ltd. accounted for sales of 90.55 crore (previous year 49.55 crore). Remaining sales of 656.67 crore (previous year 475.65 crore) was accounted by Dishman Carbogen Amcis Limited and its marketing subsidiaries.

Material Costs

• Raw material consumption for the year was 403.78 Crore, as against 336.93 crore in the previous year.
• Inventory of raw materials increased by 89.83 crore during the year.
• Work in process decreased by 53.93 crore and finished goods increased by 28.16 crore.

Manufacturing Expenses

• Manufacturing expenses mainly comprise Power and Fuel 56.14 crore and Repairs and Maintenance 86.92 crore. This was 48.33 crore and 62.98 crore, respectively, in the previous year.

• Our Manufacturing Expenses accounted for 8.10% of sales during the year, as against 7.64% during the previous year.

Administrative, Selling and Other Expenses

• Our major components of administrative, selling and other expenses include rent, rates and taxes, legal and professional charges, clearing and forwarding, travelling and conveyance, and insurance premium, among others.

• Administrative, selling and other expenses for the year amounted to 217.20 crore as against 155.09 crore during the previous year. These expenses accounted for 10.28% of sales during the year, as against 8.03% during the previous year.

Employee Emoluments

• Employee emoluments increased 714.64 crore during the year, as against 625.40 crore during the previous year.

Interest and Finance Charges

• Interest and Finance charges during the year increased to 56.55 crore, as against 48.83 crore during the previous year.

Depreciation

• Depreciation charges for the current year amounted to 139.42 crore, as against 118.54 crore during the previous year • Total amortisation charges for the current year stood at 100.96 crore, as against 92.88 crore in the previous year.

• Addition to fixed assets during the year was

258.18 crore, as against 239.57 crore during the previous year.

Provision for Tax

• 98.47 crore (net of MAT entitlement) was provided during the year towards current tax, as against 76.21 crore during the previous year. The Company has provided provision for deferred tax of 9.40 crore during the year, as against deferred tax expense of 27.50 crore during the previous year.

Profit After Tax

• Net Profit after Tax for the current year was 210.33 crore, as against 154.57 crore during the previous year.

• Cash Profit After Tax for the current year 450.71 crore, as against 365.99 crore in the previous year.

Earnings Per Share

• Basic Earnings Per Share for the current year works out to 13.03, as against 9.58 during the previous year. • Cash Earnings Per Share for the current year works out to 27.93, as against 24.00 in the previous year.

Financial Condition

(i) Secured Loans

Secured loans stood at 936.97 crore as at March 31, 2019 as against 939.95 crore as at March 31, 2018.

(ii) Unsecured Loans

Unsecured loans stood at 105.20 crore as at March 31, 2019 as against 154.87 crore as at March 31, 2018.

(iii)Inventories

( in crore)
Particulars

March 31st, 2019

March 31st, 2018
Raw Materials 178.91 89.08
Work in Progress 218.12 272.05
Finished Goods 151.59 123.43

(iv)Debtors

Debtors as of March 31, 2019 amounted to 445.30 crore, as against 444.40 crore at the end of March 31, 2018.

(v) Cash and Bank Balance

Cash and Bank Balance as on March 31, 2019 is 95.67 crore, as against 69.06 crore as on March 31, 2018.

(vi)Creditors

Creditors as of March 31, 2019 were 194.57 crore as compared to 185.92 crore as at March 31, 2018.

Segment-wise and Product-wise Performance

Segment Description of the Activity
CRAMS Contract Research and Manufacturing Segment under long term supply agreements
Others Bulk Drugs, Intermediates, Vitamin D, Quats and Specialty Chemicals and Outsourced/Traded Goods

The break-up of Companys total income from the product segments viz. "CRAMS Segment" and "Other Segments" for the last three years is as under:

Product Segment

March 31st, 2019

March 31st, 2018 March 31st, 2017
CRAMS* 1,609.41 1,293.69 1,259.60
Others 449.19 401.10 454.08
Total 2,058.60 1,694.79 1,713.68

*Including other operating income

Key Financial Ratios:

On Standalone Basis:

Particulars

FY 2018-19

FY 2017-18 Change (%)
Debtors turnover 4.07 4.49 9.47
Inventory turnover 2.52 2.68 (5.93)
Interest coverage ratio 2.72 2.76 (1.32)
Current ratio 1.40 1.45 (3.21)
Debt equity ratio* 0.086 0.094 (8.70)
Operating profit 35.27% 35.05% 0.62
margin (%)
Net profit margin (%)** 10.19% 7.81% 30.47
Return on Net Worth*** 2.96% 2.39% 23.63

*Debt is calculated after deducting cash and cash equivalent, bank balance and investments in marketable securities from gross debt **Improvement in net profit due to growth in CRAMS business ***Net worth is calculated after excluding goodwill on account of Merger from total net worth ***Amortisation on goodwill has been added back net off effective tax to PAT for calculating net income

On Consolidated Basis:

Particulars

FY 2018-19

FY 2017-18 Change (%)
Debtors turnover 4.63 4.64 0.34
Inventory turnover 2.96 3.07 (3.54)
Interest coverage ratio 6.46 5.73 12.82%
Current ratio 1.30 1.31 (1.25)
Debt equity ratio* 0.154 0.171 (10.10)
Operating profit margin (%) 26.81% 26.28% 2.02%
Net profit margin (%) 10.22% 9.12% 12.03%
Return on Net Worth** 14.19% 13.17% 7.80%

*Debt is calculated after deducting cash and cash equivalent, bank balance and investments in marketable securities from gross debt **Net worth is calculated after excluding Goodwill on account of consolidation from total net worth **Amortisation on goodwill has been added back net off effective tax to PAT for calculating net income

Internal Control Systems

Your Company has a well-established system of internal control and internal audit, commensurate with its size and complexity of the business and considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting ("the Guidance Note") issued by the Institute of Chartered Accountants of India ("the ICAI"). Your Company has appropriate internal control systems for business processes with regards to efficiency of operations, financial reporting, compliance with applicable laws and regulations, among others and with the objective of safeguarding the Companys assets, ensuring that transactions are properly recorded and authorised and providing significant assurance at reasonable cost, of the integrity, objectivity and reliability of financial information. The Company continually upgrades internal control system by adding better process control, various audit trails and use of external management assurance services, whenever required. The internal control system is supplemented by extensive internal audits, conducted by independent firms of chartered accountants in close coordination with finance and account department. The findings of Audit Team are discussed internally as well as in audit committee meetings. The Audit Committee of the Board of Directors reviews the adequacy and effectiveness of internal control systems and suggests improvement for strengthening them.

Risk Management

Global operations and product development for regulated markets pose significant challenges and risks for the organisation. Such risks, if not identified and addressed properly in a timely manner could adversely impact accomplishment of the overall objectives of the organisation and its sustainability. An effective risk management framework enhances the organisations ability to proactively address its risks and opportunities by determining a risk mitigation strategy and monitoring its progress on continuous basis. Our Enterprise Risk Management (ERM) framework encompasses practices relating to identification, assessment, monitoring and mitigating of various risks to key business objectives. ERM at Dishman seeks to minimise adverse impact of risks on our key business objectives and enable the Company to leverage the market opportunity effectively.

Our risk management framework is intended to ensure that risks are identified in a timely manner. We have implemented an integrated risk management framework to identify, assess, prioritise, manage/mitigate, monitor and communicate the risk across the Company. Senior management personnel are part of our risk management structure. Plant level committees headed by senior management personnel meet at regular intervals to identify various risks, assess, prioritise the risks. After due deliberation, appropriate strategies are made for managing/mitigating the risks. The Company takes the help of independent professional firms to review the risk management structure and implementation of risk management policies. Audit Committee, on a quarterly basis, reviews the adequacy and effectiveness of the risk management strategies, implementation of risk management/mitigation policies. Audit Committee advises the Board on matters of significant concerns for redressal.

Opportunities and Threats

Most of the innovator companies are facing challenge of depleting research pipeline and losing patent protection for their blockbuster drugs in the next few years. The new drug discovery process is also becoming more difficult with reducing success probabilities and increasing research and development costs. This has opened up opportunities to CRAMS players from low cost destinations like India. Dishman has identified this opportunity very early and started working with innovators with customs synthesis projects and contract manufacturing of APIs, which result into overall growth in the turnover. In view of the huge potential the CRAMS segment offers to Indian companies, many of the big pharmaceutical companies in India started exploring opportunities for a share in CRAMS segment with big investments. This may result in increased competition in the long run. However, with the research and innovation capabilities that Dishman has developed over the years across the globe, the technical know-how is unparalleled. In addition to the above, another major development has been on the New Molecule Entities (NMEs) front. Most of the recent innovation in this segment is from "small to mid-sized" bio-pharmaceutical organisations. This has changed the dynamics of this business, as large pharmaceutical players are increasingly becoming mainly marketing and "finished dose form" organisations. The Company believes that it can manufacture various APIs/intermediates and speciality chemicals of best quality at a low cost. Many of innovator companies are outsourcing their products to our Company. Recognising this opportunity, the Company continued to take initiatives in reducing its costs by employing lean manufacturing techniques & resource management initiatives and broadening the product base.

Information Technology

Dishman is making significant investments on the digital reinvention platform in partnership with IBM in India. The goal is to make all business processes as much automated as possible thus increasing the efficiency and accuracy of all processes. Dishman has developed a framework to harness the opportunities presented by prevalence of new-age digital technologies, and transform to become a digitally savvy pharmaceutical company. Various technologies as well as platforms have been piloted to deploy the agenda so that a better and integrated experience can be delivered to our partners and clients. We focus on Data Analytics to drive agile business decisions, automation for business processes, innovation through digital business models, and Consumer Engagement to listen, reach out and engage with our customers. In analytics and automation, the Companys strategy has been to capitalise on the latest advancements in technology for improving the business performance. We are targeting at deepening the initiatives along the digital consumer engagement to enhance the Companys automation in its manufacturing plants and scaling it up year after year.

Industrial Relations and Human Resource Management

The Company has continued with its drive to institutionalise and upgrade its HR processes. The diversified skill sets of our employees add significant worth to the Company. Every organisation which values and appreciates its Human Resource succeeds in its goals and receives positive results. At Dishman, we always believe in the concept of human empowerment. We firmly believe that human resource is the most important assets of the organisation, as it influences growth, progress, profits and shareholders values. During the year, we continued our efforts aimed at improving the HR policies and processes to enhance our performance. Our mission is to create a value system and behavioural skills to ensure achievement of our short and long-term objectives. The Company, as on March 31, 2019, had 943 employees on its rolls. We continue to attract excellent talent both from within and outside India to further our business interests. Industrial Relations continue to be cordial.

Cautionary Statement

This document contains statements about expected future events, financial and operating results of Dishman Carbogen Amcis Limited, which are forward-looking. By their nature, forward-looking statements require the Company to make assumptions and are subject to inherent risks and uncertainties. There is significant risk that the assumptions, predictions and other forward-looking statements will not prove to be accurate. Readers are cautioned not to place undue reliance on forward-looking statements as a number of factors could cause assumptions, actual future results and events to differ materially from those expressed in the forward-looking statements. Accordingly, this document is subject to the disclaimer and qualified in its entirely by the assumptions, qualifications and risk factors referred to in the managements discussion and analysis of Dishman Carbogen Amcis Limiteds Annual Report, FY2019.