Vista Pharmaceuticals Ltd Management Discussions.

Introduction

India is the largest provider of generic drugs globally. Indian pharmaceutical sector supplies over 50% of global demand for various vaccines, 40% of generic demand in the US and 25% of all medicine in the UK. Globally, India ranks 3rd in terms of pharmaceutical production by volume and 14th by value. The domestic pharmaceutical industry includes a network of 3,000 drug companies and ~10,500 manufacturing units.

India enjoys an important position in the global pharmaceuticals sector. The country also has a large pool of scientists and engineers with a potential to steer the industry ahead to greater heights. Presently, over 80% of the antiretroviral drugs used globally to combat AIDS (Acquired Immune Deficiency Syndrome) are supplied by Indian pharmaceutical firms.

Market Size

According to the Indian Economic Survey 2021, the domestic market is expected to grow 3x in the next decade. Indias domestic pharmaceutical market is estimated at US$ 42 billion in 2021 and likely to reach US$ 65 billion by 2024 and further expand to reach ~US$ 120-130 billion by 2030.

Indias biotechnology industry comprising biopharmaceuticals, bio-services, bio-agriculture, bio-industry, and bioinformatics. The Indian biotechnology industry was valued at US$ 64 billion in 2019 and is expected to reach US$ 150 billion by 2025.

Indias medical devices market stood at US$ 10.36 billion in FY20. The market is expected to increase at a CAGR of 37% from 2020 to 2025 to reach US$ 50 billion.

Exports

Indias drugs and pharmaceuticals exports stood at US$ 24.44 billion in FY21. India is the 12th largest exporter of medical goods in the world. The countrys pharmaceutical sector contributes 6.6% to the total merchandise exports. As of May 2021, India supplied a total of 586.4 lakh COVID-19 vaccines, comprising grants (81.3 lakh), commercial exports (339.7 lakh) and exports under the COVAX platform (165.5 lakh), to 71 countries. Indian drugs are exported to more than 200 countries in the world, with US being the key market. Generic drugs account for 20% of the global export in terms of volume, making the country the largest provider of generic medicines globally.

Investments and Recent Developments

The Union Cabinet has given its nod for the amendment of existing Foreign Direct Investment (FDI) policy in the pharmaceutical sector in order to allow FDI up to 100% under the automatic route for manufacturing of medical devices subject to certain conditions.

The drugs and pharmaceuticals sector attracted cumulative FDI inflow worth US$ 17.75 billion between April 2000 and December 2020 according to the data released by Department for Promotion of Industry and Internal Trade (DPIIT).

Some of the recent developments/investments in the Indian pharmaceutical sector are as follows:

• In June 2021, Sun Pharmaceuticals acquired the patent license for Dapagliflozin from AstraZeneca. The company will be distributing and promoting the drug under the brand name ‘Oxra.

• In June 2021, Lupin Ltd. announced its intention to enter the digital healthcare space in India. It incorporated Lupin Digital Health Ltd., a wholly owned subsidiary, to provide a digital therapeutics platform for medical practitioners and patients in the country.

• In May 2021, Cipla launched a real-time COVID-19 detection kit ‘ViraGen that is based on multiplex polymerase chain reaction (PCR) technology.

• In May 2021, the Government of India invited R&D proposals on critical components and innovations in oxygen concentrators by June 15, 2021.

• In May 2021, Indian Immunologicals Ltd. (IIL) and Bharat Immunologicals and Biologicals Corporation (BIBCOL) inked technology transfer pacts with Bharat Biotech to develop the vaccine locally to boost Indias vaccination drive. The two PSUs plan to start production of vaccines by September 2021.

• In May 2021, Eli Lilly & Company issued non-exclusive voluntary licenses to pharmaceutical companies—Cipla Ltd., Lupin Ltd., Natco Pharma & Sun Pharmaceutical Industries Ltd.—to produce and distribute Baricitinib, a drug for treating COVID-19.

• In April 2021, the CSIR-CMERI, Durgapur, indigenously developed the technology of Oxygen Enrichment Unit (OEU). The unit can deliver medical air in the range of ~15 litres per minute, with oxygen purity of >90%. It transferred the technology to MSMEs—Conquerent Control Systems Pvt. Ltd., A B Elasto Products Pvt. Ltd. and Automation Engineers, Mech Air Industries and Auto Malleable.

• In April 2021, National Pharmaceutical Pricing Authority (NPPA) fixed the price of 81 medicines including off-patent anti-diabetic drugs allowing due benefits of patent expiry to the patients.

• In February 2021, Aurobindo Pharma announced plans to procure solar power from two open access projects of NVNR Power and Infra in Hyderabad. The company will acquire 26% share capital in both companies with an US$ 1.5 million investment. The acquisition is expected to be completed by the end of March 2021.

• In February 2021, the Telangana government partnered with Cytiva to open a ‘Fast Trak lab to strengthen the biopharma industry of the state.

• In February 2021, Glenmark Pharmaceuticals Limited launched SUTIB, a generic version of Sunitinib oral capsules, for the treatment of kidney cancer in India.

• In February 2021, Natco Pharma launched Brivaracetam for the treatment of epilepsy in India.

• In February 2021, the Russian Ministry of Health allowed Glenmark Pharmaceuticals to market its novel fixed-dose combination nasal spray in Russia.

• In January 2021, the Central government announced to set up three bulk drug parks at a cost of Rs. 14,300 crore (US$ 1,957 million) to manufacture chemical compounds or active pharmaceutical ingredients (APIs) for medicines and reduce imports from China.

Government Initiatives

Some of the initiatives taken by the Government to promote the pharmaceutical sector in India are as follows:

• In June 2021, Finance Minister Ms. Nirmala Sitharaman announced an additional outlay of Rs. 197,000 crore (US $26,578.3 million) that will be utilised over five years for the pharmaceutical

PLI scheme in 13 key sectors such as active pharmaceutical ingredients, drug intermediaries and key starting materials.

• To achieve self-reliance and minimise import dependency in the countrys essential bulk drugs, the Department of Pharmaceuticals initiated a PLI scheme to promote domestic manufacturing by setting up greenfield plants with minimum domestic value addition in four separate ‘Target Segments with a cumulative outlay of Rs. 6,940 crore (US$ 951.27 million) from FY21 to FY30.

• In May 2021, under Atmanirbhar Bharat 3.0, Mission COVID Suraksha was announced by the Government of India to accelerate development and production of indigenous COVID vaccines. To augment the capacity of indigenous production of Covaxin under the mission, the Department of Biotechnology, Government of India, provided financial support in the form of a grant to vaccine manufacturing facilities for enhanced production capacities, which is expected to reach >10 crore doses per month by September 2021.

• In April 2021, the Union Government decided to streamline and fast-track the regulatory system for COVID-19 vaccines that have been approved for restricted use by the US FDA, EMA, UK MHRA, PMDA Japan or those listed in the WHO Emergency Use Listing (EUL). This decision is likely to facilitate quicker access to foreign vaccines by India and encourage imports.

• In February 2021, the Punjab government announced to establish three pharma parks in the state. Of these, a pharma park has been proposed at Bathinda, spread across ~1,300 acres area and project worth ~Rs. 1,800 crore (US$ 245.58 million). Another medical park worth Rs. 180 crore (US$ 24.56 million) has been proposed at Rajpura and the third project, a greenfield project, has been proposed at Wazirabad, Fatehgarh Sahib.

• Under Union Budget 2021-22, the Ministry of Health and Family Welfare has been allocated Rs. 73,932 crore (US$ 10.35 billion) and the Department of Health Research has been allocated Rs. 2,663 crore (US$ 365.68 billion). The government allocated Rs. 37,130 crore (US$ 5.10 billion) to the National Health Mission. PM Aatmanirbhar Swasth Bharat Yojana was allocated Rs. 64,180 crore (US$ 8.80 billion) over six years. The Ministry of AYUSH was allocated Rs. 2,970 crore (US$ 407.84 million), up from Rs. 2,122 crore (US$ 291.39 million).

ROAD AHEAD

Medicine spending in India is projected to grow 9% to 12% over the next five years, leading India to become one of the top 10 countries in terms of medicine spending.

Going forward, better growth in domestic sales would also depend on the ability of companies to align their product portfolio towards chronic therapies for diseases such as such as cardiovascular, antidiabetes, anti-depressants and anti-cancers, which are on the rise.

The Indian Government has taken many steps to reduce costs and bring down healthcare expenses. Speedy introduction of generic drugs into the market has remained in focus and is expected to benefit the Indian pharmaceutical companies. In addition, the thrust on rural health programmes, lifesaving drugs and preventive vaccines also augurs well for the pharmaceutical companies.

Indian pharmaceutical sector supplies over 50% of the global demand for various vaccines, 40% of the generic demand for US and 25% of all medicines for UK. India contributes the second-largest share of pharmaceutical and biotech workforce in the world. According to the Indian Economic Survey 2021, the domestic market is expected to grow 3x in the next decade. Indias domestic pharmaceutical market is estimated at US$ 42 billion in 2021 and likely to reach US$ 65 billion by 2024 and further expand to reach ~US$ 120-130 billion by 2030.

ADVANTAGES TO INDIA

Globally, India ranks 3rd in terms of pharmaceutical production by volume and 14th by value. The domestic pharmaceutical industry includes a network of 3,000 drug companies and ~10,500 manufacturing units.

India is the 12th largest exporter of medical goods in the world. The countrys pharmaceutical sector contributes 6.6% to the total merchandise exports. As of May 2021, India supplied a total of 586.4 lakh COVID-19 vaccines, comprising grants (81.3 lakh), commercial exports (339.7 lakh) and exports under the COVAX platform (165.5 lakh), to 71 countries.

Indian drugs are exported to more than 200 countries in the world, with US being the key market. Generic drugs account for 20% of the global export in terms of volume, making the country the largest provider of generic medicines globally. It is expected to expand even further in the coming years. The Indian pharmaceutical exports, including bulk drugs, intermediates, drug formulations, biologicals, Ayush & herbal products and surgical, reached US$ 24.44 billion in FY21.

Indias medical devices market stood at US$ 10.36 billion in FY20. The market is expected to increase at a CAGR of 37% from 2020 to 2025 to reach US$ 50 billion.

‘Pharma Vision 2020 by the Governments Department of Pharmaceuticals aims to make India a major hub for end-to-end drug discovery. The Indian drugs and pharmaceuticals sector has received cumulative FDI inflows worth US$ 17.75 billion between April 2000 and December 2020.

To achieve self-reliance and minimise import dependency in the countrys essential bulk drugs, the Department of Pharmaceuticals initiated a PLI scheme to promote domestic manufacturing by setting up greenfield plants with minimum domestic value addition in four separate ‘Target Segments with a cumulative outlay of Rs. 6,940 crore (US$ 951.27 million) from FY21 to FY30. In June 2021, Finance Minister Ms. Nirmala Sitharaman announced an additional outlay of Rs. 197,000 crore (US $26,578.3 million) that will be utilised over five years for the pharmaceutical PLI scheme in 13 key sectors such as active pharmaceutical ingredients, drug intermediaries and key starting materials.

Under Union Budget 2021-22, the Ministry of Health and Family Welfare has been allocated Rs. 73,932 crore (US$ 10.35 billion) and the Department of Health Research has been allocated Rs. 2,663 crore (US$ 365.68 billion). The government allocated Rs. 37,130 crore (US$ 5.10 billion) to the National Health Mission. PM Aatmanirbhar Swasth Bharat Yojana was allocated Rs. 64,180 crore (US$ 8.80 billion) over six years. The Ministry of AYUSH was allocated Rs. 2,970 crore (US$ 407.84 million), up from Rs. 2,122 crore (US$ 291.39 million).

India plans to set up a nearly Rs. 1 lakh crore (US$ 1.3 billion) fund to provide boost to companies to manufacture pharmaceutical ingredients domestically by 2023.

VISTA PHARMACEUTICALS, INIDA (VISTA INDIA) FOCUS IS:

• US Generic Market has better margins and sales volumes compared to other countries.

• Almost 85% of the prescription drug market is of Generic Drugs in US.

The company operations are going on as per USFDA cGMP norms. The validations and stability testing studies are going on as per schedules. USFDA visit was scheduled from March 15 to 20, 2020 due to COVID 19 pandemic and country wide lock down, the same was postponed. The US FDA inspection is expected very soon and the inspection timing depends on the COVID-19 pandemic situation and guidelines of US FDA.

PRODUCTS TO BE INTRODUCED TO US MARKET IN 2021-22 / 2022-23:

• Cardiac, Respiratory, and CNS drugs.

OPPORTUNITIES AND THREATS

The key challenges for the Indian pharmaceutical industry include the following:

• Ensuring 24x7 compliance with global CGMP standards; this will involve continuous improvement in systems and processes as well as training of the workforce

• Increasing competition from smaller new entrants.

Looking at the urgent need of the nation for quality healthcare, the pharmaceutical industry has to develop strategies for raw material producing units with user friendly government policy for the small scale industry.

Risks and concerns

Vista Pharmaceuticals Limited has established a strong risk mitigation process which entails regular and stringent monitoring of its business activities to identify, evaluate and resolve risks. The top management of the Company and the Board are involved in monitoring of risk assessment and mitigation, thus ensuring a quick resolution mechanism. The Company has a work philosophy of doing business with high ethical standards and topmost integrity. This principle has helped it to pre-empt and ease considerably the risks that came across its way.

Internal control systems and their adequacy

• The Company has a well-established internal control framework, which is designed to safeguard its assets against loss from unauthorized use and ensure reliability of financial reporting. It maintains a system of internal controls designed for effectiveness and efficiency of operations, compliance and regulations, 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.

• The Company has in place adequate internal financial controls with reference to financial statements. It has adopted necessary policies and procedures for ensuring the orderly and efficient conduct of its business, including adherence to companys policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information. During the year, such controls were tested and no reportable material weakness in the design or operation was observed.

DISCUSSION ON FINANCIAL PERFORMANCE

Revenues

Vista Pharma recorded the revenue of Rs. 126.64 Lakhs during the year, registering a decline as compared to last year revenue of Rs. 2275.90 Lakhs.

Other Incomes

The Other income for 2020-21 was Rs. 31.85 lakhs as compared to Rs. 374.77 Lakhs in 2019-20 Expenditure

The expenses for 2020-21 were Rs. 527.27 Lakhs as compared to Rs. 3044.29 Lakhs in 2019-20.

Finance Costs

The finance costs for 2020-21 were Rs.154.89 Lakhs as compared to Rs.154.02 Lakhs in 2019-20. Profit/Loss Before Tax

There is a Loss Before Tax for 2020-21 of Rs.368.78 Lakhs as compared to Loss Before Tax of Rs.393.61 Lakhs in 2019-20.

Profits after Tax

The Loss After Tax for 2020-21 is Rs. 188.52 Lakhs as against Loss After Tax of Rs. 367.72 Lakhs in the previous year 2019-20.

Earnings Per Share

The EPS for 2020-21 stood at Rs. (0.54) as against EPS of Rs. (1.22) of Previous Year 2019-20.

Outlook

Demographic trends will be a significant driver of global demand for pharmaceuticals in the next five years. Increase in diagnosis and treatment of chronic conditions and an aging population will drive pharmaceutical demand in developed markets. In emerging markets, population growth, coupled with improved access to healthcare and rising per capita income will drive demand.