Sun Pharma Advanced Research Company Ltd Management Discussions.

Global Pharmaceutical Industry

As FY 2019-20 comes to a close, we can reflect on the past 12 months as one of the most transformative periods for our generation. The last fiscal year was partially defined by a series of mega-mergers as top tier pharmaceutical companies sought value creation through consolidation of R&D pipelines, reducing concentrated risk on a single product and cost synergies. Beyond these mega-mergers, a series of bolt-on acquisitions at large pharma allowed companies to continue their pivot into higher growth areas such as oncology, immunology, gene therapy and rare diseases. New technologies and modalities continued their convergence with the pharma value chain, as R&D teams leverage information technology, artificial intelligence (AI), machine learning (ML), data analytics and computational power for the drug development process.

The areas of gene and cell therapies continue to transform the way specific, narrowly-defined diseases are treated, but the number of patients benefitting from these therapies remains modest. Beyond consolidation and innovation, the industry was confronted by an unprecedented challenge with the emergence of the COVID-19 pandemic. However, this global outbreak triggered an unparalleled level of collaboration between the industry and regulatory agencies, with a potential to accelerate what is already considered the golden age of biotechnology. Specifically, companies are sharing data and cooperating in ways that has never been seen before, such by re-profiling blockbuster drugs on the market that are now in clinical evaluation for hospitalized COVID-19 patients and applying a "more public health lens" to their product portfolios. With the vast and sudden disruption inflicted by the epidemic, the industry overnight began to adapt in a very broad way, to the unprecedented change in the external environment. More than ever, companies are re-designing clinical trials to reduce the burden on patients, rapidly adopting remote access technologies, reallocating and reprioritizing their resources/budgets and adopting a "COVID-19 time" paradigm-rapid and streamlined decision-making. Regulatory agencies are also revamping internal procedures to allow a rapid turnaround. The regulatory mind-set has seen a shift, to focus on the cost of delaying treatment to patients that can benefit from the previous emphasis on protecting the public from potentially adverse events.

The largest global pharma players that were not vaccine players/anti-infective players have quickly aligned with smaller players to have agents that could serve as vaccine candidates. The speed of consummating these collaborations and the challenges for scaling it up are being discussed and addressed in ways that have never been observed before the sharing and pooling of resources, funding, and information.

The global pharmaceutical industry is estimated to grow between 3%-6% CAGR over the next five years to be worth US$1.5 trillion by 20231. In 2023, the North America (NAM) region is likely to continue its lead of the global pharmaceuticals market with 45.33% market share. While, Asia Pacific (APAC) is likely to retain the second position with a 24.07% market share, closely followed by Europe with 20.24% in the same time frame.2 Advances in basic and translational science are outpacing the traditional, regulatory framework and the pricing and reimbursement systems that the industry is built and relied on. But these are likely to evolve much faster than expected. One example is the emerging disconnect between patients and payers on the astronomically high prices of the ultra-rare orphan diseases. Are these premium prices sustainable in a global public health environment where resources are under even more pressure with the COVID-19 pandemic? For these expensive therapies that address very few patients, new annuity payment systems are likely to be needed with a more "rigorous" pay for performance metrics. If the patient benefit is less than expected, significant rebates are likely to be offered to the payer. This "buyer protection" concept will likely spread to payments outside of rare diseases and this is another driver on pursuing drugs where the benefit to risk ratio is clear and can be easily measured.

New Drug Approvals

2019 was another significant year in terms of productivity. While the US Food and Drug Administration (USFDA) approved 48 new drugs in 2019, compared to 59 new drug approvals in 2018, first-in-class medications represented 42% of approvals in 2019 compared to 32% in 2018.3 The industry also continued its shift beyond the traditional paradigm of small molecules and antibodies. Institutional capital continued to be allocated into promising new modalities, with significant flows targeted to next-generation cell therapies, the innovative gene editing landscape, and classes of therapeutic interventions called protein degraders.

Over the last two decades, 2017, 2018, and 2019 proved to be the most productive USFDA approval years with more than 120 new drug approvals in just three years. Despite a word of caution from some analysts, the continuous rise in the approvals of new agents has been a major catalyst in the industrys overall robust health. Many believe that this success can be attributed to smart investments in superior technologies and effective data mining.

Despite the influx of new modalities, small molecules continued to account for the lions share of new molecular entities (NMEs), making up 69% of overall approvals in 2019.3 The list also included several classes of more complex agents such as antibody-drug conjugates, antisense oligonucleotide therapy and therapy based on RNA interference (RNAi).

Another encouraging trend was the introduction of innovative therapies for diseases that impact more economically disadvantaged populations. Standout approvals include two new drugs for sickle cell anemia and an antibiotic for treatment-resistant tuberculosis.

A total of 11 new drugs related to cancer treatment were approved in 2019, accounting for 23% of the total approval and at par with the 5-year average of 25%. Neurological products did better than usual, with 9 (19%) approvals, as did non-cancer, hematology products with 6 (13%) approvals. Infectious disease products were down at 5 (10%) approvals, as were metabolism and endocrine products, with no approvals. According to experts, this diverse set of approved products includes some possible blockbuster wins and some of them may garner revenues worth US$3 billion or more per year, in annual global sales.4

Global Prescription Drug Sales

The global prescription drug sales grew by just 2% on a y-o-y basis in 2019 from 2018. Global prescription drug sales reached US$844 billion in 2019 compared to US$828 billion in 2018. But growth is expected to pick up in 2020 and the global sales is expected to reach US$1,181 billion by 2024.5

Worldwide Prescription Drug Sales (US$ billion)5

New drug approvals in orphan diseases, immuno-oncology, and novel technologies such as cell and gene therapy are expected to drive the next leg of growth for the global prescription drug market with additional sales estimated to be over US$100 billion.

Patent expirations between 2019 and 2024 are likely to impact the overall sales of up to US$198 billion.5 Despite the top-line sales risk, the new drug launches in segments like oncology, immunosuppressants and dermatology are likely to offset the decline. Oncology is expected to hold almost 20% share of the worldwide market by 2024, growing at a CAGR of 11.4%.5

Immunosuppressants are likely to grow the fastest, at a CAGR of 16.9% during this period and are likely to command a 3% market share by 2024. Closely following the immunosuppressants is the dermatological segment, which is expected to grow at a CAGR of 12.6%, between 2019 and 2024.6

An average of 54 new active substance (NAS) launches per year are expected over the next five years. About two-thirds of the launches will be speciality products, lifting the speciality share of spending to nearly 50% by 2023, in most developed markets.7

All of these projections were drawn prior to the COVID-19 pandemic and it remains to be seen whether the industry can return to its normal trajectory.

Industry Consolidation

The changing landscape of the pharmaceutical industry resulted in a large number of mega-mergers in 2019 as well as a series of large bolt-on acquisitions as companies seek to strengthen their presence in expected growth areas and reduce their exposure to maturing markets. BMS acquired Celgene for US$74 billion, which created a combined company with eight blockbuster products in core disease areas of oncology, immunology and inflammation and cardiovascular and near-term launch opportunities according to the companies.

AbbVie announced a US$63 billion acquisition of Allergan to position itself from near term biosimiar competition to Humira (adalimumab), by bringing in new therapeutic areas such as aesthetic dermatology, womens health, ophthalmology and virology. Takeda completed its US$62 billion acquisition of Shire in January 2019. With the acquisition of Shire, Takeda gained complementary positions in GI and neuroscience and provided it with franchises in rare diseases and plasma-derived therapies to complement its existing position in oncology, an area that Takeda enhanced with its US$5.1 billion acquisition of Ariad Pharmaceuticals in 2017.

Novartis, Roche and Pfizer all sought to bolster their R&D pipelines into new emerging areas: Novartis and Roche in gene therapy with their acquisition of Spark Therapeutics and AveXis, respectively and Pfizer into oncology with its acquisition of Array Biopharma. Other notable acquisitions included Eli Lillys acquisition of Loxo Oncology, GSKs acquisition of Tesaro in oncology, and Novartis acquisition of The Medicines Company in cardiovascular disease. These strategic directions illustrate the changing business models in pharma where the established industry players, increasingly look to externally developed candidates to bolster their pipelines to drive growth.

In contrast, 2019 also brought the merger of Pfizers off-patent branded and generic established medicines business with Mylan, to form a new pharmaceutical company, Viatris. This merger is indicative of the changing landscape of the off-patent branded and generic drugs space where increasing pricing pressure continues to erode value and modest incremental innovations even related to quality and patient convenience are not being commensurately reimbursed by payers.

Major Trends in the Global Pharmaceutical Research and Development Segment

Scientific progress and innovation have always driven the growth of the pharmaceutical industry, but today, R&D has become all the more important with the emergence of scientific breakthroughs and corresponding new technologies. The future success of pharmaceutical companies is expected to be very much dependent on how successful these companies are in decision-making with their R&D resources and activities. With the speed of technological innovations and improved capabilities, the approach to pharmaceutical R&D is being modified virtually every day.

Real-time monitoring, effective utilization of the multiple sources of data and the enhanced application of artificial intelligence and machine learning have led to a firm convergence of technology and biology. It has blurred the line between medical devices and continuous diagnostics. Further, Med Tech companies are also trying to implement solutions such as internet of things (IoT), machine learning, additive manufacturing and augmented reality to drive efficiencies and tackle difficult challenges.

Global R&D spend is expected to grow at a CAGR of 3% between 2018-2024.8 In 2019, there were 16,181 drugs in the pharmaceutical pipeline, compared to 15,267 in 2018, an increase of almost 6%.9 Out of the total pipeline drugs, 8,520 were in the preclinical stage, 2,281 in Phase I, 2576 in Phase II and 1,009 in Phase III9. The increased focus on R&D is visible in terms of an increasing number of new USFDA approvals, rebounding from 22 NMEs in 2016 to 59 in 2018 and 48 in 2019.10

Among all the R&D spend, oncology continues to be the main focus area for the biopharma industry. Clinical development expenditure related to oncology witnessed the largest investment in 2019 and therefore, resulted in the highest number of FDA approvals in any therapy area. Other focus areas that attracted substantial investments are amyotrophic lateral sclerosis (ALS), other degenerative musculoskeletal conditions, rare diseases related to the gastrointestinal (GI) tract and non-narcotic pain treatments.

Influence of Artificial Intelligence on R&D

AI is beginning to be a game-changer for the R&D segment of the pharma industry. The MELLODDY (Machine Learning Ledger Orchestration for Drug Discovery), a block-chain based solution, was launched in January 2019 and aims to establish a machine learning platform that would make it possible to learn from multiple sets of proprietary data while respecting their highly confidential nature. The MELLODDY aims to demonstrate the feasibility of this approach with an unprecedented volume of competitive data in the form of over a billion drug development relevant data points and hundreds of terabytes of image data that annotate the biological effects of more than 10 million small molecules. The platform would also take a federated machine learning approach, meaning that the learning effort is not centralized but spread over different, physically separated partners. The hope is that this solution will deliver insights that will advance drug development by making it easier to identify which small molecules show the most promise and which ones are less attractive for further research.

How can AI be helpful?

To reduce timelines for drug discovery and improve the agility of the research process To increase the accuracy of predictions on the efficacy and safety of drugs To improve the opportunity to diversify drug pipelines To spur the productivity of the entire R&D process To address targets perceived as undruggable

To identify patients prospectively more likely to benefit or unlikely to benefit from an intervention.

Generating novel candidates, aggregating and synthesizing information, designing drugs, understanding disease mechanisms, validating and optimizing drug candidates, designing clinical trials and preclinical experiments, analyzing real-world evidence and publishing data are some of the areas where AI has played an exponential role.

With nearly 180 start-ups involved in applying AI to drug discovery, as of December 2019, these companies are starting to transform the way in which new drugs are discovered and developed. As of November 2019, 34 pharma companies have aligned with different AI start-ups to accelerate different R&D processes. Alliances have begun to form to coordinate and advance the adoption of AI in R&D. Leading the partnerships with AI start-ups, pharma companies are exploring AI-driven R&D and many are laying the groundwork for more advanced data strategies.11 SPARC has been augmenting its capabilities for data driven drug discovery. SPARC has built in-house capability for structure-based drug design and has collaborated with global organizations like Schrodinger and Hitgen to further its discovery effort in the areas of Oncology and Neuro-degeneration. SPARC has also collaborated with leading academic institutions for data driven drug discovery.

With the help of these collaborations, SPARC expects to shorten the development cycle and to identify novel drugs for targets currently considered undruggable or "intractable".

Orphan Drugs, Next Generation Cell and Gene Therapies

Many dynamics converged to drive the pursuit of rare diseases (addressing a patient population that is under 200,000 in USA). These orphan drugs now form an integral part of the pharma industry. Worldwide, orphan drug sales are expected to grow at a CAGR of 12.3% to reach US$242 billion by 2024. Constituting nearly 20.3% of the worldwide prescription drug sales, the orphan drug market is likely to double its size within the overall prescription drug market by 2024.12 Personalized medicine (PM) and orphan drugs are likely to drive R&D investments in large-molecule products. Hematology, the central nervous system and respiratory diseases are expected to be the leading orphan drug segments in the therapeutic area, making up ~50% of the non-oncology market. The strong growth trajectory demonstrates the industrys belief in orphan drugs and its continued commitment to invest in niche patient populations, suffering from these rare diseases as measured by prevalence. With the first cell and gene therapies entering the commercial segment in highly innovative areas like oncology, spinal muscular dystrophy and hemophilia, pharma companies are considering the application of such remedies across other broader segments like Parkinsons disease.

SPARCs novel BCR-ABL inhibitor vodobatinib (SCO-088) was recently granted orphan drug designation (ODD) for the treatment of chronic myeloid leukemia (CML). Additionally, SPARCs novel phenobarbital formulation was also granted ODD for treatment of neonatal seizures.

The Orphan Drug Act provides economic incentives to encourage the development of drugs for rare diseases in the United States. ODD allows up to seven years of US market exclusivity upon approval. Additional incentives provided by USFDA include waiver of user fee and assistance in clinical trial design.

Growing Importance of Immuno-oncology

As an extremely complex area in the pharma industry, many industry insiders expect immuno-oncology to emerge as a dominant modality within the cancer arsenal to treat oncology patients. Immunotherapy strives to enable the detection of a cancer cell as a foreign invader and not part of ones normal constitution, thereby arming the cancer patients own immune system to recognize it as abnormal and perform its day-to-day job to eliminate it in the same way as it would with a pathogen. In a cancer patient the immune system fails to identify and remove the pathogen. The entire immuno-oncology market is in a position to grow and emerge as the pillar of cancer care joining radiotherapy, surgery, cytotoxic chemotherapy and molecular targeted therapy.

Oncology drugs are expected to hold almost 20% share of the global pharmaceutical drug sales by 2024, after growing at a CAGR of 11.4%.13

SPARC has taken a conscious decision to remodel its pipeline and oncology assets constitute more than 50% of SPARCs current development pipeline.

Rise of Personalized Medicine

Leveraging the benefits of modern technology such as AI, ML and data analytics, scientists have made a breakthrough in PM, with an aim to offer customized and high-quality medical care to patients. PM provides the much-needed opportunity to develop highly specific agents targeted for clearly defined patient populations that do not respond as well to certain non-targeted medications and therefore, do not fare as well with traditional health systems.

Valued at around US$1,351 billion, the current healthcare system across the world is rapidly moving towards PM, owing to genetic insights, genetic engineering and advanced technology. Blurring the fine lines between physical, biological, or digital therapeutics, PM is expected to reduce less effective treatments. The PM sales is expected to grow at a CAGR of 10.2% during the 2019-2025 period.14

Indian Pharmaceutical Industry

The Indian pharmaceutical industry has some unique capabilities which allows it to stand out from other regions. There are several factors that contribute to Indias unique positioning in the pharma industry. Branded generics dominate the Indian market and it accounts for nearly 70% to 80% of the retail segment.15 Capabilities for low-cost formulation development and early, smart investments by local players help them to enjoy a dominant market position.

Increased consumer spending, improved accessibility, world-class capabilities in formulation development and growing exports place Indias pharma sector in a favorable position, poised for robust growth in the years ahead, even as pricing and cost headwinds could force players to pause and consolidate their positions. The Indian pharmaceutical industry is set to grow at 9%-11% over the previous year and is likely to touch US$41.9 billion in FY 2019-20.16

Indian companies continued to seek new markets for their mainstay generics in 2019 and the year also saw some early gains from investments in innovative R&D, alongside momentum in the speciality and biosimilars businesses. The Indian pharmaceutical industry may be at the cusp of significant change and a large part of this change is likely to be driven by greater focus on R&D. As a result, the industrys focus on amplifying its skills and capabilities in R&D has become a necessity for Indian pharma companies to generate intellectual property, to improve product life-cycle management and to gain cost as well as market differentiation.

To attain the desired success, it is pivotal for the Indian pharma companies to continue to evolve their R&D strategy. The agility and responsiveness which allowed them historically to succeed in the generic marketplace may need to be replicated but with very different metrics and mindsets to produce robust and very high quality data. As the global pharma industry is undergoing transformation, the Indian companies need to re-align their R&D approaches to maintain competitiveness with the global pharmaceutical players.

Key factors which can help improve the R&D processes

Greater focus on digitization and better usage of AI and data to accelerate quality and compliance Implementation of new R&D models and methodologies to boost innovation Innovation through co-opetition Adoption of good laboratory practices (GLP) for a better and efficient R&D lifecycle management Intense focus on data and quality Significant longer term horizon mindset

Opportunities and Challenges

Building on the foundation of unique capabilities in key areas of the value chain, such as sourcing, manufacturing, product development and process innovation, the Indian pharma industry has grown in size and diversity. However, in recent times, the industry has been facing headwinds, both domestically and in key global markets and it has softened the growth rate. Nevertheless, many opportunities still exist for Indian pharmaceutical companies to chart an accelerated growth path.

Opportunities

 

Taking advantage of Indias huge skilled yet cost-efficient workforce: Every year, on an average, more than 200,000 pharmacy students graduate from Indias education system compared to USAs 17,000 students.17 This allows the industry to select from a wide range of skilled professionals who can actively contribute to clinical research. Further, availability of a wide and diverse patient pool makes India one of the most interesting destinations for clinical research. Coupled with these, the average manpower cost in India is nearly 33% lower than its western counterparts.17

Favourable government policies: To augment the research and development of new drugs, the government introduced new policies such as New Drugs and Clinical Trial Rules, 2019 and the Atal Innovation Mission. These policies were formulated with the single aim to help evolve the R&D space in the country through entrepreneurship and innovation promotion via mentorship and competition. Conducting high quality clinical trials is an important component of innovation and competitive advantage; and the government has been trying to streamline the norms and rules.

Challenges

 

Modest growth in the innovation space: Indian pharma companies witnessed slow growth in the innovation space owing to limitations in government-supported research ecosystems and a lack of research scholars with advanced skills. Enhanced government support for innovation-focused research initiatives coupled with simple and less time-consuming approval processes can result in quicker turnaround time for clinical trials, ensuring a predictable and consistent outcome.

High investment: R&D generally requires quite a heavy expenditure, and currently in India only the large pharmaceutical companies can allocate significant resources for R&D to introduce new products. There is a huge scope for improvement in collaboration between government institutions and industry on innovation-focused research initiatives to raise efficiency.

COVID-19

A discussion of the prior fiscal year would not be complete without a mention of COVID-19, the disease caused by SARS-COVID-2 coronavirus. By the end of March, the infection had spread to almost every country in the world killing thousands of people. Most countries went on high alert and instituted quarantine measures in an effort to combat the rising infection rate.

As of this writing, the number of infections and death is still increasing. There is no question that COVID-19 will have an impact on the pharmaceutical sales and R&D. The impact across the industry is so far unknown, but it will be immense and vast. By the middle of March, even before quarantine measures were fully instituted, overall patient office visits had declined by 40%. In person promotional detailing declined by 62%. On the R&D side, 482 trial sponsors reported delays in 608 clinical studies due to the ongoing COVID-19 pandemic. 98 planned trials have delayed initiation, 90 ongoing trials impacted due to slower enrolment, 420 ongoing trials have suspended enrolment for the time being.18

Trials disrupted due to COVID-19
Overall trials disrupted due to the COVID-19 pandemic 608
Planned trials that have delayed initiation 98
Ongoing trials impacted due to slower enrolment 90
Ongoing trials that have suspended enrolment (includes trials suspended before initiation) 420
Companies reporting trial disruption due to COVID-19
All sponsor (Industry and non-industry) 482
Companies in a role as sponsor, collaborator or CRO 282
Companies in a role only as sponsor or CRO 220

SPARC is also not insulated from the pandemic and has been impacted. The patient recruitment in the ongoing clinical trials have been severely impacted due to measures taken by several governments across the world to ensure the safety of the patients and the citizens. Initiation of new studies have been put on hold until normalcy is restored. This delay severely impacts the overall timelines projected for each of our programs and in turn the potential revenues.

Another major effect of the pandemic has been in the way we used to run our daily operations. The usual physical presence of the employees at the workplace has been replaced by virtual presence in most of the functions. In laboratories, the physical attendance is stripped to minimum and highly regulated. Although, this has been a challenge it seems to be a new normal, physical interactions to virtual presence can be the new way forward. While this presents an opportunity with regards to cost saving for physical infrastructure, the organizations need to ensure the necessary infrastructure required for remote working.

While the pandemic has presented several challenges, it has also created an opportunity to develop novel vaccine for treatment of COVID-19. Since vaccine is not an area of expertise for SPARC, we are not pursuing any development effort in this area.

The industry has responded to this generational pandemic with unprecedented collaboration. Government, regulatory agencies, manufacturers, scientists, financiers and philanthropists are working together in ways that they have never before.

Performance Snapshot

The FY 2019-20 was an important year for SPARC marked with several notable milestones for the company.

SPARC executed its 1st in-licensing agreement with Bioprojet (France) obtaining exclusive global rights of SCD-044. SPARC also established first commercial partnership with China Medical Systems Ltd., out-licensing commercial rights of five assets (XelprosTM, ElepsiaTM, TaclantisTM, PDP-716 and SDN-037). Industry collaboration is paramount to success and SPARC will continue to seek strategic collaborations across the industry where it makes sense.

SPARC continues to fortify its collaborations with academic centers across the US. In January 2020, we signed an agreement with University of Michigan Drug Discovery to fund up to US$10 million and in-kind support to advance various promising drug discovery projects toward the ultimate goal of developing new therapies for patients. Partnership with academic institutions and novel discovery companies like Schrodinger and Hitgen allows us to fully leverage emerging and cutting-edge technologies while selectively bringing in these key capabilities in-house, as and when needed.

SPARCs vodobatinib was granted orphan drug designation for treatment of CML

SPARC faced some challenges during the year. Out-licensing of ElepsiaTM is yet to be completed and TaclantisTM approval has been delayed. Both these events impacted our projected revenues. In addition, SPARC made a strategic decision to exit several NDDS programs. Responding to the contracting value of the modified generics space, SPARC intends to solely focus on NCEs or NBEs going forward. In addition, we expect to pursue not only validated targets with novel chemistry, but with novel biology and new targets as well.

Finally, SPARC completed the fit out of our new facility at Savli which is now fully functional.

Progress on Key Programs

1. TaclantisTM

TaclantisTM is cremophor and albumin-free formulation of paclitaxel. SPARC filed NDA for TaclantisTM, however,

USFDA issued a CRL requesting additional clinical data and particle size variability data amongst other details. SPARC plans to file an appeal against the additional clinical data request as the bio-equivalence path for registration was agreed with USFDA.

We remain hopeful that the USFDA would have a constructive view on our appeal and we can agree on a path forward. The issuance of the CRL has delayed the commercialization of TaclantisTM and thereby the revenues associated with it.

We are fully cognizant of the fact that generating any additional clinical data will significantly delay the NDA approval of TaclantisTM, limiting the potential of the program.

2. PDP-716

PDP-716 is a novel once-a-day formulation of brimonidine for the treatment of glaucoma. The futility analysis conducted in Nov 2019 indicated that SPARC should continue with the clinical study as planned.

Until 15 May 2020, 651 patients were randomized against as target randomization of 666 patients. Due to COVID-19, we anticipate some drop-outs as patients are likely to miss clinic visits. We plan to screen additional patients to achieve targeted no. of subjects.

The topline results from the pivotal study are expected by December 2020.

3. SDN-037

SDN-037 is a novel twice-a-day formulation of an approved steroid. SPARC completed the patient randomization in the pivotal clinical study. The topline results from the pivotal study are expected by September 2020.

4. SCC-138 (Vodobatinib for Parkinsons Disease)

SCC-138, a c-Abl inhibitor is being pursed for treatment of neuro-degenerative diseases.

SPARC has randomized 39 patients in the ongoing Phase II study of SCC-138 for treatment of Parkinsons disease. Four patients have completed the treatment. No serious adverse events were observed amongst the patients that are currently under treatment.

Due to the COVID-19 pandemic, the enrolment of new patients on the PROSEEK study slowed down and we expect the study to be delayed.

During the lockdown, remote site initiations were scheduled so that patients can be randomized to study as soon as they are able to report to hospitals.

During the year, SPARC also commenced the investigator initiated study of SCC-138 in Lewy Body Dementia. The study is being conducted by Georgetown University at Washington. This study will provide a quick proof of concept for SCC-138 as a neuroprotective agent.

5. SCO-088 (Vodobatinib for CML)

SCO-088, a novel BCR ABL inhibitor for treatment resistant chronic myeloid leukemia. The Phase I study was completed and no serious adverse events were reported during the Phase I study. 31 of the 47 patients enrolled in Phase I study continue to be on treatment. More than 12% (6/47) patients have been on treatment for over 2 years and 40% (19/47) patients completed one year of treatment with SCO-088 (per Mar 2020 cut-off).

Based on feedback received from the USFDA, the pivotal registration study was started in patients who failed 3 lines of treatment including ponatinib. This global study was initiated in Q4 FY 2019-20 and patient enrolment has started. Recruitment is significantly impacted due to the pandemic and we hope for it to be back on track once the condition normalizes. The study is expected to be completed by FY 2023-24.

During the year, the USFDA granted orphan drug designation to SCO-088 for treatment of chronic myeloid leukemia.

6. SCD-044

SCD-044 is a novel S1P1R agonist being developed for auto-immune disorders. SCD-044 was jointly identified by SPARC & Bioprojet. During the year, SPARC in-licensed Bioprojets share of IP and became the sole owner of the asset.

SPARC completed Phase I study of SCD-044. In the course of the year and part of the prioritization exercise, SPARC identified SCD-044 as an asset to be out-licensed at its current stage i.e. end of Phase I. SPARC has out-licensed global rights of SCD-044 to Sun Pharmaceutical Industries Limited (SPIL). SPARC received US$20 million as upfront licensing fee and will be eligible to receive up to US$125 million contingent upon the achievement of clinical, regulatory and sales milestones, as well as tiered royalties on sales.

As part of the agreement, SPIL will pursue further development of SCD-044. SPIL has initiated start-up activities of Phase II study for SCD-044. The study is expected to be complete in a years time.

7. SCO-120

SCO-120 is a novel selective estrogen receptor degrader (SERD) for the treatment of hormone receptor positive (HR +ve) metastatic breast cancer. Most of the HR +ve metastatic breast cancer patients are treated with aromatase inhibitors, however, over a period of time they fail to respond to aromatase inhibitors.

SPARC filed IND for SCO-120 which was accepted by the USFDA. SPARC initiated Phase I study of SCO-120 in healthy volunteers to assess the PK, safety and tolerability of the compound. The objective of Phase I study is to assess the safety and to identify the recommended Phase II dose of SCO-120.

Key Financial Ratios

Particulars Unit FY 2019-20 FY 2018-19 Reason
1 Debtors Turnover Ratio Time 5.86 13.19 Due to lower revenues
2 Inventory Turnover Ratio Time N.A. N.A. Due to nil inventory
3 Interest Coverage Ratio Time N.A. N.A. Due to higher losses
4 Current Ratio Time 0.29 2.71 Due to increase in creditors
5 Debt Equity Ratio Time (3.64) 0.00 Due to increase in borrowing
6 Operating Profit Margin % (403.22) (79.48) Due to lower revenues
7 Net Profit Margin % (406.70) (79.53) Due to lower revenues
8 Return on Net Worth % N.A. N.A. Due to negative net worth

Outlook

SPARC has initiated clinical trials for multiple assets including first-in-class compounds. In the coming year, some trials, namely SCO-120 and SCD-044 may be fully enrolled and provide data points for next steps. The Lewy Body Dementia study for vodobatinib is also expected to enrol a significant proportion of the targeted patients in the year ahead. The pivotal study in CML and the PROSEEK study for vodobatinib have been initiated, however, the recruitment rate on these trials is slower than expected due to COVID-19. SPARC is in a state of readiness and intends to get the enrolment back on track as soon as the condition normalizes and the patients start to visit their treatment centres in various geographies across the world.

SPARCs effort to partner with academic institutions has been picking up pace over the years and will be a focus for next year as well. The objective of these alliances is to work in close collaboration with researchers to develop novel drugs in areas of oncology, neuro-degeneration and immunology. Additionally, SPARC intends to increase its ongoing effort in the area of biologics and will forge alliances with select research groups to further its mission.

The rigorous portfolio evaluation process will continue to reassess the assets under development and weed out assets with low commercial and therapeutic value. During the last portfolio assessment, SPARC decided to scale down its non-oral formulation capabilities and going forward SPARC will assess the competencies and capabilities required for the emerging pipeline.

Expenses during the year increased due to the initiation of the clinical studies of our programs. Ongoing clinical trials will account for the bulk of the expenses during the coming year. SPARC is in process of addressing the need for capital and evaluating several potential options including the licensing of early stage assets or collaborations to fund ongoing clinical studies.

An important change that the industry confronted during the year was the COVID-19 pandemic. The pandemic has disrupted several old paradigms and has forced companies to work differently. SPARC is quickly adopting to this new normal and has taken steps to ensure the continuity of business. New technologies and processes are being applied to ensure business continuity. The effects of pandemic are expected to remain for coming year as well and SPARC will adapt to the new normal of working anticipated in the post COVID-19 era.

Some of the key milestones for SPARC in the year ahead include data read outs from pivotal studies of PDP-716 and SDN-037, licensing of additional assets and feedback from USFDA for Taclantis.

Human Resource Strategy

Over the last few years, SPARCs strategic focus shifted from delivery systems innovation to novel chemistry & biologics. In line with this direction, SPARC has scaled down its non-orals formulation & analytical capabilities while ramping up investments into a host of new development capabilities relevant to its future. As on 31st March, 2020, the Company has a dedicated team of 429 people, of which 80% are scientists. We will remain focused on identifying the right talent at the right time and nurturing their quest for innovation till it becomes an integral part of our culture. We shall further intensify our efforts to provide learning and development opportunities to our employees. We have invested ~10000 hours in learning and organizational development interventions during the year, covering 93% employees across the functions.

Key focus for the next financial year will be to upgrade our processes to a more targets and accountability driven framework, in sync with our business objectives. Identifying critical positions and developing succession options by creating a talent pool of high potential employees will also be a priority. Ensuring employee engagement and professional development are parts of our ongoing pursuit of building a sustainable business focused on developing and leveraging world-class human capital. We hope to ride on an engaged workforces passion for excellence and creativity in taking SPARC to newer heights.

We are targeting a transformation in the midst of a pandemic. In these trying times, there is a need to adopt new ways of working built on seamless collaboration, transparent and open communication enabled though agile processes and infrastructure. We are committed to making sure that our business continues to thrive in these chaotic & uncertain times. Upholding psychological and emotional health of employees in such tough times is going to be very crucial in order to drive the vital projects through the finish line. The focus will continue to be on employees safety & wellbeing without compromising on productivity.

Risks and Concerns

Pharmaceutical R&D carries notable risk as it traverses uncharted paths and evaluates untested ideas. We are developing programs that are within our risk tolerance level. However, we are subject to certain risks and uncertainties related to product development, regulatory approvals, market acceptance, scope of the patent and proprietary rights, competition and technological changes. Our revenues and cash flows can also be impacted by fluctuations in foreign exchange rates and interest rates. We undertake a thorough risk management process, identifying the main risks to our business, their possible impact and take necessary actions to mitigate the same.

Beyond the standard risk associated with pharmaceutical drug development, we must consider the risk to SPARC from COVID-19. The pharmaceutical industry is normally shielded from incremental downturns in the economy. However, the COVID-19 pandemic is unprecedented in modern times and its impact is not fully understood. Recruitment for clinical studies is expected to become more difficult. Fewer patients are visiting their physicians leading to lower prescription volume. Elective surgery is being delayed to relieve the hospitals of their burden. All of these factors are headwinds for SPARC. Funding and resources for drug development is readily available for innovative projects. While the challenges have increased so has the unmet need and stakeholder support for the healthcare industry.

Internal Control Systems and Their Adequacy

SPARC is a responsible public company committed to maintaining the highest standards of ethics and transparency. Our accountability to patients we seek to serve, investors who enable us and commitment to sustainable progress are the key components of our identity.

We have well-defined and adequate internal controls for efficient operations. We are cognizant of applicable laws and regulations, particularly those related to the protection of intellectual properties, resources, assets, accurate reporting of financial transactions and our internal policies adequately cover all evolving needs. The internal control systems are supplemented by extensive internal audits conducted by an independent audit firm.

Disclaimer

Certain statements in the MD&A section concerning future prospects may be forward-looking statements which involve a number of underlying identified / non identified risks and uncertainties that could cause actual results to differ materially. In addition to the foregoing changes in the macro-environment, global pandemic like COVID-19 may pose an unforeseen, unprecedented, unascertainable and constantly evolvingrisk(s),inter-alia,totheCompanyandtheenvironment in which it operates. The results of these assumptions made, relying on available internal and external information, are the basis for determining certain facts and figures stated in the report. Since the factors underlying these assumptions are subject to change over time, the estimates on which they are based, are also subject to change accordingly. These forward-looking statements represent only the Companys current intentions, beliefs or expectations, and any forward-looking statement speaks only as of the date on which it was made. The Company assumes no obligation to revise or update any forward-looking statements, whether as a result of new information, future events, or otherwise.