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Chairman's Message

At its core, our strategic blueprint for the next decade diversifies risk and envisages the systematic unlocking of high-growth and profitable new revenue streams across the pharmaceutical value chain with a view to delivering on goals in a riskier and more uncertain world

Dear Shareholders,

These are testing times for the global drug industry. In advanced markets, prices are under pressure from greater competition, a rapidly consolidating group of buyers/ channels with more bargaining heft, and governments keen to cap spiralling healthcare costs. Regulators from these markets have also stepped up their scrutiny of manufacturing units supplying into their markets, and drug inspectors are taking a tough stand on even relatively minor deviations.

As countries move towards regulatory harmonisation, drug control administrations in emerging markets are raising the bar for approvals. A case in point is the Indian government’s attempt to take a sizeable number of fixed dose combinations off the market citing irrationality; though not entirely successful, it is a sign of things to come.

Drug pricing is a recurring theme across markets and product segments. Then, governments across the world are on a drive to push local manufacturing and job creation. Success, therefore, also depends on being able to skilfully navigate myriad business and political landscapes and invest judiciously.

Glenmark continued to deftly manoeuvre through these challenges and delivered strong growth in FY 16-17. Our consolidated revenues in the 12 months ended 31 March 2017 rose from 20.08% to Rs 91,856.81 mn (USD 1,371.62 mn). Our net profit for FY17 was Rs 9,159.21 mn (USD 136.77 mn).

During the year under review, our India Formulation business recorded a stellar performance, growing at 9.22%. This is despite one of our largest products being brought under price control and the regulatory uncertainty around certain fixed dose combinations. In the US, our largest market, our business grew by 52.90% benefitting significantly from the increasing number of approvals. The standout launch during the year was that of the first and only generic of Merck’s cholesterol drug ZETIA® with 180-day exclusivity, in partnership with Endo International. Besides the launch of generic ZETIA®, the base business also recorded strong growth. The US generics market continues to be challenging with greater price erosion, consolidation of the supply chain and increasing number of competitors.

GBR 310 has the potential to be the first biosimilar of XOLAIR®. This product is of special interest to us as it is indicated for disease conditions in two of our three focus therapy areas i.e respiratory and dermatology

The Europe business, on a constant currency basis, performed well. However, in the UK, our largest market in Europe, business was impacted by the devaluation of the pound sterling. This adversely affected the Company’s overall performance in this region.

In emerging markets, while the Russia business rebounded strongly, we stopped selling in Venezuela from the third quarter of FY17. We also took a write-down on the cash that is presently lying in our Venezuela subsidiary.

The Active Pharmaceutical Ingredients division performed very well on account of new launches with exclusivity periods and strong domestic sales. In the year ahead, we are confident of growing both revenues and profits with improved performance in the base business and new product launches in multiple markets.

Our confidence stems from a meticulously crafted strategic blueprint for the next decade. At its core, this strategy diversifies risk and envisages the systematic unlocking of high-growth and profitable new revenue streams across the entirety of the pharmaceutical value chain. It has been devised with a view to delivering on goals in a riskier, more uncertain world.

With this blueprint as our guide, we are prepared to transition from being a generics-driven organisation to one that has an optimal mix of generics, specialty and research-driven innovative products. We will do this by remaining tightly focussed on three key therapy areas: oncology, respiratory and dermatology. In these three fast-growing therapies characterised by substantial gaps in treatment options, the combined force of our product development/ manufacturing skills and our marketing expertise - built over decades and across geographies - will yield definitive results not just for investors but also for patients in need.

The building blocks are already in place. Generics continues to be the engine of growth. Our products are now available in nearly all major geographies. While India is our primary production base, we have a manufacturing presence across four continents.

In emerging markets, we have built a strong branded generics portfolio with a loyal prescriber base. In the US and western European markets where commoditisation of generics is a real danger, we have created a pipeline of complex, niche and difficult-to-make generics such as cyotoxic injectables, and respiratory inhalers, through a combination of internal developmentand licensing to stave off competition and protect prices. We continue to exploit first-to-file opportunities in the US for blockbusters such as generic ZETIA®, launched in December 2016. We expect to file 20-25 ANDAs each year over the next five years and launch between 10 and 20 products annually.

While remaining positive on the generics opportunity, we also anticipated the so-called ‘new normal’ in the global generics business and planned our investments in differentiated and innovative products.

Our pipeline of specialty products, to be rolled out over the next three to four years, is expected to act as a defence against generics price erosion and increase in competition, and boost profitable growth. GSP 301, a novel fixed dose combination of two drugs in a nasal spray format for seasonal allergic rhinitis is our first branded, specialty product to clear Phase III, the final phase of clinical trials. We will seek USFDA approval for it in Calendar Year (CY) 18. Besides GSP 301, we are also excited about GBR 310, a biosimilar of the allergic asthma and Chronic Idiopathic Urticaria drug XOLAIR®. This product is of special interest to us as it is indicated for disease conditions in two of the three therapy areas that are of critical importance to the organisation, i.e., respiratory and dermatology. GBR 310 has the potential to be the first biosimilar of XOLAIR® on market and a Phase I study has already been initiated. We expect to file for marketing approval in CY 20.

In the three chosen therapy areas, the combined force of our product development, manufacturing skills and also our marketing expertise will yield definitive results not just for investors but also for patients in need

Over a decade ago, we began a novel R&D effort in the face of skepticism.

It is a matter of pride for us that those efforts, continued in spite of reversals and relatively limited financial resources, are yielding results. Scientists at our biologics laboratory in Neuchatel, Switzerland have developed a proprietary, cutting-edge technological platform called BEAT® (Bispecific Engagement by Antibodies based on the T-cell receptor). This platform, which has been successfully developed by surmounting substantial hurdles of scale-up and purification, allows us to make a new range of targeted therapy in cancer treatment

These are bi-specific antibodies (bsAbs) that can work on not one but two targets in the body implicated in cancer and are thus potentially more effective than available therapies.

Key among these is GBR 1302, a potential first-in-class treatment for HER2+ breast and gastric cancers that is currently in Phase I trials. In preclinical studies, it showed faster and more complete killing of tumor cells compared to existing first-and-second-line treatments. GBR 1342 for mutliple myeloma and GBR 1372 for colorectal cancer are some of the other exciting bsAbs based on the BEAT® platform that are being prepared for clinical development.

Among monoclonal antibodies, we have GBR 830, a potential best-in-class OX40 antagonist that is currently in Phase II trials in the US and Canada for moderate-to-severe atopic dermatitis. It is also the first OX40 antagonist globally to successfully complete Phase I studies. We are exploring the development of GBR 830 in other autoimmune diseases, as well.

The innovative R&D business has the ability to greatly boost our revenues and profits while also paving the way for Glenmark to take its place in the global club of pharma innovators.

Barring unforeseen circumstances, we are well-positioned to deliver on our strategy such that by 2025, specialty and innovative products will comprise 30% of our revenues. Over the last few years, we have invested significantly in the business to mark the step-wise transition from generics to an innovation-driven organisation. As we see it, over the next three years, generics will continue to fuel our growth. After that we expect the unlocking of revenues from the specialty/innovation business. Thus, the next few years will see consistent revenues and profitability without the need for inorganic growth through acquisitions.

We are well-positioned to deliver on our strategy such that by 2025, specialty and innovative products will comprise 30% of our revenues

Growth will not come at the cost of profits. We anticipate steadily improving our profitability margin from 22% - 25% by 2025. Our R&D expenses will stay at roughly 11% - 12% of revenues.

None of this has happened overnight or even by accident. We have painstakingly built the skill sets required in various aspects of innovation over the last several years. We have consciously kept away from being a consolidator, a route favoured by many in the pharma industry for its speed in acquiring scale, to follow a slower, and in our opinion more sustainable, approach of building internal expertise. As Glenmark continues to deliver strong growth organically, we do not see any need to depart from that approach.

There is an area, however, where we do plan to do things differently from the past. In the licensing of our new molecules for further development, we now possess the financial and scientific wherewithal to be equal stakeholders in the development process with our potential partners. We anticipate doing co-development deals as opposed to signing away our development rights in exchange for upfront payments and milestones. Having said that, we will also license out drug candidates at a later stage of development - after successful proofof- concept studies in human subjects so as to maximise asset value.

On the manufacturing front, it is a matter of pride for us that we have no outstanding issues with the USFDA. Compliance continues to be a top priority for the organisation.

We are deeply aware that the challenging market conditions, an evolving regulatory landscape, the high costs of R&D and the risks inherent to the business make this road that we have charted for ourselves, a tough one. But we also believe that it is one worth taking.

As we embark on this exciting journey into a new orbit, I would like to express my sincere gratitude to you for continuing to place your trust in us and to seek your continued support and guidance in future.

Yours Sincerely,

Glenn Saldanha
Chairman & MD