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Global Industry Overview
Pharmaceutical industry is one of the growing industry and the global pharmaceutical industry is forecasted to grow in the financial year 2018-19 as well, with total Industry revenue to cross USD 1 trillion within a couple of years and the industry growth rate would be near to 6% annually.
The Indian pharmaceutical industry is also expected to grow with the world and become pivotal as a global pharmaceutical provider. As per industry estimates, Indias pharmaceutical industry is expected to reach USD 55 billion by 2020, and by 2025 it would grow to USD 100 billion.
The industry outlook remains positive given the following:
Demand of low-cost drugs in the developed markets and Indian companies ability to do so.
All sectors of Healthcare are growing in double digits - Health Insurance, Healthcare delivery, Contract Research, Pharmaceuticals (API, Drug Intermediates, Finished Formulations)
Improved healthcare awareness among the citizens and increasing purchasing power
Increase in overall access given the urbanization and companies investing in penetrating the markets.
Challenges facing the industry
Some of the key challenges facing the Indian Pharmaceutical Industry include:
Margin pressure from Pharma generics
Complex regulatory policies
Low R&D Productivity
Low insurance penetration resulting in a self-pay market with considerable non-affordability and access barriers
Lack of consumer awareness and education
Heavy market fragmentation
Debate over compulsory licensing remains a contentious issue
Government thought process on linking patented drug prices to the countrys per-capita income in relation to certain developed markets could result in delayed patented drug entry into India.
(A) Domestic Formulations Business:
Your Company improved its rank to 68 in the latest AIOCD AWACS March 18 annual ranking at a 9% growth. Overall formulations business showed a decline of 2% in revenues in a rather difficult GST era year. Key focus brands for the Company continue to be Cpink, Coriminic, Adtrol range, Chymonac, Folinine & Productiv range. Most of these brands have registered prescription growths in their Relative Participated Markets (RPMs) in the latest CMarc data release.
Your Company focused on addressing persisting challenges related to operational efficiencies, cost optimisation and capability building during the last 3 quarters that will have a positive impact in the near as well as long term periods. Some of the key initiatives are as follows:
Operations and Capability Building:
Monitoring and control systems put in place helped achieve improved operational efficiency.
Field force training continued to be focused as a critical area to ensure an engaged field force.
MDP [Managers Development Program] was undertaken in all the divisions so as to build capability of managers.
The Comex team continues to support with detailed data analytics that helped improve governance.
Distribution SOPs in place helped rationalise costs and improve sales hygiene.
Monthly Engagement programs for various support teams at the HO has been conducted to facilitate a common understanding of Business needs.
(B) Active Pharmaceutical Ingredients (API) Business:
The API division in FY 2018 registered revenue of Rs. 254 Cr vis a vis FY2017 revenue of Rs. 351 Cr, a reduction of 28%. The fall in revenue was mainly due to non -availability of raw materials related to working capital issues and reduced supplies from China of DCDA, a key raw material for Metformin. The business saw growth in the order book position of Sertraline. Five year strategic business plan was finalised with significant growth targets. This would be achieved by growing current business through improved working capital management, increased sales volumes along with launch and commercialisation of 12 new products that offer superior margins. The growth depends on infusion of funds for debottlenecking and upgrading of existing manufacturing facilities. In the interim, supply of raw materials from China is organised through agreements with a couple of trading companies.
(C) Research & Development (R & D)
The Companys R & D is recognized by DSIR (Department for Scientific & Industrial Research) - India. Your Companys API Research and development centre is situated in Mahape, Navi Mumbai and has strength of 30 dedicated scientists. They are engaged in development of new APIs, Cost improvement projects as well as scale up of the newly developed APIs at manufacturing sites.
(D) Cost Reduction Initiatives:
Over the last year your Company has extended its efforts to reduce costs. The focus of the cost reduction strategy has been largely on Energy cost savings and headcount rationalisation.
(E) Human Resource (HR) Initiatives at Wanbury
HR is focussed on Build Talent Capability and Enhance Employee Engagement. Your Company continuously benchmarks HR policies and practices with the best in the industry and carries out the necessary improvements to attract and retain the best talent.
(F) Threats, Risk and Concern
As any other business, your Company is subject to various risks and threats. The key risks/ threats are as follows: Competition
Your Company operates in a highly competitive environment with pricing being one of the key determining factors of success. In the API business, your Company has been able to overcome this risk by influencing the prices as it is the largest manufacturer of Metformin in the world with over 30% market share. Sertraline and Tramadol are seeing high demand especially in international markets. In the Formulations Business the Company has mitigated this risk to a very large extent by diversifying its product portfolio and launching new value added products. The continuous rise in crude oil in the past and other commodities prices impacted the prices of raw material and intermediates and in turn increased the cost of APIs.
Manufacturing of pharmaceutical products is highly regulated and controlled by regulatory and government authorities across the world. Failure to fully comply with such regulations, could lead to stringent actions from the authorities/ government.
Regulators across the world, including the USFDA, have become stricter with the pharmaceutical industry. Regulatory requirements and consequences for non-compliance are also getting more severe. Your Company is operating in a state of compliance as required by the Regulatory Agencies. During the year, Company has successfully completed USFDA Audit at its major API facility in Tanuku Plant, Andhra Pradesh.
Foreign Exchange Fluctuations
As the share of exports to total sales made by your Company is considerable, it is prone to losses due to exchange rate fluctuations; however, the Company has hedged its exposure to a large extent thereby reducing the risk.
(G) Internal Control Systems and Adequacy
Your Company has made special efforts to improve its internal control systems by improving the information flow and automating the processes in support systems. Support functions are now monitored through a Quarterly Shared Services Survey for the field employees to ensure that we are able to provide the best services to our internal customers.
Your Company has sound, well-established and adequate internal control systems commensurate with its size and nature of business. The internal control systems ensure protection of assets and proper recording of all transactions.
(H) Financial Review:
The detailed financial & operational performance is provided in page no.59.
(I) Cautionary Statement:
Statements in the "Management Discussion and Analysis" describing the Companys objectives, estimates, expectations or projections may be "forward looking statements" within the meaning of applicable laws and regulations. Actual results may differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations; include Government regulations, patent laws, tax regimes, economic developments within India and countries in which the Company conducts business, litigation and other allied factors.
For and on behalf of the Board of Directors,
|K. Chandran||N. K. Puri|
|Mumbai, 10th August, 2018||DIN:00005868||DIN:00002226|