Suven Life Sciences Ltd Management Discussions

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

ECONOMIC OVERVIEW

Advancing patiently

The global economic landscape in FY24 continued to navigate through uncertainties, albeit with signs of resilience amidst lingering challenges. The Russia-Ukraine conflict and geopolitical tensions in Gaza and the Middle East put immense pressure on the global economy.

Despite these setbacks, the global economy gathered momentum as the year progressed. The International Monetary Fund (IMF) estimated GDP growth at 3.2% in 2023 and projects similar growth in the coming years. Headline inflation, which stood at 6.8%, is projected to reduce to 5.9% in the coming years.

Global trade was hit massively due to the imposition of sanctions amidst armed geopolitical conflicts. Global trade weakened by 0.6% in 2023 but is expected to grow by 2.4% in 2024. Recessionary winds hit major economies, including the U.S., Europe and Japan, in the face of economic headwinds, the growth rates for Europe and Japan in 2024 are expected to be 1.2%. In contrast, some of the developing countries witnessed a remarkable recovery.

The world economy is projected to grow persistently despite several challenges. The future seems brighter for India and other developing economies as countries seek to reduce dependence on China.

Amidst global uncertainties,

Indias economy stood as a beacon of stability and growth in FY24. According to the RBI, Indias GDP growth rate stood at 8.2%, which makes India the 5th largest economy. Strong domestic demand for consumption and investment and the Governments continued emphasis on capital expenditure are among the key drivers of GDP growth. Indias trade deficit also improved by 35.77% as the country reduced imports worth US$43.21 billion in FY24 compared to FY23.

While Indias economic trajectory remained largely positive, certain challenges loomed on the horizon. Inflation and interest rates were at an all-time high. Foreign investments also fell due to tight monetary policies. Indias net Foreign Direct Investment (FDI) declined by 38.4%.

Despite this, India is poised to become the third-largest economy by 2027.

As companies and governments try to reduce their dependence on China, India is a viable alternative.

Indias economic outlook remains promising, with GDP growth projected at 7.2%. Strong private consumption, increased government spending and decreasing inflation will be the growth drivers.

Evolving dynamics and innovation

The pharmaceutical sector has experienced a huge shift during the post-Covid era. People have stopped stockpiling medicines, and demand for vaccination has decreased. This has shifted the focus from COVID-19 to other diseases affecting people at large.Technological advancements like the use of Al, regulatory shifts and changing market dynamics have significantly changed this sector globally.

Despite these advancements, the high cost of prescription drugs remains a significant concern. Governments, insurers, and customers increasingly demand addressing pricing transparency and price control on essential drugs.

The U.S. ranks as the highest healthcare spender globally and is also at the forefront of pharmaceutical innovation, followed by Switzerland and some other European countries. However, due to the high cost of research and execution, these nations often outsource tasks like pharmaceutical innovation to other countries with a strong pharma sector base and highly skilled manpower capable enough to handle such complex tasks with a high degree of diligence and expertise. This makes India a natural choice.

In the neurological space, various diseases, especially headaches and migraines, are among the top two that affect the world. Treatments for headaches have advanced over the years; several clinical trials have been conducted. A huge milestone was the introduction of Calciton in Gene- Related Peptide (CGRP)-targeting inhibitors.

Looking ahead, small molecule drugs are expected to continue dominating the pharmaceutical market in 2024, accounting for over 54.9% of global sales due to their ease of manufacturing, formulation and administration, and lower cost than biologies.

INNOVATION EFFORTS

Tough trials is always backed by extensive research. It is even more crucial in the pharmaceutical world as the end product heavily relies on research.The industry is R&D-intensive and is influenced by various complex factors. For instance, its a long journey for any molecule or formula to prepare

The year 2023 witnessed significant drug trials. The two major areas were Oncology followed by Central Nervous System. The proportion of terminated to completed trials increased by 2.7% from 2022 to 2023 as there was a lack of funding due to rising inflation and geo-political factors - all this heavily impacted the industry. Despite a tough year with trial initiations hitting a five-year low, several innovative drugs have still managed to make it to the market for retail, as many stages are involved, such as pre-clinical studies, clinical trials and market approval.

It is an expensive and exhausting journey. R&D costs are rising every year due to factors like rigorous regulatory prerequisites, intricate trial designs, and cutting-edge technologies needed to conduct the trials.

The most recent technology adopted in innovation is Artificial Intelligence. It is used for data management, analysis, and predictive modelling.

Drug discovery

Drug discovery is the process of identifying potential new medicines involving a wide range of scientific disciplines, such as biology, chemistry and pharmacology. This process is extensive and can take up to 13 years to complete - this is considered optimistic. In fact, the process may range from 13 to 30 years, depending on the complexity of the formulation. The process typically begins with the screening of compounds for potential activity against a targeted disease. Once active compounds are identified, they undergo rigorous testing for safety and effectiveness.

Statistics show that only 1 out of every 5,000 drugs reaches the market approval stage. Out of 5,000 to 10,000 drug candidates, only about 100-200 proceed to pre-clinical testing.The journey of developing a new drug is estimated to cost approximately US$2.6 billion, according to a study by the Tufts Center.

Beyond the substantial financial investment required, the drug discovery process has become increasingly complex due to more stringent regulatory standards and requirements. Additionally, post-marketing monitoring and development costs can be around US$312 million, bringing the entire Research and Development life cycle to nearly US$3 billion per drug.

New drug approvals in 2023 In 2023, the U.S. FDAs Center for Drug Evaluation and Research (CDER) approved 55 new drugs, known as novel drugs- these drugs had never been approved or marketed in the U.S. before. They also made important approval decisions, such as expanding the use or patient population of previously approved drugs.

In 2023, 28 of 55, or 51% of the novel drug approvals, received orphan drug designation because they target rare diseases like Friedreichs ataxia, Rett syndrome and Candidemia.

In 2023, several novel and other important drugs were approved that focus on preventing, diagnosing and treating certain diseases and conditions, as mentioned below: Infectious diseases, including COVID-19, respiratory syncytial virus, ventilator-associated bacterial pneumonia and HIV-1 Neurological conditions, such as Amyotrophic Lateral Sclerosis (ALS), Alzheimers disease and migraine

Opioid use, misuse and abuse Heart, blood, kidney and endocrine diseases, including type 2 diabetes in paediatrics, anaemia, paediatric hormone deficiency and chronic weight management Lung diseases, such as asthma and cystic fibrosis Gastrointestinal conditions, including inflammatory bowel disease and paediatric functional constipation.

Different types of cancers, such as colorectal, prostate, lung and low- grade gliomas (tumours that start in the brain)

Womens health, such as postpartum depression, hot flashes due to menopause and non prescription oral contraception

THE CNS SPACE

Addressing the cc re

Nervous System (CNS) diseases, also known as CNS disorders, encompass a range of neurological conditions that impact the brain or spinal cord, which together constitute the central nervous system. Globally, CNS diseases have plagued countries. Advances in diagnostics and treatments for them are anticipated to increase global treatment rates.

The growth in CNS therapies will be driven by a growing geriatric population and a significant rise in CNS disorders such as neuromuscular diseases, degenerative diseases, Alzheimers disease, Parkinsons disease, multiple sclerosis, infectious diseases, mental health issues, anxiety disorders, bipolar disorder and depression.

This rise is particularly due to the prevalent high-stress lifestyle.

Over the past five years, conditions affecting larger populations, like depression and anxiety, have seen numerous new treatments approved and introduced. Technological advancements in genomics, biomarkers, diagnostics and regenerative medicine, along with the advent of disruptive digital technologies, are transforming the landscape of CNS innovation.

The Central Nervous System Therapeutics Market size was anticipated to be worth US$ 110.4 billion in 2022 and is expected to reach US$ 238.8 billion by 2032, increasing at an 8% CAGR.

The rising prevalence of CNS disorders, such as Alzheimers disease, Parkinsons disease, epilepsy, multiple sclerosis and depression, drives the demand for effective CNS therapeutics. Furthermore, the pandemic has resulted in increased stress levels, anxiety, depression and other mental conditions. This has led to an increased demand for CNS therapies.

Increasing prevalence of

CNS disorders

• people suffer from some mental disorder

• people are affected by neurological conditions of the population globally suffers from depression

• new cases of dementia are reported every year

The numbers are rising worldwide. Be it mental health issues such as anxiety and depression or disorders like Parkinsons and dementia. According to WHO, deaths due to Parkinsons are rapidly increasing every year. People who have Parkinsons tend to develop dementia. It is currently the seventh leading cause of death and one of the major causes of disability and dependency among older people globally. Currently, over 55 million people suffer from it worldwide.

On the other hand, in 2019,301 million people were living with an anxiety disorder, including 58 million children and adolescents and 280 million people were living with depression, including 23 million children and adolescents.

Among neuro-degenerative diseases, Alzheimers disease is becoming the most common cause of death and a common cause of physical disability. The disease is more common in women as compared to men. North America held the largest share of the CNS therapeutics market. An estimated 6.7 million Americans aged 65 and older are living with Alzheimers dementia today. This number could grow to 13.8 million by 2060.

The presence of an advanced healthcare infrastructure, combined with favourable reimbursement policies and increased awareness of novel treatment options, is expected to drive market growth. Additionally, the rising incidence of mental and neuro-degenerative diseases, such as multiple sclerosis, Alzheimers disease, Parkinsons disease and epilepsy, is boosting the demand for CNS therapeutics in the region.

STRENGTH

• Seasoned leadership and management team

• Willingness to take calculated risks

• Distinctive research expertise

• Focused and driven team

• Financial resources to support drug discovery

• Strong pipeline of innovative molecules

OPPORTUNITY

• Significant opportunity in the rapidly growing CNS segment

• Limited competition due to high associated risks

WEAKNESS

• Limited cash reserves

• Inflationary pressures may increase development costs

• External factors beyond the Companys control could delay research and clinical trials

THREAT

Molecules unable to reach the end-point

Financial

performance

Suven Life Sciences is unique in its operating model where R&D costs are far in excess of the revenue generated.

Suven continue to its Research and Development on Central Nervous system disorders with 5 molecules in Clinical development stage. Hence, the Company reports a Net Loss. The trend reversal (loss to profit) will happen when the Company monetizes its molecules either before or after it reaches it the end point.

Performance in FY24

R&D expenses stood at Rs.114.43 crore in FY24 against Rs.115.35 crore in FY23. Revenue for the FY24 was Rs.32.82 crore against Rs.21.99 crore in FY23.

The Company reported a Consolidated Net Loss of Rs.105.14 crore in FY24 against Rs.118.08 crore in FY23. On its Balance Sheet, the Company has a cash and liquid balance of Rs.239.87 crore as on March 31, 2024. This should be able to fund the Companys research activities for the next 2 years.

Key

financial ratios

Significant changes (i.e. change of 25% or more as compared to the immediately previous financial years) in Key Financial Ratios, along with explanation are as under:

Particulars	FY24	FY23	Change (%)	Reason for change
Debtors Turnover Ratio	40.14	21.77	84%	Increase in credit period by customer
Interest Coverage Ratio	(8.51)	(45.99)	82%	The Interest is negligible
Current Ratio	51.70	53.18	3%	Negligible change
Debt-equity Ratio	0.00	0.00	-	No debt
Operating profit Margin (%)	(69.00)	(147.26)	53%	Change is due to Increase in Other Income
Return on Networth (%)	(0.95)	(2.34)	59%	Change is due to Increase in Other Income

Internal control and its adequacy

At Suven Life Sciences, the internal control procedures include internal financial controls, ensuring compliance with various policies, practices, and statutes that consider the organisations growth and complexity of operations.

The framework constantly monitors and assesses all risks associated with current activities and corporate profiles, including scientific and developmental risks, partner interest risks, and commercial and financial risks. In addition, the Company has management reporting and internal control systems that enable it to monitor performance, strategy, operations, business environment, organisation, procedures, funding, risk and internal control.

The internal auditors carry out extensive audits throughout the year across all locations and functional areas and submit their reports to the Audit Committee.

Human resources

Suven comprises a team of passionate experts, unified by their ambition to significantly impact the world through their chemistry expertise and research capabilities.

The uniqueness of this Company is the absence of a traditional HR division. The team is naturally motivated and collectively committed to exploring the unknown.

Suven continuously inspires its team members to pursue their passions by providing state-of-the-art R&D facilities equipped with contemporary tools. Additionally, the Company encourages its team members to expand their knowledge and skills, fostering an environment of continuous improvement in their research endeavours.

Suven is committed to maintaining a safe working environment by strictly following all safety protocols. The Company also facilitates engagement forums where team members can share ideas and knowledge, enhancing their performance and fostering a collaborative atmosphere. As of 31 st March 2024, the Company comprised 14 employees.

Risk management

Risk is an integral and unavoidable component of all businesses. Suven Life Sciences is committed to managing its risks proactively. While risks cannot be eliminated, an effective risk management plan ensures that risks are reduced, avoided, retained or shared.

The Companys Risk Management Committee supervises potential risks and reviews the effectiveness of the risk management plan or process. These controls were evaluated during the year under review, and no material weaknesses were observed in their design or operations.