Dr Habeebullah Life Sciences Ltd Management Discussions.

A. INDUSTRY STRUCTURE AND DEVELOPMENTS:

As per the International Monetary Fund in July 2019, global economic growth was at 3.8% in the first half of 2018, but dropped to 3.2% in the second half of the year. Global growth is now projected to slow from 3.6% in 2018 to 3.2% in 2019, before returning to 3.5% in 2020, thereby hinting global expansion again .The weakened growth projection for 2019 is due to concerns over international trade, weaker economic performance in some countries, notably Europe and Asia, and geopolitical friction.

The year 2018, proved to be another year of great progress for the global life sciences industry with stable sales growth in the second half of 2018 in comparison to the first half. New drug therapy approvals, increased launch of novel therapies have provided improved quality of life and extended survival for a wide range of patients suffering with different medical conditions.

Healthcare market in India is expected to record a threefold rise, at a CAGR of 22% during 2016-22, to reach US $280 billion by FY20, US $372 billion by 2022 from US$ 110 billion in 2016. Several factors like expanding global population, rising incomes, growing health awareness, advance in science and technology, changing attitude towards preventive healthcare are contributing to growth in India and global healthcare industry. This is despite operating in an uncertain political and economic environment, hindered by ever-increasing development costs, pricing pressures, faster pace of clinical and operational innovation, changing customer and regulatory expectations.

The Government of India aims to develop the country as a global healthcare hub and has remained very active with its approach towards the development of healthcare sector. In line with this, the worlds largest government funded healthcare scheme, Ayushman Bharat was launched on September 23, 2018.

According to a report of NITI Aayog, the Government of India aims to increase its public expenditure on healthcare from 1.1% to 2.5% of the countrys Gross Domestic Product (GDP) by 2025 and to 5% in the following 5 years. This shows that the nation is set on the path of progressive healthcare for every individual.

Some key trends impacting the global healthcare and pharmaceutical sector in the near future are worth noting. These are:

Advance in Science and Technology: Scientific innovation is the need of the hour to address unmet medical needs. Use of new technology to better understand the biology of human diseases is transforming the approach to developing much more efficient medical therapies and novel targeted treatments. At the same time, advance in technology is enabling and thus educating patients as well to be more engaged and take greater control of their health and treatment choices.

With the digital revolution taking over the world and the Indian healthcare space, the Government of India is showing keen interest in the development of Telemedicine and Telehealth by investing in this segment to provide better healthcare facilities in rural India as well. The private business sphere as well is pouring liquidity into telemedicine and this investment trend is expected to continue going forward.

This technology-driven health inclinationis a major boost for DRHLSLs bio-technology and molecular diagnostics division, focused on new-age health care solutions.

Orphan Drugs: The orphan drugs sector is expected to outperform the market, doubling in size over 2018-2024 and peaking at US $262bn in 2024, accounting for approximately 20% of prescription sales. This focuses on the industrys continued effort to address small groups of neglected patients with high unmet medical needs and to benefit from regulatory and financial incentives.

Addressing the orphan drug and rare disease category, the new drug division of DRHLSL, represented by its subsidiary company, Krisani Bio Sciences Pvt. Ltd, has till date obtained 12(twelve) international patents from across the globe for the treatment of Wilson Disease, Neuropathic pain, NASH, Nephropathiccystinosis, Huntington Disease and hypertriglyceridemia.

Gradually gaining prominence, the global Wilsons disease drugs market 2019-2023 is expected to post a CAGR of close to 6% during the forecast period, according to the latest market research report by Technavio. According to a recent study conducted by RRI, the global market for neuropathic pain is expected to reflect a CAGR of over 5% during the forecast period (2016–2024). In 2015, the market was valued at over US$ 5 Billion and is estimated to stand at US$ 8.3 Billion by 2024 end.

Gene and Cell Therapy: Novel therapies like gene and cell therapies are gaining momentum and expected to increasingly contribute to growth in the global healthcare scenario addressing key unmet needs.

Building on the approval and launch of CAR-T therapies in 2017, the Chimeric Antigen Receptor T-cell (CART) therapy market is projected to increase at a CAGR of over 51% during the period 2018–2030. According to December 2018 report on Medicines in Development, five diseases are being currently targeted with cell and gene therapies and nine cell-based therapies, gene therapies and regenerative medicines are being launched globally. An increasing number are in active clinical research across therapy area. These include direct gene replacement and CAR-T therapies which are associated with significant rates of remission for some blood cancers.

This space though is not devoid of various challenges including commercialization, market access, patient and physician adoption, cost/benefit discussions, reimbursement and manufacturing scale-up. Intense pricing scrutiny by policy makers and costs associated will be the biggest challenges in this sector. However, the area continues to generate enormous interest.

B. OPPORTUNITIES AND THREATS

Positive demographics: Increased life expectancy accompanied by population growth is driving demand for both preventive and therapeutic healthcare products. Other factors contributing to the demand are growing incomes, changing lifestyle and dietary habits and gradually changing environmental factors leading to higher incidences of chronic diseases and steady increase in Non-Communicable diseases(NCDs) like cancer, cardiovascular, metabolic and respiratory diseases, especially in developing countries.

As the burden of the NCDs grow, so do public expectations, while the governments ability to address these is constrained due to financial stress. Catering to the increased challenges for health care with the changing demographics, DRHLSLs molecular diagnostics division untiringly works towards providing economically-viable prognosis and diagnosis of various genetic, metabolic diseases and NCDs adding substantial value and time to the patients life.

Medical Tourism: A recovery in global commodity prices appears to be helping to repair public finances and boost health care spending in many resource-dependent countries like the Middle East, Latin America, and the former Soviet Union.Especially, medical tourism from the sub-Saharan countries is expected to grow by nearly 20%.

In the recent times India has emerged as a hub for R&D activities for international players due to its relatively low cost of clinical research and medical services.

Also, with the launch of the Ayushman Bharat scheme in September 2018, the hospital industry in India is expected to grow at a CAGR of 16-17% to reach Rs 8.6 trillion(US $132.8 billion) by FY22 from Rs 4 trillion(US $61.79 Billion) in FY17. Thus, investment in healthcare infrastructure is set to rise, benefiting both hard (hospitals) and soft (R&D, education) infrastructure.

In 2019, enabled by these advancements in its healthcare space, India will emerge as one of the most preferred healthcare destinations attracting patients from across the world, providing significant untapped opportunities to a company like DRHLSL that continually strives to extend its advance therapy and medicalfacilityservicesat affordable prices to everyone alike.

C. SNAPSHOT OF THE COMPANY AND ITS PRODUCTS

DRHLSL has a unique and balanced business model with three self-sustainable verticals:

The three Business verticals are as follows:

1. Molecular Diagnostics: Offering more than 500 DNA and RNA based advanced diagnostics, the molecular diagnostics division of DRHLSL has best-in-class infrastructure under its ISO 9001:2015 certified laboratory.

The molecular diagnostics division is focused on offering its services by increasing awareness about appropriate prognosis and diagnosis of several life threating diseases with special focus on infectious diseases, reproductive genetics, Oncology, Endocrinology, Transplantation typing, Hematology amongst others. This division also specializes in enabling the consumer to access customized medical treatment by offering tailored services like pharmacogenomics. The in-house Cytogenetics lab offers karyotype fluorescence in-situ hybridization(FISH) analysis to detect targeted chromosomal abnormalities. This is the need of the hour to counter rising prevalence of diseases having genetic abnormalities and cancers. Acute Lymphoblastic Leukemia(ALL), a genetic disorder has caused more than 1500 deaths in the US and almost 7000 new cases diagnosed in 2018.

2. Stem cell Research and Medical Devices: Much of the interest in stem cell-based therapies in India appears focused on patient need, particularly the growing national burden of chronic diseases for which stem cell therapies will offer promising solutions. Dr.Habeebullah Life Sciences offers well standardized and proven technologies to implement stem cell-based treatment strategies. DRHLSL is carrying out extensive high-end research and development in the field of stem cells and regenerative medicine wherein the primary focusis to provide support to the patients with acute liver failure (ALF), end-stage liver diseases such as liver cirrhosis and also bridge the gap of liver transplantation as supportive modality. Furthermore, center is also dedicated to imply stem cells in neurological disorders such as Parkinson, Alzheimer, amyotrophic lateral sclerosis, Duchene muscular dystrophy (DMD) and spinal cord injury (SCI), etc.

This division is also specialized in Stem Cell therapy, in Regenerative Medicine, Bio-artificial organ scaffolds development, Nano-biotechnology, Nano formulation of cancer drugs, Molecular genetics and Molecular virology and so on.

3. Advance therapy Hospital: DRHLSL will very soon establish a state-of-the-art advance therapy hospital focused on providing cutting edge medical services in Stem cell therapy with special emphasis on Gastroenterology and Neurology. Currently, the facility provides out-patient specialty services supported by an eminent team of medical professional in the fields of Gastroenterology, Neurology, Orthopedics, Pulmonology, ENT, Dental, Behavioral sciences, General Surgery and Medicine.

D. OUTLOOK:

The visionary path shown by Prof. C. M. Habeebullah is being carried out at Dr. Habeebullah Life Sciences with utmost dedication aimed at improving the health of its population and to become one of the main contributors to the emerging potential field of stem cells and regenerative medicine.

According to a recent report by Grand View Research, the global stem cell market size is expected to reach USD 15.63 billion by 2025, at a CAGR of 8.8% during the forecast period of 2014-2025. Rapid transition from conventional treatment methods to regenerative medicine has been observed over the past few years. As per the report, Regenerative medicine is set to become the new prototype of treatment in human health having the potential to address unmet medical needs across the globe.DRHLSL aims to continue its focus on innovation to unlock the potential of regenerative medicine in several life threatening conditions and to facilitate the organ/tissue regeneration strategies to support the patient effectively and economically.

The Company continues to focus on design and development of innovative bio technology products and drugs, biomarkers, assays and medical devices.

According to a report by Global Market Insights, Molecular Diagnostics Market size was valued at USD 7.2 billion in 2017 and is expected to witness more than 8.5% CAGR from 2018 to 2024. Also, the Asia Pacific molecular diagnostics market is estimated to show CAGR of 11.4% from 2018 to 2024. India is at the forefront of the emerging countries in driving this regional growth. Increasing awareness, access to the rapidly developing healthcare infrastructure and presence of large patient pool will further augment region growth.

Infectious disease testing currently represents largest segment in the industry while genetic testing and oncology testing are amongst the fastest growing application segments. The Company intends to rightly place its products to capture the infectious disease market segment.

The global predictive genetic testing and consumer health &wellness genomics market was valued at $2.24 billion in 2015, and is expected to double to $4.6 billion by 2025. Health and wellness genetic tests are direct to consumer (DTC) genetic tests that allow consumers to access information about their genetics without necessarily involving healthcare professionals in the process.

DRHLSLs Molecular Diagnostics division is focused on Nutrigenomics and a range of different Health & Wellness testing services to help individuals optimize their health based on their unique genetics.

E. RISKS AND CONCERNS

The Company is committed to conducting business in accordance with all applicable statutory laws and regulations, and pursuing its core organizational values.

The Companys business model is a bilateral approach. It focuses on striking a balance between the high value creation divisions like Stem cell therapy, New drug discovery on one hand and daily revenue generating divisions likes Molecular Diagnostics on the other. This is aimed at minimizing the risk and maximizing the shareholder wealth.

DRHLSL acknowledges that its research and development, manufacture and sale of products and services may face several challenges such as human capital risk, risk of failure or delay of R&D products in a timely manner, risk arising out of strategic co-development arrangements with a partner, changing global and national political and regulatory landscape amongst others.Although the comprehensive eradication of risks associated with the business of the Company is unfeasible, constant efforts are made to analyze their potential impact, assess the changes to risk environment and define actions to mitigate their adverse impact.

F. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

DRHLSL strongly believes that a robust internal control mechanism is a prerequisite to ensure that an organization functions ethically, complies with all legal and regulatory requirements and observes the generally accepted principles of good corporate governance. To enable this, the Company has established a strong internal control system for the Company, which is comprised of policies, guidelines and procedures to ensure the orderly and efficient financial and business conduct.

DRHLSL has adopted strong internal control systems backed by constant reviews and up-gradation.

Internal Audit, Statutory Audit by external agencies and the Audit Committee, look into the internal control aspects and further advice on the corrective measures as and when required.

G. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE.

The management discussion and Analysis given below relates to the Audited Financial Statements of Dr. Habeebullah Life Sciences Limited. The discussion should be read in conjunction with the financial statements and related notes for the year ended 31 March 2019.

Summary:

The revenue from the core segment of the business, aggregated to INR 20.14 million in FY 18-19. Combined with a non-operating income of INR 1.1 million, the Revenue for the year ended 31 March 2019, totaled to INR 21.249 million.

The Company has generated revenue from its out-patient hospital facility and its Diagnostic services division during FY18-19. The revenue generating equipment like MRI, CT Scan, Ultra Sound and X-ray have been bought into complete operation supported by brand awareness and efficient tie-ups with concerned parties.

H. MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER OF PEOPLE EMPLOYED.

DRHLSLs employees are the backbone of the Company. It is their knowledge, scientific skills and innovative capabilities that enable DRHLSL to harness the power of science and serve its clients. DRHLSL recognizes that an inclusive culture which promotes diversity, ethics and integrity is crucial. Through a range of HR- led initiatives, we offer customized training programs to enhance the staffs scientific and leadership skills with special attention to collaborative learning amongst the several teams.

As on 31st March, 2019, the Company had a dedicated team of 50people, with the scientific team consisting more than 50% of the total workforce. DRHLSL continues to actively recruit campus freshersand experienced workforce to cater to the Companys requirement

I. FINANCIAL RATIOS

FY 2018-19 FY 2017-18
Financial Ratios Standalone Consolidated Standalone Consolidated
Debtors Turnover Ratio 0.96 0.96 0.21 0.22
Inventory Turnover Ratio 13.35 13.35 6.48 6.77
Interest Coverage Ratio N/A N/A N/A N/A
Current Ratio 2.6 0.57 14.27 0.54
Debt Equity Ratio N/A N/A N/A N/A
Operating Profit Margin -100% -110% -165% -161%
Net Profit Margin -100% -111% -166% -163%

J. RETURN ON NET WORTH

There is a change in the Return on Net Worth which is at -15.47% for the Financial Year 2018-19 as compared to immediately previous year 2017-18 which was at -8.69%. Reasons for negative increase was due to initial stages of operations and most of the revenue avenues are still not converted in to operational during the current financial year. Management is expected to bring all operational avenues like in-patient services, surgeries, blood bank and all other healthcare services into revenue generating avenues in the coming financial year, which require installation of certain medical equipment and infrastructure.

K. DISCLOSURE OF ACCOUNTING TREATMENT

Financial Statements are prepared as per Ind AS duly following the principles laid in the Ind AS. Management has not adopted any other standards other than the prescribed Accounting Standards in preparing the financial statements.

CAUTIONARY STATEMENT/ DISCLAIMER CLAUSE

Certain statements in the Management Discussion and Analysis describing the Companys objectives, predictions may be "forward-looking statements" within the meaning of applicable laws and regulations. Actual results may vary significantly from the forward-looking statements contained in this document due to various risks and uncertainties. These risks and uncertainties include the effect of economic and political conditions in India, new regulations and Government policies that may impact the Companys business as well as its ability to implement the strategy. The Company does not undertake to update this statement.