Sun Pharmaceuticals Industries Ltd Management Discussions.

GLOBAL PHARMACEUTICAL INDUSTRY1

The pharmaceutical industry is at the centre of the fight against the global COVID-19 pandemic and has contributed significantly in terms of supply of critical medications for treatment as well as in developing and manufacturing COVID-19 vaccines. The industry has ensured continuity of supplies of all other medicines to meet the needs of patients across the world.

The global pharmaceutical market size in 2020 was estimated at US$1.27 Trillion and is expected to expand at a compounded annual growth rate (CAGR) of 3-6% to US$1.6 Trillion by 2025 (this estimate excludes the additional spending on COVID-19 vaccines).

The factors driving global medicine spending will be sustained growth in the pharmerging markets and the consistent launch of high-end specialty innovative products in developed markets. However, slower growth across developed markets due to losses of patent exclusivity for original brands will be an offsetting factor.

Table l Global Pharmaceutical Market (US$ Billion)1
Regions 2020 2016-2020 2025 2021-2025
CAGR CAGR
Developed Markets 959.5 3.8% 1130-1160 2-5%
Pharmerging Markets 290.8 7.4% 415-445 7-10%
Other Markets 15.0 3.9% 18-22 3-6%
Global Market 1,265.3 4.7% 1580-1610 3-6%

Table 2 Global Pharmaceutical Market - Share by Product Type1

Region Year Orginal brands (%) Non-orginal brands (%) Unbranded generics (%) OTC, vaccines and other products (%) Total (US$ Billion)
2020 2025 202 2025 2020 2025 202 2025 2020 2025
Developed Markets 74 70-71 11 15-17 5 4-5 10 8-9 959 1130-1160
Pharmerging Markets 29 30-35 37 34-38 22 18-21 12 10-16 291 415-445
Other Markets 35 28-41 42 33-45 17 11-18 6 6-9 15 18-22
Global Market 63 59-60 17 21-22 9 8-9 11 9-11 1,265 1,580-1,610

Emerging Trends and the Way Forward1

Expansion of access to healthcare, increase in per capita income and increasing insurance coverage in pharmerging markets have driven the overall growth in pharmaceutical consumption over the past decade, but slowing growth in these markets will bring down global growth over the next 5 years. Use of medicines in developed countries is typically higher than in pharmerging countries owing to higher income levels. This trend is expected to continue in future as well. Chronic medications to treat diseases like cardiovascular, diabetes, respiratory, and mental health conditions will continue to witness increasing demand globally driven by higher incidence of such diseases and changing lifestyles and food consumption. The global COVID-19 pandemic has been a wake-up call to governments across the world. It may prompt them to increase healthcare budgets and encourage higher investments in pharmaceutical R&D and manufacturing.
Over the next five years, an average of 54-63 new active substances (NAS) are expected to be launched globally per year. (In the next five years, the impact of patent expiries is estimated to be about US$166 Billion; while it will be partly offset by spending on associated generics and biosimilars. Oncology and immunology are the two leading global therapy areas that are forecast to grow at CAGR of 9-12% through 2025. Oncology attracts the largest spending with consistent launch of new treatments but the impact of biosimilars will slow down growth for some widely used therapies. Gene and cell therapy is another area, which is generating significant interest as far as future R&D efforts are concerned.

Growth Enablers1

Demographics Innovation Macro-economics Access
Rising per capita income and changing lifestyles and food preferences, among other demographic and epidemiological trends, are leading to a rapid rise in the incidence of NonCommunicable Diseases (NCDs) in pharmerging markets. Pharmaceutical spending in these markets will be focused on overall growth through control and prevention of NCDs, especially cardiovascular diseases, cancer and diabetes The launch of new and innovative products will be a key driver of growth in the developed pharmaceutical markets. Immunology drugs, biologics, oncology products, orphan drugs and cell and gene therapies will account for an increasing proportion of new launches in developed markets Sustained economic growth in the long term will remain a key catalyst for global pharmaceutical growth. There may be some nearterm uncertainties due to the COVID-19 global pandemic. However, this may also be an opportunity for the pharmaceutical industry to increase its focus on R&D and thereby develop/launch COVID-19 medicines and vaccines to reduce hospitalisations and mortality rates linked to COVID-19 infection To cope with rising demand, governments of most emerging economies will continue to seek expansion of their national health budgets, boosting further spending on healthcare

While these growth drivers remain intact from a long-term perspective, the multiple waves of COVID-19 infections across economies and the resulting restrictions/lockdowns imposed by various governments may have implications, although it is difficult to estimate the actual impact of such restrictions.

DEVELOPED MARKETS1

The developed pharmaceutical markets grew at ~4% CAGR between 2016-20 and are estimated to grow at about 1.5-4.5% CAGR to reach US$1,130-1,160 Billion by 2025. These markets accounted for ~76% of global pharmaceutical spending in 2020, and are estimated to account for ~71-72% of spending by 2025.

New and specialty drug launches, offset by patent expiries and competition from generics and biosimilars, are expected to continue to be the main factors influencing medicine spending and growth in developed markets.

Table 3 Developed Markets - Pharmaceutical Spending and Growth (US$ Billion)1
Region/Country 2020 2016-2020 CAGR 2025 2021-2025 CAGR
USA 527.8 4.2% 605-635 2-5%
Top 5 Western European Markets (WE5) 180.4 4.4% 215-245 2-5%
Germany 54.9 5.3% 65-85 3.5-6.5%
France 36.3 2.4% 43-47 1-4%
Italy 33.3 4.2% 38-42 2-5%
UK 30.2 5.3% 38-42 2.5-4.5%
Spain 25.7 4.6% 28-32 1.5-4.5%
Japan 88.2 (0.2)% 75-95 (2)-1%
Canada 22.8 4.8% 28-32 2-5%
South Korea 16.2 6.8% 18-22 4.5-7.5%
Australia 11.8 3.3% 13-17 1-4%
Other Developed Markets 112.3 4.2% 125-155 2.5-5.5%
Total Developed Markets 959.5 3.8% 1130-1160 1.5-4.5%

PHARMERGING MARKETS1

Pharmerging markets reported 7.4% CAGR in pharmaceutical spending between 2016-20 to reach US$290.8 Billion in 2020. These markets contributed to ~23% of the overall global spending in 2020 and are expected to account for ~26-27% of spending by 2025. Spending across major pharmerging markets is expected to grow at a CAGR of 7-10% through 2025, driven by the largest countries — China, Brazil, India and Russia — but outperformed by the smaller pharmerging markets, which are expected to grow at the rate of 8.5-11.5% during the same period.

Relatively high rates of growth in pharmaceutical spending in these markets belie the relatively low levels of per capita medicine use. However, pharmaceutical consumption continues to increase in these countries driven by growing incidence of chronic ailments, increased healthcare awareness and rising medical insurance coverage.

Table 4 Pharmerging Markets - Pharmaceutical Spending and Growth (US$ Billion)1
Region/Country 2020 2016-2020 CAGR 2025 2021-2025 CAGR
China 134.4 4.9% 170-200 4.5-7.5%
Brazil 28.7 10.7% 43-47 7.5-10.5%
India 22.0 9.5% 28-32 7.5-10.5%
Russia 17.5 10.8% 33-37 11-14%
Other pharmerging markets 89.1 9.6% 120-150 8.5-11.5%
Total Pharmerging markets 290.8 7.4% 415-445 7-10%

SPECIALTY MEDICINES1

Global pharmaceutical spending on specialty innovative products has consistently increased over the last ten years. Specialty medicines treat chronic, complex or rare diseases. These include biologic drugs for various chronic ailments, immunology drugs, medicines developed for orphan diseases and the latest generation gene and cell therapies. These highly innovative specialty products made a significant difference in medical outcomes for patients over the last ten years.

The share of specialty products in overall global pharmaceutical spending increased from 21% in 2010 to ~38% by 2020. It is expected to further rise to 45% by 2025. This growth has been driven mainly by developed markets in the past and this trend is expected to continue in the future as well. Spending on specialty products rose within pharmerging markets also, but has been constrained by higher pricing and limited purchasing power. The ten largest developed countries and other high and upper middle-income countries are witnessing consistent increase in the share of spending on specialty medicines. These products are expected to contribute to nearly half of global spending in 2025 and almost 60% of the total spending in developed markets.

ACTIVE PHARMACEUTICAL INGREDIENTS (API)2

The market size of global active pharmaceutical ingredients was valued at US$187.7 Billion in 2020 and is expected to grow at a CAGR of 6.6% between 2021-28. Growth drivers include advancements in API manufacturing and the rising prevalence of chronic diseases. Favourable government policies for API production, along with changes in geopolitical dynamics, are expected to further drive market growth.

The global API market is undergoing immense changes due to supply chain disruptions caused by COVID-19 in early 2020. There is an increasing trend around diversification of the supply chain, with India being viewed as one of the critical suppliers of API for the future.

Traditionally, the API market has been dominated by drugs in categories such as, anti-infectives, diabetes, cardiovascular, analgesics, and pain management. However, driven by emerging R&D trends, the demand is shifting toward the development of complex APIs used in novel formulations, targeting niche therapeutic areas.

CONSUMER HEALTHCARE3

The needs of health-conscious consumers are fast evolving in keeping with their lifestyles and behavioural patterns, leading to growing consumption of consumer healthcare products. The global over-the-counter (OTC) market was valued at US$190 Billion in 2020, recording 5% Y-o-Y growth. Cold & Flu segment witnessed a decline while the Vitamins, Minerals & Supplements (VMS) category grew substantially, driven primarily by increased consumption of such products during the COVID-19 outbreak.

COVID-19 accelerated three key trends (1) superior self-care, (2) focus on mental health and (3) consumer convenience. Global consumer healthcare companies are educating consumers, reviewing product portfolios, increasing focus on digital channels and improving marketing capabilities to enhance their competitive advantage.

WORLD OF SUN PHARMA

Sun Pharmaceutical Industries Limited, and its subsidiaries together constitute the universe of Sun Pharma. It is a leading specialty generics pharmaceutical company with a strong presence in India and the US markets. It is also amongst one of the leading Indian pharma companies in emerging markets. The Company, along with its subsidiaries and associates, continues to service its customers across geographies, on the strength of its innovative R&D efforts, efficient and low-cost operations and culturally diverse skilled human resources.

The Company has manufacturing capabilities for a variety of dosage forms, such as injectables, sprays, ointments, creams, liquids, hormones, drug delivery systems, tablets and capsules. It aims to deliver quality products at affordable prices, and over the years, has earned the trust of patients and medical professionals across its key markets.

Sun Pharma is growing its portfolio of specialty products, branded generics and pure generics across 100+ countries globally. In-depth Research & Development (R&D) and use of high-end technology are integral to the Companys progress. The Company has always focused on both organic and inorganic growth, with proactive acquisition of businesses and in-licensing of specialty molecules.

Table 5 Key Milestones
Year Event Rationale
2020 Exclusive licencing agreement with Hikma for Ilumya Commercialisation of Ilumya in the Middle East & North Africa (MENA) markets.
2020 Licencing agreement with SPARC for SCD-044 Potential treatment for atopic dermatitis, psoriasis and other auto-immune disorders across the globe
2020 In-licenced Triferic brand from Rockwell Medical Inc. (USA) Expands nephrology portfolio in India to treat anaemia in hemodialysis patients
2019 Licencing agreement with AstraZeneca UK for ready-to-use infusion oncology products Access to oncology market in Mainland China
2019 Licencing agreement with CMS for Tildrakizumab, Cequa and 8 generic products Access to Greater China market
2019 Acquired Pola Pharma in Japan Foray into the Japanese dermatology market
2016 Acquired global rights for Cequa and Odomzo Enhance specialty pipeline across the globe
2016 Acquired Biosintez Local manufacturing capability to enhance presence in Russian market
2016 Licencing agreement with Almirall for Tildrakizumab for psoriasis Access to European market for Tildrakizumab
2016 Acquired 14 brands from Novartis Entry into Japan
2016 Distribution agreement with AstraZeneca Distribution services agreement in India for brand Oxra and Oxramet (brands of dapagliflozin, used for diabetes treatment)
2015 Acquired InSite Vision Inc. Strengthens branded ophthalmic portfolio in the US
2015 Distribution agreement with AstraZeneca Distribution services agreement in India for brand Axcer (brand of ticagrelor, used for the treatment of acute coronary syndrome)
2015 Sun Pharma - Ranbaxy Merger •Strengthen position in the global generic pharma industry
•Top Pharma Company in India
•Strong positioning in the emerging markets
2014 In-licencing agreement with Merck for Tildrakizumab, a biologic for psoriasis Strengthening the specialty product pipeline across the globe
2014 Acquired Pharmalucence Access to sterile injectable capacity in the US
2012 Acquired DUSA Pharma, Inc. Access to specialty drug-device combination in dermatology segment in the US
2010 Acquired Taro Pharmaceutical Industries Ltd. Access to dermatology generic portfolio as well as manufacturing facilities in Israel and Canada
1997 Acquired Caraco Entry into the US Market

Our global specialty initiatives1

Specialty medicines are latest generation products, which are targeted at treating chronic, complex and rare diseases. They accounted for about 38% of the global pharmaceutical spending in 2020 (up from 29% in 2015) and are estimated to account for approximately 45% of global pharmaceutical spending in 2025.

Sun Pharma commenced investing in building a global specialty business 2014 onwards. Significant resources were deployed in gaining access to specialty products, their clinical development, commercialisation and in developing a future R&D pipeline of specialty products. Upfront investments were made in establishing the front-end sales force, reimbursement (market access) teams and in branding and promotion of specialty products.

The Company has, till date, commercialised 12 specialty products across different markets, which contributed ~11% to the Companys consolidated revenues for FY21. Sun Pharma also has a pipeline of 4 molecules undergoing clinical trials.

The key molecules are:

1. Ilumya is undergoing Phase-3 trials for psoriatic arthritis indication.

2. SCD-044 is undergoing Phase-2 trials for atopic dermatitis and moderate to severe plaque psoriasis.

3. MM-II is also undergoing Phase-2 trials for treatment for knee pain in patients with symptomatic knee osteoarthritis.

4. GLP-1R agonist is in Phase-1 trials for diabetes.

Table 6 Commercialised Global Specialty Portfolio

Product Indication Introduction in key geographies
Ilumya/Ilumetri Plaque psoriasis • Launched in the US and Australia in 2018
• Phased launch in Europe by Almirall, starting December 2018
• Out-licenced to CMS for Greater China in 2019
• Launched in Japan in 2020
Cequa Dry eye disease • Launched in the US in 2019
• Out-licenced to CMS for Greater China in 2019
Absorica/Absorica LD Severe recalcitrant nodular acne • Launched Absorica LD capsules in the US in 2020
Levulan Kerastick In combination with BLU-U (Blue Light Photodynamic Therapy Illuminator) for treatment of minimally to moderately thick actinic keratoses of the face, scalp, or upper extremities • Currently marketed in the US
Odomzo Locally Advanced Basal Cell Carcinoma (LABCC) • Currently marketed in the US, Germany, France, Denmark, Switzerland, Australia and Israel
Yonsa Metastatic castration-resistant prostate cancer in combination with methylprednisolone • Launched in the US in 2018
Bromsite Prevention of ocular pain and treatment of inflammation following cataract surgery • Launched in the US in 2019
Xelpros Reduction of elevated IOP in patients with open-angle glaucoma or ocular hypertension • Launched in the US in 2019
Infugem/InfuSMART Gemcitabine (chemotherapy product) in premixed, ready-to-use bags • Launched in Europe in 2016
• Introduced in the US in 2019
Sprinkle Portfolio
1. Drizalma Sprinkle (duloxetine delayed- release capsules) Various neuro-psychiatric and pain disorders in patients who have difficulty Swallowing • Launched in the US in 2019
2. Ezallor Sprinkle (rosuvastatin capsules) Elevated lipid disorders in people who have difficulty swallowing • Launched in the US in 2019
3. Kapspargo Sprinkle (metoprolol succinate extended release capsules) Hypertension, angina pectoris and heart failure in people who have difficulty swallowing • Launched in the US in 2018

BUSINESS MODEL

Our strategy is to create sustainable long-term shareholder value inspired by our Vision of - Reaching People And Touching Lives Globally As A Leading Provider Of Valued Medicines.

GROWTH STRATEGIES
Create Sustainable Revenue Streams Cost Leadership Business Development
• Ramp-up specialty business globally • Continuous focus on optimising operational costs • Use acquisitions to bridge critical product and capability gaps
• Focus on developing technically complex generic products • Leverage benefits of vertical integration • Focus on access to products, technology, market presence
• Achieve critical mass across key geographies • Ensure acquisitions yield high return on investment
• Speed to market - in terms of launching new products • Effective capital deployment with focus on reasonable payback
• Ensure sustained compliance with global regulatory cGMP standards

FINANCIAL RATIOS

Table 7 Consolidated
Ratios Unit FY21 FY20 Variance 1 Reasons if Variance is More than 25%
Return on Net Worth (%) 0/ % 6.2% 8.3% -25% Return on Net Worth is lower for the year ended March 31, 2021, due to lower net profit. Reduction in net profit is mainly on account of exceptional item
Debtors Turnover times 3.7 3.4 7% -
Inventory Turnover (on cost of goods sold) times 1.0 1.2 -18% -
Interest Coverage Ratio times 51.2 18.4 178% Interest coverage ratio is higher for the year ended March 31, 2021 due to higher profit before interest, tax and exceptional items and also due to reduction in interest cost compared to last year, driven by debt repayment
Current Ratio times 1.9 2.0 -6% -
Debt Equity Ratio times 0.08 0.18 -56% Reduction in debt and increase in net worth
Operating Profit Margin (%) 0/ % 24.5% 20.0% 22% -
Net Profit Margin (%) 0/ % 8.8% 11.6% -25% Due to lower profits on account of exceptional item
Table 8 Standalone
Ratios Unit FY21 FY20 Variance Reasons if variance is more than 25%
Return on Net Worth (%)* 0/ % 8.5% 13.2% -35% Return on Net Worth is lower for the year ended March 31, 2021, due to lower net profit. Reduction in net profit is mainly due to lower other income compared to last year, and exceptional items
Debtors Turnover* times 2.0 1.9 2% -
Inventory Turnover (on cost of goods sold) times 1.5 1.7 -13% -
Interest Coverage Ratio times 9.7 9.0 8% -
Current Ratio times 1.4 1.1 36% Reduction in short-term borrowings has helped improve current ratio
Debt Equity Ratio times 0.27 0.26 2% -
Operating Profit Margin (%) 0/ % 21.5% 17.5% 23% -
Net Profit Margin (%) 0/ % 17.0% 27.0% -37% Due to lower net profit on account of lower other income and exceptional item

FY21 Business Highlights

• COVID-19 Response

Sun Pharma has a multi-pronged approach to overcoming the challenges of the global pandemic. The Company has focused on the following:

1. Maintaining manufacturing continuity to ensure regular supply of medicines to customers/patients across the world

2. Focus on safety and well-being of employees across all our offices, R&D centres and manufacturing units

3. Increased focus on automation, digitalisation and leveraging IT technology tools to ensure business continuity as well as to facilitate work from home (WFH) for many functions in the organisation

4. Supply of multiple therapeutics used in treatment of COVID-19 like Remdesivir, Favipiravir, Itolizumab, Hydroxychloroquine, among others

5. Donated medicines and other items like PPE kits, masks, sanitisers, gloves, and so on

• Strengthening the Specialty Pipeline

In May 2020, Sun Pharma concluded a worldwide in-licencing agreement with Sun Pharma Advanced Research Company Ltd. (SPARC) for SCD-044, a potential oral treatment for atopic dermatitis, psoriasis and other auto-immune disorders. The in-licencing of SCD-044 strengthens Sun Pharmas specialty pipeline of innovative dermatology products and demonstrates its commitment to this important segment with significant unmet medical needs.

• Presented Clinical Data Analysis on Treatment of Skin Cancer

In June 2020, at the American Academy of Dermatology (AAD) Virtual Meeting Experience, Sun Pharma presented data analyses for ODOMZO and LEVULAN KERASTICK + BLU-U, offering clinical insights to treat people with or at risk of skin cancer. Long-term analyses of the ODOMZO clinical study confirmed that treatment with ODOMZO provided clinically meaningful outcomes to patients with locally advanced basal cell carcinoma (laBCC) who were taking common concomitant medicines, such as medicines for cardiovascular, inflammatory and auto-immune diseases. For LEVULAN KERASTICK + BLU-U, a post hoc analysis of the Phase 3 trial supports the efficacy and safety benefits of the product, with photodynamic therapy (PDT) in treating minimally to moderately thick actinic keratoses on the upper extremities. It showed significantly greater clearance of lesions and larger percentage of cumulative disease area was cleared with no clinically significant adverse events.

• Expanding Market Presence for ILUMYA™

In June 2020, Sun Pharma entered into an exclusive licencing and distribution agreement for ILUMYA™ with Hikma Pharmaceuticals PLC (Hikma) for the Middle East & North Africa (MENA) region. Under this agreement, Hikma will be responsible for the registration and commercialisation of ILUMYA across the MENA markets and Sun Pharma will be responsible for supply.

• Introduced Cost-Effective Formulation of Favipiravir for COVID-19 in India

In August 2020, the Company launched FluGuard (Favipiravir 200 mg) in India at ^35 per tablet, for the treatment of mild to moderate cases of COVID-19 in India. Favipiravir is the only oral, anti-viral drug approved in India for the potential treatment of patients with mild to moderate COVID-19.

• Launched ILUMYA in Japan

In September 2020, Sun Pharma introduced ILUMYA Subcutaneous Injection 100 mg Syringe in Japan for the treatment of plaque psoriasis in adults, who have an inadequate response to conventional therapies. ILUMYA is Sun Pharmas first innovative drug in the Japanese market and offers a new, safe and effective treatment option for plaque psoriasis to doctors and patients in the country. Japan has ~430,000 people suffering from psoriasis.

• Presented Positive Results from the ILUMYA Five- Year Study

In October 2020, Sun Pharma presented positive, five-year Phase 3 data for ILUMYA (tildrakizumab- asmn) from the combined reSURFACE 1 and reSURFACE 2 extension studies at the 29th European Academy of Dermatology and Venereology (EADV) Virtual Congress. The study found that patients with moderate-to-severe plaque psoriasis, who continued to receive ILUMYA through five years of continuous treatment, maintained consistent and extensive skin clearance with no new safety issues reported.

In patients treated with ILUMYA 100 mg, clear or almost clear skin (PASI 90) was achieved by 65.9% of patients and 32.8% of patients achieved completely clear skin (PASI 100) at week 244. The standard goal of treatment, a PASI 75 response, was achieved by 88.7% of patients at week 244. The long-term analyses also showed absolute PASI <1/<3/<5 scores at week 28 (50.8%, 85.1% and 96.4%, respectively) were sustained through week 244 (47.7%, 78.8% and 88.7%, respectively). Absolute PASI scores can indicate the extent of residual disease after treatment. Achievement of an absolute PASI score of <3 has been proposed as comparable to a PASI 90 response, which is equivalent to clear or almost clear skin. These results demonstrate that ILUMYA remains effective year on year, maintaining a high level of skin clearance and a durable safety profile, regardless of baseline level of skin disease, age or background illnesses.

• Initiated Phase 2 Clinical Trial of SCD-044

In January 2021, the Company announced the initiation of Phase 2 clinical trial for SCD-044 (a novel, orally bioavailable sphingosine-1-phosphate (S1P) receptor 1 agonist) in patients with moderate- to-severe plaque psoriasis. SCD-044 is also being evaluated in other indications like atopic dermatitis.

• Introduced Affordable Epilepsy Treatment in India

In February 2021, Sun Pharma pledged to introduce the complete range of Brivaracetam at an affordable price for epilepsy treatment in India. The Companys brand, Brevipil (Brivaracetam) tablet 25 mg/50 mg/75 mg/100 mg was launched on Day-1, following the patent expiry of innovator product. Brevipil oral solution (10 mg/ml) and injectable (10 mg/ml) were made available subsequently over the next few weeks. Brivaracetam is approved by the Drug Controller General of India (DCGI), as an adjunctive therapy in treatment of partial-onset seizures among patients 16 years of age and older, suffering from epilepsy.

BUSINESS GEOGRAPHIES

Sun Pharma entered the US pharma market—the worlds largest pharmaceutical market—in 1997 and has, since then, established its prominence in the generics market. It subsequently expanded its portfolio to include specialty branded products and over-the-counter (OTC) products. As per IQVIA data, It is the tenth largest pharmaceutical company in the US generics market with the US business accounting for ~30% of annual consolidated sales.

The Company manufactures and markets various dosage forms, including liquids, creams, ointments, gels, sprays, injectable, tablets, capsules and drug-device combination for the US market. It focuses on the Central Nervous System (CNS), dermatology, cardiology, oncology, ophthalmic segments, among others in the US.

Over the last two decades, Sun Pharma has grown in the US as a valued supplier to some of the largest wholesalers, distributors, and chain drugstores. The Company has fostered long-standing relationships with care providers and payors in the country. A vertically integrated organisation with a global presence, Sun Pharma has on-shore and offshore manufacturing capabilities, coupled with a strong distribution network to service customers in the US.

Table 9 Milestones in the US Business
Year Major Initiatives
FY21 • Presented long-term insights into the clinical use of Ilumya at the American Academy of Dermatology (AAD) Virtual Meeting
• Presented clinical insights for Odomzo and Levulan at AAD Virtual Meeting
• Pre-clinical data for GL0034 (GLP-1R agonist) presented at the American Diabetes Association (ADA) Virtual 80th scientific sessions
FY20 • Launched Cequa and Absorica LD
FY19 • Launched Ilumya and Yonsa
• Received USFDA approval for Cequa
• Launched Xelpros
• Launched Ready-to-Infuse INFUGEM™
FY18 • Launched Odomzo
• Received USFDA approval for Ilumya
FY17 • Filed Tildrakizumab
• Acquired Ocular Technologies to receive access to Cequa - treatment for dry eyes
• Launched BromSite
• Acquired Odomzo - branded oncology product from Novartis
FY16 • Acquired InSite Vision to strengthen the ophthalmology portfolio
FY13 • Acquired DUSA to enter the branded specialty market
FY10 • Acquired Taro Pharma to enter the dermatology market
FY98 • Entered the US market through Caraco acquisition

FY21 Highlights

• Revenues from US de-grew by 4.4% Y-o-Y to Rs.100,839 Million

• Despite the significant challenges posed by the COVID-19 pandemic, the specialty branded business in the US witnessed positive growth, with Ilumya, Cequa, Yonsa and Odomzo being key contributors

• Following the end of FY21, the first generic for Absorica entered the market In April 2021

• The US generics market continues to witness Y-o-Y price erosion, driven by faster pace of generic approvals and customer consolidation, resulting in a competitive market

Roadmap

• Ramp-up prescriptions for specialty products

• Continue to focus on complex generics and high-entry- barrier products

• Focus on product robustness and supply-chain efficiencies to ensure high service standards for customers

Sun Pharma is the largest pharmaceutical company in the domestic market with 8.17% market share and strong positioning in the high-growth chronic segments. It offers a complete therapy basket, with products in neuro-psychiatry, cardiology, diabetology, gastroenterology, pain/analgesics, gynaecology, ophthalmology, urology, dermatology, respiratory, anti-infectives, and other segments.

Over the years, the Company has built a strong sales force, which enables it to reach a large number of doctors in the country.

India Prescription Ranking - Leadership in Key a e Therapeutic Areas6
Specialist February 2020 February 2021
Psychiatrists 1 1
Neurologists 1 1
Cardiologists 1 1
Orthopaedic specialists 1 1
Diabetologists 1 1
Gastroenterologists 1 1
Consultant physicians 1 1
Urologists 1 1
Dermatology 1 1
Chest physicians 2 1
ENT specialists 1 2
Nephrologists 1 2
Ophthalmologists 2 2
General surgeons 2 2
Gynaecologists 2 2

FY21 Highlights

• Revenue from the India Formulations business grew by 6.5% to ^103,432 Million, driven mainly by chronic segments

• To contain the COVID-19 outbreak, the government announced a lockdown in the country in the first half of the year. This resulted in temporary closure of doctor clinics, reduction in patient consultations, postponement of non-critical treatments including elective surgeries and restrictions in the movement of the medical representatives. As per AIOCD AWACS data for the 12 months ended March-2021, average industry growth was 2.1% with acute and semi-chronic segments getting impacted due to lockdown restrictions

• Growth was driven by a combination of volume and price progressions

• The field force expansion project undertaken in Q4 of FY20, was completed during the year and the new medical representatives commenced their field work

• During the year, we launched 96 products in the domestic market, including the anti-epileptic Brevipil (Brivaracetam) and FluGuard (Favipiravir)

• The Company supplied drugs like Remdesivir, Itolizumab, Hydroxychloroquine (HCQS), Favipiravir and Liposomal Amphotericin B in the Indian market for treatment of COVID-19 and associated ailments

• In May 2021, Sun Pharma entered into a licencing agreement with Eli Lilly to expand access to Baricitinib, in helping alleviate the burden of COVID-19 in India

Roadmap

• Focus on productivity enhancement

• Maintain leadership position in a fiercely competitive market

• Innovate continuously to ensure high brand equity with doctors

• Continue to evaluate in-licencing opportunities for latest generation patented products, given the Companys strong brand equity and extensive distribution network

Sun Pharma is the one of the leading Indian pharmaceutical companies in the emerging markets. The Company sells its products in ~80 global markets, with a focus on Romania, Russia, South Africa, Brazil, Mexico and other complementary and affiliated markets. It has local manufacturing units across Bangladesh, South Africa, Malaysia, Romania, Egypt, Nigeria and Russia, which provides increased flexibility in servicing these markets.

FY21 Highlights

• Revenues from emerging markets grew by 5.1% to ^57,834 Million

• Many emerging market currencies showed higher volatility, given the global impact of the pandemic in these markets. While the reported growth for Sun Pharmas emerging markets revenues was 5.1%, the constant currency growth was higher, at 6.4%

• Sun Pharma entered into an exclusive licencing and distribution agreement for ILUMYA™ with Hikma Pharmaceuticals PLC (Hikma) for the Middle East & North Africa (MENA) region. Under this agreement, Hikma will be responsible for the registration and commercialisation of ILUMYA in these markets.

Roadmap

• Gain critical mass across key markets

• Enhance product basket in emerging markets

• Focus on profitable growth

Rest of the World (RoW): Western Europe, Canada, Japan, Australia, New Zealand (ANZ) and Other Markets

Sun Pharma is among the leading Indian pharmaceutical companies operating in Western Europe, Canada, Japan, as well as Australia & New Zealand (ANZ). These markets are characterised by an ageing population and an increasing incidence in chronic ailments and lifestyle diseases, alongside government efforts to tighten the healthcare budget.

In RoW markets, Sun Pharma offers an expanding products suite, including injectables and hospital products as well as products for the retail market. It has established local manufacturing footprint in Canada, Japan, Australia, Israel and Hungary and follows a distribution-led growth model focused on development and commercialisation of complex generics and differentiated products to drive sustainable and profitable progress.

FY21 Highlights

• Revenue from RoW markets increased by 6.6% to Rs.48,191 Million

• Growth driven mainly by Western Europe, Canada and Australia markets

• Sun Pharma launched ILUMYA in Japan for the treatment of plaque psoriasis in adult patients who have an inadequate response to conventional therapies. This is Sun Pharmas first innovative drug to be launched in the Japanese market

Roadmap

• Ramp-up ILUMYA prescriptions in Japan and Australia

• Evaluate newer markets in RoW for commercialising the specialty portfolio

• Launch differentiated generics in key markets

Global Consumer Healthcare Business 178

Sun Pharma is present in countries like Romania, Russia, South Africa, Nigeria, Myanmar, Ukraine, Poland, Thailand, Belarus, Kazakhstan, Morocco, UAE and Oman. The Company enjoys strong brand equity in in India, Romania,

Nigeria and Myanmar, with a portfolio, including over- the-counter (OTC) brands in the Vitamins, Mineral & Supplements (VMS), Cold & Flu, Analgesics, Digestive and Dermatology categories.

As per IQVIA, Sun Pharmas key consumer healthcare brands - Volini and Revital H - are ranked 23rd and 63rd, respectively in the Indian pharmaceutical market. The Indian distribution network spans 1,000+ cities and towns, supported by ~400,000 retail outlets. Globally, the Company has strong pharmacy reach in Russia, Romania, Nigeria and Myanmar for its OTC brands.

FY21 Highlights

• In India, the consumer business revenue recorded double-digit growth, driven mainly by higher sales of Revital-H, which was a result of increased consumption of vitamins, given the COVID-19 pandemic

• We expanded the launch of Volini Joint Xpert Gel to more locations in the country and introduced the Abzorb T Cream, which further expands the dermatology portfolio

Roadmap

• Sustained focus on key brands

• Maintain leadership in existing markets through focus on innovative solutions and brand extensions

• Enhance presence in high growth markets

• Increase retail connect programmes to ensure better availability of our products for end consumers

Active Pharmaceutical Ingredient (API) Business: Strategic Integration

The API business is strategically important for Sun Pharma, as it provides opportunities for strong backward integration and speed to market. These linkages, in turn, provide cost competitiveness and a reliable supply chain, thereby reducing dependence of third-party suppliers. With ~300 offerings in the product portfolio, it caters to large generic manufacturers and innovator companies, after meeting captive consumption requirements. The Company has 14 API manufacturing units across multiple countries and develops ~20-30 APIs annually.

FY21 Highlights

• Revenue from the API business increased by 1.8% to Rs.19,504 Million

• Growth was muted mainly due to lower sales of opiates products

Roadmap

• Focus on development and commercialisation of strategic APIs for captive consumption

• Ensure consistent supplies and high service standards for customers

Research and Development (R&D): Creating Future Growth Engines

At Sun Pharma, R&D is a key determinant of future success. The R&D team focuses on delivering innovative and affordable therapies to cater to the needs of patients. A critical catalyst to the business, R&D investments help build a strong pipeline of branded generics, pure generics and specialty products for India and international markets.

Sun Pharmas R&D capabilities include expertise in the development of products across dosage forms, such as injectables, orals, liquids, ointments, gels, sprays, hormones and oral products. The R&D team is actively supported by strong intellectual property capability.

The Company operates in a highly competitive industry and thus continues to fortify its R&D capabilities with focused investments to develop its long-term specialty and complex generics pipeline in the long run.

FY21 Highlights

• Commenced phase 3 trials for Ilumya (Tildrakizumab) for psoriatic arthritis indication

• Commenced phase 2 trials for:

- SCD044 - A S1P1 agonist for plaque psoriasis and atopic dermatitis

- MMII - Treatment of knee pain in patients with symptomatic knee osteoarthritis

• Commenced phase 1 trials for GL0034, a GLP-1R (Glucagon-Like Peptide-1 Receptor) agonist for treating diabetes

Roadmap

• Invest to build the specialty R&D pipeline

• Develop complex products for global markets

• Target products specifically for emerging markets and India

• Continue to work on developing APIs of strategic importance

Global Manufacturing Base: World-class Manufacturing Infrastructure

The Company has 44 state-of-the-art production units spanning India, the Americas, Asia, Africa, Australia and Europe. This enables Sun Pharma to produce high- quality affordable products. With a vertically-integrated manufacturing network, the Company can produce diverse dosage forms, including hormones, peptides, controlled substances, orals, creams, ointments, injectables, sprays and liquids.

Many of Sun Pharmas manufacturing facilities are certified by global regulatory agencies like the United States Food and Drug Administration (USFDA), the European Medicines Evaluation Agency (EMEA); the UK Medicines and Healthcare Products Regulatory Agency (MHRA); Australias Therapeutic Goods Administration (TGA); South Africas Medicines Control Council (MCC); Germanys Federal Institute for Drugs and Medical Devices (BfArM); Brazilian Health Regulatory Agency (ANVISA); the World Health Organisation (WHO), South Koreas Ministry of Food and Drug Safety and Japans Pharmaceuticals and Medical Devices Agency.

Sun Pharma has 30 finished dosage manufacturing facilities, while its 14 API facilities provide captive support.

Table 11 Finished Dosage Manufacturing Units
Country Number of Finished
Dosage Facility
India 15
US 3
Japan 2
Canada 1
Hungary 1
Israel 1
Bangladesh 1
South Africa 1
Malaysia 1
Romania 1
Egypt 1
Nigeria 1
Russia 1
Total 30
Table 12 API Manufacturing Units
Country Number of API facility
India 9
Australia 2
Israel 1
US 1
Hungary 1
Total 14

People: Share One Purpose

Sun Pharmas global team has 37,000+ people from over 50 nationalities, collaborating across cultures and locations to develop, manufacture and distribute pharmaceutical products to patients/customers across over 100 geographical markets. The Company offers a congenial work environment that provides equal opportunities for growth, recognising and rewarding the merits of its people. Sun Pharma offers inclusive growth and knowledge-sharing to make its teams future-ready.

Quality: Commitment to Excellence

Sun Pharma has a robust quality management system. Its research centres, manufacturing units, testing labs and distribution facilities follow the highest global quality standards. The Company has a global Quality Management team that oversees regulatory conformity of every product and manufacturing facility. It has cGMP certifications from global regulatory authorities like USFDA, EMEA, WHO and TGA, among others. The Company has a Corporate Quality Unit that supervises the implementation of latest cGMP updates and guidelines.

In December 2019, the USFDA inspected the Companys Halol facility and issued Form 483 with 8 observations. Following submission of the Companys response in January 2020, the USFDA classified the inspection status as Official Action Indicated (OAI). The Company was in continuous communication with the USFDA to resolve outstanding issues and is awaiting a re-inspection by USFDA to resolve the OAI status. However, due to the pandemic and travel restrictions, the re-inspection has been delayed. The Company continues to manufacture and distribute products to the US from this facility. However, the OAI status normally implies that the USFDA may put all new approvals from the Halol facility on hold till the OAI status is changed.

Roadmap

• Ensure 24x7 compliance to cGMP, which is imperative for a global pharmaceutical business

• Enhance systems, processes, human capabilities continuously to ensure compliance with global regulatory standards

Table 13 SWOT Analysis1-4-5-6
Strengths Opportunities Threats and Weaknesses
• Strong global prominence • The pandemic has resulted in increased healthcare awareness globally. This augurs well for companies like Sun Pharma, which can supply high-quality pharmaceutical products at affordable prices • Fresh outbreaks of the pandemic across the world and subsequent disruption in economic activities may impact economic growth across countries and indirectly also impact pharmaceutical consumption
- 4th largest global specialty generics company
- 10th largest generics Company in the US
- 2nd largest by prescriptions in the US dermatology segment
- Largest pharma company in India by market share
- No. 1 ranking with 10 different classes of doctors in India
- Among the largest Indian pharmaceutical companies in the emerging markets
- Largest Indian pharmaceutical company in Japan
• Robust R&D infrastructure and capabilities to develop technologically complex products in the generic and specialty segments • The pandemic has also brought forward the need for therapeutic medicines for treating COVID-19 symptoms, extending an opportunity for pharmaceutical companies to service the urgent and vital needs of patients. However, the demand for such products keeps fluctuating depending on the number of viral infections • Challenging US generics pricing environment, driven by customer consolidation and higher competitive intensity, on account of faster pace of generic drug approvals by the USFDA
• Focus on driving growth and profitability through a pragmatic mix of organic and inorganic initiatives • Favourable macro-economic parameters for India and emerging markets are likely to ensure reasonable volume growth for pharmaceutical products across these markets in the long term • Significant volatility in the forex market, especially for emerging market currencies, may adversely impact reported growth of these markets, even though they may be recording growth in local currency terms
Strengths Opportunities Threats and Weaknesses
• Strong balance sheet imparts ability to undertake inorganic initiatives without any significant leverage, allowing future growth headroom • For many years, developed markets witnessed a consistent increase in contribution of specialty products in their overall pharmaceutical spending and this trend is expected to continue in future as well. Sun Pharma has already commercialised many of its specialty products in developed markets, and hence will be able to reap the benefits of this expanding opportunity • Given the additional spending on battling the pandemic, governments across the world may try to control pricing of certain products, which may lead to government-mandated price controls on pharmaceutical products
• Ability to supply affordable, high-quality products consistently across the world • Growing penetration of generics in Japan and opening of the China market, present good long-term opportunities for Indian companies, including Sun Pharma • Developing a specialty pipeline entails high upfront investments for long-term benefits, and may impact short-term profitability

Internal Control

Sun Pharma believes that internal control is a prerequisite for governance and that business plans should be exercised within a framework of checks and balances. The Company has a well-established internal control framework, which is designed to continuously assess the adequacy, effectiveness and efficiency of financial and operational controls. The management is committed to ensuring an effective internal control environment, commensurate with the size and complexity of the business, which provides an assurance on compliance with internal policies, applicable laws, regulations and protection of resources and assets.

Global Internal Audit (GIA)

An independent and empowered Global Internal Audit Function at the corporate level, with support from a reputed audit firm, carries out risk-focused audits across our Indian and overseas businesses, to ensure that business process controls are adequate and are functioning effectively. These reviews include financial, operational and compliance controls and risk mitigation plans. The Companys operating management closely monitors the internal control environment and ensures that the recommendations are effectively implemented. The Audit Committee of the Board monitors performance of the Internal Audit Function, reviews key findings and provides strategic guidance.

The GIAs functioning is governed by the Audit Charter, duly approved by the Audit Committee of the Board, which stipulates matters contributing to the proper and effective conduct of the audit. The audit processes are fully automated on a ‘SunScience tool, which integrates internal audits,

Bibliography

1. IQVIA Institute

2. Grandview research

3. Nicholas Hall data 2020

4. Evaluate Pharma

5. AIOCD AWACS

6. SMSRC data

7. Euromonitor

8. CEGEDIM

Disclaimer

Statements in this ‘Management Discussion and Analysis describing the Companys objectives, projections, estimates, expectations, plans or industry conditions or events are ‘forward-looking statements within the meaning of applicable securities laws and regulations. Actual results, performance or achievements could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include global and Indian demand-supply conditions, finished goods prices, feedstock availability and prices, competitors pricing in the Companys principal markets, changes in government regulations, tax regimes, economic conditions within India and the countries within which the Company conducts business and other factors, such as litigation and labour unrest or other difficulties. The Company assumes no responsibility to publicly update, amend, modify or revise any forward-looking statements, based on any subsequent development, new information or future events or otherwise, except as required by applicable law. Unless the context otherwise requires, references in this document to ‘we, ‘us or ‘our refers to Sun Pharmaceutical Industries Limited and consolidated subsidiaries.