MANAGEMENT DISCUSSION AND ANALYSIS REPORT

India is among the top 12 biotech destinations in the world and ranks second in Asia, after China. The Indian biotech industry is likely to experience significant growth on the back of increasing economic prosperity, health consciousness and a billion-plus population base. Current estimates value the industry at US$ 7 billion in FY15, which is expected to grow at 30.46 per cent Compound Annual Growth Rate (CAGR) to US$ 100 billion by FY25.

The sector is divided into five major segments: bio-pharma, bio-services, bio-agri, bio-industrial and bio-informatics. Biotechnology industry's growth in India is primarily driven by vaccines and recombinant therapeutics. Going forward, India also has the potential to become a major producer of transgenic rice and several Genetically Modified (GM) or engineered vegetables.

The Government of India has taken several initiatives including a biotechnology industry partnership program to develop new technologies and launched a National Rural Healthcare Mission to boost healthcare spending. As per the 12th Five-Year Plan, the government aims to spend US$ 3.7 billion on biotechnology compared to US$ 1.1 billion in the 11th Five-Year Plan to accelerate the pace of research, innovation and development. In addition, the Department of Biotechnology (DBT) has designed the National Biotechnology Development Strategy (NBDS) to strengthen the industry's human resources and infrastructure while promoting growth and trade. Furthermore, the Government has allowed 100 per cent Foreign Direct Investment (FDI) through the automatic route for manufacturers of drugs and pharmaceuticals.

Opportunities and challenges

Till 1980 and 90s big pharma companies largely disregarded the biotech industry because of lack of its brdictability. However, these same companies began to embrace biotech's innovative breakthroughs.

It is estimated that global pharmaceutical companies will lose more than US$230 bn in revenue due to patent expirations between 2013-18. Additionally, recent successes of several biotech firms has grown them to sizes that rival big pharma blurring the line further as two business models morph.

In comparison to the pharmaceutical industry, Biotechnology sectoral opportunities are similar. But the key difference is that biotech firms are focused on research and new product development as opposed to sales and marketing.

Then how do the biotech firms generate revenues.

a) Access to significant and continuous capital investments is critical to maintain sustainability.

b) New drug development is estimated to cost hundreds of crores of rupees and can take up to 8-12 years. Once a viable product reaches a critical milestone, many smaller firms seek alliances with larger pharma firms

Specialty drug category is projected to experience 66.8% growth between 2013-18 as compared to 4.1% in traditional categories. Therapeutic areas of increasing interest and specialty drug development include oncology, diabetes, auto-immune disorders and infectious diseases.

The real threat to your company at this stage is lack of critical financial support to expose its full potential of opportunities to make alliances with large global players apart from the much needed funds to support any initiative for marketing efforts.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Transgene has a robust internal audit and control system managed by qualified and experienced people. Your company also ensures that transactions are authorized, recorded and reported correctly.

DEVELOPMENT OF HUMAN RESOURCES AND INDUSTRIAL RELATIONS

At Transgene, people are our most important asset and a source of competitive advantage. Transgene is committed to create an organization that is focused on people and their capability, and fostering an environment that enables them to deliver superior performance.

The Human Resources strategy is aimed at talent acquisition, development, motivation and retention. The HR functions and acts as an effective lever for driving the company's strategic initiatives and helps in integrating and aligning all people practices to Transgene's business priorities. Our employees remain crucial to the success of Transgene and it is their skill and expertise that have enabled us to achieve our progress to date.

NOTE OF CAUTION

This annual report includes forward-looking statements regarding Transgene's plans, prospects, strategies and performance, etc. The occurrence of any of the following risks described below and elsewhere in this document, including the risk that our actual results may differ materially from those anticipated in these forward looking statements, could materially adversely affect our business, financial condition, operating results or prospects and the trading price of our securities. Additional risks and uncertainties that we do not brsently know or that we currently deem immaterial may also impair our business, financial condition, operating results and prospects and the trading price of our securities.