Sun Pharmaceuticals Industries Ltd Management Discussions.
GLOBAL PHARMACEUTICAL INDUSTRY1
The global spending on medicines is expected to reach nearly US$ 1.5 Trillion by 2021. This is an increase of nearly US$ 370 Billion from the 2016 estimated spending level, representing a CAGR of 4-7%. The two main drivers of this growth will be introduction of new innovative products in the developed markets and increased volumes of branded generics in the emerging markets.
The growth of a countrys pharmaceutical industry closely mirrors its general economic progress. As economies of the world demonstrate widely divergent growth patterns, industry growth is also different. However, taking a macro perspective, global pharmaceutical growth depends on worldwide economic momentum, government healthcare programmes and spending patterns. While R&D efforts will drive the introduction of new products in the market, challenges remain. For countries grappling with sluggish economies and limited resources, funding access to these medicines remains an uphill task.
Each country in the world is facing these challenges and addressing them in its own way. Overall, generic products will continue to be an integral part of these efforts, targeted at striking a balance between access to healthcare and ability to fund it.
The key trends for the next five years:
The US will continue as the worlds largest pharmaceutical market.
New innovative products will drive the growth in pharmaceutical spending in developed markets, but will be partly offset by patent expiries. Growth will be driven primarily by oncology, autoimmune and diabetes treatments.
Pharmerging markets will grow faster than developed markets, driven mainly by rising income levels, increased healthcare awareness, government policies directed at achieving universal healthcare and increasing incidence of chronic ailments.
Innovation in specialty medicines will drive the share of global specialty spending from 30% in 2016 to 35% in 2021. This increase will be driven by the acceptance of new breakthrough medicines.
The specialty segment will be a key focus area for payers and they are likely to focus on lowering healthcare costs and the therapeutic value offered by such specialty medicines. The US and Western Europe will be the key drivers of specialty medicines.
GLOBAL PHARMACEUTICAL SPENDING1
|Global pharmaceutical market||1,105||6%||1,455-1,485||2-5%|
The global generics market consists of both non-branded and branded generics. Branded generics in emerging markets will be the key drivers of growth for the overall generics market. This growth will be driven by many macroeconomic factors like rising per capita incomes, growing healthcare awareness, increasing medical insurance penetration and higher incidence of chronic ailments. The efforts of governments in emerging markets to achieve universal healthcare are also expected to drive the growth of branded generics.
The global demand for non-branded generic drugs will continue to grow as governments, payors and consumers pursue avenues to reduce healthcare costs, mainly in the developed economies.
Growth drivers of global pharmaceutical industry2, 3
Changing demographic pattern
Ageing population and growing life expectancy will remain a long-term growth driver for global pharmaceutical consumption. The combination of population ageing and increased life expectancy up from an estimated 72.3 years in 2014 to 73.3 years in 2019 will take the number of people aged 65-plus to over 604 Million, or 10.8% of the total global population. This number is anticipated to be even higher in Western Europe (nearly 21%) and Japan (28%).
Factors that have contributed to enhanced life expectancy are declining infant mortality, enhanced living conditions, improved sanitation, better prevention of communicable diseases, and growing access to healthcare. Increased life expectancy, coupled with other macroeconomic factors (rising per capita incomes, growing healthcare awareness, enhanced medical insurance penetration) will remain key growth drivers for the pharmaceutical industry.
Prevalence of chronic diseases
The spread of chronic diseases is having serious health repercussions in both developed and emerging countries. Sedentary lifestyles, urbanisation and changing food habits are leading to higher incidence of chronic diseases - globally. Obesity, cardiovascular diseases, hypertension, and diabetes are now causing widespread health problems. These trends will continue to challenge public health systems to meet increasing demand for drugs and treatments.
Accessibility and affordability
Access to modern healthcare continues to be a challenge in many parts of the developing and underdeveloped economies. Given the low per capita income in many developing countries, affordability also remains a challenge. Many governments, as response to these challenges are expanding their public or private healthcare coverage. At the same time, they are deepening it to reduce out-of-pocket spending. The trend towards the adoption of universal healthcare continues. The vision of achieving universal healthcare in the developing world will only be fulfilled if governments focus on higher spending on healthcare, while ensuring that drugs remain affordable to the population at large.
The global spending on medicines is estimated to grow at 4-7% CAGR between 2016 and 2021, to reach approximately US$ 1.5 Trillion. Pharmaceutical spending growth in developed markets, will be driven by oncology, autoimmune and diabetes treatments. Developed market spending growth will be driven by original brands but will be partly constrained by patent expiries and the cost and access controls instituted by payors. Growth in pharmerging markets will continue to be fuelled by branded-generic and pure generic products.
Spending on specialty medicines set to rise
The development of specialty medicines is consistently increasing. The share of global spending on specialty drugs will continue to rise from about 30% in 2016 to about 35% by 2021. This spending on specialty medicines will be mainly driven by the US and Western European markets.
Pharmaceutical spending in developed markets is estimated to grow at 4-7% CAGR from US$ 749 Billion in 2016 to US$ 975-1,005 Billion by 2021. The US will remain the most important market and a key driver of this growth among developed markets.
DEVELOPED MARKETS - PHARMACEUTICAL (US$ Bn) SPENDING1
|Country||2016||2011-16 CAGR||2021||2016 -2021 CAGR|
The US pharmaceutical market growth is estimated to grow by 6-9% CAGR from US$ 462 Billion in 2016 to US$ 645-675 Billion in 2021. Innovative specialty products will be the key driver of this growth. Overall, the increase in branded product sales is likely to be partly constrained by patent expiries and low-cost generics. Cumulative patent expires in the US is estimated at US$ 144 Billion over the 2017-2021 period, including expiration of patents on biologics.
Pharmaceutical spending in the top five European markets (Germany,
France, Italy, Spain and the UK) is expected to grow at around 1-4% CAGR. Overall spending in these markets is estimated to increase from US$ 152 Billion in 2016 to US$ 170-200 Billion in 2021. This sluggish progress reflects efforts made by governments to control healthcare spending, owing to budget constraints and muted economic growth in the region. Besides, there is uncertainty on the impact of Brexit and its influence on the pharmaceutical market.
Japans pharmaceutical spending stood at approximately US$ 90 Billion in 2016. It is estimated to grow at a sluggish pace during 2016-2021 to reach US$ 90-94 Billion by 2021. The governments focus on pricing has resulted in the low growth trajectory of the market. Moreover, the Japanese government has been advocating the use of low-cost generics to control overall pharmaceutical spending in the country. Over the past few years, the country has implemented regulations to encourage the use of generics. This, coupled with the periodic price cuts announced by the government, is likely to limit the overall growth of the Japanese market. However, given the governments favourable stance towards generics, their volumes are likely to keep growing over the next few years.
Pharmerging markets pharmaceutical spending stood at around US$ 243 Billion in 2016. It is estimated to grow at 6-9% CAGR during 2016-21 to reach US$ 315-345 Billion by 2021.
Overall growth in pharmerging markets will be mainly driven by the Tier II and Tier III markets. India and Brazil are expected to be key contributors to this growth, with the Chinese growth slowing down. The main drivers of growth in pharmerging markets include:
1. Rising per capita incomes enable higher spending on healthcare.
2. Increasing insurance coverage.
3. Growing initiatives by various governments towards achieving universal healthcare, resulting in higher allocation of government spending on healthcare.
4. Growing health awareness.
5. Rising incidences of chronic ailments and lifestyle diseases.
PHARMERGING MARKETS PHARMACEUTICAL SPENDING1
|Region/ Country||2016||2011-16 CAGR||2021||2016 -2021 CAGR|
|Tier 2 Markets||56||11%||75-85||8-11%|
|Tier 3 Markets||62||7%||82-86||6-9%|
(Pharmerging markets: China, Brazil, Russia, India, Venezuela, Poland, Argentina, Turkey, Mexico, Vietnam, South Africa, Thailand, Indonesia, Romania, Egypt, Pakistan, Ukraine, Algeria, Colombia, Nigeria, Saudi Arabia and Russia)
Global consumer healthcare industry6,7
The global consumer healthcare (GCH) market grew by 4.3% in 2016 to reach US$ 122 Billion. The US and China continue to be the largest GCH markets and together account for 44% of the global share. Among emerging markets, Brazil, Russia and India account for almost 9% of the global market. In 2016, these markets grew faster than the global average with Brazil growing at 8.8%, Russia at 11.3% and India at 8.2%.
Growing healthcare awareness is driving the demand in the GCH market. Vitamins, cough and cold, and allergy account for over 50% of spending in the market. The increasing use of online resources to access healthcare information has empowered people to seek various available treatments. This is leading to self-medication and driving market momentum.
Active Pharmaceutical Ingredients (API)4
The global active pharmaceutical ingredients (API) market is estimated to reach US$ 214 Billion by 2021, compared to US$ 158 Billion in 2016, representing a CAGR of 6.3%. Rising prevalence of oncology ailments and chronic diseases are steering the growth of the API market. At the same time, technological advancements in API manufacturing is also contributing to market momentum. Besides, the growing importance of generics and rapidly increasing geriatric healthcare are propelling the market forward.
In addition, an increase in abbreviated new drug applications (ANDA) and rising uptake of biopharmaceuticals will bolster this growth. However, factors such as stringent regulatory requirements and unfavourable drug price control policies across various countries may restrain the market progress. Growing demand for innovative therapeutics for autoimmune diseases treatment and increase in USFDA approvals for new molecular entities are further expanding the demand for APIs.
INDIAN PHARMACEUTICAL MARKET8
Indias pharmaceutical market ranks third in the world in terms of volume and 11th in terms of value. At US$ 17.4 Billion, the market in India accounted for 1.6% share of the global market in 2016. It is expected to grow at a CAGR of 10-13% to US$ 26-30 Billion by 2021.
The overall penetration of modern medicines is quite low in India. The per capita spending on pharmaceuticals in India is one of the lowest among emerging markets. Compared to the emerging market average per capita spend of about US$ 117 per year, the spending in India is approximately US$ 15-25 per year. Affordability, access and awareness are the prime factors, which determine demand for pharmaceutical products in the Indian market.
Other factors like rising per capita income, improving access to healthcare facilities, and higher government spending on healthcare drive market demand. Moreover, increasing insurance penetration, more healthcare awareness and enhanced investments for treating chronic ailments serve as key growth drivers.
SUN PHARMACEUTICALS INDUSTRIES LIMITED (SUN PHARMA)
Sun Pharma is the worlds fourth largest specialty generic pharmaceutical company. It is Indias top pharmaceutical company. A vertically integrated business, economies of scale and an extremely skilled team enable it to deliver well-timed quality products at affordable prices. Sun Pharma provides high-quality medicines trusted by customers and patients in over 150 countries. Its global presence is supported by 42 manufacturing facilities spread across six continents, research and development (R&D) centres across the world and a multi-cultural workforce comprising over 50 nationalities. Sun Pharma fosters excellence through innovation supported by strong R&D capabilities of about 2,000 scientists and R&D investments of over 8% of annual revenues.
In India, the Company enjoys leadership across 11 different classes of doctors with 30 brands featuring among top 300 pharmaceutical brands. Sun Pharmas global footprint covers the U.S., emerging markets, Western Europe, Japan, Canada, Israel, Australia and New Zealand. Its Global Consumer Healthcare (GCH) business is ranked among the Top 10 across four global markets. Its API business footprint is strengthened through 14 world-class API manufacturing facilities around the world.
OUR BUSINESS MODEL
Growing and sustaining our prominence across markets, therapeutic segments and products.
GROWTH STREAMS US Formulations
4th largest generics company in the US with a strong ANDA pipeline (157 ANDAs awaiting approval).
Largest Indian pharma company in the US.
Presence in generics and specialty segments with more than 420 approved products.
Among the largest Indian pharma company in emerging markets. Presence in over 100 countries across Africa, Americas, Asia and Eastern & Central Europe.
Key focus markets Brazil, Mexico, Russia, Romania, South Africa, and complementary and affiliated markets.
India Branded Generics
No. 1 pharma company in India with 8.6% market share and 30 brands in the countrys top 300 brands.
No.1 ranked with 11 classes of doctor categories. Leading position in high growth chronic therapies.
Western Europe, Canada, Japan, A&NZ & Others
Expanding presence in Europe.
Presence across majority of markets in Western Europe, Canada, Japan and A&NZ.
Product portfolio includes differentiated offerings for hospitals, injectables and generics for retail market.
Create Sustainable Revenue Streams
Enhance share of specialty business globally.
Achieve differentiation by focusing on technically complex products.
Focus on key markets to achieve critical mass Speed to market.
Ensure sustained compliance with global regulatory standards.
Balance Profitability & Investments for Future
Increasing contribution of specialty and complex products. Future investments directed towards differentiated products.
Use acquisitions to bridge critical capability gaps.
Focus on access to products, technology, market presence. Ensure acquisitions yield high return on investment. Focus on payback timelines
Vertically integrated operations. Optimise operational costs.
Key acquisitions and joint ventures (JV)
|2016||Acquired global rights for Seciera and Odomzo||Global Markets||Enhances specialty pipeline|
|2016||Acquired Biosintez||Russia||Local manufacturing capability to enhance presence in Russian market|
|2016||Licensing agreement with Almirall for tildrakizumab for Psoriasis||Europe||Strengthening the distribution of tildrakizumab in Europe|
|2016||Acquired 14 brands from Novartis||Japan||Entry into Japan|
|2016||Distribution agreement with AstraZeneca||India||Distribution services agreement in India for brand Oxra & OxrametR (brands of dipagliflozin, used for diabetes treatment)|
|2015||Acquisition of InSite Vision||USA||Strengthens branded ophthalmic portfolio in U.S.|
|2015||Acquisition of GSKs Opiates Business||Global Markets||Vertical integration for controlled substances business|
|2015||Distribution agreement with AstraZeneca||India||Distribution services agreement in India for brand Axcer (brand of ticagrelor, used for the treatment of acute coronary syndrome)|
|2015||Sun Pharma Ranbaxy Merger||Global Markets||Strengthens the position as the 5th largest Global Specialty Generic pharma company and No.1 pharma company in India with strong positioning in emerging markets|
|2014||In-licensing agreement with Merck for tildrakizumab - a biologic for psoriasis||Global Markets||Strengthened the specialty product pipeline|
|2014||Acquired Pharmalucence||USA||Sterile injectable capacity in the US, supported by strong R&D capabilities|
|2013||Formation of Sun-Intrexon JV||Global Markets||Strengthen ocular specialty pipeline|
|2013||Acquired URLs generic business||USA||Added 107 products to the US portfolio|
|2012||Acquired DUSA Pharma, Inc.||USA||Access to branded derma product|
|2010||Acquired Taro Pharmaceutical Industries Ltd.||Israel||Dermatology and topical product manufacturing plant at Israel and Canada|
|2008||Acquired Chattem Chemicals, Inc.||Tennessee, USA||Import registration with DEA, API Plant approved by DEA in Tennessee, USA|
|2005||Assets of Able Labs Formulation plant in Bryan||New Jersey, USA Ohio, USA||Dosage form plant (NJ, USA) and IP Dosage form plant (Ohio, USA)|
|1997||Acquired Caraco||Detroit, USA||Entry into the US market|
Operational highlights, FY17
Significant ramp-up in specialty pipeline
The year under review was eventful for Sun Pharmas specialty initiatives. The Company significantly enhanced its global specialty pipeline through acquisitions and partnerships as well as made substantial progress in successfully completing clinical trials for key products. Some of the key highlights of the specialty initiatives for the year were:
In April 2016, the Company received approval from USFDA for its New Drug Application (NDA) related to BromSite (bromfenac ophthalmic solution) 0.075%. BromSite is the first non-steroidal anti-inflammatory drug (NSAID) approved by the USFDA to prevent pain and treat inflammation in the eye for patients undergoing cataract surgery; other NSAIDs in this class are currently indicated for the treatment of inflammation and reduction of pain. BromSite is the first bromfenac ophthalmic solution formulated in DuraSite , a polymer-based formulation that can be used to improve solubility, absorption, bioavailability, and residence time, compared to conventional topical therapies. Sun Pharma, subsequently commercialised BromSite in the US market in November 2016.
This was the Companys first branded specialty ophthalmic product launch in the US.
In May 2016, Sun Pharma announced positive results of two pivotal Phase-3 clinical trials of tildrakizumab in patients with moderate-to-severe plaque psoriasis. The co-primary efficacy endpoints of the placebo controlled studies were: the proportion of participants with Psoriasis Area Sensitivity Index 75 (PASI 75) response at week 12, compared to placebo and the proportion of participants with a Physicians Global Assessment (PGA) score of clear or minimal with at least a 2-grade reduction from baseline at week 12, compared to placebo. The overall safety profile of tildrakizumab in both Phase-3 clinical trials was consistent with the safety data observed in previously reported studies. The second study also included an etanercept comparator arm, with a key secondary endpoint comparing tildrakizumab and etanercept on PASI 75 and PGA. tildrakizumab 200mg was superior to etanercept on both PASI 75 and PGA endpoints at week 12, while the 100 mg dose showed superiority to etanercept on PASI 75 only.
Subsequently, in July 2016, Sun Pharma announced a licensing agreement with Almirall S.A. (Spain) for the development and commercialisation of tildrakizumab for psoriasis in Europe. Under terms of this licence agreement, Almirall paid Sun Pharma an initial upfront payment of US$ 50 Million. Moreover, Sun Pharma will also be eligible to receive development and regulatory milestone payments and, additionally, sales milestone payments and royalties on net sales. Almirall will be able to lead European studies, and participate in larger global clinical studies for psoriasis indication subject to the terms of Sun Pharma Merck agreements, as well as certain cost sharing agreements. Sun Pharma will continue to lead development of tildrakizumab for other indications, where Almirall will have the right of first negotiation for certain indications in Europe.
Post this licensing agreement, in March 2017, Sun Pharma and Almirall announced the validation of the regulatory filing of tildrakizumab with the European Medicines Agency (EMA). This filing was done by Almirall with EMA. Post the close of the financial year, in May 2017, Sun Pharma announced the acceptance of the Biologics License Application (BLA) by the USFDA. Hence, tildrakizumab has been filed in both, the US and Europe and is awaiting regulatory approval.
In July 2016, Sun Pharma announced the launch of Gemcitabine InfuSMART in Europe. InfuSMART is a technology in which oncology products are developed in a ready-to-administer (RTA) bag. Until now, compounding of oncology products was done at compounding centres or in hospital pharmacies, an extra step before the medicine could be administered to patients. With the roll-out of Gemcitabine InfuSMART, Sun Pharma becomes worlds first pharmaceutical company to manufacture and launch a licensed RTA oncology product. The InfuSMART concept involves dose banding practice. This means, through agreement between prescribers and pharmacists, standardised doses of intravenous cytotoxic drugs are used for ranges (or "bands") of doses calculated for individual patients. More InfuSMART oncology products are currently in Sun Pharmas pipeline to be rolled out in future.
In July 2016, Sun Pharma in-licensed ELEPSIA XRTM (Levetiracetam Extended Release tablets) from Sun Pharma Advanced Research Company Ltd. (SPARC). As per the licensing agreement, SPARC licensed ELEPSIA XRTM to Sun Pharma for the US market for an up-front payment of US$10 Million plus milestones and royalties on sales. ELEPSIA XRTM was approved by the USFDA in March 2015. However, in September 2015, SPARC received a complete response letter (CRL) from the USFDA rescinding its earlier approval, citing that the compliance status of the Halol manufacturing facility of Sun Pharma was not acceptable on the date of approval. Sun Pharma has undertaken a detailed remediation at Halol for restoring cGMP compliance status for the site.
In October 2016, Sun Pharma announced the acquisition of Ocular Technologies (Ocular), a portfolio company of Auven Therapeutics (Auven). Ocular owns exclusive, worldwide rights to Seciera (cyclosporine A, 0.09% ophthalmic solution). Sun Pharma paid Auven US$ 40 Million upfront, plus Auven will be eligible for contingent development milestones and sales milestones, as well as tiered royalty on sales of Seciera as consideration for this acquisition. At the time of the acquisition, Seciera was undergoing a Phase-3 confirmatory clinical trial for the treatment of Dry Eye Disease. The Dry Eye Disease is an inflammatory ocular disease affecting approximately 16 million people in the United States alone. Seciera is a patented, novel, proprietary formulation of cyclosporine A 0.09%. It is a clear, preservative-free, aqueous solution. Coupled with Sun Pharmas existing ophthalmic portfolio consisting of BromSite, DexaSite and Xelpros, this acquisition will enable Sun Pharma to significantly expand its ophthalmic presence and reach to millions of patients - globally.
Subsequently, in January 2017, Sun Pharma announced successful
Phase-3 confirmatory clinical trial results for Seciera . In this 12 week, multicentre, randomised, double-masked, vehicle controlled
Phase-3 confirmatory study, 744 dry eye patients were treated, either with Seciera or its vehicle. After 12 weeks of treatment, as compared to vehicle, Seciera showed statistically significant improvement in the primary end point, Schirmers score (a measurement of tear production) (p<0.0001). The demonstration of efficacy by Seciera at 12 weeks is earlier than other drugs approved for dry eye in the same class. Additionally, several key secondary endpoints showed statistically significant improvements compared to vehicle with some showing an even earlier onset of action. Adverse events reported in the trial were mild to moderate in nature and similar to other approved drugs in the category. Subsequently, Sun
Pharma had a pre-NDA meeting with the USFDA and the filing of this
NDA is targeted for Q3FY18.
In December 2016, Sun Pharma announced the acquisition of a branded oncology product, Odomzo, from Novartis, for an upfront payment of US$ 175 Million and additional milestone payments. Odomzo (Sonidegib) was approved by the USFDA in July 2015. It is a hedgehog pathway inhibitor indicated for the treatment of adult patients with locally advanced basal cell carcinoma (laBCC) that has recurred following surgery or radiation therapy, or those who are not candidates for surgery or radiation therapy. For this class of drug, a significant number of prescribers are dermatologists and rests are oncologists. Clinical data from the BOLT trial for Odomzo had shown continued anti-tumor activity for more than 26 months in patients treated with Odomzo with no new safety concerns. At the 30-month follow-up, patients with locally advanced BCC had an overall response rate (ORR) as per central review of 56% with Odomzo 200 mg. The most frequent grade 3 and 4 adverse reactions occurring in more than 2% of patients were fatigue, decreased weight and muscle spasms. Odomzo gives
Sun Pharma an opportunity to meaningfully expand its already established branded dermatology business and support its expansion into branded oncology with a launched brand. This acquisition has the potential to leverage and expand the relationships that the Dusa sales team has with dermatologists that treat common pre-cancerous skin conditions.
In December 2016, Sun Pharma entered into an exclusive worldwide licensing deal to further develop MM-II, a novel pharmaceutical candidate for the treatment of pain in osteoarthritis. MM-II is a novel non-opioid product that leverages the physical properties of proprietary liposomes to lubricate arthritic knee joints, thereby reducing friction and wear, consequently leading to joint pain reduction. MM-II is an intra-articular bio-lubricant injection, which is being developed to provide symptomatic relief of mild-to-moderate osteoarthritis pain. The product is based on patent-protected technology licensed by Moebius Medical from the Hebrew University of Jerusalem, Technion Israel Institute of Technology and Hadassah Medical Centre.
Progress on cGMP compliance
During the year, Sun Pharma made significant progress towards 24x7 cGMP compliance. Many of its facilities underwent successful audits by multiple regulatory agencies, including the USFDA. At the same time, remediation work continued at some of the facilities, which have been impacted by cGMP deviations. Key highlights were:
In November 2016, Sun Pharmas Halol facility underwent a re-inspection by the USFDA as a follow-up to the warning letter issued to the facility in December 2015. The USFDA pointed out nine deviations post the re-inspection, none of which were repeat deviation from the previous time. The Company has filed its response to these deviations within the stipulated timelines and is in the process of implementing remediation measures to address these deviations. Sun Pharma is unlikely to receive any new approvals from the Halol facility till it is re-certified by the USFDA.
In March 2017, the USFDA informed Sun Pharma that it will be lifting the Import Alert imposed on Sun Pharmas Mohali (Punjab) manufacturing facility and remove the facility from the Official
Action Initiated (OAI) status. This action has cleared the path for Sun Pharma to supply approved products from the Mohali facility to the US market, subject to normal USFDA regulatory requirements, as well as make this facility available for future filings. The Mohali facility was inherited by Sun Pharma as part of its acquisition of Ranbaxy Laboratories Ltd. in 2015. The USFDA had acted against the Mohali facility in 2013, when it ordered the facility to be fully subjected to Ranbaxys Consent Decree of permanent injunction. Certain conditions of the Consent Decree will continue to be applicable to the Mohali facility. This development illustrates Sun Pharmas commitment to work closely with the USFDA and strive for 100% cGMP compliance at its manufacturing facilities.
Towards the end of FY16, Sun Pharma had taken an important step towards establishing its presence in Japan through the acquisition of 14 established prescription brands from Novartis AG and Novartis Pharma AG for a consideration of US$ 293 Million. In FY17, Sun Pharma initiated the process of transferring the marketing authorisations of these brands from Novartis to itself. The transfer of these brands has commenced in a phased manner beginning October 2016 onwards. Simultaneously, Sun Pharma entered into a distribution alliance with Mitsubishi Tanabe Pharma Corporation (MTPC) for these brands. Under this alliance, following the transfer of manufacturing and marketing rights to Sun Pharma, MTPC will market and distribute all 14 brands as well as provide information on their proper use to healthcare professionals in Japan. Through this alliance, Sun Pharma can leverage MTPCs specialised expertise to create a strong business foundation in Japan.
Enhancing presence in Russia
In November 2016, Sun Pharma enhanced its presence in Russia through the acquisition of 85.1% of JSC Biosintez, a Russian pharmaceutical company engaged in manufacture and marketing of pharmaceutical products in Russia and CIS region for US$ 24 Million. Sun Pharma also assumed a debt of approximately US$ 36 Million as part of this transaction. Biosintez focuses on the hospital segment and had an annual revenue of approximately US$ 52 Million for 2015. It has a manufacturing facility in Penza region with capabilities to manufacture a wide variety of dosage forms, including pharmaceuticals for injections, blood substitutes, blood preservatives, ampoules, tablets, ointment, creams, gels, suppositories and APIs. This acquisition is consistent with Sun Pharmas philosophy to invest in strategic emerging markets. It provides the Company access to local manufacturing capability across multiple dosage forms in Russia, enabling it to serve the Russian pharmaceutical market effectively.
Buyback of shares
In June 2016, Sun Pharmas Board of Directors approved the buyback of 7.5 Million equity shares at a price of Rs. 900 per share. The buyback was undertaken by the Company to return surplus funds to the equity shareholders and thereby, enhancing the overall returns to shareholders. This buyback was completed in October 2016, resulting in return of Rs. 6.75 Billion to shareholders, including the promoters of the Company.
Sun Pharma has embarked on various initiatives, globally, to drive sustainable growth and profitability, and to enhance long-term shareholder value.
Investing in specialty
Sun Pharma has invested significant resources in enhancing its global specialty pipeline. These investments currently do not generate commensurate revenue and cash flows, as a substantial portion of the specialty pipeline is yet to be commercialised. The Company is focusing on enhancing the share of specialty/branded business and targeting differentiated product offerings. Dedicated teams for the branded ophthalmic, dermatology, oncology and CNS are being strengthened. A dedicated team for tildrakizumab has also been formed. The Company simultaneously continues to explore opportunities to expand its global specialty pipeline.
Ensuring 24x7 cGMP compliance is a top priority for Sun Pharma and gets substantial attention from the top management. Over the past two years, significant investments have been made in enhancing systems, processes and talent to meet the stringent requirements of global regulators, including the USFDA. As a part of this process and to address the issues raised in the December 2015 warning letter for the Halol facility, Sun Pharma has undertaken various remedial measures. These remedial measures have resulted in supply constraints for some of its products. New approvals for the US from this facility have also been delayed. The Company expects this situation to continue for some more time till the outstanding deviations are resolved.
Post the significant remedial efforts undertaken over the past few years, the USFDA re-inspected Sun Pharmas Mohali facility in FY17; indicating lifting of the import alert which was imposed on the facility some years back.
During FY17, many of the Company facilities underwent audits by various global regulatory authorities, including the USFDA. These inspections have been successful, while there are outstanding deviations at some facilities, which the Company is in the process of resolving.
Sun Pharma is on track to achieve the US$ 300 Million synergy benefits in FY18 from the Ranbaxy integration. These will be driven by a combination of revenue synergies, procurement synergies, manufacturing rationalisation, productivity improvements and other cost-management measures. These synergy benefits will help the Company fund its evolving specialty business. As a part of the integration process, the Company has been taking steps to rationalise product portfolios and its global manufacturing presence.
Significant resources are being allocated to R&D to strengthen the specialty and generic pipeline, including complex generics. Efforts are being made to develop, file and commercialise niche, low-competition products to help counter the significant price erosion in the US generics market. This will mandate increased R&D investments, including that for the development of the specialty pipeline.
FY18 is likely to be a challenging year for Sun Pharma. The US generics industry is facing rapidly changing market dynamics. Increased competitive intensity and customer consolidation is leading to pressure on pricing. Continued delay in approvals from the Halol facility is also impacting Sun Pharma. Also, the Company had the benefit of Imatinib exclusivity in US in FY17 which has ended in July
2016. In the Indian market also, there is uncertainty amongst the trade channels due to GST implementation, although it may be temporary. Given these factors, growth could be a challenge in FY18 and the Company expects a single-digit decline in consolidated revenues for FY18 over FY17.
Despite these challenges, Sun Pharma continues to invest in enhancing its global specialty and complex generics pipeline. Investments will also continue for setting up the requisite front-end capabilities for the specialty business in the US. These investments may not have commensurate revenues in FY18. The consolidated R&D investments for FY18 will be about 9-10% of revenues. The Company expects a gradually increasing tax rate over the next few years while capex for FY18 is estimated at US$ 350 Million.
Sun Pharma is the 4th largest specialty generic pharmaceutical company in the US market with presence across generics, branded and OTC segments.
Key focus areas include CNS, dermatology, cardiology, oncology and ophthalmics, among others.
One of the very few companies to have farm-to-market capabilities for controlled substances.
Sun Pharmas integrated manufacturing facilities have capability to manufacture products, both onshore and offshore across a variety of dosage forms including liquids, creams, gels, sprays, injectables, tablets, capsules and drug-device combinations.
The Company has a comprehensive basket of 584 ANDAs, 41
NDAs and 1 BLA filed and 427 ANDAs and 36 NDAs approved across multiple therapies.
As of March 31, 2017, Sun Pharma had 157 ANDAs, 5 NDAs and 1 BLA pending USFDA approval. This pipeline includes a combination of complex generics, First-to-File opportunities and normal generics, as well as specialty products.
US business milestones
|FY17||Acceptance of tildrakizumab filing by the USFDA for the US market (in May 2017)|
|Acquired Ocular Technologies - gives access to Seciera, a product for treating dry eyes|
|Launched BromSite in US|
|Acquired Odomzo - branded oncology product from Novartis|
|FY16||Acquired InSite vision to strengthen the ophthalmic portfolio|
|FY15||Expanded presence in the US with the addition of Ranbaxys US business|
|FY14||Acquired Pharmalucence to get access to sterile injectables capability|
|FY13||Acquired DUSA and entered the branded specialty market|
|Acquired URLs generic business|
|FY10||Acquired Taro Pharma and forayed into the dermatology market|
|FY08 onwards||Launched many complex generics and few FTFs|
|FY98-FY10||Enhanced and strengthened the US business|
|FY98||Entered into the US market by acquiring Caraco|
Performance highlights, FY17
Overall US revenues grew by 2% to Rs. 137,588 Million in FY17. The generics market in the US continues to face a challenging pricing environment driven by customer consolidation and increased competitive intensity. Besides these challenges, the cGMP issues at Halol facility has resulted in delaying new product approvals, which has impacted overall revenues from the US.
Key contributors to revenues include Imatinib Mesylate Tablets (therapeutic equivalent to Gleevec for indications approved by the USFDA). This product enjoyed thebenefit day marketingof 180-exclusivity in the US, which commenced in February 2016 and expired in
Launch of authorised generic versions of Olmesartan and its combinations in October 2016 was another key revenue contributor. The launch was pursuant to a distribution and supply agreement between Sun Pharma and Daiichi Sankyo Inc., which granted Sun Pharma, exclusive rights to distribute these tablets in the US for a pre-determined period.
The US revenues for Taro (a 73% subsidiary) declined by 8% for
FY17 driven primarily by a difficult generic pricing environment, particularly in the US, resulting from more intense competition among manufacturers, new entrants to the market, buying consortium pressures, and a higher ANDA approval rate from the USFDA.
Sun Pharmas key specialty products in the US, viz. Absorica and Kerastick also contributed to the top-line growth.
Outlook and future focus
Enhance share of specialty business.
Continue to focus on complex generics and high entry barrier segments.
Ensure broad product offering to customers across multiple dosage forms.
Gain critical mass in key therapeutic segments.
Improve service levels for customers through 24x7 cGMP compliance, product robustness and supply chain consistency.
Sun Pharma is Indias largest pharmaceutical company with 8.6% market share. It is one of leaders in the chronic segment and enjoys strong positioning in acute segment. It specialises in technically complex products, offering a comprehensive therapy basket.
The Company owns 30 brands of the top 300 pharmaceutical brands in India.
It has a well-diversified portfolio with low brand concentration.
The top 10 brands contribute over 18% of India revenues.
Sun Pharma has one of the widest reach to the medical fraternity in India with a 9,200+ strong sales force reaching around 600,000 doctors.
The sales force has one of the highest productivity among key players in India.
Performance highlights, FY17
Revenue from Indian business increased by 8% to Rs. 77,491 Million in FY17.
This growth was achieved, despite the temporary disruption caused by demonetisation and a negative price impact of wholesale price index on products under price control.
Leadership in prescription rankings10
|Specialist||February 2016||Specialist||February 2017|
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|Chest Physicians||1||Chest Physicians||2|
Outlook and future focus
The Indian pharmaceutical market offers good long-term potential driven by increasing per capita income, rising healthcare awareness, higher incidence of chronic ailments and gradually increasing insurance coverage.
Government-mandated price controls and other regulatory changes coupled with fierce competitive intensity will continue to be key challenges for the industry.
Sun Pharmas future focus is on improving the productivity of India business and to maintain leadership position in a severely competitive market.
The Company is consistently innovating to ensure high brand equity with doctors.
Efforts are ongoing to enhance product basket through own development and in-licensing.
Sun Pharma is among the leading Indian companies in emerging markets with an extensive portfolio of branded products and presence across about 100 countries.
The key focus markets include Brazil, Mexico, Russia, Romania, South Africa and complementary and affiliated markets.
The Company has local manufacturing assets in eight countries; thus,facilitating a more meaningful participation in respective markets.
A 2300+, sales force leverages the opportunities offered by these markets.
Performance highlights, FY17
Revenue from emerging markets grew by 26% to Rs. 45,299 Million in FY17.
The growth is broad-based among emerging markets.
In November 2016, Sun Pharma acquired JSC Biosintez to enhanceits presence in Russian market. The acquisition gives access to a local manufacturing facility as well as expands the product offering for the Russian and CIS markets. Outlook and future focus
Given the favourable macroeconomic parameters, emerging markets offer good long-term potential.
Evaluate opportunities to enhance presence in key markets.
Sun Pharmas key focus will be to gain critical mass in key emerging markets by leveraging its product portfolio and front-end presence in these markets.
Efforts are on to develop, file and commercialise more products across therapeutic baskets to meaningfully participate in this growth opportunity.
Simultaneously, the Company is focused on improving business profitability in emergingmarkets by launching complex products and reducing presence in low profitable non-core product segments.
Sun Pharmas presence in the Rest of the World (RoW) spans across Western Europe, Japan, Canada, Israel, Australia and New Zealand.
The product basket consists of injectables, hospital products, as well as products for the retail market.
The Company made an entry in Japan (in March 2016) through acquisition of 14 prescription brands from Novartis.
Performance highlights, FY17
Revenues for RoW markets increased by 19% to Rs. 25,832 Million in FY17.
During the year, the Company entered into a distribution alliance with Mitsubishi Tanabe Pharma Corporation (MTPC) for distribution of 14 brands acquired from Novartis in March 2016. Through this alliance, Sun Pharma can leverage MTPCs specialised expertise to create a strong business foundation in Japan.
Outlook and future focus
Ramp up presence in Japan post transfer of Novartis brands to Sun Pharma.
Improve profitability in developed European markets.
API capability is of strategic importance as it provides cost competitiveness, speed to market and supply reliability through backward integration. A significant portion of API production acts as inputs for the Companys formulations business.
The Company manufactures over 300 APIs across 14 locations adding over 20 APIs to the portfolio, annually.
Besides captive consumption, Sun Pharma also supplies APIs to customers, comprising large generic and innovator companies.
The API manufacturing facilities are in India, Australia, Israel, Hungary and the US. Performance highlights, FY17
Revenue from APIs and other sources increased by 14% to Rs.15,979 Million in FY17.
The API revenues include the full benefit of consolidation of the opiates business (Australia) acquired from GSK last year in September 2015.
Outlook and future focus
Expand API portfolio to enhance the scale and scope of API operations.
Ensure long-term supply relationships with global customers.
Sun Pharma is among the top 10 consumer healthcare companies in India, Romania, Nigeria and Myanmar.
Key focus markets comprise India, Russia, Romania, Nigeria, South Africa and Myanmar, while growth markets include Ukraine, Poland, Kazakhstan, Thailand and UAE.
Sun Pharma has a dedicated sales force in each of these markets.
The Company has presence across OTC sub-categories like Vitamins and Minerals, Cold and Flu, Analgesics, Digestive and Dermatology.
Key highlights, FY17
In October 2016, Sun Pharma launched Revital H Womans Healthy Conversations initiative in India. This unique initiative aims to initiate a conversation about womens health. It was launched with the objective to encourage women to understand their health requirements and impact of their health on their families and overall society. Revital-H Womans, Healthy Conversations, will reach out to women across 20 cities in India. It has created a special digital platform www.revitalwoman.com to reach over two million women in three months. Through the, Healthy Conversations, initiative, the Company encourages women to interact with expert nutritionists to understand and address their nutritional needs. The product, Revital H Woman is a combination of 12 Vitamins, 10 Minerals and Ginseng, which help in keeping women physically active and mentally relaxed throughout the day. Among other benefits, vitamins and minerals in Revital H Woman help in maintaining healthy bones, reducing fatigue, and maintaining healthy hair, skin and nails.
Outlook and future focus5, 6
The Indian Consumer Healthcare market has grown at about 11.8%
CAGR for the past five years.
Globally, emerging markets like Russia, Brazil and China have grown in higher single digits.
Sun Pharma intends to continue investing in the accelerating OTC business across key markets through brand building and brand extensions.
It intends to have a broader presence across OTC sub-categories in various markets.
The Company is focusing on maintaining leadership in existing markets by offering innovative solutions to consumers.
R&D INNOVATION ORIENTED APPROACH
Sun Pharma has a strong presence in both regulated and emerging markets. This can be attributed to the Companys strong pipeline of generic and branded-generic products. Its research and development (R&D) capabilities have enabled Sun Pharma to produce key technology-intensive products, enhancing its presence in international markets. The Company has a portfolio of about 2,000 products across the world.
The Company employs about 2,000 research scientists working in multiple R&D centres equipped with cutting-edge technologies for research. With their expert knowledge in developing generic drugs and Active Pharmaceutical Ingredients (APIs), they form the backbone of the Companys R&D facility. Further, the team has the required skills and relevant experience in creating Novel Drug Delivery Systems (NDDS). Besides, Sun Pharma has been investing significant resources in developing completely new chemical and biological drugs for global markets. Currently, the Company has six such drugs in its pipeline, which are either being developed or are awaiting regulatory approvals.
Sun Pharmas generic R&D capabilities have enabled it to commercialise a diverse range of products, including liposomal products, auto-injectors, lyophilized injections, nasal sprays, and controlled release dosage forms. Apart from these, the Company manufactures orals, liquids, ointments, gels, sprays, and injectables, among others.
In addition, Sun Pharma has experience in formulation of taste masking, spray-drying, drug-layering, nano-milling, lyophilization and other pharmaceutical unit operations.
R&D investments are necessary for a company like Sun Pharma to maintain sustainable growth and enhance its market presence. Sun Pharma spent approximately 8% of sales, in FY17, on R&D. It believes that continuous investments in R&D will influence its overall performance positively. Going forward, it will help Sun Pharma differentiate itself by focusing on specialty products and technically complex products. In pursuit of differentiation, the Company is focusing on developing non-fringing formulations and development of specialty products. Additionally, Sun Pharma has a strong Intellectual Property Rights support team, which enables it to patent its innovations globally and in developing non-infringing products.
GLOBAL MANUFACTURING CAPABILITIES
Sun Pharma owns 42 active manufacturing assets spread across six continents. India, the US, Brazil, Russia, Canada, Hungary, Israel, Bangladesh, Mexico, Romania, Ireland, Morocco, Nigeria, South Africa, Malaysia and Australia host these production units. These facilities ensure that the Company provides best-in-class products to patients across 150 countries. The operations are vertically integrated, which enables maintenance of high quality, low cost and a quick market entry across geographies.
Sun Pharmas manufacturing operations are focused on producing generics, branded generics, speciality, over-the-counter (OTC) products, anti-retrovirals (ARVs) and Active Pharmaceutical Ingredients (APIs). The Company also produces intermediates in the full range of dosage forms, including tablets, capsules, injectables, ointments, creams and liquids. Besides, it manufactures APIs, for controlled substances, steroids, peptides and anti-cancers products.
Sun Pharma believes in meticulous following global manufacturing standards. Its manufacturing facilities have been certified by regulatory authorities of USA (FDA), Europe (EMA), the UK (MHRA), Australia (TGA), South Africa (MCC) and Germany (BfArM).
Additionally, the Company has been certified
WHO (Geneva), KFDA (Korea) and PMDA (Japan). It stresses on 24x7 compliance to cGMP, which is imperative for a global business.
Being a global pharmaceutical company, Sun Pharma attracts diverse talents from over 50 nationalities. The Company, with its vibrant work culture, nurtures this assorted talent pool beyond any race, gender or nationality. While concentrating on building the bench-strength for future leadership, Sun Pharma offers individuals good growth opportunities.
With its 30,000+ strong workforce, Sun Pharma engages in several skill development activities. The Company has various management programmes for employees to enhance their skills. Additionally, its knowledge-sharing platforms allow employees to grow professionally and get future ready.
The management at Sun Pharma believes engaging employees helps in reduced employee attritions. The Company promotes equal opportunities for individuals, and values healthy work-life balance.
ADHERENCE TO QUALITY
Sun Pharmas commitment to implementing a robust global quality management system is based on its determination to sustain a culture of operational excellence, meeting and exceeding the expectations of all stakeholders, including regulators, patients and customers. Putting patients first is Sun Pharmas motto.
The Companys global Quality Management Team ensures that every product it manufactures and distributes, complies with all internationally accepted good practices and standards of quality, purity, efficacy and safety.
To maintain quality standards, every facility has well-defined procedures and systems in place. In compliance with the requirements of the Current Good Manufacturing Practices (cGMP), WHO, PICs and EU GMP, the Company ensures that the operating procedures meet the very exacting standards of regulators like the USFDA, EMA, HC, WHO and TGA, among others.
Each site has well-trained personnel for quality control, along with a regulatory affairs department ensuring strict adherence to quality systems and procedures. The teams are guided by a Corporate Quality Unit (CQU). CQU ensures that the latest updates in GMP are being translated into guidelines, standard operating procedures (SOPs) and protocols. The teams ensure that these guidelines are implemented to deliver quality products every time. In addition, the manufacturing plants are audited by an autonomous Corporate Compliance Department with a view to ensuring 24 x 7 compliance and conformance.
During FY17, many of the Companys facilities underwent audits by various global regulatory authorities, including the USFDA. These inspections have been successful, while there were outstanding deviations at some facilities, which the Company is in the process of resolving.
Sun Pharma believes that internal control is a prerequisite of the principle of Governance and that freedom 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 ensure 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.
An independent and empowered Global Internal Audit Function at the corporate level carries out risk-focused audits across all businesses (both in India and overseas), which actively identifies areas, where business process controls are ineffective or may need enhancement. These reviews include financial, operational, compliance controls and risk mitigation plans. The Audit Committee of the Board periodically reviews key findings and provides strategic guidance. The Companys operating management closely monitors the internal control environment and ensures that the recommendations are effectively implemented.
Statements in this Management Discussion and Analysis describing the Companys objectives, projections, estimates, expectations, plans or predictions 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 businesses 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, all references in this document to we, us or our refers to Sun Pharmaceutical Industries Limited and consolidated subsidiaries.
1. IMS Market Prognosis, October 2016
2. Evaluate Pharma (World Preview, September-2016) & Deloitte (Global Life Science Outlook 2015)
3. Deloitte (Global Life Sciences Outlook 2016)
4. Markets and Markets
5. Euromonitor 2016
6. Nicholas Hall 2015
7. Nicholas Hall 2016
8. IMS, IBEF
9. AIOCD-AWACS MAT March-2017 10. SMSRC Prescription Audit