Suven Life Sciences Ltd Management Discussions.

Global economy

Growth this broad based and strong has not been seen since the worlds initial sharp 2010 bounce back from the 3 financial crisis of 2008-09.

It was driven by an investment recovery in advanced economies, continued strong growth in emerging Asia, a notable upswing in emerging Europe, and signs of recovery in several commodity exporters. The upswing in global investment and trade continued in the 2017.

Two-thirds of countries accounting for about three-fourths of global output experienced faster growth in 2017 than in the previous year.

Economic activity in 2017 ended on a high note. Growth in the second half of the year was above 4%, the strongest since the second half of 2010, supported by a recovery in investment.

About tomorrow: With broad-based momentum and expectations of a sizable 3 scal expansion in the United States over this year and the next, global growth is now projected at 3.9% for 2018–19.

The synchronised expansion will help dispel some remaining legacies of the crisis by speeding the exit from unconventional monetary policies in advanced economies, encouraging investment, and healing labour market scars.

Over the long term: Future growth prospects look challenging indeed for advanced economies and many commodity exporters. In advanced economies, aging populations and lower projected advances in total factor productivity will make it hard to return to the pre-crisis pace for the average households income growth. Substantially raising middle and lower incomes appears even tougher. Moreover, growth rates will inevitably bend toward their weaker longer-term levels.

Indian economy

Fiscal 2017-18 was a de3 ning year for the Indian economy.

India took the bold step of completely resetting its indirect tax system to a comprehensive GST regime while continuing to experience the overhang of the demonetisation initiative.

These structural reforms took a toll on Indias economic resurgence as the GDP growth dipped to 6.7% in 2017-18 against 7.1% in 2016-17.

Although economic progress remained muted in the first half of the 3 scal, India bounced back aggressively to report a 7%-plus growth in the second half of the year - 7.7% in the three months ended 31 March 2018, the fastest pace in seven quarters, signaling a strong turnaround.

The turnaround in the economy was led by robust agriculture (4.5%) and manufacturing growth (9.1%) as well as double-digit growth in construction activities (11.5%) in the March quarter. The economy also received a boost from higher government spending (13.3%) in the March quarter.

This underscores the reality that the Indian economy has moved past the disruptions triggered by policy driven structural changes. The latest quarterly corporate earnings data suggest that consumer demand too is reviving.

About tomorrow: In keeping with the cyclical upswing witnessed in 2017-18, Deutsche Bank estimates the country to clock a GDP growth of 7.5% in 2018-19 - tad higher than the RBI estimate of 7.4%.

On the negative side though, higher global oil prices, risk of an earlier than anticipated rate hike cycle from the RBI and the potential negative impact of the banking sector frauds on credit and overall growth are some of the factors that pose downside risk to its baseline GDP estimate.

Global pharmaceutical space

Spending on medicines remains a topic of intense interest among policy makers, patients, payers and drug manufacturers. The level and growth of spending, the price of new, and old, drugs, and the allocation of costs among patients, employers, health plans, intermediaries and state and federal government agencies all command great attention. Hence, the global pharmaceutical industry has always remained in the spotlight – it has a direct correlation with nations economic strength and healthcare spending levels.

In 2017, spending grew 0.6% net of off -invoice discounts and rebates. Overall, spending reached a total of US$453 bn on an invoice basis but US$ 324 bn on net basis. This is the slowest rate of growth since 2012 when the largest period of concentrated patent expiries took place.

Spending growth slowed in 2017 due to lower price increases for protected branded products, price declines for generics and less growth from new products despite a large increase in the number of new product launches.

However, the usage of medicines by patients has continued to rise. In 2017, there was a significant increase within chronic, 90-day prescriptions which can be linked to e3 orts to improve adherence

Forty-two NASs (New Active Substances) were launched in 2017, more than double the number launched in 2016, and higher than all but two of the last ten years. Half of NAS launched in 2017 were orphan drugs, and this trend is expected to continue with another 80–90 orphan drugs approved through 2022, compared to the 81 orphan drugs launched in the past five years.

Outlook to 2022: Net total spending growth will average 2–5% over the next five years.

Growth will continue to be driven by innovation, and be off set by slower price growth and the increasing impact of patent expiries.

The impact of patent expiries has been relatively unchanged for the past three years but is expected to increase sharply. Impact of losses of exclusivity are expected to be 40% greater in next five years including biosimilars.

Global research and outsourcing

The research-based pharmaceutical industry plays a unique role in developing new medicines and vaccines to prevent and treat diseases, and improve the lives of patients worldwide. Its key contribution to global health is turning fundamental research into innovative treatments. The industrys success rests on continuous innovation – for the prevention and treatment of common, complex, and neglected diseases, and for improvements in existing treatments. Despite often challenging business and regulatory conditions, the industry undertakes investments that are considerably risky than those in most high-technology sectors. By investing billions of dollars and thousands of scientist-hours, it pushes the limits of science, fosters medical progress, and contributes to the prosperity of society.

But escalating cost have made it prohibitive for innovator companies to undertake the full research and development lifecycle on their own. Besides, increasing regulatory complexities have also made research outsourcing a viable option for global innovator companies.

Hence, healthcare companies often outsource drug development functions to contract research organisations to efficiently and effectively use the development capabilities internationally.

Contract research outsourcing The global healthcare contract research outsourcing is potentially driven by the growing complexity of the regulatory procedures and increasing intervention of the healthcare providers in the drug approval and reimbursement process.

The clinical, therapeutic and regulatory expertise of CROs helps to improve the complete cost of development and accelerate time to market for a new product.

CROs have become larger and enormously more diversifi ed across various therapeutic areas and functions, expanding their penetration. In addition, the varied regional 3 ling process expertise offered by CROs is further fueling the healthcare contract research outsourcing market.

These services and business solutions offered by the CROs help the healthcare companies to complete simultaneous regulatory submissions in different regions efficiently and effectively.

Estimates over the medium term The global healthcare contract research outsourcing market is rising with increasing complex regulatory process & growing regulatory burden. The global healthcare contract research outsourcing market was valued over US$ 30 Bn in 2016 and is projected to witness cumulative annual growth rate (CAGR) of over 6% from 2017 to 2025 to surpass the value of US$ 54 Bn by 2025.

Increasing drug development cost is expected to drive market demand over the forecast period. With the increasing number of patents expiring, increasing number of partnerships to identify biologics and new compounds and growing R&D costs, drug maker and sponsor companies are under pressure to replace the revenue loss specifi cally due to generics, which has further made drug development more expensive and complex.

Moreover, owing to the increasing incidence rates of chronic diseases such as cancer, Alzheimers and other infectious diseases in children, government funding has increased, which have led to increasing R&D activities.

In addition, growing pressure on industry players to follow stringent timelines has increased the demand for outsourcing of research activities. Even government organisations are outsourcing their clinical trial activities to CROs so that they can carry out the clinical trials with the required infrastructure, expertise, and minimise cost and timelines.

The healthcare contract research outsourcing market is projected to witness strong growth during the forecast period driven by an increase in funding of small to midsized pharmaceutical, biotechnology, and medical devices companies leading the companies to opt for CRO services with focus on niche market.

New molecule development

Today, the cost of developing a successful medicine can exceed, according to some studies, USD 2.6 billion compared to USD 179 million in 1970s. This increase reflects the various technical, regulatory and economic challenges facing R&D pipelines.

Global contract development and manufacturing

Over the years: Interestingly, the CDMO industry started out decades ago as a niche service, offering additional manufacturing capacity or specialty services to pharmaceutical companies. The rise of the CDMOs was fuelled by failure stories in the pharmaceutical industry

In the past, pharmaceutical companies often installed dedicated manufacturing capacities for innovative drugs in development, only to see them fail during phase III of clinical research trials. Thus, the additional manufacturing capacity for the specific drugs was no longer needed. To reduce the risk of expensive overcapacities, the demand for outsourced manufacturing has been rising continually. Recent times: Pharmaceutical companies are faced with a pressing need to consolidate their supplier base to minimise the complexity of dealing with multiple outsourcing partners. The market is changing rapidly, posing challenges for pharma companies, such as pricing pressure yet the macro-environment offers opportunities due to the ageing global population, an emerging middle class in several countries, and rapid R&D innovation.

These trends are driving many to rethink supply chains – including the question of whether to invest in owning infrastructure, or to explore efficiencies by working with a contract development and manufacturing organisation (CDMO) partner.

Additional drivers include large pharma companies needs to off set internal manufacturing capacity constraints and gain access to technology not available in-house. There is also increasing integration between some forward-looking pharma companies and CDMOs, with strategic and collaborative relationships based on a full range of solutions to supply chain issues.

Constituting a US$62b market in 2016, the CDMO industrys annual growth rate of 6% to 7% is slightly outpacing the growth of the pharmaceutical sector as a whole (5% to 6% compound annual growth rate (CAGR)), reflecting the ongoing shift toward increased outsourcing.

Over the horizon: The global CDMO market is currently experiencing a high single-digit growth rate, and Ernst & Young forecasts a 7.5% compound annual growth rate for this market in the period from 2015-2019, driven by three key factors: increased outsourcing of manufacturing by pharmaceutical companies to optimise costs, improve quality and focus resources on their core interests; an underlying increase in the use of pharmaceuticals; and worldwide growth of generics 3 rms, which often rely on third-party manufacturers.

Business segment 1 Contract Research and Manufacturing Services (CRAMS)

SUVEN LIFE SCIENCES IS IN THE BUSINESS OF CONTRACT RESEARCH AND MANUFACTURING SERVICES 3CRAMS3 FOR OVER TWO DECADES CATERING TO THE NEEDS OF GLOBAL LIFE SCIENCE INDUSTRY AND FINE CHEMICAL MAJORS.

Suvens CRAMS provides Innovative process research and development, supplies to clinical trials, rapid response pilot scale manufacture, dedicated commercial manufacturing on an exclusive basis.

The Company services include Custom Synthesis, Process R&D, Scale Up and Contract Manufacturing of intermediates, APIs and formulations.

Suven effectively uses its expanding infrastructure and ability to collaborate, from route scouting and development through commercial manufacture, to provide a consistent and reliable partner throughout a products life cycle.

The team remains determined to going beyond commitment and delivering R&D and Manufacturing solutions, with flexibility, quality, speed, and cost effectiveness.

Business evolution

Suven Lifesciences has graduated from contract research to Collaborative Research transitioning from project-based transactions into relationship-based business.

Competitive advantage

• Pioneered Drug Discovery and Development Support Services in India in 2005

• Leader in CNS based internal discovery in India

• State of the art facility, models

• Leader and innovator for many NCE based intermediates

These factors have ensured that Company has been pro3 table in every year since inception in 1989.

Business operations

Within the CRAMS vertical, the Company has sub-divided the operations into three segments 1) base CRAMS

2) CRAMS for commercial products and

3) Supply of specialty chemicals.

Base CRAMS: Suven partners with global innovator companies for developing and supplying intermediates for their NCE programme.

CRAMS for commercial products: This is a high-value, high margin vertical where in the Company supplies intermediates for NCEs that are launched globally. Supply of specialty chemicals: The Company supplies a complex specialty intermediary (derived from its CRAMS competence)

Contract Technical Services: As the name suggests, this comprises fees for technical services provided by the Company to global pharmaceutical companies. It also includes fee from its exclusive marketing license for its Malathion lotion (a formulated product) to Taro Pharmaceuticals for the US and Canada.