MANAGEMENT DISCUSSION AND ANALYSIS PHARMACEUTICAL MARKET India is projected to be among the top 10 pharmaceutical markets globally by 2020. The Indian Pharmaceutical market has grown 12% in the past 5 years and it is projected that it will continue to grow at 12-13% in the next 5 years as well, as per IMS Prognosis report {SeP2015). The Indian Pharmaceutical Market for the year ended 31st December 2015 was estimated at over Rs.1000 billion growing at 15% over the brvious year. The market continues to be driven mainly by volumes and new introductions while only 3-4 % of the total growth of 15% is attributed to price increases. OPPORTUNITIES ANDTHREATS Increasing affordability among the fast growing middle class coupled with improving medical infrastructure and rising insurance penetration will continue to drive the growth of the industry. The hospital segment in particular is expected to grow at a significant rate with continuing expansion of the corporate hospitals groups, especially in the metro cities. The Ministry of Health and Family Welfare releases a list of National List of Essential Medicines {NLEM) whose prices are regulated by the Government. During the year under review, a revised NLEM was announced in which 106 new molecules have been added and 70 molecules were deleted from the the earlier list of 2011. This is likely to be implemented in the first half of 2016; the pricing brssures will thus continue. I n 2016, the industry will have to mandatorily follow the Unified Code of Pharmaceutical Medical Practices {UCPMP) which was a voluntary code promulgated by the Department of Pharmaceuticals in 2015 to implement ethical marketing practices. Your Company is already following strict guidelines with regard to ethical dealings with Healthcare professionals and welcomes this initiative in the overall interest of the image of your industry and forthe benefit of patients. SALES AND PROFITABILITY During the year ended 31st December 2015, your Company had total net sales of Rs. 204,928 lakhs as against Rs.187,500 lakhs in the brvious year, rebrsenting a growth of 9.3%. Profit before Tax and exceptional items increased from Rs. 30,606 lakhs to Rs. 39,701 lakhs, a growth of 29.75 %. The Profit after Tax and exceptional items grew from Rs 26,361 lakhs to Rs 32,149 lakhs in the year ended 31st December 2015. The major reasons impacting profitability were: Highersales and overall improvementin margins. p) Sale of your Company's Head Office building in Andheri, Mumbai in November 2015 for a total consideration of Rs. 11,100 lakhs. In addition, your Company also completed the sale in January 2015 of one floor in building called Hoechst House, Mumbai {fourfloors of which had been sold in 2014). The above transactions resulted in a Net Profit of Rs. 8,385 lakhs. DOMESTIC SALES REVIEW Domestic sales, which constituted 73% of total net sales, increased from Rs.137,726 lakhs in 2014 to Rs.150,028 lakhs in 2015, reflecting a growth of 8.9 %. PERFORMANCE REVIEW Your Company is among the leading multinational companies {MNCs) in the pharmaceutical market. Over the years, it has demonstrated its commitment towards patients by building expertise, capability & capacity, through investments and strategic partnerships. Your Company has over 3,500 employees, 2 state-of-the-art manufacturing sites in Ankleshwar and Goa and also exports to nearly 50 countries. Your Company offers a wide variety of therapeutic solutions across Diabetes, Cardiovascular diseases, Anti Infectives, Central Nervous System, Consumer healthcare, Nutraceuticals, Anti-histamines, etc. Four products of your Company viz. Lantus®, Combiflam®, Clexane® &Allegra® feature in the list of top 100 pharmaceutical brands in India. Lantus® was the 10th brand in the pharmaceutical market in December 2015. Diabetes: India has the second largest diabetic population in the world and hence there is a need for quality medicines at affordable price. Your Company is among the top companies in Diabetes with a significant brsence in Oral anti diabetics and Insulins. With some of the flagship brands like Lantus® and Amaryl®, this team is one of the largest teams of your Company contributing to almost 25% of the turnover. The addition of 200 new people in the sales team has helped reach many more doctors and thus make the portfolio available to many more deserving patients. The insulin portfolio has continued to grow double digits with its brsence in Basal and Premix categories. The Oral portfolio has continued to grow despite an older, established brand like Amaryl® because of the successful line extensions. Two new line extensions were launched in 2015; namely Amaryl® MV and Semi-Amaryl®. Amaryl® MV is a fixed dose combination containing Glimepiride, Metformin and Voglibose and is recommended for the treatment of Type II diabetes mellitus patients when diet, exercise and second line therapy with two drugs do not result in adequate glycemic control. This formulation improves compliance of patients who require multiple therapies for adequate glycemic control. Semi-Amaryl® contains 0.5mg of Glimepiride and is recommended to be used as a first line therapy in Type II diabetes mellitus patients, when blood glucose levels cannot be controlled adequately by diet, physical exercise and weight reduction alone. The team has always focused on high quality scientific interactions with doctors, sharing the latest updates in the management of diabetes and driving awareness and diagnosis though meetings, symposia and national conferences. A series of medical education programs were conducted aimed at educating physicians on appropriate and early Basal insulin initiation. A series of symposia were also conducted on building conviction on the superiority and safety of modern sulphonylureas and their continued relevance in the treatment of diabetes. Avery strong patient support program, running successfully for over a decade has also helped patients in their journey in understanding the disease and improving their quality of life. Lantus® won the brstigious AWACS AIOCD industry award as the Best Brand of the year-Silver category for Marketing Excellence. • Lantus® grew by 20% in value terms. It continues to be the no. 1 brand in the analog market. • Insuman® and Apidra® each grew over 50% in value terms. • Allstar™ pens, indigenously manufactured by your Company, have helped initiation of patients on the insulin portfolio. • Amaryl® group continued to grow in value terms. By increasing the brscriber base and thus improved volume growth in the Amaryl® plain as well as its line extensions we have offset the value erosion due to the 44% price cuts in Amaryl® in the later part of 2014. • Cetapin® group grew over 10% in value terms and is the 3rd largest brand in the crowded Met formin market. Cardiology: Your Company is brsent in anti-hypertensive drugs like Angiotensin Converting Enzyme Inhibitors {ACEi), Diuretics, Angiotensin Receptor Blockers {ARB)and recently entered Beta Blockers as well. Cardace® group, the flagship brand in this team, continues to grow despite being in the market for over 2 decades. This has been possible due to the series of successful line extensions over the past 5 years. It continues to be the no. 1 ACE Inhibitor brscribed by Cardiologists, Diabetologists and Consulting Physicians. With the aim to enterthe Beta blocker space, the team launched a new brand Metosan™ XR in 2015. It contains extended release form of Metoprolol Succinate Extended Release and is recommended in the treatment of essential hypertension, in the management of angina pectoris and in heart failure. The team has continued to focus on highly scientific interactions with doctors and driving awareness in the areas of management of Hypertension and importance of treating for long term Cardiovascular protection. The team partnered with the Indian Society of Hypertension to educate physicians on the latest advances in the management of hypertension. Consumer Healthcare division: Your Company acquired the Nutraceutical portfolio of Universal Medicare in 2011. This portfolio grew 6% in value terms over 2014. The creation of 2 teams namely Bone and Joint team and Women's Health team with clear focus on few strategic brands has helped the growth of this portfolio. The Bone and Joint team also launched a line extension of Collaflex® {recommended in the treatment of Osteoarthritis) by the name Collaflex® Pro in 2015. It is a fixed dose combination containing Bioactive Collagen Peptides, Glucsamine and Vitamin C which promotes cartilage health and supports mobility in patients of Osteoarthritis. Your Company's iconic brands such as Combiflam® and Soframycin® have recorded a growth due to a larger reach of pharmacies and distributors. A trade program launched amongst wholesalers has helped growth of these iconic brands. Combiflam® group grew 6% in value terms. It is the second largest brand in the Non-steroidal Anti-inflammatory {NSAID) market. Soframycin® skin cream grew by 18%. Hospital: Your Company is brsent in Thrombosis and high end injectable Anti Infective categories. Clexane® continues to be the no. 1 anticoagulant brand. Clexane® grew in volumes due to increased penetration in key hospitals. The team launched campaigns to differentiate Clexane®, the original Enoxaparin vs. the biosimilars available in the market. A series of scientific medical symposia were conducted to improve the awareness of the risk of Deep Vein Thrombosis {DVT). A series of DVT risk assessment drives were conducted in key hospitals across the country. CNS: Your Company is mainly brsent in the Epilepsy market. Frisium® grew over 15% in value terms. It is ranked no. 6 in the highly competitive Anti-epileptic market. One of the successful initiatives of the team is "Seizure Free India" campaign, running successfully for over 6 years. This campaign aims at increasing the patient awareness on epilepsy and its management with the support of doctors. The team has also conducted numerous highly scientific programs aimed towards updating the Neurologists on the latest updates in the field of neurology and recent advances in the management of epilepsy. These updates were also shared with doctors through participation in national and international conferences. Anti-Histamines: One of the flagship brands of your Company, Allegra® group grew over 20% in value terms. It is the no. 1 brand in the anti-histamine market and Allegra® suspension is the no. 2 brand in the liquid anti-histamine market. The team stepped up the scientific marketing activities with surgical workshop based CMEs for ENT specialists and cross-specialty CMEs for discussions related to allergies. EXPORT SALES Exports which contributed to 27% of total net sales, crossed the Rs. 5 billion milestone for the first time with sales of Rs. 54,900 lakhs, rebrsenting a growth of 10% over 2014. There was a significant growth of 14% in volumes which was partially offset by the significant dropinthe Euro. Major markets were Germany, UK, Australia and Russia. Top product groups were Paracetamol + Coedine tablets, Metformin tablets, Articaine Hydrochloride and Festal®. There was a drastic reduction in volumes of some products exported to Russia such as Baralgin® ampoules, Baralgin® tablets and Trental range. Exports to Ukraine were impacted due to non-availability of a product. There was a significant reduction in the volume of AllStar™ pens exported due to the absence of tenders. Nutraceutical products were exported to Pakistan and Sri Lanka. MANUFACTURING OPERATIONS In pursuance of its vision, overall manufacturing systems and processes witnessed significant improvements. Both the industrial sites embarked upon the journey towards implementation of Sanofi Manufacturing System for enhancing manufacturing performance excellence through LEAN Industrial Culture, Efficient operating systems and Agile end to end flows {ways of working). Athena Manufacturing system was successfully implemented for all manufacturing sites which intends to enhance overall process efficiency. Key milestones were achieved in terms of industrial footprint with launch of new products, achieving highest ever volumes and commissioning of important projects. Ankleshwar as well as Goa sites recorded highest ever production volumes of 5 billion and 3.5 billion tablets, respectively in 2015. Ankleshwar commenced its first generics exports to UK with exports of Paracetamol while Goa continued its generics journey with exports of Metformin and Glimipiride. Your Company established a Chemistry and Biochemistry development (C&BD) center in Ankleshwar during the year. This is an important facility to support R&D projects for the Sanofi Group, provide in-house API sourcing solutions and permit small scale launches from the C&BD pilot plant. Ankleshwar site contributed to the environmental cause with the commissioning of an overhead drainage system. The QA laboratory in Goa was remodeled to upgrade quality infrastructure. Ankleshwar site received formal MHRA GMP Compliance certification for 3 years. Goa site took another step towards compliance with international standards {GS1) with the implementation of 2D Barcoding for Metformin exports to France. Both sites were re-certified by ISO and OHSAS. Goa site retained its Bestin Class rankon various parameters studied in Global Pharma benchmarking conducted byMckinseycalled "POBOS" in 2015. {The earlierstudy in 2013 had also ranked Goa as Best in Class.) MEDICAL AND REGULATORYAFFAIRS In 2015, the Medical Affairs team, in collaboration with the Clinical Study Unit, Publications, Quality, and Marketing and Sales teams, undertook several initiatives that successfully enhanced the scientific image and credibility of the organization. In the area of diabetes, the key focus for in sulins has been on educating physicians on appropriate and early basal insulin initiation. To support the same, scientific content with certification of the Endocrine society, was rolled out across the regions which included many new territories in view of the geographical expansion. Regional Medical Advisors were also recruited this year to support the regions. Your Company conducted 3 scientific sessions in National Conferences and a symposium on Biosimilars and Place of Glargine among newer Insulins at the Research Society for the Study of Diabetes in India {RSSDI). In the hospital space, your Company has supported the development of In-hospital Management of T2DM, the IHOP initiative, which aims at developing a common protocol for diabetes managementin hospitals. In the oral diabetes portfolio, your Company supported the SAFES group in coming up with the South Asian consensus on the safe and smart use of Sulphonylureas, which was recently published in the Indian Journal of Endocrinology and Metabolism and will now be cascaded to more physicians. A health economic study was initiated on Insulins at a Government institute and received approval for an 1ST on use of basal plus compared to brmix insulins in India. In the area of Neurology, your Company participated/ conducted National Epilepsy Expert forums, International Speaker programs focusing on improving physician education on epilepsy management. In the area of psychiatry, your Company conducted Physician education and public awareness through International Speaker Programs and Awareness drives. A meeting of the United Airway Disease Advisory Group was held to provide recommendations on management of Co-morbid Allergic Rhinitis with Asthma. Clinical Research is the key to the development of new drugs and therapies. Since the effect of the drug is unknown, a lot of safety aspects, ethical aspects and regulatory aspects need to be taken into consideration while conducting a clinical trial. This demands investigators, hospital staff and ethics committee members to be properly trained and made aware on all the aspects of clinical research to ensure that the data received is accurate and credible and at the same time the rights safety and well-being of the subject (Clinical trial participant) is taken care of. To meet the challenges of this highly regulated industry, your Company routinely conducts training workshops called Clinical Excellence Programs (CEPs) for different stakeholders in clinical research including investigators/physicians, their hospital staff members and ethics committee members all over the country. As a part of your Company's knowledge-sharing mission, training programs were conducted covering over 125 attendees at hospitals across the country. These programs included training sessions on areas emphasizing ethical practice in clinical research with viewpoints from key opinion leaders and other relevant stakeholders involved in trials. HUMAN RESOURCES Your Company had 3663 employees as on 31st December2015. The overall industrial relations atmosphere continued to be cordial. A settlement has been signed with the internal Union rebrsenting the Medical Rebrsentatives on their Charter of Demands. The settlement is valid forthe period from 1st April 2013 to 31st March 2016. Negotiations are continuing with the Union rebrsenting the workmen in the Goa factory on their Charter of Demands as the earlier settlement had expired in March 2014. A fresh Charter of Demands has been received from the Union rebrsenting the workmen in the Ankleshwar factory as the earlier settlement was valid till 31st December2015. During the year ended 31st December 2015, the Internal Complaints Committee constituted by the Company in accordance with Section 4 of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013, did not receive any complaints of sexual harassment from female employees. INTERNAL AUDIT AND CONTROL Your Company's internal systems are adequate and commensurate with the size of operations. These controls ensure that transactions ? re authorised, recorded and reported on time. They ensure that assets are safe guarded and protected against loss or unauthorised disposal. The Internal Audit department carried out audits in different areas of your Company's operations. Post audit reviews were carried out to ensure that audit recommendations were implemented. The Audit Committee of the Board of Directors reviewed the audit programme and findings of the Internal Audit department. DRUG POLICY Government notified in May 2013, the Drugs (Prices Control) Order, 2013 (DPCO2013). Many of your Company's products fall under the Schedule I of DPCO2013, where the prices are controlled. Your Company is compliant with the Government orders on prices. As a result of ceiling price fixation orders passed on 10th July 2014 by the National Pharmaceutical Pricing Authority (NPPA) under para 19 of DPCO 2013, prices of two products of your Company namely Cardace® and Amaryl® were significantly reduced. This continues to have adverse impact on the profitability of your Company. Your Company continues to sell the products at reduced prices in compliance with these orders. The Organisation of Pharmaceutical Producers of India (OPPI) (of which your Company is a member) which had filed a Writ Petition in the Delhi High Court challenging these arbitrary price fixation orders is pursuing the same. NPPA had, by notification issued in September 2014, reduced prices of two of your Company's products, Avil® and Lasix®. While complying with the prices notified under these notifications, your Company filed a Review Application with the Government against this price fixation. Based on the orders passed by the Government, in March 2015, NPPA, in supersession of the prices notified in September 2014, notified revised prices, thereby restoring the prices brvalent prior to September 2014. Accordingly, there has been relief from the adverse impact of the prices notified in September2014. In December 2015, the Ministry of Health and Family Welfare, has notified the National List of Essential Medicines, 2015 {NLEM 2015). This list includes some major products of your Company namely Amaryl®, Brodactum®, Cardace®, Cetapin®, Frisium® and Taxotere®. Under the provisions of DPCO 2013, ceiling prices of these products would be fixed by NPPA in due course. Your Company would have to reduce the prices of these products once the ceiling prices are notified. The impact on the profitability would be known onlywhen the ceiling prices are notified. PROSPECTS FOR2016 Growth in volumes in domestic sales would be partially offset by the reduction in prices by the inclusion of new products in the National List of Essential Medicines. Measures have been planned for restricting Operating expenses. The activity in exports would stay stable. The Ministry of Health and Family Welfare has, by a notification issued on 12th March 2016, banned the manufacture and sale of several fixed dose combinations. Your Company like other pharmaceutical companies has challenged the notification before the Delhi High Court, as its product Amaryl® MP is covered by the notification. However, it does not have a material impact on your Company as the turnover from this product constituted less than 0.4% of its turnover for2015. A Short Path Distillation Unit {SPDU) is being installed in the Ankleshwar factory for separation of high boiling impurities from main products. Taking energy optimization forward, Heat recovery boiler is planned to be installed in Ankleshwar to generate steam from exhaust flue gas & new vapor absorption machine to generate chilled water from jacket hot water. There will be more exports of generics from Ankleshwar. The effluent treatment plant in Goa will be upgraded. CAUTIONARY NOTE Certain statements in the above Report may be forward looking and are stated as required by legislations in force. The actual results may be affected by many factors that may be different from what the Directors/ Management envisage in terms of future performance and outlook. |