Wockhardt Ltd Management Discussions.

COVID-19 and the Global Economy

On 11th March, 2020, the World Health Organization (WHO) declared COVID-19 as a pandemic and public health crisis that quickly spiralled into a tragic situation that catastrophically disrupted countries, economies, industries, and financial markets around the world. The infection and disease mitigation measures that were adopted and implemented in many countries have resulted in decreased incomes; increased unemployment; and a slowdown, or even shutting down of transportation, services, and manufacturing activities across sectors. The IMF estimates that the global economy shrunk by 4.4% in 2020, and describes the decline as the worst since the Great Depression of the 1930s. Clearly, most governments in the world underestimated the rapid spread of the coronavirus and were largely reactive in their crisis response.

COVID-19 and the Indian Economy

The economic impact of the COVID-19 pandemic in India has been largely disruptive. Indias growth in the fourth quarter of the fiscal year 2020 went down to 3.1% according to the Ministry of Statistics. The World Bank and other rating agencies had initially revised Indias growth for FY2021 with the lowest figures India has seen in three decades since Indias economic liberalisation in the 1990s. In May 2020, CRISIL announced that this will perhaps be Indias worst recession since independence. In September 2020, the Ministry of Statistics released the GDP figures for Q1 (April to June) FY21, which showed a contraction of 24% as compared to the same period the year before.

THE ROAD TO RECOVERY

The huge and sustained vaccination drive; phased lifting of the lock-down; and the financial stimulus measures announced by the government have paved the way for an economic recovery and resurgence to pre-COVID levels. The Economic Survey of India for 2021, tabled during the Budget Session of the Parliament on 31st January, 2020, stated that "starting July 2020, a resilient V-shaped recovery is underway". This conclusion was based on indicators such as E-Way Bills, GST revenue statistics, commercial paper, steel demand and recovery in GDP growth. It further stated that, "the V-shaped recovery being seen in the domestic economy is being supported by the mega COVID-19 vaccination drive in the country" "Together, prospects for robust growth in consumption and investment have been rekindled, with estimated real GDP growth for FY2021-22 pegged at 11 per cent," the survey noted.

GLOBAL USE OF MEDICINES AND PROJECTED TRENDS

The global spend on medicines for the year 2020 stood at ~USD 1.3 Tn with a 5-year CAGR (Compounded Annual Growth Rate) of 4.6%. However all countries are expected to have a significantly low growth rate through 2025 as shown in the table below. Growth in Global Medicine Spending will be lifted by stronger pharmerging market growth through 2025 and offset by developed market losses of exclusivity (LOE) for original brands. New Brand Spending in developed markets is projected to be similar to the last five years, but represents a smaller share of spending. Global New Active Substances (NAS) launches are projected at an average of 54-63 per year, totalling 290-315 for five years through 2025. The impact of exclusivity losses will increase to USD 166 billion over the next 5 years, mostly due to the availability of biosimilars. Global savings from biosimilars will have a significant impact on country medicine spending through 2025, estimated at a cumulative $285 billion below estimates of spending without biosimilars. Generic spending growth contribution is typically muted as volume increases are offset by price deflation, but the influx and maturation of biosimilars, particularly in the U.S., is expected to result in higher absolute growth. Specialty medicines will represent nearly half of global spending in 2025 and almost 60% of total spending in developed markets.

Spending in USD Bn

2020 2016-2020 CAGR 2025 2021-2025 CAGR
Global 1265.2 4.6% 1580-1610 3-6%
Developed 959.5 3.8% 1130-1160 1.5-4.5%
US 527.8 4.2% 605-635 2-5%
Japan 88.2 -0.2% 75-95 (2)-1%
EU5 180.4 4.4% 215-245 2-5%
o/w UK 30.2 5.3% 38-42 2.5-5.5%
Pharmerging 290.8 7.4% 415-445 7-10%
China 134.4 4.9% 170-200 4.5-7.5%
Brazil 28.7 10.7% 43-47 7.5-10.5%
Russia 17.5 10.8% 33-37 11-14%
India 21.1 9.5% 28-32 7.5-10.5%
Low Income 15 3.9% 18-22 3-6%

Source: IQVIA Market Prognosis, Sep 2019; IQVIA Institute, Dec 2019

IMPACT OF COVID-19 ON USE OF MEDICINES

While the short-term impact from COVID-19 in 2020 and 2021 has been significant, the long-term impact on growth trends is more muted. Perhaps the largest uncertainty in the next five years will be the potential impact of economic factors on countries budgeting and whether there will be shifts in policies regarding healthcare and medicine spending.

Company Performance

(In the below Management Discussion and Analysis, figures, ratios and percentages are Inclusive of continuing and discontinued operations of consolidated financials.)

With the tightening of monetary conditions across the globe and amidst industry and business slowdown driven by the pandemic, managing liquidity has been the key priority during the year and your Company has effectively managed its liquidity position and continued with its sustainable business model without compromising on the overall long-term vision of the organisation.

Your Company started the year with a focus on aligning operations with the long-term goals and its vision statement. Some of them were to bring back liquidity to drive robust growth; de-leveraging the balance sheet to achieve operational efficiency; ensuring reasonable flow of working capital into the business; and gradually shifting away from acute therapeutic areas to strengthen chronic therapy presence in its portfolio mix; and strengthening overall NCE bucket. Amidst one of the most turbulent scenarios on the economic and social front triggered by the Corona pandemic, which had its deep rooted effects on almost every front without exceptions, your Company stood steady and delivered on its key priorities, thus paving the way for long-term sustainability.

COVID Vaccine Manufacturing in the United Kingdom

In a major development during Q2 of this fiscal year, your Company announced an agreement with the UK Government to fill-finish COVID-19 vaccines at CP Pharmaceuticals, a subsidiary of Wockhardt, based in Wrexham, North Wales. As per the terms of the agreement, the Company has reserved manufacturing capacity to allow for the supply of multiple vaccines to the UK Government in its fight against COVID-19, including AZD1222, the vaccine co-invented by the University of Oxford and licensed by AstraZeneca. This agreement was subsequently expanded from 18 to 24 months i.e. until August 2022. In November 2020, Prime Minister of the United Kingdom, Mr. Boris Johnson, visited the manufacturing facility.

Divestment of Part of India Domestic Branded Business

During the year, your Company transferred part of the business comprising 62 products and line extensions; along with related assets and liabilities, contracts, permits, intellectual properties, employees, marketing, and sales and distribution of the same in the Domestic Branded Division; in India, Nepal, Bhutan, Sri Lanka and Maldives; and the manufacturing facility at Baddi, Himachal Pradesh, where some of the products which are being transferred were manufactured (together the "Business Undertaking"); to Dr. Reddys Laboratories Limited ("DRL") for a consideration of INR 1,850 crore, subject to adjustments specified in the Business Transfer Agreement (BTA) dated 12th February, 2020.

In the aftermath of the COVID-19 pandemic, government restrictions, and recognising consequent reduction in the revenue from the sales of the Products forming part of the aforesaid BTA during March and April, 2020, your Company decided to allow flexibility to assess the impact of the COVID-19 pandemic on the valuation of the Business Undertaking, and the Company and DRL have executed an amendment agreement in terms of which the agreed consideration of INR 1,850 crore is to be paid as per following:

a) an amount equal to INR 1,550 crore to be paid on the Closing Date under the BTA which has been paid by DRL to the Company on June 09, 2020;

b) an amount equal to INR 67 crore which has been deposited by the Purchaser in an escrow account, which shall be released subject to adjustments for, inter alia, net working capital, employee liabilities, and certain other contractual and statutory liabilities; - out of which INR 4 crore is pending as on date.

c) an amount equal to INR 300 crore ("Holdback Amount"), which shall be held back by DRL on the Closing Date for assessment of the impact of the COVID-19 pandemic on the Business Undertaking, and shall be released as follows: If the revenue from sales of the products forming part of the Business Undertaking by DRL during the 12 months post-closing exceeds INR 480 crore, DRL will be required to pay to the Company, from out of the Holdback Amount, an amount equal to 2 (two) times the amount by which the revenue exceeds INR 480 crore.

Due to the restrictions on movement into and within the state of Himachal Pradesh on account of the COVID-19 pandemic, the approval of the Government of Himachal Pradesh for the transfer of the land underlying the manufacturing facility at Baddi, Himachal Pradesh ("Baddi Facility"), as required under the Himachal Pradesh Tenancy and Land Reforms Act, 1972, is pending as of date. Accordingly, the Company and DRL have agreed that the Baddi Facility, shall only be transferred once the approval of the Government of Himachal Pradesh is received and in the meanwhile, the Company and DRL will enter into interim arrangements for management of the Baddi Facility by DRL.

While the year FY19-20 closed with divestment of part of mostly acute Business to Dr. Reddys (DRL), the current year was focused on smoothly transitioning the related Business assets and operations. H1 operations remained muted in general because of the fallouts of the pandemic and situations beyond the Companys control. The rest of the industry too was no exception to this. However, your Company, during the same period, was focused on deployment of funds and setting its investment priorities to ensure maximum returns. Secondly, in a scenario wherein the operations remained muted/shut down for the economy as a whole, your Company ensured dedicated focus on the expense side with containment of costs by adapting to the new normal. Significant efforts to identify new revenue streams and enhance profitability and cash flow also translated into new partnerships into international geographies. Further, expansion of businesses to newer horizons continues to be on the radar, with top priority to remediation efforts for obtaining US FDA clearance.

1st Indian Pharmaceutical Company to launch NCE in India in the Anti-Infective Space

During the year, your Company launched 2 new antibiotics, EMROK (IV) and EMROK O (Oral), for acute bacterial skin and skin structure infections including diabetic foot infections and concurrent bacteraemia. Earlier in January 2020, the Indian Drug Controller, DCGI, approved the same based on the Phase 3 study involving 500 patients in 40 centres across India. The new drug will target superbugs like Methicillin-resistant Staphylococcus aureus (MRSA), which is a leading cause of rising antimicrobial resistance (AMR).

Antimicrobial Resistance (AMR) is a major public health problem globally. India carries one of the largest burdens of drug-resistant pathogens worldwide. Infections caused by drug-resistant organisms could lead to increased mortality and prolonged duration of hospitalisation, causing a huge financial burden to affected persons and healthcare systems, and hinder the goals of sustainable development. Two million deaths are projected to occur in India due to AMR by the year 2050. The World Health Organization (WHO) in 2017 had listed Methicillin-resistant S. aureus (MRSA) as a high priority pathogen due to high prevalence of resistance, mortality rate, and burden on community and healthcare systems. In 2018, a national study conducted by the Indian Council of Medical Research (ICMR) and Anti-microbial Resistant Surveillance Network (AMRSN) group highlighted the high prevalence of 38.6% of MRSA in India. A recent Indian study reports that 1 in 6 patients infected with multidrug resistant Gram positive infections, die in intensive care units.

The size of the Indian Antibiotic market is approximately INR 16,000 crore. Growing at 7%, it is one of the largest therapeutic segments with a 12% market share of the Indian Pharmaceutical Market.

Another Milestone Achieved in Breakthrough Anti-infective NCEs

In Q1, your Company received Qualified Infectious Disease Product (QIDP) status for WCK 6777 from the United States Food and Drug Administration (USFDA). WCK 6777 is a once-a-day combination antibiotic based on Wockhardts NCE Zidebactam, which imparts WCK 6777 the novel mechanism of p-lactam enhancer. Driven by the enhancer action, WCK 6777 overcomes an array of problematic bacterial resistance mechanisms such as metallo-p-lactamases, KPC and OXA carbapenemases. Further, Zidebactam has the unique ability to overpower other tough resistance mechanisms such as reduced drug uptake and drug efflux encountered in contemporary multidrug resistant (MDR) Gram negative pathogens.

Divestment of the French Business

During the year Wockhardt France (Holdings) S.A.S. (WFH), a step-down subsidiary of the Company, divested the Marketing Authorisations (MAH) of the products along with their Trademarks (collectively known as Business Assets) for a consideration of Euro 11 Million.

WFH, had business/marketable assets in the form of pharmaceutical marketing authorizations (MAH) of the branded generic products that has seen significant competition and price erosion over the years as a generic business. Considering soaring competition in the generic market and limited scope for further growth or to introduce new products in the market, it was prudent to divest Business Assets.

WFH received price consideration on 18th December, 2020, and outstanding loan in the Business was repaid in full.

Work From Home, Related Issues, and Technology

The COVID-19 pandemic and the consequent remedial measures adopted all over the world, has significantly disrupted civilisation resulting in a herculean task of reshaping the world. The whole world realised the gravity of the situation and was left with no alternative but for a prolonged quarantine.

Your Company had undertaken proactive steps from the inception of the pandemic across all facets of business operations and the safety of its people. Anticipating the onset of a major crisis in times to come, and in the best interest of all the internal stakeholders in focus, your Company quickly took a decision to roll out measures enabling Work From Home (WFH) for its associates as early as the third week of March 2020.

The Corporate IT Team quickly swung into action leveraging technology to enable WFH. Timely training sessions on remote connectivity were held in parallel before the WFH rollout; access to laptop devices; connectivity to SAP, Email and GXP applications; and access to various user folders were enabled. Collaborative tools like Zoom and MS Teams for making the collaboration more effective and productive while working from home were introduced. Post roll out, a dedicated IT Help Desk was created to cater to the WFH needs of associates.

Security standards were verified through a third party audit. A COVID Health assessment app was rolled out to assess the health of the associates. To strengthen the security system, face recognition and a contactless, IR-based wrist temperature monitoring solution was evaluated and implemented at all manufacturing locations, R&DD centre, and corporate offices.

While several challenges were faced initially, it was a learning opportunity for the organisation to evolve and transform itself, and to align its work culture with the best-in-class global practices. As on date, with the help of relentless efforts put together by all the stakeholders, and strengthening of the technology backbone, the entire WFH experience has become seamless for all associates.

Business Performance

Business performance during the year was a mixed bag owing to significant impact on business due to COVID-19.

The Domestic Business saw growth during the year mainly in the Diabetes segment and on account of the successful launch of the NCE portfolio. In addition to the same your Company also launched a couple of new products to replenish the India portfolio.

The Emerging markets business continues to grow robustly even amidst global challenges, as focus strengthens on penetrating new countries and adding new products, and tender wins for existing portfolio. A significant growth came from the Biotech segment.

The Companys focus on cost containment and rationalisation continues delivering its intended positive impact on profitability in spite of ongoing remedial measures.

The Companys International Businesses (US, UK and EU) continues to be under pressure because of aggressive channel consolidation and genericisation, which is impacting pricing. Secondly, to add to the existing woes, the COVID-19 pandemic continues to create havoc globally, thus affecting the normal volumes.

On the Domestic Business front there was de-growth mainly due to the divestment of DRL-related business post Q1.

During the year, the Companys Research and Development expenses continued to grow keeping in view its strategic focus on Pharmaceutical, Biotechnology and NCE segments and was approximately 6% of consolidated revenues.

REVENUES

Revenue from Operations during the year was Rs.2,762 crore compared to Rs.3,325 crore in the previous year with a decrease of 17%.

The revenue split of US Operations stood at 16% (compared to 22% as in FY 2020) while the European Business contributed 46% (compared to 35% in FY 2020). India and Rest of the World de-grew YoY but still contributed a robust 38% (compared to 43% in FY 2020).

PROFITABILITY

Irrespective of the decline in gross margins compared to the immediate previous year, the same across all the quarters continues to be either above or in line with the historic past or long-term average for the previous years. The temporary decline is an outcome of changing business mix accompanied with other factors like portfolio swings in favour of low margin business to capture growth opportunities to align to the overall company vision to expand its presence. Secondly, fluctuating material costs have significantly impacted due to shortages and disruptions over the pandemic phase.

On Y-o-Y basis EBITDA has declined mainly due to top-line reduction and significant material costs impact. Fixed cost rationalisation and cost containment measures have helped to improve the overall efficiencyand compensate for the above to some extent. The Companys strategic focus on R&DD initiatives that are futuristic in nature, continue to impact the EBITDA as they are being expensed.

Material consumption for FY 2021 stood at 41% of sales compared to 40% in FY 2020.

The companys emphasis on R&D continued during the year while adopting selective strategy for rationalising R&D spends which is reflected in spends for FY 2021 at~ 6%. Personnel costs as % to sales were higher than PY at ~26% due to lower base. However, in absolute terms, the cost de-grew by 7%.

Other expenses for FY 2021 were at 28% of sales compared to 23% in the previous year. Interest cost in absolute terms was lower by 10% compared to previous year mainly due to repayment of loans.

Other Income was significantly higher than the previous year by ~ INR 93 crore.

Exceptional Gains from DRL divestment deal resulted in an income of INR 1470 crore.

Profits after Non-Controlling interest (NCI) improved from (-2%) in PY to (25%) in FY 2021.

Particulars FY 20 FY 21 Change %
Material Consumption 39.7% 41.4% -1.7%
Personnel Cost 23.3% 25.8% -2.5%
R&D 6.3% 6.2% 0.0%
Other Expenditure 23.4% 28.3% -4.9%
Interest 8.3% 9.0% -0.7%
Depreciation 6.8% 8.9% -2.1%
Exchange loss/(Gain) -0.6% 0.1% -0.7%
Other Income -1.2% -4.8% 3.6%
Exceptional Item Profit/(Loss) 0.0% 48.1% -48.1%
Tax -4.6% 8.2% -12.8%
Profits (Before NCI) -1.3% 24.9% 26.2%
NCI 0.8% 0.1% 0.7%
Profits (After NCI) -2.1% 24.8% 26.9%

The Companys EBITDA margins remained more or less neutral in the current fiscal.

Expanding market and therapeutic presence, realignment of portfolio mix to high margin segment, exploring new revenue generation streams and aggressive cost contain- ment/cost rationalisation measures, remain the key focus in the near to mid-term.

DEBT AND LEVERAGE

The Net Debt to Equity ratio stood at 0.54 as on 31st March, 2021.

DEBT POSITION

INR in Crores
FY 21 FY 20 Change % Change
Secured 1,853 2,610 -757 -29%
Unsecured 473 237 236 100%
Preference Capital - 350 -350 -100%
Total 2,326 3,196 -870 -27%

Research and Development: The Companys Strategic Core

The Companys continuous strategic focus in complex research in Pharma, Biosimilars and NCEs for the past couple of years have shown encouraging results, particularly in the field of breakthrough Anti-infectives.

Global Antibiotic Markets and Antimicrobial Resistance Level Crisis

Antimicrobial resistance (AMR) or the ability of infections to resist antibiotics to work against it could negate many of the medical breakthroughs of the last century. Previously curable infectious diseases may become untreatable and spread throughout the world. The report "Antimicrobial resistance: Global report on surveillance" showed that antimicrobial resistance is prevalent everywhere and has the potential to affect anyone, of any age, in any country. Antimicrobial resistance is putting at risk the ability to treat even common infections both in the community and hospitals and without an urgent and coordinated action the world is heading towards a post-antibiotic era.

Antimicrobial resistance (AMR) is a major threat to human development as it affects our ability to treat a range of infections caused by bacteria, parasites, viruses and fungi. Treatments for a growing list of infections, including urinary tract infections, tuberculosis (TB), sepsis, gonorrhoea and food borne diseases, have become less effective in many parts of the world because of resistance. In the absence of an effective antibiotics modern medical procedures, such as major surgery, organ transplantation, diabetes management and cancer chemotherapy will become a very high risk1- 2. The severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) is a new coronavirus that was recently discovered in 2019. While the world is working hard to overcome and control the coronavirus disease 2019 (COVID-19) pandemic, it is also crucial to be prepared for the great impacts of this outbreak on the development of antimicrobial resistance (AMR)3.

Antimicrobial resistance (AMR) is a growing global problem to which the on-going COVID-19 pandemic may further contribute It is predicted that inappropriate and too much use of antibiotics, biocides, and disinfectants during this pandemic may raise disastrous effects on antibiotic stewardship programmes and AMR control all around the world. Furthermore, the use of certain antibiotics alone or in combination with antiviral agents or other medications for the treatment of secondary bacterial infections among COVID-19 patients may be regarded as a major factor that negatively affects host immune response by disrupting mitochondrial function and activity. The rising concerns about excessive use of antimicrobials and biocides and taking too much hygiene also need to be addressed during this pandemic due to their impacts on AMR, public health, and the environment3.

Burden of Resistance to Antibacterial Drugs

The overall health and economic burden resulting from acquired AMR cannot be fully assessed with the presently available data. However, some estimates of the economic effects of AMR have been attempted, and the findings are disturbing. In a WHO report on Antimicrobial Resistance: Global Report on Surveillance (2014), the yearly cost to the US health system alone has been estimated at US $21 to $34 billion4 dollars, accompanied by more than 8 million additional days in hospital4. Because AMR has effects far beyond the health sector, it was projected, nearly 10 years ago, to cause a fall in real gross domestic product (GDP) of

0.4% to 1.6%, which translates into many billions of todays dollars globally4. The CDC, in its 2019 report on Antibiotic Resistance Threats in the United States, estimates that 2.8 million antibiotic-resistant infections occur each year in US alone5.

The evidence obtained shows that AMR has a significant adverse impact on clinical outcomes and leads to higher costs due to consumption of health-care resources.

Infections caused by antimicrobial resistant strains of bacteria are unlikely to respond to standard treatments resulting in prolonged illness and a greater risk to health. For example, MRSA (Methicillin-resistant Staphylococcus aureus) is estimated to cause 64% more deaths than infections caused by a non-resistant strain of the bacteria6 as per a report published in 2015 (The Antibiotic Resistance Crisis by C. Lee Ventola). Antimicrobial resistant strains of bacteria are also more likely to be passed on to other people because those infected are sick for longer. The O Neill Review (The Review on Antimicrobial Resistance, December 2014) estimated that the global impact of AMR could be 10 million deaths annually by 2050, and cost up to US $100 trillion in cumulative lost economic output.7 The nature of this global problem emphasises the challenge that the UK faces when tackling AMR in the food supply chain.

The cost of healthcare for patients with resistant infections is higher than care for patients with non-resistant infections because of longer duration of illness, additional tests, and the need for more expensive medicines. The rise in resistance not only impedes our ability to treat infections, but has broader societal and economic effects, and endangers the achievement of the Sustainable Development Goals1- 8. The direct and indirect impact of AMR will mostly fall on low and middle-income countries, which often lack the infrastructure, and human and financial resources to adequately counter drug resistance epidemics8. The consequences of AMR are aggravated in volatile situations such as civil unrest, violence, famine and natural disasters, as well as in settings with poor health care services or without access to healthcare2, 9.

Antimicrobial resistance (AMR) is a widely recognised and growing global public health problem. Though there are no exact figures that capture the true global burden of AMR, let alone in low and middle-income countries (LMICs), latest estimates from the Antimicrobial Resistance - Benchmark 2018, show that AMR causes over 700,000 deaths annually worldwide6. At the same time, millions of people lack access to much needed antimicrobial medicines for curable infections, which is evident by the 445,000 community-acquired pneumonia deaths that occur in children under five10. The issue of AMR and lack of access must be addressed in tandem. Steps to increase access must include measures to prevent resistance, and steps to curb resistance must include measures to enable appropriate access. Addressing both requires a coordinated effort from various stakeholders, not least in government, but also across the healthcare and farming industries, and the development and global health communities.

The worst-case scenario in the coming future would be that the world might be left without any potent antimicrobial agent to treat bacterial infections. The global economic burden would be about US$ 120 trillion (US$ 3 trillion per annum), which is approximately equal to the total existing annual budget of the US healthcare system. In general, the world population would be hugely affected as of the year 2050, and birth rates would rapidly decline in this scenario9- 11.

Growing Demand!

The global antibiotic market was valued at USD 41 bn in 2020 and is expected to grow at a compounded annual growth rate of 4.5% from 2021 to 202812. Between 2002 and 2010, global consumption of antibiotics increased by 36%, and three quarters of this increase was accounted for by Brazil, Russia, India, China and South Africa (BRICS)6. Growing demand coupled with poor surveillance and stewardship is likely to further drive the emergence of resistant strains, particularly in high-burden areas.

There has been a steady decline in the number of the new antibacterial drugs approved and this decline in new antimicrobial agents along with the need to manage an increasingly complex healthcare environment, may require even more robust activity and innovative solutions.

In the near future, the next challenge will be to identify newer agents for the treatment of multidrug-resistant Gram-negative pathogens which are emerging at a rapid rate.

It is essential to take appropriate measures to preserve the efficacy of the existing drugs so that common and life-threatening infections can be cured.

Facts about Antibiotic Resistance14: (Antibiotic Resistance Threats in the United States, 2013- by Centers for Disease Control and Prevention-USA)

• Antibiotic resistance is one of the most urgent threats to public health.

• Every time a person takes antibiotics, sensitive bacteria are killed, but resistant ones may be left to grow and multiply.

• Overuse of antibiotics is a major cause of increases in drug-resistant bacteria.

• Overuse and misuse of antibiotics threatens the usefulness of these important drugs. Decreasing inappropriate antibiotic use is a key strategy to control antibiotic resistance.

• Antibiotic resistance in children and older adults is of particular concern because these age groups have the highest rates of antibiotic use.

• Antibiotic resistance can cause significant suffering for people who have common infections that once were easily treatable with antibiotics.

• When antibiotics do not work, infections often last longer, cause more severe illness, require more doctor visits or longer hospital stays, and involve more expensive and toxic medications. Some resistant infections can even cause death.

AMR is a global health security threat that requires concerted cross-sectional action by governments and society as a whole.

The overuse of antibiotics clearly drives the evolution of resistance. Epidemiological studies have demonstrated a direct relationship between antibiotic consumption and the emergence and dissemination of resistant bacteria strains. Emerging economies like Middle East, Latin America, and Asia- Pacific are important future growth drivers and one can expect the rising trend to continue for the next decade amidst unanimous shift in focus to put issues pertaining to AMR and Antibiotic access on the world priority list.

References

1. WHO Antimicrobial resistance (WHO Fact sheet). Geneva: World Health Organization; February 2018 (http://www.who.int/ en/news-room/fact-sheets/detail/antimicrobial-resistance, accessed 25 September 2018).

2. Laxminarayan R, Duse A, Wattal C, Zaidi AK, Wertheim HF, Sumpradit N, et al. Antibiotic resistance-the need for global solutions. Lancet Infect Dis. 2013; 13:1057- 98. doi:10.1016/S1473-3099(13)70318-9

3. Article on https://www.frontiersin.org/articles/10.3389/fmicb.2020.590683/full

4. Antimicrobial resistance: global report on surveillance.2014

5. CDC report "ANTIBIOTIC RESISTANCE THREATS IN THE UNITED STATES 2019" on https://www.cdc.gov/drugresistance/pdf/ threats-reportZ2019-ar-threats-report-508.pdf

6. The Antibiotic Resistance Crisis PMCID: PMC4378521; PMID: 25859123—

7. The Review on Antimicrobial Resistance, Chaired by Jim ONeill-

8. Ayukekbong JA, Ntemgwa M, Atabe AN. The threat of antimicrobial resistance in developing countries: causes and control

strategies. Antimicrob Resist Infect Control. 2017; 6:47. doi:10.1186/ s13756-017-0208-x

9. Gould IM, Bal AM. New antibiotic agents in the pipeline and how they can help overcome microbial resistance. Virulence. 2013; 4(2):185-191. [PMC free article] [PubMed] [Google Scholar]

10. Anti-microbial Resistance - Benchmark 2018

11. Bartlett JG, Gilbert DN, Spellberg B. Seven ways to preserve the miracle of antibiotics. Clin Infect Dis. 2013; 56(10):1445- 1450. [PubMed] [Google Scholar] -

12. Overview on Antibiotics market on https://www.grandviewresearch.com/industry-analysis/antibiotic-market

13. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7086080/

14. Antibiotic Resistance Threats in the United States, 2013-by Centers for Disease Control and Prevention (USA).

OPPORTUNITIES

Global markets continue to offer a plethora of opportunities because of transition in the form of lifestyle shift and related diseases in these countries. Because of the existing presence of operations in these economies, your Company is well poised to capitalise and tap these growth opportunities. Your company is striving in all aspects to establish its brand and ramp up its presence and operations in larger GCC countries, Latam Countries, New markets like Australia, New Zealand, Turkey, Malaysia, and significant partnerships in China, Japan and Korea.

The global crisis of antibiotics availability continues to pose a grave threat and the gap in the Anti-Infective segment has widened as relatively few drugs have been discovered in the last decade. However your Companys relentless focus for almost two decades in the Anti-Infective space has started showing recognition with consecutive approvals for QIDP in quick successions as well as approval from US FDA by granting abridged clinical trial for Phase III for its Superdrug antibiotic. WCK 5222. This was based on the evaluation by US FDA of its preclinical and clinical data of Phase I establishing safety and clinical scope of efficacy for the drug. Notably your company has 4 molecules (NCEs) as on date, which are at various stages of development.

The COVID-19 induced pandemic which started in year 2020 and its ongoing effects have opened up opportunities for pharmaceutical companies with nearly almost all major companies leveraging either their R&D capabilities or manufacturing strengths. Many R&D-based pharmaceutical companies are foraying into vaccines development, while those with stronger manufacturing capabilities and capacity are getting into CMO arrangements to reap near to long-term benefits of the same. India is expected to become the second largest COVID-19 vaccine manufacturer, after the US, given its capacity to produce for its local population and to export to other countries. Indias track record for vaccine manufacturing predates the pandemic, which means that scalable plans for contract manufacturing to meet global demand is as good as given.

The pandemic has gone a long way to disrupt the global supply chain with too many countries focussed on single location for sourcing of supplies. As a result of the disruption in supplies, economies have realised the importance of localisation and decentralisation. This has increased considerable opportunities for countries with dominant API manufacturing capabilities as well as robust CMO infrastructure. Importantly such initiatives are being backed by government incentive schemes and investment back-up.

The rising costs and regulatory pressures in developed markets are forcing many global pharmaceutical companies to reduce their internal capacities in Research and Development (R&D) and manufacturing and turn to Contract Research and Manufacturing Services (CRAMS) and outsourcing of research and clinical trials to developing countries. These strategies help multinational companies reduce costs, increase development capacity, and focus on their core profit making activities such as drug discoveries and marketing, rather than on manufacturing. India, with a large patient population and genetic pool, is fast emerging as a preferred destination for such multinationals seeking efficiencies of cost and time. The countrys CRAMS industry offers a significant cost-quality proposition with potential savings of about 30-40 percent compared to western markets such as the US and Europe.

Technology trends are driving a shift towards patient-centric healthcare, as evidenced by wearable biometric devices and telemedicine. This trend is resulting in more informed patients who are likely to take a more active role in any treatment plan their doctor may prescribe. Patient-centric care can provide challenges and rewards for the pharmaceutical industry. In the near future, the direct consumer may become the pharmaceutical companys most strategic partner. The rise of consumerism provides an interesting dynamic for competition in this industry. The pharmaceutical industry will be driven by three levels of integration: products and services as well as data and technology. These three aspects will have a positive impact on the patients experience, as they will allow to adapt the medicines and treatments to each patient. This will change the approach to Clinical R&D as it will be based on real time accurate information the result of which would not just be medicine but more than that.

Disruptive technologies and emerging trends such as robotics, artificial intelligence, 3D printing, precision medicine or patient design will impact the manufacturing and distribution of pharmaceuticals. In order to prepare successfully for a better future of healthcare, the pharmaceutical industry has to embrace new technologies and put a greater focus on prevention and digital health.

RISK & CONCERNS - WAY AHEAD

The last year witnessed volatility on macro-economic parameters globally. The Novel Coronavirus (COVID-19) has infected millions of people in more than 150 countries - a scourge confronting all of humanity, impacting lifestyles, businesses, economies, and the notion of common well-being. Recurring waves of infections surpassing its earlier peaks, have triggered events of lockdowns in many countries shadowing the already bleak prospects of economic recovery around the globe.

Even before the onset of this pandemic, the global economy was confronting turbulence on account of disruptions in trade flows and attenuated growth. The situation has now been aggravated by the demand, supply, and liquidity shocks that COVID-19 has inflicted. Once the pandemic is controlled, the shape and speed of the recovery in the US and China will be key factors determining the nature and traction of global economic recovery.

While your Company has been focusing in India and the rest of world on securing the population from health hazards and on providing relief, especially to the poor, we also need to think long-term to secure the health of the economy, the viability of businesses, and the livelihoods of people. Apart from providing robust safety nets for the vulnerable, ensuring job continuity and job creation is the key. And there is an urgent need to mobilise resources to stimulate the economy.

The events of economic activity halts and lockdowns in many parts across the globe has created shock, both on demand side and supply side, and has led to imbalances in almost each and every corner, which has a huge cost associated with it. The biggest challenge is to ensure that economies get back on track and operations resume normally while keeping a robust check and implementing a slew of measures to prevent relapses of new waves of COVID-19 infections. Ensuring more than adequate supplies of effective vaccines and covering the masses through vaccination drives is perhaps the biggest challenge in times to come, which would require collaborated efforts from the pharmaceutical sector that would provide the R&D and manufacturing infrastructure on one hand, while governments would need to co-ordinate and set the platforms to ensure deliveries on the other hand.

It would not be wrong to mention that customer expectations are rising and scientific productivity is lacklustre and stagnant, which poses a bigger challenge as to how the mismatch would be addressed. There is a dire need for developing and researching new medicines that can cure or prevent incurable complex diseases of the future. The ongoing pandemic is a perfect example of how unpreparedness for the worst could be disastrous in todays world.

Against the backdrop of all these challenges and concurrent issues, there are seven ways in which the business landscape will shift, not only in India, but the world around. Leveraging these will certainly help navigate the economically and socially viable path to the next normal:

1) Continuous innovations and anticipating the unexpected.

2) Shift towards localisation

3) Digital transformation

4) Cash being the new king for businesses

5) Shift towards variable cost models.

6) Supply chain resilience

7) Building agility

Apart from the above, evolving cGMP regulations have become stringent and the industry is striving unanimously to create world-class capabilities to adhere to the mandates. Corrective measures for US FDA clearance are still in process with significant automation, technology upgrades, and rollout of best practices at the manufacturing facilities. Your Company is monitoring the situation closely and is working with best-of-class consultants for resolution. Risk of regulatory quality compliance shall continue to remain critical for your Company in the future.

Pricing pressures in India continue to impact several organisations with latest NPPA circulars to include many critical drugs under the scope of price fixation/reduction. This has impacted the earnings of many Indian companies including yours. Amidst such challenges the Company has put remediation measures in place while ensuring growth, and strengthening of its other businesses comprising a new product portfolio, new revenue streams, and better brand management.

Your Company is a global player and is not insulated against such external risks despite a wide range of measures being taken. This has also, to some extent, impacted the earnings w.r.t. to countries where your Company operates in the home currency of these nations or where it is exposed to international transactions. This inherent risk will continue to pose challenges where the Company has a significant share of revenues from cross border operations.

Current status of QIDP Products: Spurring clinical development of NCEs in different territories

WCK 5222: An abridged Phase 3 global study protocol finalised in consultation with US FDA, EMA and Chinese FDA (NMPA). The study which was expected to commence in the second half of 2020 could not be initiated due to COVID-19 pandemic. Now, assuming that the pandemic would gradually be brought under control, the study is scheduled to start in in the second half of 2021. New batch of investigational product would be manufactured for phase III trials at FDA-approved contract manufacturing sites in Europe.

WCK 4282: Protocol for Global Phase III complicated urinary tract infection (cUTI) study has been discussed and approved by FDA and EMA. Chinese NMPA concurred that the product meets an unmet medical need and agreed with the clinical development plan and clinical study protocol. The study is estimated to commence in December 2021 and is being planned on 1000 patients globally.

WCK 4873: Obtained Indian regulator DCGIs approval for initiating Phase 3 study in India for the indication of community acquired pneumonia. The study for the same has already commenced in February 2021.

WCK 771 & WCK 2349: Both NCEs, which represent the first-ever India-discovered antibiotics were launched in June 2020. Both the drugs have been approved for Acute Bacterial Skin and Skin Structure Infections (ABSSSI) including diabetic foot infections and concurrent bacteraemia. Since their launch, several leading clinicians have been extensively prescribing them for the management of complex serious infections related to skin infection, bacteraemia, diabetic foot infection, and bone and joint infection. As of now, across India more than 3000 patients have been treated with these novel antibiotics.

WCK 6777: US IND has been accepted. However, phase I study is deferred till 2022 in view of the urgency to initiate Phase 3 studies for other three advanced-stage NCEs.

All the above NCEs have distinction of being conferred QIDP status by US FDA.

Your Company has a strong focus in developing intellectual property and filed 22 patents during the year under review. 21 patents out of 22 patents pertain to NCEs. During the year, 41 patents were granted of which 39 patents were for NCEs. Thus, year after year, a high success rate for the grant of NCE patents is maintained. Your Company continued to build on its Intellectual Property base with 3,187 cumulative patents filed and 763 cumulative patents granted as on 31 March, 2021.

Biotechnology Research of the Company

Development of Biosimilars and Biobetters is our Biotech R&D teams primary focus area. Biotechnology is viewed by global experts as the pharmaceutical technology of the future, and we have a very strong commitment to this field. Our highly accomplished multidisciplinary team of committed biotechnologists, biochemists, biophysicists, biochemical and chemical engineers as well as protein chemists is poised to develop biological drugs to address unmet clinical needs.

The biotechnology R&D team of the Company has succeeded in developing and commercialising Recombinant Hepatitis-B Vaccine (Biovac-B), Recombinant Human Erythropoietin (WEPOX), Recombinant Human Insulin (Wosulin), and Recombinant Insulin Glargine (GLARITUS), all of which have been well received in the market.

Your Company has a robust pipeline of recombinant therapeutic proteins for major healthcare needs. Out of these, Recombinant Interferon Alfa 2b and PEGylated G-CSF have already been approved for manufacturing and marketing in India. Other products at different stages of development are Recombinant Insulin analogues (Insulin Aspart, Insulin Lispro), Recombinant Darbepoetin, a GLP-1 agonist, therapeutic monoclonal antibodies, etc. Pharmacokinetic and Pharmacodynamic (PK/PD) study for Insulin Aspart is estimated to commence in Q3, 2020. Your Company, during the year, has received approval from RCGM, Department of Biotechnology, Government of India, for preclinical study report of Recombinant Darbepoetin and PK/PD study is expected to be initiated in 2021.

E. coli based platform technology for insulin has started displaying its potential, as revealed by the scale up studies in Project E, promising more than 24 Kg/batch in Project C and a capacity of ~3 tons/year in the existing plant, and with DSP up-gradation, a capacity of >6 tons/annum is achievable. The platform technology offers an opportunity with surmountable challenges to replicate the same for other insulin analogues.

Biobetters

Insulin for insulin-resistant/higher BMI diabetic patients:

In-house developed Biobetter Recombinant Human Insulin (200IU/mL): Consegna R and Consegna 30/70, have already been launched in India. With 50% volume reduction per dose, Consegna which promises reduced pain and better compliance, has been well received in the market.

Biotechnology team is also developing other Biobetter drugs like combination of insulin and insulin analogues; insulin/insulin analogues and GLP-1 agonist for addressing patients needs, particularly of insulin-resistant/higher BMI diabetic patients. Preclinical study for one of the Insulin/Insulin Analogue Biobetter drug product is planned to be initiated in 2020.

COMPANY OUTLOOK

The Companys long-term outlook continues to be promising given the following:

a. Overall growth in the global pharmaceutical industry

b. Continued focus on R&D in regards to its complex generic, biotechnology and NCE programmes

c. Companys global reach in regulated markets and continued efforts to enhance its reach in emerging markets

d. Increasing pipeline of niche & complex technology generic products

e. Expanding revenue streams by adding new partnerships and tie-ups to manufacture COVID-19 Vaccines.

SEGMENT-WISE PERFORMANCE

The Company is exclusively into the pharmaceutical business segment.

DETAILS OF RATIOS

a) Interest coverage ratio 0.99 to (0.20) - Adverse
b) Operating profit margin 7% to (2%) - Adverse
c) Net profit margin (1%) to 25% - Favorable
d) Return on Net worth (1%) to 18% - Favorable
e) Debtors turnover ratio 2.34 to 2.21 - Adverse
f) Inventory Turnover ratio 1.72 to 1.51 - Adverse
g) Current Ratio 1.41 to 1.60 - Favorable

There was a positive movement in the ratios such as Return on net worth, Net profit margin and Current ratio. These ratios have improved mainly on account of gain arising from the divestment of part of India Domestic branded business.

INTERNAL CONTROL SYSTEMS AND ADEQUACY

The Company has internal control procedures commensurate with its size and nature of the business. These business procedures strive to optimise use and protection of resources in compliance with policies and procedures. The internal control systems provide for well-defined policies, guidelines and authorisations and approval procedures. Internal audits are performed to test the adequacy and effectiveness of the internal controls laid down by management and to suggest improvements.

Internal Financial Controls laid out by the Company in accordance with the requirement of the Companies Act, 2013, were tested by Management using a self-assessment Tool implemented with the assistance from M/s Ernst and Young.

The Company has adopted a co-sourced model for internal audit. The internal audit team is assisted by M/s Ernst & Young who carried out internal audit reviews in accordance with the approved internal audit plan. Internal audit team reviews the status of implementation of internal audit recommendations. Summary of critical observations, if any, and recommendations under implementation are reported at quarterly Audit Committee meetings.

RISK MANAGEMENT FRAMEWORK

During the year, your Company has transitioned to a Risk Enabled Performance Management with the help of M/s Ernst & Young with an overall risk management practice across the organisation integrated with business planning. The overall objective of the framework is:

• Assess the impact of changes that have occurred in the business landscape over the past one year including key events; revisit identified risks impacting the company; include emerging risks such as those arising out of COVID 19 and remove redundant ones.

• Assess importance and implication of applicable risks and identify key risks requiring attention and monitoring by leadership team. Strengthen the risk culture of the organisation by enhancing awareness and shared understanding of the purpose of risk management across Wockhardt.

• Review the risk management structure, risk policy and framework for periodic review of risk events and mitigation plans.

• Satisfactorily meet compliance obligations relating to risk management that are applicable to the Company.

HUMAN RESOURCES

Wockhardts talent base, as on March 31st, 2021 stands at 2892.

Wockhardt recognises that Associates are most valuable asset and always encourages them to meet business requirements while meeting their career aspirations. The Human Resource Division mainly focuses on supporting the business in achieving sustainable and responsible growth by building the right competencies and capabilities in the organisation. It continues to emphasise on progressive Human Relations policies and building a high-performance ethos with a progressive mind-set where Associates are Empowered, Engaged, Productive, and Efficient.

At Wockhardt, Life Wins is a simple yet profound theme that defines our efforts, reflects our goals, highlights our aspirations, and characterises our business.

Our One Wockhardt motto creates a unique, value-driven, high-performance, and business-driven work culture. At Wockhardt, HR plays a central role in implementing the organisations vision and strategy by aligning HR to the business. Better HR policies provide more innovative and forward-looking HR focus and initiatives. Promoting diversity, learning environment, and work-life balance, establish a credible and integrated employee performance goal-setting. We are very happy to share that Wockhardt has been adjudged as recipient of BEST ONBOARDING AWARD 2019 award across categories, by People Matters.

The Wockhardt Way - nine core values of Winning, Openness, Courage, Knowledge, Humility, Ambition, Reputation, Depth, and Trust - are the fundamental principles on which we have built our business. We truly believe that the progress of our Associates and business are interlinked and thus created a work culture that offers a unique combination of our core values and functional proficiency.

At Wockhardt, we believe that Associates are the key players in business success and sustainable growth. In order to provide meaningful opportunities to our Associates for learning and growth, we have strengthened our internal talent management pool by launching various career programs for our field associates - Emerge, Surge and Upsurge - providing career visibility to development to our sales force.

Using PI has helped companys understanding of employees, potential strengths and particular characteristics. In this program, the associates are mapped with an aim to work on their strengths and areas of development through career conversations and leadership guidance to identify current job role fit and potential job role fit.

The Companys Whistle Blower Policy encourages people to report genuine concerns or grievances of illegal, unethical or inappropriate events (behaviour or practices) that affect the Companys interest/image. It also provides an adequate safeguard to the Whistle Blower against victimisation. The policy is available on the Companys website at www.wockhardt.com