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Management Discussion & Analysis

Global Environment
Glenmark Asia team

The World Economic Outlook (WEO) recently raised its projection for global growth to 3.5% for 2017 compared to 3.4% in 2016 due to pick up in overall demand. Stronger activity and expectations of more robust global demand, coupled with agreed restrictions on oil supply, have helped commodity prices recover in early 2016. However, the long term potential growth rates remain subdued across the globe, especially in advanced economies with protectionism attitude towards its trade policy. The activity is projected to pick up in emerging markets and developing economies because the strained conditions are gradually expected to improve, supported by the partial recovery in commodity prices, while growth is projected to remain strong in China and many other developing nations. In advanced economies, the pickup is primarily driven by higher projected growth in the United States, where activity was held back in 2016. Hence, the projected pickup in growth in the next two years primarily reflect forecasts of a gradual improvement of growth rates in countries currently in economic distress, notably Brazil, Russia, and some countries in the Middle East, though the growth momentum is still modest and downside risks continue to dominate, with heightened policy uncertainty and persistent structural headwinds could be frustrated by new economic or political shocks.

India remains the fastest growing economy in the world, despite the demonetisation, which temporarily disrupted the economy in the latter half of the FY 2017. The economy is set to grow at 7.4% in the current fiscal year 2017-18 against 7.1% in the previous year, on the back of pick-upin consumption demand and higher public investment. However, India imports nearly 80% of its fossil fuel needs, a rapid increase in the priceof oil could undermine the country’s fiscal position, effect inflation badly and swell the current account deficit, which may pose a potential risk for the Indian economy.

Global Pharma Scenario

Reports project global health care expenditures to reach USD 8.7 trillion by 2020, from USD 7 trillion in 2015, driven by improved treatments in therapeutic areas coupled with rising labor costs and increased life expectancy. Health care spending as a percentage of gross domestic product (GDP) is expected to also rise slightly, from an estimated 10.4% in 2015 to 10.5% in 2020. Government health care expenditures as a percentage of GDP are projected to rise more quicklyin low-income countries than other income groups. Life expectancy is projected to increase by one year by 2020, which will increase the aging population (over 65 years old) by 8%, from 559 million in 2015 to 604 million in 2020. While the developed markets would continue to use branded and specialty medicines the pharmerging markets would use more non-original brands, generics and over the counter products. Furthermore, the adoption of newer medicines will remain higher in developed markets than in pharmerging markets.

The spending on medicines across all regions is projected to increase. The US is the largest pharmaceutical market in the world accounting for approximately 35% of the global share. Analysts expect that the lower price advantage associated with generic drugs may be partially offset by increasing industry consolidation. Single-digit spending growth is forecast for the US market.

Global health care expenditures are projected to reach USD 8.7 trillion by 2020, from USD 7 trillion in 2015, driven by improving treatments in therapeutic areas coupled with rising labor costs and increased life expectancy

The US market is expected to fall and projected to grow 6% to 9% through 2021.

The US will account for 53% of forecasted growth over the next five years while China will continue as the second largest market, a position it has held since 2012, contributing 12% of the growth. Developed market spending growth will be driven by original brands while pharmerging markets will continue to be fueled by non-original products that make up an average 91% of pharmerging market volume and 78% of spending.

European market is expected to maintain tight constraints on drug budgets. Forecasted low pre-rebate and discount growth of 1% to 4% in the EU5 countries (France, Germany, Italy, Spain, the United Kingdom). The impact of BREXIT on the UK pharmaceutical market is expected to be modest, driving at most a 1.5% slower growth rate.

The growth in spending on medicines in pharmerging markets by 2020 would be about USD 125 billion primarily driven by wider use of medicines. The per capita increase in volume and spending is expected to result from the strong commitment by government to widen the access to healthcare and the expanded private insurance in these markets.

Financial Summary

Material Consumed and Purchase of Traded Goods:
Cost of Material consumed including finished goods purchased were at 26,143.26 mn in FY 2016-17 as against 23,025.84 mn in FY 2015-16 and as a percentage to sale of products was at 29.15% in FY 2016-17 as against 30.88% of FY 2015-16.

Employee Cost:
Employee cost was at 16,408.06 mn in FY 2016-17 as against 13,781.95 mn in FY 2015-16, an increase of 19.05% mainly attributed to increase in heads count due to expansion of business and inflationary trends prevailing in the markets in which the Company operates.

Other Expenses:
Other expenses includes manufacturing overheads, selling and marketing expenses, administrative and general expenses and R&D expenses.

Other expenses increased to 28,938.49 mn in FY 2016-17 as against 25,316.52 mn in FY 2015-16, an increase of 14.31%. The increase in expenditure was mainly attributable to increase in Sales promotion, legal and professional and other operating expenses to support growth and R&D expenditure to provide strong product portfolio.

Finance Costs:
Interest expenses increased to 2,373.18 mn in FY 2016-17 as against 1,788.85 mn in FY 2015-16.

Profit After Tax:
Profit after tax for FY 2016-17 was at 11,087.53 mn as against 7,430.45 mn in FY 2015-16.

Dividend:
The Board has recommended a final dividend of 200% ( 2 per equity share of   1 each) on the equity share capital as at 31 March 2017 subject to the approval of shareholders.

Equity Capital:
The equity capital has increased to 282.17 mn in FY 2016-17 from 282.16 mn in FY 2015-16.

Trade Payables:
Trade payables decreased to 19,035.22 mn in FY 2016-17 from 19,407.93 mn in FY 2015-16.

Current Tax Liabilities:
Current tax liabilities decreased to 256.55 mn in FY 2016-17 from 707.63 mn in FY 2015-16.

Short Term Borrowings:
Short term borrowings decreased to 1,871.89 mn in FY 2016-17 from 7,874.18 mn in FY 2015-16.

Other Current liabilities:
Other current liabilities increased to 4,690.61 mn in FY 2016-17 from 3,920.46 mn in FY 2015-16.

Trade Receivables (Net):
Trade receivables decreased to 24,043.20 mn in FY 2016-17 from 24,926.46 mn in FY 2015-16.

Inventory:
Inventory increased to 21,390.50 mn in FY 2016-17 from 15,677.60 mn in FY 2015-16 mainly to support the increase in sale of formulation and API business.

Other Current Assets: Other current assets increased to 10,735.04 mn in FY 2016-17 from 9,709.32 mn in FY 2015-16.

Property, plant and equipment (Excluding CWIP):
The Gross block of property, plant and equipment increased to 25,607.68 mn in FY 2016-17 from 23,007.26 mn in FY 2015-16.

Other Intangible Assets (Excluding CWIP and Goodwill):
The gross block of other intangible assets increased to 21,612.57 mn in FY 2016-17 from 19,423.32 mn in FY 2015-16.

Business Environment

India Formulations
During the year under review, the India Formulations (IF) business performed well registering revenue of 23,037.77 mn (USD 344 mn) as against 21, 092.74 mn (USD 322.91 mn) recording growth of 9.22%.

As per IMS MAT March 2017, Glenmark’s India business improved its rank to 15th, compared to 18th MAT March 2016. Glenmark increased its market share by 0.20%, exhibiting value growth of 14% vis-à-vis IPM growth of 9%. This growth has been driven by strong performance of leading brands resulting in market share improvement across therapeutic categories.

Growth across therapeutic categories

The India business strengthened itself in the following therapeutic areas with considerable growth in market share from IMS MAT March 2016 to MAT March 2017 respectively:

  • Derma therapy market share improved from 8.6% to 9.2%
  • Respiratory therapy market share rose from 4.1% to 4.5%
  • Cardiac therapy market share increased from 3.9% to 4%
Brands in IPM Top – 300
  • Glenmark’s brand Telma (Telmisartan) secured its position among the Top 50 brands in IPM and is currently ranked 48th
  • Telma-H (Telmisartan Hydrochloride) ranked 64 in IPM closing a value growth of 18.4% over the last year
  • Glenmark’s brand Ascoril+ (IPM rank 114), Candid (IPM rank 118), Candid-B (IPM rank 120), Telma- AM (IPM rank 186), Alex (IPM rank 192) and Ascoril –LS (IPM rank 197) are some of the other brands among the Top 200 brands in IPM 300 brands league
Products launched in India during FY 17
Marketing Initiatives

Taking a step beyond product promotion, Glenmark has taken various initiatives to enhance the knowledge of doctors in different therapy areas and conducted several awareness programmes for patient education.

Doctor and Patient Education Programmes

  • Glenmark launched an innovative initiative called D’acne Masters where an experienced dermatologist educates college and school students on Acne in a simple patient-friendly language
  • The GEEX (Glenmark Enabled Expert Exchange) continued to gain a good response. This is a unique platform for the fraternity of Dermatologists in India to share their clinical acumen, expertise and experience while managing patients of acne in day to day clinical practice
  • Another new initiative ‘Fungal Free Nation’ is an innovative concept, which focusses on conducting in-clinic education on diagnosis of various skin conditions for family physicians. During the year, over 15,000 in-clinic programs were conducted
  • Glenmark actively conducts patient education and detection camps for disorders and diseases impacting large population. To increase awareness about iron deficiency screened over 10,000 patients under the banner of Iron Mom Clinics. More than 1.5 lakh patients were screened for determining their Bone Mineral Density (BMD) and awareness was created to build better bone movement
  • Glenmark is successfully running the ‘Ascoril Coughology’ initiative for the last two years. This campaign provides interesting insights for doctors on the art and science of navigating cough
  • On the issue of hypertension during the Hypertension Control Month (HCM), a number of educational initiatives are launched to spread awareness about hypertension and its complications, if not controlled. More than 8,000 doctors and close to 1 million patients were covered in this initiative
More than 1.5 lakh patients were screened for determining their Bone Mineral Density (BMD) and awareness was created to build better bone movement
Glenmark Baddi Team
USA Formulations

During the year, Glenmark Pharmaceuticals Inc., USA registered revenue from the sale of finished dosage formulations was at Rs 37,006.63 mn (USD 552. 58 mn) for FY 2017 as against Rs 24,203.20 mn (USD 370.53 mn) for the previous year, recording a growth of 52.90%.

In the fiscal year 2016-17, Glenmark was granted approval of 17 Abbreviated New Drug Applications (ANDA), comprising 11 final approvals and six tentative approvals. Notable approvals include: Rosuvastatin Calcium Tablets; Diclofenac Sodium Gel, 3%, Lidocaine Ointment USP, 5%, and Tretinoin Capsules, 10 mg, Glenmark’s first and only soft-gelatin capsule.

In September 2016, Glenmark announced a Strategic Development, License and Commercialisation Agreement with Particle Sciences, Inc. to develop and market a generic version of Celgene’s ABRAXANE® product – paclitaxel protein (albumin)-bound particles for injectable suspension. Glenmark has obtained global exclusive marketing and distribution rights of the product upon commercialisation. Particle Sciences will develop this product exclusively for Glenmark, and shall receive certain milestone payments during various stages of the product’s development from Glenmark, including royalties on sales. Development of the product has been initiated for the US market and Glenmark intends to file the ANDA in FY19. The product will be subsequently filed in other key markets across the globe. As per IMS MAT March 2017, ABRAXANE® has registered sales of USD 657 mn in the US.

In December 2016, Glenmark announced the availability of Ezetimibe, the first and only generic version of ZETIA® (Merck) in the United States for the treatment of high cholesterol. The availability of Ezetimibe is the result of a licensing partnership with Par Pharmaceutical, an Endo International plc operating company. Glenmark and its partner, Endo will be entitled to 180 days of generic drug exclusivity for Ezetimibe as provided for under section 505(j)(5) (B)(iv) of the FD&C Act.

In March 2017, Glenmark and Evestra, Inc. completed a strategic development, license and commercialisation agreement to develop and market a generic version of Merck’s & Co.’s NuvaRing® product – etonogestrel/ethinyl estradiol vaginal ring – designed to allow women access to a more affordable birth control option. Development on the vaginal ring product is currently under way and the two companies expect to file an ANDA in FY19. Evestra will develop this product exclusively for Glenmark for the US market, and will receive certain milestone payments during various stages of the product’s development, including royalties on net sales. Glenmark has secured exclusive marketing and distribution rights for the product, including an option to commercialise two additional Evestra vaginal ring products, for the US market. Merck’s IMS Health NuvaRing® registered sales of USD 783 mn as per IMS MAT March 2017 in the US market.

During the year under review, Glenmark filed 20 ANDA applications with the USFDA. Out of these, nine were dermatological products reinforcing our strength in this segment. There were three hormonal products, one oncology injectable and seven oral solids of which majority were complex or niche products.

Glenmark’s marketing portfolio on June 2017 consists of 119 generic products authorised for distribution in the US market. The Company currently has 66 applications pending in various stages of the approval process with the USFDA, of which 27 are Paragraph IV applications.

Products launched in the US in FY17
Rest of The World

Glenmark’s revenue from the ROW (Russia/CIS, Africa and Asia) region for the year under review was 9,887.86 mn (USD 147.65 mn) as against 9,032.54 mn (USD 138.28 mn) in the previous year, recording a 9.47% increase.

Russia/CIS Region

According to IMS Health MAT February 2017 data, Glenmark Russia ranks 42, which sustains Glenmark’s position among the list of Top 45 companies in the retail segment of the Russian pharmaceutical market. Among the Derma companies, Glenmark Russia ranks 8 as per MAT February 2017, thereby sustaining its rank in Top 10 companies in this segment. Oflomil nail lacquer, the first generics amorolfine, is recognised as ‘Brand 1’ amongst the antifungal products. The strong growth witnessed by the dermatology business continues on account of the good growth in Oflomil nail lacquer and Klenzit-C, which has gained good traction across the country. Overall, Glenmark Russia today boasts of a strong product range of derma products covering most nosologies of the segment.

In the respiratory segment, Glenmark is ranked among the Top 4 companies within the expectorants market of Russia as per MAT February 2017. The power brand here is Ascoril, but other brands like Candibiotic, Glevo and Relcer have also played a major role in contributing to the growth of Glenmark. The advancement of respiratory portfolio is one of the key focus at the moment, with multiple new products being launched. In the first quarter, Momat Rino Advance, a unique combination of mometasone and azelastine nasal spray was launched. During the fourth quarter, Glenmark launched Momat Rino (nasal spray) in the Russia market. These products continue to gain good momentum across the country and have helped us further strengthen our presence in the respiratory area.

During the year, Glenmark launched Glenspray with Azelastine in Ukraine and Glencet Advance and Kerawort in Uzbekistan. In Kazakhstan, Momat Rino 120 MD, Momat Rino 60 MD, Momate A NS and Deriva-C MS gel were launched.

Glenmark Russia team
Africa Region

During the year under review, the Africa business performed average. However, the subsidiaries of South Africa and Kenya recorded good secondary sales.

During the year, Glenmark launched Nano Repro kit, Kolorex digestive care, Demelan Acne, Dermikelp, NanoRepro, Kolorex in South Africa; Glevonix 750, Esoze HP Kit, Momate F cream, Glemont L and Combiwave in Kenya; Despruderm and Glenosalic ointment in Egypt and Combiwave Inhaler in Zimbabwe.

Glenmark Kenya team
Asia Region

The Asian region recorded average growth for the year under review. The region recorded secondary sales growth of over 9%. Malaysia, the Philippines and Vietnam recorded secondary sales growth of 19%, 26% and 5%, respectively. However in most of the Asian markets Glenmark registered a growth, which is higher than the market growth and improved in terms of market ranking. Foskina / Supirocin became the first wound care brand for Glenmark who crossed USD 4 mn mark in Asia. In the year 2016-17 we were conferred with ‘Company of the year Asia’ - Dermatology portfolio award.

Asia expanded therapy presence in Philippines with the launch of oncology (Gemhope) and strengthened the presence in respiratory with the launch of Flusort Nasal Spray. Glenmark launched Combiwave SF 50 in Sri Lanka and V Wash Plus in Myanmar and Vietnam.

Glenmark Asia team
Europe Formulations

The revenue from Glenmark’s Europe operations for FY 2017 was at 7,101.35 mn (USD 106.04 mn) as against 7,170.66 mn (USD 109.78 mn) recording a decrease of 0.9%. The growth was impacted due to the currency depreciation of the British Pound.

The UK and Germany are the largest markets for the Company in Europe and we continue to focus on these through differentiated in-house and in-licensed products. We are continuing the development of generic version of GlaxoSmithKline’s Seretide Accuhaler, a Fluticasone / Salmeterol dry powder inhaler for 15 markets in Europe including the UK, Germany, the Netherlands, Italy, Sweden, Norway and Romania among others. We expect to launch this product soon subject to regulatory approval. During the last couple of years, we have also selectively entered key markets in Europe including Spain and Nordic countries.

Glenmark’s Central Eastern Europe region performed average during the year mainly driven by launch of in-licensed products.

Glenmark’s Western Europe Formulations business continued to perform strongly.

The Company continued to remain among the Top 50 fastest growing generic companies in Germany, outpacing the market significantly as per IMS. Glenmark ranked 14th among generic companies in the market (Rx sales value February 2017).

Glenmark Germany team
Glenmark UK team
Glenmark Poland Team

For the entire financial year, the region launched nearly 25 products across markets and in licensed over 35 products.

Latin America

During the year under review, the Latin America business registered revenue of 5,181.22 mn (USD 77.37 mn) as compared to 7,495.06 mn (USD 114.74 mn) recording a decline of 30. 87%.

Glenmark Mexico team
Glenmark Brazil team

This has been a difficult year for the Latin America business as we stopped selling products in Venezuela during FY 17. Due to the issues faced by the country we were unable to repatriate any money out of the country and hence we have significant cash locked up in our bank accounts in Venezuela. Currency depreciation particularly in Mexico also impacted profitability in the region. We will continue our focus in large markets in the regions particularly Brazil and Mexico and have launched multiple differentiated products in our core therapy areas during the year. We have also set up subsidiary in Columbia and Ecuador to drive growth in these countries. We will continue the distributor based model in other selected countries in the region and believe that currently it is the best approach for these markets.

Some products launched during the year were as follows – The Mexico subsidiary launched Linezolid (Yaprinca) and Ciprofibrate Tabs 100 mg x 30 in the country. In Peru, Glenmark launched Momate Nasal Spray, Budesma 200 MCG, Momate Cream and Momate NS. The Company launched Glemont L and Momate AZ in Ecuador and Flexilor–P in Caribbean Region.

Active Pharmaceutical Ingredients (API)

Revenue from sale of API to regulated and semi-regulated markets globally was 8,094.10 mn (USD 120.86 mn) during the year as against 6,682.88 mn (USD 102.31 mn) for the previous year, recording 21.12% increase.

The good growth of the business was due to the successful launch of Olmesartan. In the fourth quarter, Glenmark received an EIR from the USFDA for its Ankleshwar facility.

APIs are the principal ingredients for finished dosages and are also known as bulk actives or bulk drugs. APIs become formulations when the dosage is administered by using additional inactive ingredients either in oral forms such as tablets, capsules, dry syrups or liquid orals or in sterile forms like injectable dry powder vials or liquid injectables. The Company also markets and supplies its API products to leading generic manufacturers in the US, Europe and Japan, in addition to fulfilling captive API requirements. Glenmark’s API product portfolio comprises Lercanidipine, Amiodarone, Rosuvastatin, Perindopril, Adapalene and Atovaquone, among others. As on 31 March 2017, the Company has filed over 320 Global DMFs in various markets including 94 USDMFs, 23 CEP’s, 39 EU-DMF’s, 22 Canadian DMF’s, 12 Japan DMF’s, 13 Australian DMF’s and other DMF’s in various Glenmark Brazil team ROW countries.

Outlook

Despite the challenging economic situation in most emerging markets including the volatile currencies, Glenmark continues to remain positive on the long-term growth prospects in key emerging markets. The focus in emerging markets will be to continuously invest in product pipeline namely in the areas of dermatology, respiratory and the oncology therapy. While Glenmark will contain its new investments in emerging markets it will continuously focus on building the product pipeline in these therapy areas. The US remains the most important market for Glenmark and the organisation continues to invest significantly in this market. All the incremental R&D resources are being invested in the US market and this region will be a key driver for growth in the future. On the generics front, Glenmark will continuously file products in the area of dermatology and injectables including complex injectables. On the discovery front, the pipeline is progressing well with several molecules in clinical or pre-clinical development.

The Company will also continue with its approach of out-licensing its molecules. Going ahead, the organisation will continue to lay equal emphasis on small molecules as well as biologics and will continue to focus on discovering primarily first in- class molecules globally for unmet medical needs.

Our primary objective has always been to facilitate the Company’s evolution from a generics organisation to a fully integrated, globally commercialised pharmaceutical company with innovative products. Glenmark has always been focussed on a long-term growth strategy while meeting the short-term growth objectives. Today, we have a strong pipeline of products in the US which primarily consists of differentiated products. We have built a robust India business and have set up a strong foundation for our future growth. In markets like Europe, we anticipate to grow in double digit over the next 3-4 years. The emerging markets (ex-India) though a small portion of the overall revenue will also continue to grow and will be led primarily by Russia business, which is growing at 25%.

A snapshot of Glenmark’s manufacturing facility in Monroe, USA

Further, with seven novel molecule and three specialty products in our research and development pipeline and with our end-to-end capabilities from R&D to full-scale manufacturing (both in small molecules and novel biologics), the Company enjoys a strong position in IP leadership and global footprint for rapid market penetration. Our complex generic portfolio will also play a significant role in Glenmark’s growth strategy in various markets in which we operate and we continue to have complex generic products in our filed pipeline, and we would continue to develop more products in-house. Our strategy is to leverage both in house and external capabilities to develop complex generic products portfolio to differentiate ourselves from the competitors.

As on 31 March 2017, the Company has filed over 320 Global DMFs in various markets including 94 USDMFs, 23 CEP’s, 39 EU-DMF’s, 22 Canadian DMF’s, 12 Japan DMF’s, 13 Australian DMF’s and other DMF’s in various ROW countries
Safe Harbour Statement
This report has been prepared by Glenmark Pharmaceuticals Ltd. The information, statements and analysis made in this report describing the Company’s objectives, projections and estimates are forward looking statements and progressive within the meaning of applicable security laws and Regulations. Forward-looking statements may include words or phrases such as ‘believes’, ‘expects’, ‘anticipates’, ‘intends’, ‘plans’, ‘foresees’ or other words or phrases of similar import. Similarly, statements that describe objectives, plans or goals both for itself and for any of its business components also are forward-looking statements.

All such forward looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those contemplated. The analysis contained herein is based on numerous assumptions. Actual result may vary from those expressed or implied depending upon economic conditions, government policies and other incidental factors. No representation or warranty, either expressed or implied, is provided in relation to this report. This report should not be regarded by recipients as a substitute for the exercise of their own judgment.

Risk Management

PRINCIPAL RISK FACTORS AND UNCERTAINTIES
Company’s business, financial condition and results of operations are subject to certain risks and liabilities that may affect the Company’s performance and ability to achieve its objectives. The factors that the Company believes could cause its actual results to differ materially from expected and historical results have been discussed hereunder. However, there are other risks and uncertainties that may affect the Company’s performance and ability to achieve its objectives that are not currently known to the Company, or which are deemed immaterial.

The Company has implemented an ERM programme through which it reviews and assesses significant risks on a regular basis to help ensure that there is a system of internal controls in place. This system includes policies and procedures, communication and training programmes, supervision and monitoring and processes for escalating issues to the appropriate level of senior management. Such a system helps facilitate the Company’s ability to respond appropriately to risks and to achieve the Company’s objectives and helps ensure compliance with applicable laws, regulations and internal policies.

The principal risks and uncertainties that might affect the Company’s business are identified below. The listing agreement with the stock exchanges mandates the identification, minimization and periodical review of these risks and uncertainties. However, it is not possible for the Company to implement controls to adequately respond to all the risks that it may face and there can be no complete assurance provided that the steps that the Company undertakes to address certain risks, including those listed below under “Mitigating activities include,” will manage these risks effectively or at all. The principal risk factors and uncertainties mentioned herein have not been listed in order of their importance.

DELIVERING COMMERCIALLY SUCCESSFUL NEW PRODUCTS
Risk description: Risk that R&D will not deliver commercially successful new products

The Company operates in highly competitive markets globally and faces competition from local manufacturers. Significant product innovations, technological advancements or the intensification of price competition by competitors may materially and adversely affect the Company’s revenues. The Company cannot always predict the timing or impact of competitive products or their potential impact on sales of the Company’s products.

Continuous development of commercially viable new products as well as the development of additional uses for existing products is critical to the Company’s ability to increase overall sales.

Developing new pharmaceutical products is investment intensive, having a longer gestation period with uncertain outcome. A new product candidate can fail at any stage of the development process and one or more late stage product candidates could fail to receive regulatory approval. New product candidates may appear promising in development but after significant investment of Company’s economic and human resources, may fail to reach the market or may have only limited commercial success. This could be, for example, as a result of efficacy or safety concerns, an inability to obtain necessary regulatory approvals, difficulty in manufacturing or excessive manufacturing costs, erosion of patent coverage as a result of a lengthy development period, infringement of patents or other intellectual property rights of others or an inability to differentiate the product adequately from those with which it competes.

Furthermore, health authorities have increased their focus on safety and product differentiation when assessing the benefit/ risk balance of drugs, which has made it more difficult for pharmaceutical products to gain regulatory approval. There is also increasing pressure on healthcare budgets as a result of the increase in the average age and absolute population in developed and developing markets. A failure to develop commercially successful products or to develop additional uses for existing products for any of these reasons could materially and adversely affect the Company’s revenues.

Mitigating activities include

The Company instead of following the traditional hierarchical R&D business model has its R&D business model based on smaller units in an attempt to encourage greater entrepreneurialism and accountability for our scientists,which the Company believes creates an environment that is more conducive to the development of commercially viable new products and the development of additional uses for existing products.

In addition, the Company plans to continue collaborating with other pharmaceutical companies, which the Company believes enables sharing the risk, availability of technical expertise and decrease the amount of time it takes to develop products.

The Company reviews both product development and external collaborations and targets are selected after exhaustive screening and research across various parameters. The Company progressively evaluates both the scientific and financial considerations for a product as well as the potential benefits/risks associated with the continued development of the assets.

ENSURING PRODUCT QUALITY

Risk description: Risk to the patient or consumer as a result of the failure by the Company, its contractors or suppliers to comply with good manufacturing practice regulations in commercial manufacturing or through inadequate governance of quality through product development

Patients, consumers and healthcare professionals trust the quality of our products at the point of use. A failure to ensure product quality is an enterprise risk which is applicable across all of the Company ‘s global operations.

A failure to ensure product quality could have far reaching implications in terms of the health of our patients and customers, reputation, regulatory, legal, and financial consequences for the Company.

The quality of the product may be influenced by many factors including product and process understanding, consistency of manufacturing components, compliance with current Good Manufacturing Practice (cGMP), accuracy of labelling, reliability and security of the supply chain, and the embodiment of an overarching quality culture.

The internal and external environment continues to evolve as new products, new markets and new legislation are introduced. Particular attention is currently being focused on security of supply, product standards and sound distribution practices.

New cGMP legislation is being introduced in many emerging markets including China and Brazil. On the inspection front, pharmaceutical inspectors are increasingly looking for global application of corrective actions beyond the original site of inspection.

Mitigating activities include

The Company has adopted a single Quality Management System (QMS) that defines Corporate quality standards and systems for the business units associated with Pharmaceuticals products and R&D investigational materials. The QMS has a broad scope, covering the end to end supply chain from starting materials to distributed product, and is applicable throughout the complete life cycle of products from R&D to mature commercial supply. The OMS is periodically updated based on experience, new regulation and improved scientific understanding to seek to ensure operations comply with cGMP requirements globally, and supports the delivery of consistent and reliable products.

A team of Quality and Compliance professionals are aligned with each business unit to provide oversight and assist the delivery of quality performance and operational compliance. Management oversight of those activities is accomplished through a hierarchy of Quality Council Meetings. Staff are trained to seek to assure that standards, as well as expected behaviours based on the Company’s values, are followed.

The Company’s Head -Corporate Quality Assurance oversees the activities of the Company Quality Council which serves as a forum to escalate emerging risks, share experiences of handling quality issues from all business units and ensure that the learnings are assessed and deployed across the Company.

The Company has implemented a risk-based approach to assessing and managing its third-party suppliers that provide materials used in finished products. Contract manufacturers making Company products are audited to help assure expected standards are met.

SUPPLY CHAIN CONTINUITY
Risk description: Risk of interruption of product supply

Supply chain operations are subject to review and approval of various regulatory agencies that effectively provide our license to operate. The manufacture of pharmaceutical products and their constituent materials requires compliance with good manufacturing practice regulations. The Company’s manufacturing sites are subject to review and approval by the FDA and other regulatory agencies.

Compliance failure by the Company’s manufacturing facilities or by suppliers of key services and materials could lead to product recalls and seizures, interruption of production, delays in the approval of new products, and revoking of license to operate pending resolution of manufacturing issues. For example, non-compliance with cGMP requirements for US supply could ultimately result, in the most severe circumstances, in fines and disgorgement of profits. Any interruption of supply or the incurring of fines or disgorgement impacting significant products or markets could materially and adversely affect the Company’s revenues.

Materials and services provided by third-party suppliers are necessary for the commercial production of our products, including specialty chemicals, commodities and components necessary for the manufacture and packaging of many of the Company’s pharmaceutical products. Some of the thirdparty services procured, for example, services provided by clinical research organisations to support development of key products, are very important to the operation of the Company’s businesses. The clinical trial processes should strictly adhere to GCP standards in terms of quality, safety, procedures and other standards. Clinical trial service provider may lack in adhering to GCP standards.

Although the Company undertakes business continuity planning, single sourcing for certain components, bulk active materials, finished products, and services creates a risk of failure of supply in the event of regulatory non-compliance or physical disruption at the manufacturing sites.

The failure of a small number of single-source, third-party suppliers or service providers to fulfill their contractual obligations in a timely manner or as a result of regulatory non-compliance or physical disruption at the manufacturing sites may result in delays or service interruptions, which may materially and adversely affect the Company’s revenues.

Mitigating activities include

The Supply Chain model of the Company is designed to help ensure the supply, quality and security of the Company’s products and the Company closely monitors the delivery of our products with the intent of ensuring that our customers have the medicines and products they need.

Safety stocks and backup supply arrangements for high revenue and critical products are in place to help mitigate this risk. In addition, the standing of manufacturing external suppliers is also routinely monitored in order to identify and manage supply base risks.

The Company selects Clinical Trial agencies which are of repute and follows a process of regular monitoring and auditing of the clinical trial sites.

Where practical, dependencies on single sources of critical items are removed by developing alternative sources. In cases where dual sourcing is not possible, an inventory strategy has been developed to protect the supply chain from unanticipated disruptions. The Company has set up new manufacturing facilities/ upgraded the existing facilities which can continue the manufacturing operations in case of interruption of operations of a certain facility. The Company while filing for product approvals with various regulatory authorities registers multiple manufacturing sites.

PRODUCT PRICING
Risk description: Risk that the Company may fail to secure adequate pricing for its products or existing regimes of pricing laws and regulations become more unfavourable Pharmaceutical products are subject to price controls or pressures and other restrictions in many markets, around the world. Some governments intervene directly in setting prices. For example, in India, the government enforces price control through bringing the products under DPCO. In addition, in some markets, major purchasers of pharmaceutical products have the economic power to exert substantial pressure on prices or the terms of access to formularies. Difficult economic conditions, particularly in the major markets in Europe, could increase the pricing pressures on the Company’s pharmaceutical products. Some markets follow the reference pricing for fixation of the price of the products. The price depends on the home market price or the price where the product was launched. The Company cannot accurately predict whether existing controls, pressures or restrictions will increase or whether new controls, pressures or restrictions will be introduced. Such measures may materially and adversely affect the Company’s ability to introduce new products profitably and its financial results.

Mitigating activities include

The Company plans to initiate measures to reduce costs, improve efficiencies and reallocate resources to support identified growth opportunities in these markets. The Company is also continuously evaluating further strategic options to ensure the development of new capabilities and the ability to maximise the value of the Company’s current and future portfolio.

The Company makes conscious efforts to launch new value added products with some differentiation i.e. improvised products which can fetch better pricing.

COMPLIANCE WITH RELEVANT LAWS AND REGULATIONS
Risk description: Risks arising from non-compliance with laws and regulations affecting the Company

The Company’s global operations subjects it to compliance with a broad range of laws and regulatory controls on the development, manufacturing, testing, approval, distribution and marketing of its pharmaceutical products that affect not only the cost of product development but also the time required to reach the market and the uncertainty of successfully doing so. The Company operates globally in complex legal and regulatory environments that often vary among jurisdictions.

As those rules and regulations change or as governmental interpretation of those rules and regulations evolve, the potential exists for conduct of the Company to be called into question.

Historically, there have been more stringent regulatory requirements in developed markets. However, in recent years, emerging markets have been increasing their regulatory expectations based on their own national interpretations of US and EU standards. Stricter regulatory controls heighten the risk of changes in product profile or withdrawal by regulators on the basis of post-approval concerns over product safety, which could reduce revenues and result in product recalls and product liability lawsuits. There is also greater regulatory scrutiny, on advertising and promotion and in particular on direct-to- consumer advertising.

Mitigating activities include

The Company’s internal control framework is designed to help ensure we adhere to legal and regulatory requirements through continuous evaluation. We are in the process of further strengthening the framework in order to meet the evolving regulations.

The Company has implemented numerous mechanisms to monitor and support our compliance with legal and regulatory requirements. The following represent some examples of these mechanisms. The Company’s head of Regulatory oversees the activities of the Regulatory Team which includes promoting compliance with regulatory requirements and company wide standards, making regulatory services more efficient and agile, and further aligning regulatory capabilities with business needs at global and local levels.

The Company’s senior management oversees the system of principles, policies and accountabilities to help ensure the Company applies the generally recognized principles of good medical science, integrity and ethics to the discovery, development and marketing of products. This includes reinforcing the Company’s commitment to respecting a clear distinction between scientific engagement on the one hand, and product promotion on the other.

CHANGING GLOBAL POLITICAL AND ECONOMIC CONDITIONS
Risk description: Risk of exposure to various external political and economic conditions, as well as natural disaster that may impact the Company’s performance and ability to achieve its objectives

Many of the world’s largest economies, including the major markets in which the Company operates and financial institutions have recently faced extreme financial difficulty, including a decline in asset prices, liquidity problems and limited availability of credit. Due to the economic uncertainty in emerging markets there has been a huge devaluation of the currency in certain geographies in which the Company operates. Certain geographies have imposed restrictions on the imports as well as the remittances outside the country. In addition, the Company operates across a wide range of markets and these markets have the potential to encounter natural disasters that could impact business operations.

The economic conditions may also adversely affect the ability of our distributors, customers, suppliers and service providers to pay for our products, or otherwise to buy necessary inventory or raw materials, and to perform their obligations under agreements with the Company, which could disrupt our operations and negatively impact our business and cash flow. Some of our distributors, customers, suppliers and service providers may be unable to pay their bills in a timely manner, or may even become insolvent, which could also negatively impact our business and results of operations. These risks may be elevated with respect to our interactions with third parties with substantial operations in countries where current economic conditions are the most severe, particularly where such third parties are themselves exposed to risk from business interactions directly with fiscally-challenged government payers.

Such continued economic weakness and uncertainty could materially and adversely affect the Company’s revenues, results of operations and financial condition. The Company’s businesses may be particularly sensitive to declines in consumer or government spending. In addition, further or renewed declines in asset prices may result in a lower return on the Company’s financial investments.

The Company has no control over changes in inflation and interest rates, foreign currency exchange rates and controls or other economic factors affecting its businesses or the possibility of political unrest, legal and regulatory changes or nationalisation in jurisdictions in which the Company operates.

Mitigating activities include

The extent of the Company’s portfolio and geographic footprint assist in mitigating our exposure to any specific localised risk to a certain degree. External uncertainties are carefully considered when developing strategy and reviewing performance. The Company effectively manages its currency risk exposure.

COMPLIANCE WITH FINANCIAL REPORTING AND DISCLOSURE REQUIREMENTS
Risk description: Risk associated with financial reporting and disclosure and changes to accounting standards

New or revised accounting standards, rules and interpretations issued from time to time under the Indian Accounting Standards and IFRS could result in changes to the recognition of income and expense that may materially and adversely affect the Company’s financial results.

Stock exchanges review the financial statements of listed companies for compliance with accounting and regulatory requirements. The Company believes that it complies with the appropriate regulatory requirements concerning its financial statements and disclosures.

Mitigating activities include

The Company keeps up to date with the latest developments for financial reporting requirements by working with the external auditor and other advisors to ensure adherence to relevant reporting requirements.

COMPLIANCE WITH TAX LAW
Risk description: Risk that as the Company’s business models and tax law and practice change over time, the Company’s existing tax policies and operating models are no longer appropriate

The Company’s effective tax rate is driven by rates of tax in jurisdictions that are both higher and lower than that applied in India. In India, weighted deduction is applicable for R & D and tax concessions are available for setting up manufacturing units in specified zones.

Furthermore, given the scale and international nature of the Company’s operations, intra-Company transfer pricing is an inherent tax risk as it is for other international businesses. Changes in tax laws or in their application with respect to matters such as transfer pricing, foreign dividends, controlled companies, R&D tax credits, taxation of intellectual property or a restriction in tax relief allowed on the interest on intra-Company debt, could impact the Company’s effective tax rate and materially and adversely affect its financial results.

The tax charge included in the financial statements is the Company’s best estimate of its tax liability, but until such time as audits by tax authorities are concluded, there is a degree of uncertainty regarding the final tax liability for the period. The Company’s policy is to submit tax returns within the statutory time limits and engage with tax authorities to ensure that the Company’s tax affairs are as current as possible, and that any differences in the interpretation of tax legislation and regulation are resolved as quickly as possible. In exceptional cases where matters cannot be settled by agreement with tax authorities, the Company may have to resolve disputes through formal appeals or other proceedings.

Mitigating activities include

The Company continuously monitors the changes in the tax policies in the key jurisdictions to deal proactively with any potential future changes in tax law.

Tax risk is managed by a set of policies and procedures to ensure consistency and compliance with tax legislation. The Company engages advisors and legal counsel to review tax legislation and applicability to the Company. The Company has attempted to mitigate the risk of more aggressive audits by being as up to date as possible with our tax affairs and working in real time with tax authorities where possible.

COMPLIANCE WITH ANTI-BRIBERY AND CORRUPTION LEGISLATION
Risk description: Risk of failing to create a corporate environment opposed to corruption or failing to instill business practices that prevent corruption and comply with anti-corruption legislation

The Company’s international operations may give rise to possible claims of bribery and corruption. The Company operates in a number of markets where the corruption risk has been identified as high. Failure to comply with applicable legislation such as the US Foreign Corrupt Practices Act and the UK Bribery Act, or similar legislation in other countries, could lead to action against the Company. This could potentially include fines, prosecution, debarment from public procurement and reputational damage, all of which could materially and adversely affect the Company’s revenues.

Mitigating activities include

The Company has taken steps to develop a policy on Anti Bribery/ Anti-Corruption (ABAC). The policy would prescribe ongoing training, and detailed requirements in respect to thirdparty due diligence, contracting and oversight.

POTENTIAL LITIGATION
Risk description: Risk of substantial adverse outcome of litigation and government investigations

The Company operates globally in complex legal and regulatory environments that often vary among jurisdictions. The failure to comply with applicable laws, rules and regulations in these jurisdictions may result in legal proceedings. As those rules and regulations change or as governmental interpretation of those rules and regulations evolve, prior conduct may be called into question. Also, notwithstanding the efforts the Company makes to determine the safety of its products through regulated clinical trials, unanticipated side effects may become evident only when the drugs are introduced into the marketplace.

PRODUCT LIABILITY LITIGATION
Pre-clinical and clinical trials are conducted during the development of potential pharmaceutical to determine the safety and efficacy of the products for use by humans following approval by regulatory authorities. Notwithstanding the efforts the Company makes to determine the safety of its products through regulated dinical trials, unanticipated side effects may become evident only when drugs are widely introduced into the marketplace.

In other instances, third-parties may perform analyses of published clinical trial results which, although not necessarily accurate or meaningful, may raise questions regarding the safety of pharmaceutical products which may be publicised by the media and may result in product liability claims. Claims for pain and suffering and punitive damages are frequently asserted in product liability actions and, if allowed, can represent potentially open ended exposure and thus could materially and adversely affect the Company’s financial results.

In some cases, the Company may voluntarily cease marketing a product or face declining sales based on concerns about efficacy or safety, even in the absence of regulatory action.

SALES AND MARKETING LITIGATION
The Company operates globally in complex legal and regulatory environments that often vary among jurisdictions. The failure to comply with applicable laws, rules and regulations in these jurisdictions may result in civil and criminal legal proceedings brought against the Company.

Mitigating activities include

The Company attempt s to mitigate the risks inherent in drug development through conscientious approaches to product development and distribution that focus on patient safety as an overriding priority, and that includes accurate documentation of the exercise of careful medical governance.

The Company has constructed a system of medical governance to help ensure the safety and efficacy of the drugs it produces. The Company’s Chief Medical Officer (CMO) is responsible for medical governance for the Company. Safeguarding human subjects in Company clinical trials and patients who take Company products is of paramount importance, and the CMO has the authoritative role for evaluating and addressing matters of human safety. Senior physicians and representatives of supportive functions, as well as the lawyer who leads legal support for Pharmaceuticals R&D, is an integral component of the system.

In addition to the medical governance framework within the Company as described above, the Company uses several mechanisms to foster the early resolution of new disputes as they arise and reduce the number of such disputes that actually proceed to litigation.

The Company formalised processes for proactive risk/dispute management. The programme aims to drive a more standardised practice to the early resolution of disputes and consistent use across the organisation, and establishes a specific vocabulary and identity for the concept of early analysis and resolution, thereby accelerating the desired culture shift. The Legal team also routinely trains the Company’s employees on strategies to attempt to minimize the Company’s litigation exposure.

MANAGING ENVIRONMENTAL, HEALTH, SAFETY AND SUSTAINABILITY COMPLIANCE Risk description: Risk of ineffectively managing environment, health, safety, and sustainability (‘EHSS’) objectives and requirements

The environmental laws of various jurisdictions impose actual and potential obligations on the Company to remediate contaminated sites.

Failure to manage properly the environmental risks could result in additional remedial costs that may materially and adversely affect the Company’s financial results.

The impact of this risk, should the risk occur, could lead to significant harm to people, the environment and communities in which the Company operates and the failure to meet stakeholder expectations and regulatory requirements.

The impact of this risk, should the risk occur, could lead to significant harm to people, the environment and communities in which the Company operates and the failure to meet stakeholder expectations and regulatory requirements.

Mitigating activities include

Management of EHSS risk is fundamental to the Company’s performance and reputation. The Company is committed to appropriately managing EHSS risk and has embedded its importance into its operations.

The Company operates rigorous procedures to seek to eliminate hazards where practicable and protect employees’ health and well-being,but the right culture is our essential starting point. Our employment practices are designed to create a work place culture in which all Company employees feel valued, respected, empowered and inspired to achieve our goals.

The Company’s continuing efforts to improve environmental sustainability have reduced the Company’s water consumption, hazardous waste, and energy consumption. The Company actively manages our environmental remediation obligations to ensure practices are environmentally sustainable and compliant.

INFORMATION TECHNOLOGY
Risk Description: Risk that the data is lost due to breakdown of systems or they are subject to intrusions

The size and complexity of our computer systems make them potentially vulnerable to breakdown, malicious intrusion and random attack. While we have invested adequately in the protection of data and information technology, there can be no assurance that our efforts will prevent breakdown or breaches in our systems that could adversely affect our business.

Mitigating Activities include

The Company takes steps to have proper back ups and security systems in place so as to avoid loss or intrusion of data.

REVENUE CONCENTRATION
Risk Description: Risk of Product/ Revenue concentration

A few products may account for nearly 2/3rd of the revenue of particular regions. This may lead to decline in the revenue on account of declining phase in the product life cycle. In some geographical regions, the substantial revenue may be generated from a particular region. Failure to have adequate market penetration or early movers advantage may affect long term growth and market share. The regional needs for products of a particular therapeutic segment/ category varies across geographies. The product development strategy may not be in synergy with the regional needs or may not be able to deliver the desired product in timely manner so as to replace the products at the end of the life cycle or enable the company to penetrate new markets. The risk of not having a long term product pipeline will lead to not being able to replace/ introduce new products to counter the risk of fall in the market share of ageing products as a result of the introduction of generic versions after the expiry of patents.

Mitigating activities include

The Company has a project management team which continuously monitors the short-term and long-terms needs of various geographies. Based on the research and interactions with the regional markets, the product development strategy is formulated. The product pipeline is built up based on a long-term vision of 3-5 years. The business plans are drawn up with an in-built mechanism to de-risk the concentration of revenues from a few customers and regions.