Vivimed Labs Ltd Management Discussions.


2017 was a remarkable year of rebound for major economies around the world. The global economy grew by 3.8% (Source: International Monetary Fund (IMF)), fastest since 2011. Recovery in investments, stable corporate earnings and favourable monetary policies, adopted by leading central banks across geographies, were the primary catalysts behind this broad-based upswing in global growth. A major highlight of the year was the improvement seen in the economic growth of advanced markets like the US and eurozone.

The US economy grew by 2.3% owing to the implementation of tax reforms, higher corporate activity and favourable monetary policies. The eurozone posted a multi-year high growth of 2.3%, amid robust domestic demand and buoyant exports.

On the other hand, emerging market economies were at the forefront of growth for another year; and grew by 4.8% during the year—an encouraging 40 basis points improvement over the growth registered in 2016. Within this subset, China benefitted from the momentum in global trade and recorded its highest growth since 2015. India continued to demonstrate resilience against temporary headwinds caused by the implementation of key policy initiatives and emerged as the sixth largest economy in the world. After grappling with a major recession in 2016, Brazil (economy declined by 3.5%) but grew by 1.3% during 2017, owing to healthy traction in private consumption and investment.

Global oil demand remained firm in 2017 and grew by 1.6 million barrels per day. Revival in demand from China, India and the Organisation for Economic Co-operation and Development (OECD) countries aided crude oil prices.


According to the IMF, global economic growth is likely to remain on an upswing, going forward. It has raised the global growth forecast for both 2018 and 2019 to 3.9%. These forecasts are based on the premise that the trends of robust investments, as well as strong global trade are likely to sustain. In such a scenario, economies that are driven by exports will benefit the most. However, it must be articulated that tariff rivalries among major economies may jeopardise exports to a certain measure.

Another assumption behind these forecasts is that central banks around the world are likely to align their monetary policies to strike a prudent balance between liquidity, interest and higher economic growth. Gradual improvement in capital expenditure incurred by corporates will be another catalyst for future global growth.

Overall, there is reason for cautious optimism for economies and businesses. While there is much each country can do on its own, multilateral cooperation on a range of issues remains essential for long-term sustainable growth.

Global growth

2016 2017 2018 (f) 2019 (f)
World 3.20 3.80 3.90 3.90
Advanced market economies 1.70 2.30 2.50 2.20
Emerging market economies 4.40 4.80 4.90 5.10
United States 1.50 2.30 2.9 2.70
Euro area 1.80 2.30 2.40 2.00
China 6.70 6.90 6.60 6.40
Japan 0.90 1.70 1.20 0.90
Russia -0.20 1.50 1.70 1.50
India 7.10 6.70 7.40 7.80

Source: World Economic Outlook, April 2018, International Monetary Fund (IMF) (f): forecasted

Indian economy

Notwithstanding the transitory hardship caused by the implementation of the Goods and Services Tax (GST), the Indian economy remained among the worlds fastest growing economy in the FY 2017-18. It grew by 6.7% during the year, which is lower than the growth recorded in the previous year. However, the momentum witnessed in the last quarter (growth of 7.7%) of the year is encouraging.

Indias fiscal deficit stood at 3.53% during the year; and was broadly in line with the revised target of 3.5%. The Government of India expects to bring it down further to 3.3% of the GDP in FY 2018-19. Another notable highlight was that India ranked 100th in the global ease of doing business index, vis--vis 142_about four years ago. Inflation remained under check during the year with the Consumer Price Index (CPI) declining_to 4.28% in March_2018, supported by stable prices and the prudent monetary policy adopted by the Reserve Bank of India (RBI).

Growth enablers

Emphasis on the rural economy

• Higher spending on social schemes such as National Rural Employment Guarantee Act (NREGA)

• Continued thrust on rural infrastructure projects

• Increase in minimum support prices

• Implementation of the seventh Pay Commission and One Rank, One Pension scheme

• Two successive years of favourable monsoon

Rapid growth of infrastructure sector

• Higher budgetary and non-budgetary support to roadways, railway network and rural infrastructure

• Implementation of reforms in the power sector

• Buoyant manufacturing and construction sectors

Potential upswing in private investment

• Improving domestic demand

• Benefits from reforms to enable gradual pick-up in private sector investment


In this scenario, the Indian economy is likely to grow by 7.4% during FY 2018-19 (Source: RBI). The year was marked by multiple key structural initiatives to build strength across macro-economic parameters for sustainable growth in the future. The countrys economic outlook is expected to strengthen further in FY 2018-19. However, the signs of green shoots should not be a reason for complacency as downside risks remain. The major challenges for the economy will be to tame inflationary pressures, coupled with higher fiscal deficit and increasing debt burden. Revival of consumer demand and private investment can play a major role in steering the economy forward.


Global pharmaceutical industry

The pharmaceutical industry is one of the worlds fastest growing industries and among the major contributors to the global economy. The sectors growth is the outcome of healthcare spending, ease of access to healthcare facilities and the economic performance of countries.

According to the IQVIA Institute, net spending on branded medicines in developed markets increased from $326 billion to $395 billion over the past five years. It estimates that net spending on brands is likely to remain unchanged with a possibility of 1-3% decline in developed markets to $391 billion in 2018. The institute believes that patent expiry will be 37% higher between 2018 and 2022, compared to the preceding five years.

The trend of players across the world looking to achieve higher cost efficiencies is likely to continue. These developments augur well for generics products, which may witness healthy growth from here on. As pricing pressure in the US is expected to continue, overall industry revenues will be driven by higher volumes.

In this environment, pharmaceutical companies that are aligning to the evolving market dynamics, transforming their product portfolios, stepping up emphasis on trimming costs and focussing on high-potential therapeutic areas and markets are likely to stay ahead of the curve.


Global medicine spending is forecasted to reach $1,415-1,445 billion levels by 2022. Of this, 65% spending is likely to come from developed markets, 25% from pharmerging countries and the remaining from the RoW. Pharmerging markets will be driven by volume changes and the use of generics will grow by 7-8% in 2018.

China, the worlds largest pharmerging country, is likely to grow by 5-8% over the next five years to reach $145-175 billion in 2022. The companies focussing on specialty medicines such as oncology, auto-immune disorders and diabetes treatments are likely to see breakthrough innovations.


In the US, spending on medicines remained rather flat with just 0.6% growth in 2017 (after off-invoice discounts and rebates) to $324.4 billion. New oncology medicine growth slowed in 2017 due to fewer launches, and the fact that medicines catered to smaller populations. While biologics grew in 2017, spending on biosimilars too increased in the year. Continued pricing pressure in protected branded products, decline in the price of generics products and lower growth of new products, impacted spending on medicines in the US.

The net total spending in the US is estimated to grow 2-5% over 2018-22. On one hand, innovation will drive spending growth, while on the other, sluggish pricing growth and rising impact of patent expiries will decrease overall spending growth partially. The impact of loss of exclusivity on overall spending is likely to be 40% higher in the next five years (including biosimilars) vis--vis the preceding year. Net price growth for protected brands is estimated at 1-4% over 2018-22 owing to higher public pressure on medicine pricing.

Over the preceding decade, the share of generic drugs in overall prescriptions in the US has surged from 72% to around 90%. This trend is likely to continue with the generics share touching

92% of total prescriptions over the next five years. As more medicines lose patent protection, the shift to generic_medicines will gather further momentum. Currently, a majority of new therapy initiations and continuing prescriptions are with generics.


Europes pharmaceutical market is likely to grow by 1-4% over 2018-2022 (Source: IQVIA Market Prognosis, October 2017). The five major European countries (France, Germany, Italy, Spain and the United Kingdom) are among the top few nations witnessing strong growth in the specialty medicines space, and have a specialty share above 41%.

Generic medicines represent a large segment in the European Union (EU) and are expected to account for 70-80% of medicines used in Europe by 2020.

Spain is a relatively under-penetrated market as pharmaceutical products form about 16-17% of its total health expenditure. The generic medicines penetration is 40% by volume in the reimbursed market. These facts reflect the high growth potential of this market.

EU5 forecasted sales for 2022 ($ billion)
EU5 170–200
Germany 51-61
France 36-40
Italy 34-38
UK 29-33
Spain 24-28

Source: IQIVIA


According to the IBEF Pharmaceuticals Report dated March 2018, Indias pharmaceutical market grew 5.5% in 2017. The ability to manufacture pharmaceutical products at much lower costs relative to other countries is a primary competitive advantage enjoyed by the domestic pharmaceutical industry.

Source: IBEF Report, March 2018 (f): forecasted

Government-sponsored healthcare solutions, growing private players in the insurance space, encouragement of scientific talent for innovation, consistent economic progress and higher healthcare awareness drive industry growth.


Indias pharmaceutical industry is estimated to grow at $100 billion by 2025 and account for 3.1% to 3.6% of the global industry.

Macro enablers like rising penetration of health insurance, growing number of stress-related diseases, higher incidences of fatal diseases, improvement in medical infrastructure and increasing size of middle-class households are likely to steer industry growth.

Indias pharmaceutical exports are expected to reach $20 billion by 2020 compared to $10.76 billion during April 2017-January 2018. Rising trade disputes between the US and China may lead to greater export opportunities for both countries. The countrys share in the export of global generic medicines stands at 20% and it is the largest manufacturer of generics globally.

India can play a prominent role in providing low-cost, high-quality generic medicines across the world. The generics market is slated to reach $27.9 billion by 2020 and currently accounts for about 70% of Indias pharmaceutical industry.


From its humble beginnings as a small, entrepreneurial family-operated business back in 1991, Vivimed has evolved into an integrated, globally recognised supplier of niche molecules and formulations across healthcare, pharmaceuticals and specialty chemicals segments. The pharmaceuticals segment forms 83.5% of the Companys revenues with specialty chemicals contributing the rest. Vivimed offers both generic and branded pharmaceutical products, and is a global leader in the development of innovative photochromic dyes. Through UQUIFA, the Company operates in both the generic API and CDMO API segments with nearly 60 unique APIs manufactured on a monthly basis and in excess of 1200MT of final product across its EU and NA manufacturing footprint annually. The Company has 12 manufacturing facilities, six R&D centres and global support offices in India, China, Europe and the US. It follows the highest levels of compliance and manufactures high-quality products across its facilities.

World-class facilities certified by leading regulators

Jeedimetla, Hyderabad • PIC/S, NDA, WHO-GMP approvals
Kashipur, Uttarakhand • ISO 9001-2000, ISO 14001 and OHSAS 18001 certifications
• WHO-GMP/NAFDAC approvals
Klar-sehen, Jeedimetla, Hyderabad • ISO 13485 certified
• CE marking certificate for medical devices
Haridwar, Uttarakhand • ISO 9001-2000, ISO 14001 and OHSAS 18001 certifications
• ISO 13485 certified
Alathur, Tamil Nadu (part of the JV with Strides Shasun) • US FDA approved facility
UQUIFA, Spain (2 Units) • US FDA approved facility
UQUIFA, Mexico • US FDA approved facility
Soneas, Hungary • cGMP pilot plant and over 180 KL of key starting material
(KSM) cGMP capacities


The key operating highlights of the business during the year _were:

• Vivimed, through its Spanish subsidiary, Vivimed Spain, acquired Soneas, a Hungary-based CDMO player and manufacturer of fine chemicals for pharmaceutical and other sectors. Soneas now offers a full product offering for the CDMO sector for its customer base.

• Vivimeds subsidiary UQUIFA continues to maintain a healthy balance across the generic and CDMO segments with market share gains and above-trend growth in key molecules. New generic launches (five new products filed) are on track with a good seeding pipeline and are aimed at improving profitability further.

• Vivimed raised $50 million from Orbimed Asia III Mauritius Limited to increase capacity and drive higher organic growth of the Companys API business. This is a validation of its business model and the teams execution capability.

• Vivimed successfully registered eight products in anti-viral, pain management and cough suppressants categories in the formulations business for India and RoW markets.

• Vivimed formed a distribution agreement with Alter Ego LLC for distributing its products in Ukraine, Russia and other CIS* regions.

• Vivimeds speciality chemicals division continues to see a_ healthy increase in the demand for basic and oxidatives_dyes.

• VLEs photochromics and other chemicals grew at a steady pace and has some interesting new products in the_pipeline.



Vivimed is an integrated pharmaceutical company and manufactures APIs and formulations for various therapeutic areas. The Companys API business comprises of generic/ regulatory APIs and APIs for the CDMO segment. This constitutes 70% of its total pharmaceutical business and the balance is contributed by the Finished Dosage Formulations (FDFs) segment. Within the FDF business, it provides contract manufacturing services to some of its marquee clients in the pharmaceuticals space, namely Novartis International AG, Glenmark Pharmaceuticals, Lupin, GlaxoSmithKline Pharmaceuticals Ltd. (GSK Pharmaceuticals), Dr. Reddys Laboratories, Cipla, Abbott Laboratories, Merck Serono, Wockhardt, and so on.


Effective measures to counter key RM price increases

The increase in the cost of some raw materials (for API and CDMO operations) sourced from China have affected the gross margins during the third and fourth quarter of the reporting period.

The Company is proactively re-engineering its supplier base to mitigate this risk and to qualify new suppliers of raw material and/or making it captive wherever feasible. Further measures like sourcing from countries other than China have also been initiated by the Company.

Mitigating the foreign currency transaction exposure

Vivimed has both exports receivable and imports payable in foreign exchange revenues resulting in a natural hedge towards minimising the cash flow risk on account of fluctuations in foreign exchange rates.

Vivimed avails long-term foreign currency liabilities (primarily in $ and _) to fund its capital investments and also avails short-term foreign currency liabilities to fund its working capital requirements. Foreign exchange risk arising from mismatch of foreign currency assets, liabilities and earnings is tracked and managed within the risk management framework by periodic review. The Company ensures compliance with all the regulations of foreign exchange market from time to time.

• Revenues from the hived-off FDF business are included in the previous years statistics and hence the current year revenues look to be at a lower level compared to the FY_2016-17 numbers

• Revenues were driven by strong order book in the CDMO and the generic API businesses

• Higher input costs have impacted margins especially in the last two quarters of the year

API and CDMO segment (UQUIFA)

The Companys Spain-based subsidiary, UQUIFA S.A. houses its API and CDMO businesses and has established a strong foothold in the European and North American markets over_the past eight decades. Its manufacturing facility in Spain represents 70% of UQUIFAs overall revenues during the year with the facility in Mexico contributing to the rest.

UQUIFA has state-of the-art manufacturing facilities in Spain (2 plants) and Mexico (1 plant). All the three facilities are approved by the US FDA, and this provides it with a significant competitive advantage vis--vis its peers. It has filed over 40_ Type II Drug Master Files (DMFs) with the USFDA and 150+_active DMFs worldwide.

In the API business, UQUIFAs generics segment continues to witness healthy traction owing to the strong demand for generic medicines, addition of new customers and strong brand equity in the European markets.

Over the years, UQUIFA has focussed on diversifying beyond the API business by ramping up its CDMO business, which has rapidly grown over the preceding few years and now accounts for 40% of UQUIFAs total revenues. The Companys robust R&D talent, focus on offering future-ready, innovative products and partnerships with reputed global players like GSK Pharmaceuticals, Pfizer, Gilead Sciences and Esteve, among others have been the primary catalysts behind this growth.

Key strategic focus areas

• Expanding the therapeutic portfolio across anti-ulcers, CNS and CVS categories

• Achieving stronger client mining

• Determining the correct pricing to strengthen competitive positioning

• Launching new products in the generics business with focus on customer-driven projects

• Innovating on co-development options to build stable, profitable growth

• Continuing to grow the high-potential CDMO business

• Expediting projects with innovators at stage-2/stage-3 of _development


Benefit from higher regulatory concerns UQUIFA will be a key beneficiary of this trend, given its strong position in the markets of the US and Europe
Extended global reach UQUIFA can enhance its presence in existing markets owing to its multiple manufacturing plants
Achieve higher than industry growth UQUIFAs focus on innovation, expertise in chemicals and ability to scale up substantially can enable it to achieve industry-leading growth
Benefit from high-entry barriers Highly regulated nature of the industry and associated high costs act as strong entry barriers for new players, thereby benefitting existing players like UQUIFA

Growth enablers

• Vivimed through its subsidiary Vivimed (Spain) recently acquired Soneas, a Hungary-based CDMO company. This acquisition will help UQUIFA in achieving a prominent positioning in the pre-clinical stage market. Together, UQUIFA and Soneas will provide end-to-end solutions across the CDMO value chain. Access to newer geographies in Europe and Japan, addition of more chemistry capabilities and addition of non-pharmaceutical customers in the agro-chemicals and specialty chemicals space are other synergies from this acquisition. Soneas will, thus, play a prominent role in growing UQUIFAs CDMO business in the future.

• A key highlight of the year gone by was that UQUIFA invested nearly 35-40% of its capex of _5.5 million towards growth capex, with the rest being towards maintenance of existing facilities and compliance. The Company added reactor capacity, drying capacity in its Spanish plant and believes that this capex will boost its sales productivity.

• In recent times, UQUIFA has stepped up focus on new, high potential markets of Japan, Korea and India. It is looking to cater to generic companies in these countries, which are selling to Europe or the US. These markets contribute less than 10% of the generic sales at UQUIFA currently and the Company believes this metric could nearly double over the next 2-3 years.

• The Companys generic business will be driven by new products (via co-development) in the coming years. In this business, the focus will be on products relevant to the European market. UQUIFA has a strong customer base in Europe and is looking to further enhance this in the future. These products will get into commercialisation from 2022-23 onwards and will aid growth of the generics business. The generics business existing products continue to witness healthy traction and its current order book stands at a high compared to the recent past.


Vivimed offers high-quality dosage forms and novel drug systems through its FDF segment. This business operates in three areas of contract manufacturing (CM), generics and branded products. Under the CM business, the Company offers a diversified product suite comprising capsules, tablets, syrups and liquids, nasal sprays and ointments. It manufactures products for many bellwether pharmaceutical companies such as GSK, Dr. Reddys, Cipla and Merck Serono, to name a few.

With a total capacity of 2 billion solid oral dosages, the FDF segment is focussed on the institutional business in the RoW pharma market. Its recent JV with Strides Shasun is expected to lend higher visibility and stability to this business. The Company also offers diverse branded formulations portfolio in pain management, neutraceuticals, and dermatology categories to markets such as India, Southeast Asia and the Middle East, among others. During the year, the Company has filed three ANDAs through its JV alliance and has received approvals for two of them.

Key strategic focus areas

• Developing innovative formulations across multiple delivery formats for RoW markets

• Focus on exports to the RoW market

• Expanding markets of generic brands, and thereby bolster_sales

• Increase focus on the anti-bacterial, pain management and CNS categories

• Boosting revenues and strengthening position in the formulations business through the JV with Strides Shasun

• Strengthening filing pipeline of 4-6 new filings every year

• Ramping up the contract research and manufacturing services (CRAMS) business

• Achieve optimum utilisation of existing capacities

Growth enablers

• Integration of FDF offerings with Vivimeds API portfolio will be a key focus area in the future. With rising competition and intensifying pricing pressure, the US market is becoming a challenge. The Company is, therefore, focussing on niche categories of complex molecules, which is characterised by lesser a number of players and highly-profitable products.

• Vivimeds JV with Strides Shasun is likely to be a major growth engine in the future. The vertical integration with the APIs of both the JV partners, and exploitation of the mutual formulation capabilities, brings a clear competitive advantage to this JV. Vivimed aims to expedite its R&D, filings and approvals process through this JV. The Company is looking to achieve five ANDAs per year from this JV in the complex generics space.

• The Company is aiming to ramp up its manufacturing capacity for the CMO business. While the existing business continues to witness momentum, the additional capacity will provide further boost to its revenues. Vivimed is expecting approvals for one or two major molecules in the next few months, which will provide significant boost to this business.

• Vivimed has a dedicated plant in Hyderabad offering ophthalmic products, which caters to the Indian and Russian markets. The Company is looking to develop dosage forms for the RoW market for niche products in this category.

The Company aims to see a 75% utilisation of its capacities in 2018. Of its total capacity of 1.5 billion, around 700 million was added recently.

Specialty Chemicals

Vivimed manufactures hair dyes, photochromic dyes, anti-microbials and imaging chemicals under this segment. These products are used in the home care, personal care and industrial product categories. Its product suite spans over 100 products catering to 300+ customers. These products are manufactured at its facility located in Bidar, Karnataka, imbibing industry-best environmental standards in its operations. Its research and development facilities are located in Nacharam, Hyderabad and Huddersfield in the UK. Its customers include leading consumer product MNCs like Procter & Gamble, Unilever and LOreal, among others.

Advantage Vivimed

• World leader in the development of innovative photochromic dyes

• Patented processes for novel dyes for various applications

• Global delivery model

• Strong culture of compliance

• Unique product mix portfolio

• Strong traction in the hair dyes as well as photochromics businesses fuelled revenues of this segment

• The year witnessed strong sales for semi-permanent dyes and oxidative dyes

• Hair dyes and photochromics businesses grew by 17% and 37%, respectively compared to the previous year in GBP_terms The margins at 31.1% in the current year, although good, look lower in comparison to 2016-17 figures, as the previous year included margins from the sale of the personal care business to Clariant India Ltd.

Key strategic focus areas

Going forward, hair dyes, and photochromics for optics, will continue to drive the revenues for this business. Vivimed is exploring the use of photochromics in areas such as toys, films, clothes and cosmetics like nail polish.

Increasing market share from existing products New focus verticals
• Jarocol • Naturals
• This is a globally recognised trademark serving a 10 billion retail market and is growing by 5-6% year-on-year • Cosmeceuticals
• Vivimed has aligned with global R&D teams through collaborations to bring new and safer dyes in the market • Neutraceuticals: Dietary supplements
• Personal care (through alliances)
• Vivimed is well-positioned to cater to customers in the Tier-II and Tier-III categories • Peptides
• Ceramides
• Reversacol • Lateral shift
• Anti-fungal in paints industry
• A niche IP protected eyewear photochromic dyes brand • Air bag actives in automotive
• Growth strategy includes marketing for applications other than for optical uses in textiles, automotives and other industries • Printable electronics
• Anti-microbial and pharma intermediate business • Water treatment, lens projects
• Strategic manufacturing alliances with multi-nationals poised for robust growth


Vivimed aspires to target a revenue mix of 90:10 between the pharmaceutical and specialty chemicals businesses. The Company has earmarked average annual capex of 10 crore over the next two to three years.

It has laid out its future plans, with a five-point agenda, to leverage emerging opportunities across its businesses. They _are:

• Emerging as a true blue multinational company of Indian origin in the pharmaceutical sector

• Penetrating world markets by fortifying existing manufacturing and distribution capabilities

• Driving collaborative growth with strategic partners in select verticals to create higher value

• Emerging as a preferred knowledge partner in the CDMO segment and challenging itself with its synthetic chemistry _capabilities

• Achieving synergies between its API and FDF divisions to _be_the end-to-end solution provider for its customers


FY 2017-18 was the year of consolidation for Vivimed. It was the first full year of operations after the Company divested its non-focus areas in the FDF and specialty chemicals businesses to Exeltis and Clariant India Ltd., respectively. Given this, the financial results are not strictly comparable with the results of FY 2016-17, which included revenues from these divested_businesses.

Consolidated performance

( Rs. crore)
Particulars FY 2016-17 FY 2017-18
Revenue 1,258* 1,186
EBITDA 246* 222
Net profit 85* 76

*Normalised for one-time gain from sale to Exeltis and Clariant India Ltd.

On a consolidated basis, the revenue growth was impacted partly as some of the volumes booked in the CDMO business are now likely to accrue over the next few quarters. Also, the sharp spike in the prices of raw materials sourced from China had a bearing on the margins of the Companys API business. Weak revenues had an impact on the EBITDA margin, which declined from 27.6% in the previous year to 17.8%. Notably, EBITDA margin was higher in the previous year on account of gains from businesses divested to Exeltis and Clariant India Ltd. Increase in interest costs further impacted the net profit margin, which came down from 14.7% in the previous year to 6.4% in the FY 2017-18.

During the year, the Company brought down its debt by 23% to 777 crore from 1,006 crore in the preceding year. With this, the consolidated debt to equity of the Company has been reduced to 0.64 times from 1.3 times in the FY 2016-17. The _ cash flows thus freed up will be used to grow the business_further.