laurus labs Management discussions

GLobAL eCoNomIC LANDSCApe

In the past two years, organizations worldwide faced viral storms and an economic downturn, making sustainability and profitability challenging. The global growth rate is expected to sharply decline to 1.7% in 2023 due to factors like inflation control measures, weak financial systems, the Russia-Ukraine crisis, geoeconomic fragmentation, and other headwinds affecting emerging markets. This slowdown, three years after the 2020 pandemic, may lead to a recession, worsened by financial instability caused by weakening investments, corporate defaults, and vulnerable financial systems. In Q2 FY2023, high inflation led to increased interest rates and slowed economic activity, while Q3 and Q4 saw continued stringent monetary policies and declining commodity prices. However, inflation remains above central bank targets due to pricing pressures, supply shocks, currency depreciations, and tight labor markets in some countries. Global trade slowed in the second half of FY2023 for industrial production but prospered in services. Banking sector vulnerabilities emerged, with bankrupt regional banks in the USA and the collapse of Credit Suisse hinting at a global financial crisis. The worlds potential growth is expected to hover around 2.2% in this decade, potentially leading to a lost decade of growth. Policy makers now face challenges with inflation, low growth rates, and financial instability. Pharmaceutical companies are reconsidering supply chain and manufacturing decisions, focusing on operational strategy to address long-term externalities like high inflation and increasing risk factors. These challenges add to persistent pricing pressures, especially in generics. Amidst these circumstances, pharma companies must prioritize operational restrategizing, digital acceleration, advanced analytics, product innovation, and developing solutions for testing and critical care.

INDIAN eCoNomIC LANDSCApe

India, Asias third-largest economy, showed resilience despite growth moderation in H2 FY2023. It remains one of the fastest-growing economies, surpassing China in population. Average economic growth was around 6.9%, driven by robust investments, government capex, and increasing private consumption. Inflation hovered around 7%, with a narrower current account deficit in Q3 FY2023 due to flourishing service exports and a marginal commodity price slowdown. Merchandise exports rose, but slower. Electronics exports increased 57% as major players established production units, following the China+1 strategy.

India faced challenges like easing commodity prices, weakened pandemic-era demand, manufacturing weakness, fading base effect, tightening financial conditions, volatility, capital flow reversals, depreciation, and global trade slowdown. Strong macroeconomic fundamentals provided protection.

The growth rate forecast for the upcoming fiscal is around 6.3%, slower due to sluggish private consumption, higher borrowing costs, and reduced government consumption after fiscal support withdrawal. India expects better resilience, with inflation decreasing to 5.9% in FY2023. Reduced deficits, stable debt-to-GDP, declining current account deficit to 2.1% from 3%, and a well-capitalized banking sector yield positive outlook. Caution required for global developments and spill-overs.

GLobAL phARmACeutICAL INDuStRy

As per studies by FICCI, the global pharmaceutical industry is estimated to reach a value of USD 1 trillion by 2023.

Supply chain disruptions and the repeated lockdowns in China have all led to rising prices of raw materials, viz. active pharmaceutical ingredients (APIs), key starting materials (KSMs) and other essential inputs like solvents, energy costs, freight costs and costs of packaging material and continuous pricing pressure in the US generic market. While prices of APIs have risen from 25% to 120%, prices of excipients correspond to almost 15% to 200% rise and packaging materials 25% to 100%.

Though pricing pressures in US and European markets will hinder rapid growth, certain other factors will command healthy growth in emerging and developing markets.

The growth in the global generic pharma market is attributed to favourable policies aiming to reduce the overall cost of healthcare and make healthcare more accessible to patients. Generic drug production is being encouraged by governments and regulatory bodies across the world in order to fulfil the above-mentioned twin objectives.

The US is the largest market for generic drug manufacturing. The generics industry is facing competition and pricing pressures due to excessive supply in the market. This is resulting in sales loss of many players and financial pressures are being experienced in the post pandemic area. Price erosion in the US markets and headwinds arising from US drug regulatory compliance issues are a cause of concern for the pharma companies.

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Some FeAtuReS/tReNDS oF the GLobAL GeNeRICS mARKet

Diluting manufacturing standards

Price competition, at times, results in relaxed manufacturing standards and hence sub-standard quality products, resulting in increasing number of generic medicine recalls. expansion in emerging markets

New opportunities in emerging markets especially Africa has scope for high growth. This is reflected mainly due to rapid urbanization, improvement in infrastructure of logistics, increasing investment in healthcare sector, rising consumer demand, geopolitical stability and regulatory changes.

Injectable generics

The R&D community has started vouching for injectable generics due to their advantages in terms of dosage, quality, strength and quicker research cycle, in addition to aging population, rise in lifestyle diseases and shortages of some medicines.

outlook for the Global pharmaceutical Industry

While witnessing collaboration and adapting innovative approaches and migrating from pre- to post-pandemic era, across the world, the industry has been delivering quality medicines continuously.

Untamed inflation tops the list of concerns in FY2024. Navigating through a path of gradually falling inflation from threatening high levels, in nations outside the US, is terminating into higher input costs and other inter-linked challenges. This has resulted in longer than current baseline predictions like volatile material prices, expenditure constraints and renewed supply chain disruptions influencing drug pricing strategy. Companies will have to focus on budgeting and resource allocation. In the long and complex value chain in the pharmaceutical industry, proactive quality management system is the need of the hour and will be highly significant in the coming years. A notable feature is a decline in the sales of the pharmaceutical sector in the developed nations, which is leading the companies to move to emerging markets and developing countries for revenue generation and growth. Competitive strategies with a blend of global approach customized to local markets will drive innovation. In a nutshell, pharma companies are geared up with forecasting and strategizing methods to take advantage of the economic rebound and stabilization of the cost drivers by end of coming financial year.

INDIAN pharmaceutical Industry

The Indian pharmaceutical industry has history steeped in itself since the 1970s, when the first Patent Act for products was passed. Since then, with the liberalisation of markets in the 1990s, India becoming a major destination for manufacture of generic drugs, the National Pharmaceutical Pricing Policy (NPPP) in 2012, National Health Policy Draft in 2015 to the more recent Pharma Vision of 2020 to make India a global manufacturing hub, India has the potential to generate close to USD 200 billion value in the next 10 years.

Source: IBEF, November 2022

Today the industry ranks third in terms of volume and fourteenth in terms of value globally. The industry has exhibited CAGR of 8-9% during FY2017 to FY2022 and a year-on-year growth of 5-7% in FY22, inspite of stable exports at US$ 24.6 billion, thus demonstrating the power of domestic consumption being the force behind this growth. India has an established domestic pharmaceutical industry with a strong network of 3,000 drug companies and approximately 10,500 manufacturing units. The Indian biotechnology industry is built by approximately 600+ core biotechnology companies, 2700+ biotech start-ups and 100+ biotech incubators.

According to the Indian Economic Survey 2023, the Indian pharmaceutical market is expected to triple in the coming decade. Indias domestic pharmaceutical market stood at USD 48 billion in 2022 and is likely to reach USD 65 billion by 2024 and further expand to reach USD 120-130 billion by 2030, growing at a CAGR of almost 22.4%. The Indian biotechnology industry, comprising of biopharmaceuticals, bio-services, bio-agriculture, bio-industry and bioinformatics, was valued at USD 70.2 billion in 2020 and is expected to reach USD 150 billion by 2025. India is also the second largest in the world in terms of manpower in the pharmaceutical and biotech sector. In FY2022, the country generated a trade surplus of USD 15.8 billion in the sector. The pharma sector in India is categorized into: Production of generics, Marketing of generics, Marketing of innovative medicines and Manufacture of APIs; the primary focus being on the APIs till the recent past. However, there is a paradigm shift happening with the focus shifting to development and innovation medicines. Indias drug pricing authority has allowed a price hike of 10.7% for scheduled drugs, considering the increase in the cost of production. This could probably offer support to the profitability of the pharma sector to some extent. Additionally, the recent sharp depreciation of the Indian rupee against the US dollar is also expected to enhance the profitability of the sector, considering it is a net exporter.

In the global pharmaceuticals sector, India is a significant and rising player. India is the worlds largest supplier of generic medications, accounting for 20% of the worldwide supply by volume and supplying about 60% of the global vaccination demand. Indian drugs are exported to more than 200 countries in the world, with the US as the key market.

Source: IBEF, November 2022

The Indian pharmaceutical industry functions on the basis of key areas of the value chain like manufacturing, product development and process innovation. Ample opportunities exist across geographies as well as product classes for the Indian pharmaceutical players to chart an accelerated growth path. The pharma exports have also exhibited an upward trend since the last five years inspite of global trade disruptions. On the same lines, cumulative FDI inflows in the sector also exhibited positive momentum over the last five years.

From the point of view of the pharmaceutical sector, India has the dual advantage of scale and reach; the former being possible due to relatively lower cost of manufacturing and the latter being possible due to the abundant availability of a highly skilled workforce able to produce quality products.

The enactment of the Generic Drug User Fee Act (GDUFA) in 2012 in USA was followed by an increase in the approval rate for Abbreviated New Drug Application (ANDA) for Indian generics over the past few years. But recent times have seen an increase in competition and steady price erosion.

The pharmaceutical sector encountered a decline in both year-on-year and quarter-on-quarter PBILDT1 margins and operating profit margins in H1 FY2023, which could be attributed to continuing increase in the cost of APIs, KSMs, packaging material, freight and compliance. But H2 FY2023 witnessed a rebound in the PBILDT margins, partly because of the reduction in the pace of price erosion in the US generic market and partly due to further depreciation in rupee. This jointly had a positive impact on the export-oriented sector. Since the sector has very little dependence on external debt, the credit profile of pharma companies is expected to remain convincing.

Source: Ace Equity and Care Edge Ratings. The PBILDT percentage (Profit before tax, interest, lease rentals depreciation and taxation) is of 186 pharma companies, representing almost 85% of the overall pharma market.

Despite these headwinds, Indian pharma exporters managed to achieve year-on-year growth. outlook for the Indian pharmaceutical Industry

Pursuing a dynamic strategy of intra-industry partnerships, extensive emphasis on research, innovation and development, increase in-licensing technologies and assets from startups are some of the approaches that could be undertaken by the Indian pharmaceutical companies. ICRA research shows that domestic pharma companies are expected to register a growth of 6% to 8% in revenues in FY2024. The operating profit margin, however, is estimated to drop slightly due to inflationary pressures. The Indian pharmaceutical industry is on an upward growth track and India is in a position to claim the spot of the worlds most preferred pharma destination in the coming years.

Company overview

Laurus Labs Limited

Laurus Labs Limited is a science-led, integrated

74 pharmaceutical manufacturing company based out of India, focussed on sustainable growth. An unwavering commitment towards its philosophy of providing uniform quality medicines for all markets across the globe and a strong appetite for investing ahead of time, Laurus Labs captures the quintessential essence of Enhancing its Capabilities towards Ensuring the Future. As a R&D first company, Laurus Labs has transformed and diversified based on the possibility of exploring potential growth areas.

Migrating from an ARV API pureplay company to an API company and then forward integrating into Formulations, and then broadening the horizon by delving deeper into Synthesis and Biologicals, thus conceptualizing the term ‘Integrated Pharmaceutical Company for itself, through perseverance and agility over the years. opportunities for the Industry

Tremendous scope for innovations

Investments in advanced cell and gene therapy

Investment in disruptive technology companies and platforms

Leveraging the patent prospects

More exposure to international territories and extending footprints in underpenetrated markets

Optimal utilisation of digitalization

China+1 strategy

Gradual migration to product patent-based regime

Global private equity firms investing heavily in the Indian pharmaceutical sector for greenfield and brownfield investments due to favourable FDI policies

Large global pharma players entering a joint venture with some pharma companies

Demographic potential low cost-efficient skilled labour

Technical and technological expertise available

Robust cost-effective manufacturing setup

Procurement price reduction opportunities/Strengths of the Company

Tremendous scope for innovations

Investments in advanced cell and gene therapy

Excellent chemistry and process engineering skills

Ability to solidify its position (man, material, reactors and costs)

Pipeline progress and strong commercial execution in

CDMO

Ramp-up of CMO projects

Strong scale-up in high-margin portfolio

Continuous Process Improvement Program

In house manufacturing of key intermediates

Well positioned to stabilize ARV sales amidst ongoing challenges

Growth investments across focused & diversified project portfolio

Uniquely positioned to meet growing global demand for

DS and DP projects threats for the Industry

Absence of stable pricing and policy environment affecting investment decisions

Dependence on imports for intermediates

Quality compliance levels as compared to developed economies

Litigation/Patent issues for domestic companies

Emergence of new hubs for generic drug manufacturing

Pace of innovation to be fastened threats/weaknesses of the Company

Moderation in Growth in key export markets like USA (due to price erosion and higher scrutiny from regulators)

New launch impacted due to delays in regulatory approval

Excess channel inventory for ARV, affecting its pricing

Actions needed

Concerted action by all the stakeholders viz. Pharma companies, government and regulatory agencies can help cash in on the opportunities and alleviate the threats to the industry.

Conducive regulatory environment for increased pharma investment

Increased budgetary allocations for healthcare sector

Boost health infrastructure

Additional focus on API manufacturing and subsequent reduction on imports

Promote innovation to make India a R&D hub

Support educational institutions and encourage industry institute partnerships

Collaboration with regulatory international bodies

Broadcast the contribution of Indian generics globally

Facilitate setting up of API parks, hubs and SEZs

buSINeSS SeGmeNtS/DIvISIoNS

The major business segments at Laurus Labs are

I. Laurus Generics – Active Pharmaceutical Ingredients (API) and Finished Dosage Form (FDF) – Development, manufacture and sale of APIs and advanced intermediates and oral solid formulations/FDF

II. Laurus Synthesis – Key starting materials (KSM), intermediates and APIs for New Chemical Entities (NCEs) III Laurus bio – Recombinant products – animal origin free products for safer and viral free bio manufacturing

I. LAuRuS GeNeRICS

Laurus Generics encompasses Active Pharmaceutical Ingredients (Generics API) and Finished Dosage Formulations (Generics FDF). FDFs usually contain an API alongside various inactive ingredients.

Generics ApI

API is a crucial segment of the pharma industry, with around 35% contribution to the market. India is the third largest producer of API accounting for an 8% share of the global API industry. 500+ different APIs are manufactured in India and it contributes 57% of APIs. The Indian API market is anticipated to increase at a CAGR of 13.7%.

Source: investindia.gov.in

Currently, even if the APIs are manufactured locally, the key starting materials (KSMs) are still predominantly sourced from China. The Chinese API industry accounts for 40% of the global API requirement and is supported by benefits like higher economies of scale, subsidies and fiscal incentives offered by the government and lower power, fuel and borrowing costs. As one of the worlds leading suppliers of ARV APIs and intermediaries, Laurus Labs is an advanced chemistry skills company, working closely with innovators, global health organizations and providers to meet cost reduction targets, without compromising quality standards.

The Company majorly focusses on anti-retroviral, oncology, cardiovascular, diabetes, gastro and hepatitis C therapeutics. Possessing expertise in innovative solutions, manufacturing efficiencies and unwavering quality focus has won the Company long-standing relationship with its global customers. Building on its strong capabilities in chemical development and manufacturing, the Company has developed a wide range of in-house APIs and intermediates. The focus is on chemistry where innovation and efficiency are combined to develop cost-effective and hence affordable processes. Reliable and sustained supply is ensured by regularly investing in building capacities.

Laurus is one of the worlds leading suppliers of anti-retroviral APIs and intermediates. The low-cost technologies in this critical segment are enabling access to affordable medicine for patients across the globe. Oncology is another one of the Companys core competencies and offers a comprehensive range of APIs in this segment. The state-of-the-art facilities at Laurus Labs are capable of handling high-potent materials at both development and commercial scale. Laurus Labs is continuously extending its portfolio by focusing on molecules in diabetes, ophthalmology, and cardio-vascular therapy areas, endeavouring to establish a leadership position. Laurus Labs offers globally compliant cGMP facilities, along with chemistry expertise, to customers for contract development and manufacturing of APIs and intermediates. It is already a preferred CRAMs partner to several customers, owing to stringent quality and EHS systems, wide operability range (from grams to multi-tonnage scale), robust project management practices and vast contract manufacturing experience. With proven capabilities, Laurus Labs provides end-to-end API solutions to global markets that meet and exceed the quality, regulatory and IP requirements as well as cost targets.

Generics FDF

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India is the largest exporter of formulations in terms of volume, with a 14% market share. It ranks twelfth globally in terms of export value and a double-digit growth is expected over the next five years.

*Source: India Briefing

With FDF business, Laurus Labs is creating a greater impact on the quality of life for millions across the world. At the heart of its R&D efforts in this area is the FDF Development centre. The centre brings together Formulation and Analytical Research, Clinical Pharmacodynamics and Pharmacokinetics, Regulatory Affairs, Packaging Development, Intellectual Property Management and Developmental QA functions.

Laurus has dedicated formulation research labs, laboratory-scale clinical supply facilities and analytical research labs capable of developing different types of dosage forms. The Company creates tangible value for customers by leveraging cost-effective processes and large capacities in the API business. The FDF business builds on the Companys strengths in chemistry research, process chemistry, active pharmaceutical ingredient production and regulatory filings.

The state-of-art oral finished dosage facility in Visakhapatnam, India confirms to international regulatory standards. This facility has a commercial capacity of 10 billion units. The FDF business is in the process of making the Company a leading player in offering integrated solutions to the global market. outlook for Laurus Labs - Generics

Currently, India is the largest provider of generic drugs in the world. The manufacture of generic drugs, which has a lions share of almost 75% of the retail market, has bolstered the growth of pharma sector in India.

The Indian API industry, which has an estimated size ofRs1,000- 1,100 billion in FY2023 is expected to grow at a CAGR of 7% to 8% over the next three to four years, attributing this growth to several factors like increasing geriatric population, growing prevalence of chronic diseases and increasing demand for contract manufacturing with global customers looking to diversify their supply chain dependence from China to alternative destinations. The global view of China post pandemic has changed to a large extent and multinational companies are looking forward to reduce dependence on Chinese imports. With the China+1 policy supplemented by the domestic government incentives like the Production Linked Incentive (PLI) for APIs, the Indian API manufacturing has a potential high growth opportunity. In Generics API, scaling up of anti-diabetic, cardiovascular and PPI portfolio has been supported by demand-based capacity expansion. Laurus Labs is looking at increasing supplies to developed markets and maintain the ARV API position in current product line. In Generic FDF, despite the pricing challenge, consolidated market share of Laurus Labs is increasing. Equipped with in-house API strength, the FDF segment has developed a niche product line for the developed markets. Monetizing on the diabetic and cardiovascular portfolios with a greater than USD 40 billion-dollar market, Laurus Labs is on a high growth trajectory.

Growth in existing and new CMO contracts in Diabetic and Cardiovascular portfolio across key generic markets is expected. With key product approvals, there is expectation of better visibility in ARV business, inspite of pricing headwinds in ARV APIs and FDFs.

II. LAuRuS SyNtheSIS

Innovative, robust and scalable chemistry is the core strength of Laurus Labs. The Company supports drug development and manufacturing programs for global pharmaceutical and biotech companies at all stages from pre-clinical stage to commercialization. The development and manufacturing teams maintain a tight focus on performance at scale, continuous process improvement, securing and de-risking supply chains to provide an efficient, compliant, cost-effective and long-term commercial drug substance and drug product solutions.

Laurus Labs is well-positioned to meet all NCE Drug Substance and Drug Product needs of clients, from preclinical through commercial manufacturing. The strong analytical chemistry team at Laurus works with the chemical development and tech-transfer teams to provide necessary phase-appropriate support to clients for their drug substance and drug product analytical development needs. The drug product development team at Laurus Labs is well-equipped to develop all types of formulations both for NCEs, Generics and other specialty products. The comprehensive analytical infrastructure complements this capability.

CDmo at Laurus Labs

A. Contract Development

Laurus Labs Limited

Drug Substance Services

Chemical process development (Pre-clinical to P-III/

Commercial

Drug substance manufacture, including HPAPIs

CMC and regulatory filings support

Custom synthesis

Analytical Development Services

Method development

Method validation

Stability studies

Impurity identification, characterization

Reference standard characterization product Development Services

Pre-formulation studies

Dosage form development for NCEs

Formulation development and filing support for NDA submissions b. Contract manufacturing ApIs, Finished Dosage Forms & Starting material

Tech-transfer from client sites with project management support

Securing RM supply chain by continuing existing sources and identifying new cost-effective sources; back-integrating the manufacture wherever necessary

Custom build and dedicate equipment trains, blocks and manufacturing facilities, wherever necessary

C. Niche Solutions hp ApI

Extensive experience in handling manufacture of

Highly-Potent (Cytotoxic and Steroidal Hormones) APIs & Intermediates both at Pilot scale & commercial scale ; Dedicated cGMP Containment manufacture capability at all scales and across multiple sites.

Facilities designed for enabling operational containment levels of OEL

Chiral Separations

Conventional column chromatography capability laboratory, pilot and commercial scale; Adequate preparatory HPLC expertise & capacities: Lab-scale (100ml /min) to pilot scale (1000ml/ min) (Agilent & Knauer) & Column packers (Novasep & Asahi Kasei); Pilot scale to commercial scale SMB installations - Novasep varicol 6X50mm @ pilot-scale & 5X300mm @ commercial-scale

Collaborative and Integrated offerings

Integrated Drug Substance and Drug Product

Development

Dedicated facility deployment and manufacture

Laurus Labs has established a leadership position for itself in the manufacture and supply of nature identical and highly-pure polyphenols (Curcumin, Resveratrol and Pterostilbene etc). It has developed technologies for several key ingredients including carotenoids (Beta-carotene, Astaxanthin), Huperzine A and novel nutraceutical co-crystals of Pterostilbene, Caffeine and Curcumin with enhanced bioavailability and controlled absorption properties.

The Synthesis division also offers Contract Development and Manufacturing services (CDMO) for Global Nutraceutical clientele through contract manufacturing that conform to the international compliance standards prescribed by GMP, Kosher, Halal and HACCP. With manufacturing efficiency and quality rigor that match those of the pharmaceutical APIs, the Ingredients business has gained a reputation for consistent quality and supply assurance.

outlook for Laurus Labs - Synthesis

Strengthening Nutraceutical and Cosmeceutical areas and brining in dedicated R&D centres and greenfield manufacturing units sums up the Laurus Labs outlook for the synthesis division. Acquiring new clients and further solidifying the relationship with existing clients has enhanced its integrated capability in Drug Substance (DS) and Drug Product (DP). Expansion in this segment is on the cards.

III. LAuRuS bIo

The Biotechnology business at Laurus Labs has capabilities in precision fermentation and recombinant DNA technology. Laurus Bio is an integrated, research-driven biomanufacturing organization, with a unique history and experience in developing and manufacturing ultra-pure animal-free recombinant products for the biopharma industry and high-volume industrial-scale biotechnology products for food, health and nutrition markets. Laurus Bio manufactures animal-origin-free recombinant proteins, growth factors and cell-culture media supplements that are safe, virus-free and sustainable. Its products and solutions cater to the unique requirements of various industries such as Stem Cells and Regenerative Medicine, Vaccines and Biological Drugs, Cultured Meat and Cell-Culture Media Manufacturing.

The unit also offers in-depth fermentation-based product development and manufacturing expertise, as a CDMO service to novel protein companies and bio-manufacturers — from clone development, strain engineering, process development and scale-up to large-scale commercial manufacturing, supporting its customers at every step of the microbial precision fermentation value chain.

By harnessing the power of precision fermentation and synthetic biology, the Company is paving the way for a global shift away from animal-derived products and making medicines and food, safer and more sustainable. The corporate goals are aligned with the goals of the society at large to achieve meaningful and sustainable economic development

. outlook for Laurus Labs - bio

While the Indian Pharma industry leads in volume globally, it is still on the margins in creating value through innovative technologies such as new molecular/biological entities, cell and gene therapy and precision medicines.

The long-term outlook for the Bio segment is expansion to reach 1 million litres fermentation capacity. Scaling up in alternate food proteins and improving synergies with the parent is expected. Ramp up of new capacity is also expected.

RevIew oF opeRAtIoNS

The R&D driven manufacturing strategy of Laurus Labs across key growth pillars was the driving force in FY2023.

Diversification of its portfolio has helped mitigate risks and offset exposure to a single business segment. The Companys diversification roadmap was on track through the year and it has been executing on its opportunities while at the same time focusing on what matters for the long term – thus, Enhancing Capabilities, Ensuring Future.

FY2023 was characterized by strong growth led by non-ARV and CDMO segment.

There was significant progress in the year by advancing the scientific capability in offering several key technologies to global customers, including access to technologies like continuous flow chemistry at lab and commercial scale, bio-catalysis, continuous chromatography, enzymes development and manufacturing and precision fermentation. Additional advancements have been executed in R&D initiatives, pipeline enhancement, diversification and new capacities for commercial production.

Investment in R&D continued with product specific approach based on complexity and economies of scale. The Company continued to do further developmental work on orally disintegrating film platform, which can be leveraged to create innovative pipeline in other therapeutic areas. The sterile R&D labs, which were commissioned in FY2022, are already into priority projects and development phase for 3 products is expected to be completed in the coming year. With 64 products in the lab development, there is an addressable market size of USD 40 billion.

The approach at Laurus Labs has always been product-specific and not market-specific. The demand for its portfolio of products and scale is robust, giving an impetus to the business.

78 Performance across the US markets was good inspite of competition, with Laurus Labs having a high market share on select products and higher sales volume for newly launched products.

Generics ApI

Laurus Labs has one of the largest high-potent API capacities in India and it aims to strengthen this further by partnering with global companies. The Company developed scale in API and ARV API segment exhibited robust growth. FY2023 presented a strong and all-round growth for Generic APIs supported by CMO opportunities. The segment reported overall growth of 28%, supported by the growing CMO opportunities in high-growth APIs. ARV API continued steady momentum and reported 21% growth and witnessed volume led improvement. Non-ARV, non-Oncology (that is other API sales) like cardiovascular, diabetes and asthma have shown an increase of 56% following a rise in new contract supplies. Oncology API revenues witnessed a steady growth of 10%.

The ARV sales volumes and pricing in the generic API business are expected to stabilize and continue to have a leading market share in the current products.

In FY2023, 6 DMFs were filed in non-ARV category, taking the total number of DMFs filed to 79.

Generics FDF

Laurus Labs signed a supply agreement with a Global Fund for ARV drugs for a three-year period from 2023 to 2025. With this new tender, the ARV revenues and business is expected to stabilize. Two new products in ARV business have been launched and approvals for a few more products are in the pipeline. Though there was less procurement from global agencies and adverse pricing, ARV sales continued to recover against the previous quarter lows. Investment in Non-ARV FDF infrastructure continued in FY2023 with the total commissioned capacity of 10 billion units.

There has been capacity expansion with small molecules DP capabilities expansion at Unit 2 – by 4 billion unit annually. It was brought online during Q2 FY2023 and a gradual production ramp-up is expected.

The first New Drug Application (NDA) for paediatric HIV based on ODF technology platform was filed with the US FDA during the year, which will complement and supplement the existing basket of products and tentative approval obtained during Apr 23.

In FY2024, Europe business is expected to expand with higher volume of existing products and new approvals from North America will trigger further growth.

During FY2023, the Company filed 13 Abbreviated New Drug Applications (ANDAs) in the developed markets – 6 in USA, 4 in Europe and 3 in Canada.

In USA, the 6 ANDAs filed in the year took the cumulative number of ANDAs to 37, of which 14 ANDAs got final approvals and 12 got tentative approvals. Apart from USA, Laurus Labs has filed 15 dossiers in Europe out of which 6 are launched, 20 in Canada out of which 9 are launched, 9 with WHO, 7 dossiers in South Africa, 1 dossier in Australia, 20 dossiers in India and 23 products filed in various ROW markets.

CDmo-Synthesis

Synthesis business demonstrated a robust growth of over 136% y-o-y, making FY2023 the ‘Year of Synthesis.

CDMO business was driven by robust demand for new and existing products and commercial execution with Big Pharma in record time. The growth was also driven by delivery of a large purchase order and accelerated demand from existing and new clients. After a successful project execution with an MNC at extraordinary speed and scale, Laurus Labs has established itself as one of the key players in the CDMO space. The end-to-end capabilities have further been enhanced to handle steroids, hormones and high potent molecules. A strong and wider customer base across US,

EU and Japan has resulted in more than 60 active projects (Phase I, II and III + CMO) and on-going supplies for 10 projects (4 API projects & several intermediates).

Baseline project revenues are expected to accelerate and lead the upcoming growth. R&D centre completion by December 2023 and commercial GMP manufacturing for animal health facility from H2 FY24. bio

Laurus Bio displayed strong 25% growth in revenues. The key drivers of the portfolio include AOF proteins and growth factors. The segment was driven by improvement in production downtime and unprecedented growth in CDMO business. New capacity implemented at R2 is in the ramp up phase and debottlenecking are expected to be completed during Q3 FY2024. A New site R3 is in design finalization phase and is expected to be implemented in a phased manner.

In a nutshell, commitment towards diversification and strengthening of non-ARV portfolio, building niche capabilities, invest in disruptive technologies, backward integration programs and improving operational efficiencies will continue to be in force in creating a long-term value at Laurus Labs.

RevIew oF FINANCIAL peRFoRmANCe (Consolidated)

In FY23, the Companys operating revenue amounted to

6,041 crores, representing a 22.4% increase from the previous year. Meanwhile, the Profit Before Tax rose by 2%, reaching

1,109 crores compared to last years figure ofRs1,084 crores. An analysis of revenue and expenditure is as follows:

Revenue

(Rs in crores)	Fy23	Fy22	Change
Operating revenue	6,041	4,936	22%
Other income	6	15	-60%
total revenue	6,047	4,951	22.1%
business-wise revenue
(Rs in crores)	Fy23	Fy22	Change%
FDF	1,140	1,880	-39%
API	2,609	2,039	28%
CDMO-Synthesis	2,167	917	136%
Bio	125	100	25%
operating revenue	6,041	4,936	22.4%

There was a substantial decline of 39% in FDF revenues due to less procurement from Global agencies and adverse pricing The Company has signed Supply agreement with Global Fund for ARV drugs for 2023-2025 period.

Overall API grew 28% supported by growing CMO opportunities in high-growth APIs. ARV API reported 21% growth and witnessed normalized sales.

CDMO-Synthesis clocked 136% growth benefitted from scale execution with Big pharma in record time; Visibility for Laurus Labs to win more business from global clients is enhanced.

Laurus Bio displayed strong 25% growth; driven by AOF proteins and growth factors.

Cost of materials

(Rs in crores)	Fy23	Fy22	Change
Cost of materials consumed	2,596	2,269
Purchase of stock in trade	156	146
Changes in inventories	22	(221)
total materials	2,774	2,194	26.5%
operating revenue	6,041	4,936	22.4%
Cost of materials / Operating
	45.9%	44.4%
revenue

Cost of materials increased by 150bps , this is largely due to significant realisation drop in ARV portfolio and change in product mix. employee benefits

(Rs in crores)	Fy23	Fy22	Change
Employee benefits	581	502	16%
% of Revenue from
	9.6%	10.2%
operations

The increase in employee costs during FY23 is because of increase in employee strength of more than 550 and annual increments.

Finance costs

(Rs in crores)	Fy23	Fy22	Change
				79
Finance costs	165	102	62%
% of Revenue from
	2.7%	2.1%
operations

Finance costs increased as the capex and working capital required additional borrowings .

Depreciation and Amortisation

(Rs in crores)	Fy23	Fy22	Change
Depreciation and
	324	251	29%
Amortisation
% of Revenue from
	5.4%	5.1%
operations

The increase in Depreciation and Amortisation is due to additions of Plant, property and equipment and intangibles of around 1,080 Crores. other expenses

(Rs in crores)	Fy23	Fy22	Change
Other expenses	1,093	818	34%
% of Revenue from
	18.1%	16.6%
operations

The increase in other expenses by 34% is mainly due to an increase in the manufacturing expenses around 220 Crores.

Income tax

(Rs in crores)	Fy23	Fy22	Change
Tax expense	312	251	24%
Profit before tax	1,109	1,084	2.0%
Effective Tax Rate	28.1%	23.2%

During the year ended March 31, 2023, the Company elected to exercise the option permitted under Section 115BAA of the Income-Tax Act, 1961 as introduced by the Taxation Laws (Amendment) Ordinance, 2019. Accordingly, the Company has recognised provision for income tax for the year ended March 31, 2023 and remeasured its deferred tax assets/liabilities based on the rate prescribed in the said Section.

Fy23 balance sheet

[ Crore]	Fy23	Fy22	y-o-y
Net Fixed assets (incl. CwIp)	3,700	3,209	+491
Goodwill and Intangibles	259	257	+2
Net working Capital (A+b-C)	2,554	2,238	+316
A. Inventories	1,685	1,760
B. Receivables	1,580	1,354
C. Payables	711	876
other assets & liabilities (current and non-current)*	-549	-696	+147
Cash and Cash equivalents	46	75	-29
equity	4,038	3,351	+687
Debt (current and non-current)	1,972	1,732	+240
total Net Assets	6,010	5,083	+ 927

* Provisions, Lease liabilities, Advance from customers, Deferred income tax, accrued corporate tax, etc

Increase in net fixed assets

80 n Increase mainly in property, plant and equipment towards capacity addition API and FDF business

Increase in net working capital n Better NWC management compared to the Increase in the sales. Overall NWC Increase driven by higher accounts receivables and lower payables partially offset by decrease in Inventories

Increase/Decrease in other assets & liabilities n Decrease led mainly in customer advances and capital creditors

Increase in Net Debt n Increase mainly on the long term debt to fund key growth projects across divisions. Working Capital loans largely stable

Key financial ratios

type of ratio	Ratio	Calculation	year ended march 31, 2023	year ended march 31, 2022
Profitability
	EBIDTA margin	EBIDTA / Operating Revenue	26.4%	29.1%
	Net Profit margin	Net Profit / Operating Revenue	13.1%	16.8%
	Return on Net worth	Net Profit / Average net worth	21.4%	27.8%
	Return on Capital Employed	EBIT / Average Capital Employed	23.1%	26.3%
Liquidity	Current ratio	Current Assets / Current Liabilities	1.42	1.25
Efficiency	Debtors Turnover ratio	Operating Revenue / Average Debtors	4.12	3.71
	Debtors Turnover days	Average Debtors / (Operating Revenue / 365)	89.0	98.0
	Assets Turnover ratio	Operating Revenue / Average total assets	0.83	0.78
Leverage	Debt Equity ratio	Debt / Equity	0.49	0.52
		PAT+Depreciation+Term Loan Interest / Term
	Debt service coverage ratio		4.26	5.75
		loan Interest + TL instalments paid
	Interest coverage ratio	EBIDTA / Interest	10.96	16.66
Per share	Earnings per share (Diluted)	PAT / Weighted average number of shares	14.64	15.35
	Book value per share	Equity / No. of shares	74.96	62.21
	Dividend per share	As declared by Board	2.00	2.00

Note: Average is (Opening balance + Closing balance) / 2

Credit rating

Our rating agency, Care Ratings Limited, re-affirmed the following credit ratings in June 2022 for the Company:

Instrument	type	Rating
Term loans	Long term	CARE AA; Stable
Fund-based long-term facilities	Long term	CARE AA; Stable
Non-fund based facilities	Short term	CARE A1+
Commercial paper	Short term	CARE A1+
Forward contracts	Short term	CARE A1+