Fredun Pharmaceuticals Ltd Management Discussions.

Fredun Pharmaceuticals Limited is a WHO approved Pharmaceuticals Company; exporting to nearly 30 countries and totally committed to supplying affordable quality medicines for decades. Your Company has rapidly progressed in the last 5 years and to achieve our goals the Company has added 2 more departments for manufacturing ointments, creams, gels and ready to use pellets and DC Granules. Several automatic machineries have been installed to increase the production of Tablets, Capsules, Dry Syrups, Pellets and Topical formulations. Latest blister packing machines are also installed to take care of the increased production.

Our extensive generic portfolio will play a significant role in the growth strategy in various markets. Continuous efforts are made to adopt latest technology to improve the cost and quality of our products. The outcome will be a better value for our stakeholders at large.

1 . Pharmaceuticals Sector Overview:

We are the fastest growing economy in the world and today the sixth largest in the world generating high growth rate with low inflation. The pharmaceuticals industry plays a unique role in improving the lives of the people.

As a country, we need to substantially increase our Healthcare budgets. Our per person average healthcare spend is approximately 85$ which is amongst the lowest if compared to other countries. Ayushman Bharat is a positive step towards universal healthcare in India but it needs to accommodate tertiary care in its scheme of things.

The government in its Union Budget 2019 has raised the allocation for Ayushman Bharat scheme by a whopping 167 percent to Rs 6,400 crore for 2019-2020. The allocation for Ayushman Bharat scheme stood at Rs 2,400 crore in 2018-2019.

The healthcare sector needs privatization where implementation should be undertaken by private service providers to ensure that uniformily in quality healthcare is maintained. If the government plays a role of a monitoring agency, we will fare much better to deliver value- based healthcare.

Government spending money on healthcare stays at around 1 % of the GDR The healthcare sector can only get affordable if the government revises this upwards. Over the last few years, the Indian Healthcare Sector has begun a major overhaul in order to attain the Prime Ministers goal of healthcare for all. Not only our Government Institutions are involved but Corporate and Private Hospitals have also come forward to be a part of this initiative.

Another important dimension of our Government is making pollution free Nation and ensuring the security of the people.

India is a land of opportunities. The pharma Companies are growing both organically and inorganically. The Indian Pharma Industry is likely to be in the top 10 Global Markets byvalue by the year 2020. High burden of disease, good economic growth leading to higher disposable incomes, improvements in healthcare infrastructure and improved healthcare financing are driving growth in the domestic market.

By allowing 100% FDI for Greenfield projects and 74% FDI for Brownfield projects will initiate quality in the medical technology sector. Another significant improvement is done in the maternal and infant health.

Indias pharmaceutical exports grew a robust 10.72% in 2018-19 and raced past the $19 billion mark for the first time. Exports touched $19.14 billion in the year 2018-19 as against $17. 28 billion in 2017-18; the previous highest.

The countrys pharmaceutical industry is expected to expand at a CAGR of 22.4% over 2015-20 to reach $55 billion. India is the second largest contributor of global pharmaceutical workforce. The pharmaceutical sector was valued at $33 billion in 2017. Due to rapid urbanization and increasing consumer spending including spending on medicines due to healthcare awareness in India, the Indian pharma market is expected to grow substantially.

2. Current Pharma Sector Scenario:

Though the economic situation in most of the emerging markets is challenging, the overall outlook for Global Pharma market is expected to increase. According to the World Industry

Report, global generic drug sales will be 29.2% of the total Pharmaceuticals sales by the year 2022, an increase of 1.2% from the year 2017. Generic drugs accounts for more than 80% by volume of all the drugs dispensed across the world.

R&D investments and innovation can drive the growth of the Pharma market At present smaller Companies are also focussing on developing bio-similars and registering just out of patent drugs in developing markets by cheaper and quicker In-House manufacturing process. By adopting such technologies, the small Companies can have greater competitive advantage for themselves as innovating a new drug is an expensive proposition. Your Company is also in the process of developing such molecules and has spent and continues to spend a substantial amount on R & D. The Company as on March 31,2019 had in total 193 Drugs registered whereas 450 Drugs applications under registration: in different countries. The Company will also continue to out- license some formulations to augment the growth. Our objective will be to increase our generic exports in ROW with our new product range of ointments, creams and pellets of different APis.

Moreover, after the structural changes like implementation of GST in India in the year 2017, the outlook of the industry remains broadly positive. Your Company has also a positive outlook due to some good drivers shown below:

1. National Health Policy, 2015 which focusses an increasing public expenditure on healthcare segment and increasing of health insurance;

2. Reduction in approval time for new facilities;

3. Plans to setup new Pharmaceuticals education and research institutes;

4. Due to growing number of stress related diseases and increasing fatal diseases; demand for cost effective medicines will increase;

5. India has become a manufacturing hub for generics: hence availability of skilled manpower will ease out and accessibility of drugs will greatly improve.

The Management is thus quite positive on its current expectations and projections for the future of your Company but some known and unknown risks like change in local and global conditions, sudden changes in government policies, unexpected manufacturing problems due to unavailability of APis or change In market dynamics may impact the expectations and results of the Company.

3. Business Outlook:

For the past 2-3 years the Company has been systematically investing In its productive Infrastructure by installing additional granulation departments and high speed tableting and blister packing machines. This has yielded results In Increased production, sales and the turnover of your Company. Your Company had also planned for 1wo more departments to manufacture ointments, creams, gel and also pellets manufacturing department of different APis. The licence of both the above-mentioned departments are already obtained and validation of the commercial batches are completed. Hence, your Company expects to manufacture ointments, creams, gels and capsules of different API pellets. This will substantially help the growth of the Company as the machines installed are automated and in todays highly regulated pharma industry, regulation and compliance has a major consideration which allows the Pharma Companies to use electronic records and signatures. There are obvious benefits of advanced automated machines though the cost of upgrading is huge. Your Company has heavily invested in the upgradation and expansion of the manufacturing unit at Palghar. The Company is hopeful of procuring enhanced credit limits from the Bankers.

4. Key Growth Factors:

The other key growth factors for the demand of Pharma Industry are shown below:

Growth & ageing global population Growing Sick Population Rising incidence of non-communicable & infectious diseases
• In 2010, there were an estimated 6.9 billion people in the world. • Sedentary lifestyle and age are causing many illness. By 2025 - 73.5 million & by 2040 - 642 million number of people will be affected by diabetes. • WHO predicts that by 2020, non-communicable diseases will account for 44 million deaths a year -15% more than In 2010.
• By 2020 the world population will be more than 7.6 billion. By 2020, more than 13% of the population In the world will be aged 60 or older.


Improved access to healthcare Higher affordability
• More people have access to heatthcare than everbefore. • The growing middle-class population with higher disposable Income Is able to afford quality healthcare.
• Emerging economies are working hard to improve access to healthcare •By 2020, more than 40% of all households in China. India & Indonesia will be "middle class"- deflned as those With annual Incomes of 5,000 and 15,000 USD.

As shown above, your Company will try to focus on local market also to overcome the challenges of exporting generic formulations with declining profits and try to focus on improving the well being and health of our poor people by supplying the cost - effective quality medicines.

5. Challenges:

The Indian Pharma Industry has been facing several regulatory challenges like Foreign Direct Investment (FDI) Policy, Pricing Policy, Patent Protection, Regulatory approvals and Compulsory Licensing, which require careful consideration by the Companies in their pursuit of growth.

The Indian Pharma Industry till now is concentrating on generic market as India enjoys global dominance and generics will still remain the revenue generator for Indian exports. But plunging profitability in regulated markets with increased registration charges leads to global challenges. Hence, your Company has decided to concentrate on other growth avenues, like increasing the products portfolio towards chronic therapies for diseases such as anti-diabetics, cardiovascular and anti-depressants. Your Company is already registered with Central Bureau of Narcotics, India and plans to expand its anti-depressants product range.

The number of Indians with diabetes is projected to reach US$73.5 million in 2025. The direct and indirect costs of treating such patients are currently about US$420 per person per year. If these costs remain the same as they are now, Indias total bill for diabetes would be about US$30 billion by 2025. (Source: PWC Report)

As the standards of healthcare improve, the treatment cost may also rise. This would benefit the Company as anti-diabetic drugs are the major source of revenue for the Company.

6. Human Resource Management at Fredun Pharmaceuticals Ltd.:

Peoples contribution is the key to a Companies continuous success & growth. Your Company makes efforts to build a diverse and inclusive work place emphasising on gender equality in all the departments of the Company. Meaningful opportunity for learning and gaining experience to the internal talent is encouraged to develop and groom leaders from within the organisation. Communication and all-round collaboration are encouraged to instil a sense of belonging and pride in working for Fredun Pharmaceuticals Ltd.