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Glaxosmithkline Pharmaceuticals Ltd.

BSE: 500660 Sector: Health care
NSE: GLAXO ISIN Code: INE159A01016
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OPEN 2490.00
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VOLUME 822
52-Week high 2795.00
52-Week low 2309.05
P/E 75.22
Mkt Cap.(Rs cr) 21,138
Buy Price 0.00
Buy Qty 0.00
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Sell Qty 0.00

Glaxosmithkline Pharmaceuticals Ltd. (GLAXO) - Director Report

Company director report

The Directors have pleasure in submitting their Report for the year ended 31st March2017 prepared in accordance with Indian Accounting Standards.

1. FINANCIAL RESULTS FOR THE YEAR ENDED 31ST MARCH 2017

Rs in lakhs

Year ended 31s* March 2017 Year ended 31st March 2016
Revenue from operations 299450.50 282621.22
Other Income 7176.24 12182.51
Total Income 306626.74 294803.73
Profit before Exceptional items and Tax 46534.86 57362.60
Add: Exceptional Items 4573.05 231.07
Profit before Tax 51107.91 57593.67
Less: Income tax expenses 17430.40 20140.96
Profit for the year 33677.51 37452.71

2. DIvIDEND

Your Directors are pleased to recommend a Dividend of Rs 30 per Equity share for theyear ended 31st March 2017 (previous year Rs 50 per Equity share). The Dividend is subjectto the approval of shareholders at the Annual General Meeting on 25th July 2017 and willbe paid on or after 26th July 2017. If approved by the shareholders at the Annual GeneralMeeting the Dividend will absorb Rs 306 crores inclusive of the Dividend Distribution Taxof Rs 52 crores borne by the Company .

The Board of the Directors of the Company have approved the Dividend DistributionPolicy on 27th October 2016 and it is available on the Company website athttp://india-pharma.gsk.com/en-in/investors/shareholder- information/policies .

3. management discussion & analysis Economic scenario

With buoyant financial markets and a cyclical recovery in manufacturing and trade underway world growth is projected to rise from 3.1% in 2016 to 3.5% in 2017 and 3.6% in 2018according to the International Monetary Fund's World Economic Outlook (WEO) forecast(April 2017). Growth in Emerging Markets and developing economies is forecast to rise to4.5% and 4.8% in 2017 and 2018 respectively from an estimated growth of 4.1% in 2016according to the IMF.

I n India Gross Domestic Product (GDP) grew by 7.1% in the Fiscal Year 2016-2017which makes India the fastest-growing G20 economy. The acceleration of structural reformsthe move towards a rule-based policy framework and low commodity prices have provided astrengthening growth impetus. Recent deregulation measures and efforts to improve the easeof doing business have boosted foreign investment. (Source: 2017 Economic Survey of IndiaOECD). In April 2017 the World Economic Outlook (WEO) report by the InternationalMonetary Fund estimated that domestic demand and a growth in exports will remain keydrivers towards GDP growth. Medium-term growth prospects remain favourable according tothe WEO report with growth forecast to rise to about 8% due to the implementation of keyreforms loosening of supply-side bottlenecks and appropriate fiscal and monetarypolicies. In addition the country's most significant tax reform in decades the Goods& Services Tax (GST) was approved in Parliament with an expectation forimplementation during the latter half of 2017.

In the Union Budget 2017 the government has demonstrated its commitment to increasehealthcare spending. The National Health Plan has been approved by the Cabinet and aims ata holistic approach to address the healthcare problems of all sectors of society and theirsolutions with participation from the private sector as strategic partners in thismission.

overview of the Indian Pharmaceuticals Market

In this economic scenario the Indian Pharmaceuticals Market (IPM) has seendouble-digit growth in the last one year. The Indian pharmaceutical market is forecastedto grow at a compound annual growth rate (CAGR) of 11.8% (+1-3%) between 2015 to 2020reaching Rs 1859.5 billion by 2020. (Source: IMS Market Prognosis 2016-2020)

Business Performance

In this environment your Company has delivered value aided predominantly throughmanufacturing and supply chain excellence to ensure continuity and secure supply ofmedicines with initiatives to increase reach so that patients can easily accessmedicines. Your Company continues to enjoy a leadership position in many of the therapyareas in which it provides healthcare solutions to patients. Six of your Company's brandsfeature in the top-50 IPM brand list (IMS MAT March '17) namely Augmentin CalpolZinetac Betnovate - N Betnovate - C and Synflorix. Your Company has set in motioninitiatives to re-engineer its business model to maintain competitive margins and to bestdeliver value to patients and stakeholders.

(a) Finance and Accounts

Your Company strives to drive profitable volume growth in a competitive and partlyprice-controlled generic market with an underlying focus on delivering quality products topatients. To support the long-term strategy your Company is making progress in theconstruction of its new manufacturing plant at Vemgal Bengaluru. Furthermore the Companyis enhancing its technological capabilities to optimise its medical and field forceengagement with healthcare professionals.

Revenue from operations of Rs 2995 crores increased by 6% in value terms for the yearended 31st March 2017 as compared with the previous year. The Revenue growth was adverselyimpacted by 5% from a series of mandatory price revisions during the year on productsunder National List of Essential Medicine (NLEM) price control. Consequently the grossmargin defined as Revenue from operations less cost of goods sold decreased by 3% ascompared to previous year mainly due to mandatory price revisions.

E mployee benefit expenses increased in line with inflation as compared to the previousyear and includes the full year effect of being the fourth year since the wage increasefor unionised field staff. Other expenses were optimised and grew 3% as compared to prioryear representing a ratio of Revenue from operations of 23% as compared to 24% in theprior year. Other Income reduced by 41% as the Company progresses with its capitalinvestment programme as well as a reduction in interest rates.

E rofit Before Exceptional Items and Tax of Rs 465 crores amounted to 16% of Revenuefrom operations for the year as compared to the prior year of 20% directly attributable tothe NLEM price revisions. Exceptional income for the year of Rs 45.73 crores is mainlydriven by the disposal of surplus assets such as the profit on sale of property of Rs41.76 crores and the sale of non-core brands of Rs 6.41 crores that is partly offset byrestructuring costs of Rs 1.70 crores. This compares favourably to the prior year netExceptional Income of Rs 2.31 crores from the profit on disposal of property of Rs 15.99crores that is partly offset by the rationalisation costs of Rs 5.15 crores relating toPortfolio and Manufacturing activities as well as the one-time costs associated with theNovartis Asset Sale transaction of Rs 7.70 crores.

Cash generation from Operations continued to remain favourable this year and is in linewith business performance. Your Company spent Rs 304 crores as capital expenditure mainlyfor the new manufacturing facility at Vemgal Bengaluru. Your Company continues to lookfor ways and means of deploying accumulated cash balances as at 31st March 2017 whichremain invested largely in bank deposits.

E uring the year the Company embedded its finance operating model to enhance theefficiency of end-to- end processing of transactions increase capabilities toward financepartnering with the business as well as ensuring a strong financial governance across theorganisation. The implementation of the finance operating model has enabled the Company tocommence a project to upscale its future Enterprise Resource Planning systems.

Furthermore your Company has enhanced its Indirect Tax Capabilities as it preparesfor the country's implementation of the Goods and Services Tax (GST) system as well asits ongoing strengthening of its Assurance and Control team structure.

There are no loans guarantees given securities provided and investments covered underSection 186 of the Companies Act 2013. Your Company has not accepted any fixed depositsduring the year. There was no amount outstanding towards unclaimed deposits payable todepositors as on 31st March 2017.

E here are no significant or material orders passed by the Regulators Courts orTribunals which impact the going concern status of the Company and its future operationsnor are there any material changes and commitments affecting the financial position of theCompany as on the date of this report.

Novartis Transaction

The Company successfully completed the transaction with Novartis on 30th September2015 upon receipt of all applicable legal and regulatory approvals. Your company acquiredthe distribution rights of Novartis vaccines portfolio predominantly the distribution ofthe anti-rabies vaccine whilst terminating its distribution rights to a portfolio ofoncology products. Your Company's sales performance for the current year was Rs 91 croresfrom the acquired vaccines as compared to Rs 61 crores in the prior period. Transitionalarrangements were implemented upon deal closure to ensure the ongoing market supply ononcology products to patients during the transfer period of the Marketing Authorisation toNovartis. The effect of these transitional arrangements enabled your Company to recordsales of Rs 81 crores during the year relating to the terminated Oncology business.

(b) Pharmaceuticals Business Performance and Outlook

Your Company has been focused on increasing access to its medicines in order to servepatients better. Around 68% of the Indian population resides in rural India. The expandingrural economy is expected to increase the pool of patients at a much faster rate thanmetros and major towns. Healthcare professionals (HCPs) that serve rural patients find itdifficult to update their knowledge due to inadequate

educational infrastructure. Your Company expanded its presence in these markets throughthe REACH division with the aim of improving patient access by educating HCPs on yourCompany's portfolio for appropriate therapy areas. Your Company conducted uniquescientific programmes like Van SPMs (Scientific Promotional Meetings) wherein yourCompany's doctors travel as speakers to interior towns and conduct scientific promotionalmeetings in a modified bus. Your Company also conducted chemist meetings to educatepharmacists about the right ways of inventory management dispensing and their role inguiding patients on treatment adherence. Your Company is one of the first few to reachrural doctors through webcasts to educate them on disease therapy areas in which yourcompany is present with a portfolio. Your Company is clearly ahead of the curve inleveraging technology to increase access and train HCPs.

Your Company launched the innovative strain LGG as brand EnteroPlus in India for thevery first time as a probiotic capsule and sachet. The strain is in-licensed from ChrHansen Denmark and is the world's most researched probiotic strain. EnteroPlus wasrecognised as the best new introduction in the Indian Pharmaceutical market by QuintilesIMS amongst 359 new launches in the last quarter of 2016-17. EnteroPlus is received wellby HCPs and the trial feedback has been positive.

In Mass Markets according to IMS data (December 2016) Calpol a significant 50-yearold brand of your Company's Mass Markets portfolio saw 27% unit volume growth and stillremains the most prescribed brand in the Indian Pharmaceutical Market (IPM). Calpol alsowon the Silver award for Brand of the Year for Marketing Excellence.

Another classic and established product Zinetac completed 30 years of servingpatients. It remains the top brand in the highly competitive acid peptic ulcer therapyarea with a double-digit growth rate (IMS Dec 2016). The team behind Zinetac initiated anexpansion plan in 2016 by entering many new specialties and in keeping with your Company'snew ways of working the focus was on expansion through multi-channel marketinginitiatives.

Though Zentel de-grew by value (-5%) due to inclusion in the NLEM it grew by 36% involume and attained market share of 47% in its category for 2016 (IMS Dec 2016). YourCompany plans to expand this category and reach out to the maximum number of patients byincreasing awareness on worm infestations through digital channels in addition to our HCPengagement initiative to improve diagnosis of worm infestation.

Your company maintained its leadership in the Dermatology segment in the IndianPharmaceutical Market during the year. Within the GSK global dermatology franchise yourCompany continued to maintain significant salience. Amongst notable initiatives for theyear under consideration the team rolled out a "Treat and Care" campaign topresent a complete management approach for Psoriasis - a psychologically debilitatingcondition. Keeping patients at the focus of activities the team sought to help HCPsoptimise management of the condition with a steroid portfolio in conjunction with theemollient range - Oilatum. The team also took on the challenge of increasing awarenessamongst patients on the dangers of self-medication and the appropriate use of steroidsthrough posters and educational material both in clinic and at pharmacists. The team hasbeen in the forefront in engaging dermatologists pediatricians and GPs throughmulti-channel activities and webinars that have seen up to 7000 HCP registrations.

During the year your Company took the initiative to launch team "Invictus"a dedicated team of therapy executives for high-quality scientific engagement withendocrinologists for Eltroxin your Company's flagship therapeutic solution for thyroidmanagement. An innovative media awareness campaign on congenital hypothyroidism wasundertaken in six cities. Your Company won the 'Social Responsibility Communication' awardfor our campaign on Congenital Hypothyroidism by the Association of Business Communicatorsof India.

In order to aid rapid and early diagnosis of thyroid disorders and to improve treatmentoutcomes your Company undertook several digital Scientific Promotional meetings (SPMs) on"maternal hypothyroidism" and "translating thyroid guidelines to Indianpractice." The team engaged 20000 HCPs during the year. The team conducted anation-wide pharmacist campaign on Appropriate Corticosteroid Dispensing engaging around17000 pharmacists in the year.

In the respiratory segment your Company undertook a price-volume initiative in 2015 tomake Seretide Accuhaler accessible to more asthma and COPD (Chronic Obstructive PulmonaryDisorder) patients in India. As a result patient share in the ICS-LABA market tripled inthe first 18 months with a volume growth of 45%. The respiratory team re-launched theSeretide Accuhaler in March 2015 since then there has been an increase in patient userbase from 0.2 million in 2000-2010 to 1 million in 2016. This has made Seretide thefastest growing brand in the ICS-LABA market.

Your Company's flagship brand in the Mass Specialty segment Augmentin faced freshmandatory price reductions in 2016. The management team used this opportunity to increaseaccess of the drug to more patients. This helped Augmentin to achieve unit leadership inthe market with Augmentin Solids 625 mg.

Neosporin your Company's range of topical antibiotics has returned to the marketafter a gap of almost two years. The brand faced a temporary setback related to supply ofits API (Active Pharmaceutical Ingredients) and its absence has impacted patients acrossthe country. IMS prescription audit indicated a modest prescription erosion of Neosporinand subsequent share gain by other companies. One million prescriptions were reported forthe Neosporin range according to IMS January 2017 data on a MAT basis.

CCM & Fefol Z returned to the market during the year. In a crowded market of morethan 300 calcium oral solid brands CCM registered a growth of 25%. Avamys Fluticasonefuroate nasal spray grew by 28% for the year under consideration.

Your Company's success in these Mass Specialties can be attributed to the efforts ofthe field force in conducting more activities like virtual scientific promotional meetings(SPMs)- ‘AOM vs. OME' (Acute Otitis Media vs. Otitis Media with Effusion)'Understanding Allergic Rhinitis' 'Appropriate Antibiotic Prescribing' 'SSP clinics forParamedics'.

In the hospital business segment the Key Account Management programme was rolled outto all the Area Business Managers and Key Account Executives of the Hospital BusinessTeam. This enabled them to provide value addition to hospitals by identifying attributesthat are important to hospitals. The Green Cross pharmacy programme for hospitalpharmacists was one such educational programme certified by the Indian PharmaceuticalAssociation (IPA). This has already seen participation of ten hospitals. In addition thehospital business team along with the Association of Healthcare Professionals of India(AHPI) and Bureau Veritas (BV) launched the "Green and Clean Hospital Programme"in 2016. This unique certification programme is the first in the industry and aims atachieving high standards of hygiene and sustainability for which the hospital will becertified by AHPI and Bureau Veritas.

Preventive healthcare - Vaccines

In the area of preventive healthcare your Company continues to be the No. 1 vaccinescompany in the self-pay segment growing in double digits well ahead of the vaccinesmarket. Your Company began marketing vaccines in India more than 25 years

ago and currently markets 10 vaccines for varied age groups-infants adolescents andadults. The vaccines self-pay market is currently estimated to be Rs 1700 crores (IMS MATMarch 2017) and is growing at around 5%.

Your Company's vaccines has consistently led the vaccines self-pay market with a shareof ~34%. Six of your Company's vaccines feature in the Top-20 list of vaccines in theself-pay market. Your Company launched Priorix Tetra during the year India's firstcombination MMRV (Measles Mumps Rubella and Varicella) which has been well received bypediatricians.

To ensure the highest quality your Company has upgraded its primary vaccines coldchain to world standards. To increase awareness of vaccines amongst the journalistcommunity your Company conducted a novel journalist engagement workshop titled"Value of Vaccines" across 19 cities reaching 500 journalists.

Digital footprint

Your Company strives to ensure that we have the right high-quality scientific knowledgecatered to HCPs through the appropriate channel. During the year your Company's fieldforce was equipped with Tablets which enabled them to capture HCP insights andpreferences on digital channels. With the launch of Veeva CRM (a customer relationshipmanagement tool) your Company aims to provide HCPs with high-quality information andeducation about our medicines in more convenient ways using their channels of preference.

The Company's HCP engagement model has consistently focused on ensuring sustainedcustomer aggregation from all possible channels. This has given your Company uniquecustomer differentiation within a fragmented market. From 25000 touch points in a singleactivity your Company has grown to 150000 touch points through the multi-channelengagement model.

Also the Company has successfully piloted a digital project "InfectiousSmiles". This is a comprehensive integrated 360 multi-channel programme with a newtele-call component. This will enable your Company to become more predictive in our valueproposition as your Company continues to expand the programme and tailor engagements bestsuited to HCP and patient needs.

(c) Opportunities Risks Concerns & Threats

T he National Health Policy (NHP) has been approved by the Union Cabinet in March2017 aims to deliver quality healthcare services to all sections of society at anaffordable cost in a comprehensive integrated way. The NHP 2017 aims to tie up with theprivate sector for critical gap filling towards achieving national goals. It envisagesprivate sector collaboration for strategic purchasing capacity building skilldevelopment programmes awareness generation developing sustainable networks for thecommunity to strengthen mental health services and disaster management. The policy alsoadvocates financial and non-financial incentives for encouraging private sectorparticipation. Your Company welcomes these measures to serve more patients of our country.

The Union Budget 2017-2018 announced certain changes connected to the healthcare sectorand has increased the health outlay to Rs 48878 crores in Financial Year 2017-2018 (versusRs 39879 crores in Financial Year 2016-2017). Increase in funding to the National HealthMission will help strengthen efforts towards measles vaccination along with reduction inMaternal Mortality Rate to 100 by 2018-2020. Higher medical education will receive amuch-needed boost by an increase in the number of post-graduate seats by 5000 and addingmore hospitals to offer the Diplomate National Board (DNB) degree and enhance specialtycare in fields like endocrinology and oncology. In addition primary care's focus will bebroadened with the conversion of 1.5 lakh health sub-centres into Health Wellness Centres.

Drug pricing received attention with proposals to reduce the cost of life-saving drugs.The government proposes to amend the Drugs and Cosmetics Act to ensure availability ofdrugs at reasonable prices. Aadhar-based smart cards for senior citizens listing outtheir health conditions will help in providing an efficient monitoring mechanism forgeriatric health conditions. It will be piloted in 15 districts during Financial Year2017-2018.

The 'Pradhan Mantri Bhartiya Janaushadhi Pariyojana' is a campaign which has beenlaunched by the Department of Pharmaceuticals Ministry of Chemicals and FertilizersGovernment of India to provide quality medicines at affordable prices to the massesthrough special stores known as Pradhan Mantri Bhartiya Jan Aushadhi Kendra.

The Government of India has recently announced that it is considering a legal frameworkto ensure doctors prescribe low-cost generic medicines to patients. Your Company sharesthe government's priority of providing quality drugs at affordable prices and yourCompany's business model resonates well with what the Government envisages to achieve. Amechanism should be developed to ensure that price alone does not become the foremostcriteria in dispensing drugs and that quality and safety should receive equalconsideration.

Your Company applauds the government's efforts to ensure the quality of generic drugsapproved by the State FDAs (Food & Drug Administration). We understand that these maynow require bio-equivalence (BE) studies to be conducted for all drugs (new or otherwise)for category II and category IV of the biopharmaceutical classification system (Gazettenotification dated April 3 2017). However we urge that such quality assurance measuresshould be extended to existing licensed generics also in the interests of patients. Inaddition there should be an emphasis on adherence to global manufacturing standardscertified by the World Health Organisation.

(d) Regulatory Affairs

During the year under review in order to support the commercial availability of newdrugs that would benefit and improve the quality of life of Indian patients suffering fromvarious diseases your Company submitted necessary applications for new products in Indiato the CDSCO (Central Drugs Standard Control Organization) Ministry of Health and FamilyWelfare Government of India. Some of the applications made were to register a hexavalentvaccine for diphtheria tetanus pertussis hepatitis B haemophilus influenza type B andinactivated polio vaccine (Infanrix hexa). In addition applications were made to registera new strength of the already registered drug lamotrigine (Lamictal DT) used in epilepsy.An expansion of indication to include 19A serotype effectiveness for the pneumococcalpolysaccharide conjugate vaccine (Synflorix) was registered. Transfer of marketingauthorisation from Novartis to GSK for meningococcal vaccine (Menveo) and diphtheriatetanus pertussis (whole cell) hepatitis B and haemophilus type b conjugate vaccine(Quinvaxem) were also registered. After a thorough review of its applications yourCompany has received approval for the expansion of indication to include 19A serotypeeffectiveness for the pneumococcal polysaccharide conjugate vaccine (Synflorix) and fortransfer of Marketing Authorisation from Novartis to GSK for meningococcal vaccine(Menveo) and the diphtheria tetanus pertussis (whole cell) hepatitis B and haemophilusinfluenza Type b conjugate vaccine (Quinvaxem) which will enable timely access to new andinnovative therapeutic options to patients in our country.

Medical Affairs & Medical Governance

Your Medical Affairs team has played a crucial role in shaping strategic direction andleading execution of the strategies for several key products / therapy areas includingSeretide Augmentin Eltroxin Vaccines Dermatology amongst others and facilitated thelaunch of a new probiotic EnteroPlus. Medical Affairs is at the forefront in getting thepatient's perspective to ensure that the activities and communication with the HCPs arepatient-focused. The medical team

also led the communication of high-quality and clinically relevant scientificinformation to the medical fraternity and regulatory authorities. The Medical Affairs andthe Medical Governance teams ensure that your Company's promotional activities and HCPengagements are consistent with global GSK standards and in line with all the applicableguidelines and standard operating procedures.

In line with your Company's new HCP Engagement model that leads the new ways of workingin the industry your Company has taken steps to build internal medical capacity andcapability to deliver this new model and enhance the way your Company interacts with HCPs.Disease area experts in dermatology and respiratory in the medical team were hired and afield-based medical team was introduced to strengthen the Medical Affairs team. Theinternal medical team including disease area experts and the field-based medical teamdelivered more than 500 scientific presentations to HCPs in 2016. To measure the impact ofthese talks feedback was sought from 2801 HCPs and 96% of the HCPs have agreed that theirinteraction/meeting with your Company's Medical team helped them to make a more informeddecision benefiting patient care in line with your Company's value of patient focus.

Your Company has developed and/or supported high-quality scientific educationalprogrammes for HCPs to update their knowledge about disease management which willultimately help their patients receive appropriate treatment. During the year aninnovative rural Van Scientific Promotional Meeting (SPM) was conducted by the internalmedical team to educate HCPs from rural areas within a modified bus. Rural HCPs have highpatient load and there is a dearth of opportunities to update their scientific knowledge.Given the infrastructural challenges to conduct scientific meetings in rural areas yourcompany has organised rural Van SPMs with the internal medical team in a modified bus(converted to a class room setting) with all the facilities to conduct the meeting.

Your Company has been supporting independent medical education programmes aimed atenhancing the knowledge and skills of primary care physicians in the management of thyroiddisorders through an educational grant by your company towards the ‘CertificateCourse in Management of Thyroid Disorders (CCMTD)'. So far more than 1800 HCPs acrossIndia have successfully completed this course and the programme has won many accolades andrecognition internationally. Your Company has also initiated similar educationalprogrammes in Respiratory (Asthma and COPD) and women's health.

(e) internal Control Framework

Your Company conducts its business with integrity and high standards of ethicalbehavior and in compliance with the laws and regulations that govern its business. YourCompany follows a risk- based approach for evaluating its operations. Your Company has awell-established framework of internal controls in operation supported by standardoperating procedures policies and guidelines including suitable monitoring proceduresand self-assessment exercises. Your Company leverages on best practices in the field ofRisk management and controls by drawing on global standards designed by GSK Group. Inaddition to the external statutory audit the financial and operating controls of yourcompany at various locations are reviewed quarterly by Internal Auditors to reportsignificant findings to the Audit Committee of the Board. The annual internal audit planis reviewed and approved by the Audit Committee and Head of Internal Audit has a directreporting line to the Audit Committee. The Audit Committee reviews the adequacy andeffectiveness of the implementation of audit recommendations including those relating tostrengthening your company's risk management policies and systems. Compliance with lawsand regulations is also monitored through a matrix of a well-laid down framework whichrequires individual functions to confirm and report statutory compliances on all laws andregulations concerning their respective functions and which gets integrated with theoverall compliance reporting on all laws and regulations for the purposes of review andmonitoring by the Audit Committee.

As required by the Companies Act 2013 your Company has implemented an InternalFinancial Control (IFC) Framework. Section 134(5)(e) requires the Directors to make anassertion in the Directors Responsibility Statement that your company has laid downinternal financial controls which are in existence adequately designed and operateeffectively. Under Section 177(4)(vii) the Audit Committee evaluates the internalfinancial controls and makes a representation to the Board. The purpose of the IFC is toensure that policies and procedures adopted by your Company for ensuring the orderly andefficient conduct of its business are implemented including policies for safeguarding itsassets prevention and detection of frauds and errors accuracy and completeness ofaccounting records and timely preparation of reliable financial information. The IFCimplementation required all processes of your Company to be documented alongside thecontrols within the process. All processes were satisfactorily tested for both design andeffectiveness during the year.

Furthermore your Company continues its annual Independent Business Monitoring (IBM).The IBM Framework is designed by the GSK Group requiring

a regular review of activities data exceptions and deviations in order tocontinuously monitor and improve the quality of operations. It is a risk-based enterpriseapproach ensuring consistency quality transparency and clear accountability of RiskManagement and Internal Controls across all business units. In addition your Companyactively tracks all agreed remedial actions and ensures that corrective actions addressunderlying root causes.

Your Company expects all employees to act transparently respectfully and withintegrity and to put the interests of patients and consumers first at all times. YourCompany aims to put these core values at the heart of everything it does and everydecision it makes. The GSK Code of Conduct and accompanying training seek to ensureeveryone has a solid understanding on how to implement and uphold the values in practice.Mandatory training on the Code of Conduct helps your Company's employees gain theconfidence to make the right decisions and become familiar with the policies andprocedures applicable to their areas of operation avoid conflicts of interest and reportall unethical and illegal conduct. Your Company also has an Anti-Bribery and Corruption(ABAC) programme designed to prevent non-compliance through controls practical guidanceand mandatory training. The programme complies with the principles laid down under USForeign Corrupt Practices Act and British Anti-Bribery laws. In addition your Companyconducts face-to-face sessions with commercial teams to ensure that all field-basedcolleagues are well versed on policies and their expected behaviour.

Employees are also required to certify on an annual basis whether there have been anytransactions which are fraudulent illegal or violate the Code of Conduct. Strongoversight and self-monitoring policies and procedures demonstrate your Company'scommitment to the highest standards of integrity.

Your Company's policies and updated Global Code of Practice for Promotion and CustomerInteractions prescribe the nature of practices and prohibits specifically those which areunethical. Your Company is a signatory to the OPPI (Organisation of PharmaceuticalsProducers in India) Code of Marketing Conduct.

Risk Management

Your Company has a Risk Management and Compliance Board (RMCB) which follows a charter.Risk maps stating the significant business risks potential consequences and mitigationplans are prepared by each function and reviewed by the RMCB on a regular basis. BusinessContinuity Plans are periodically reviewed and tested to enhance their relevance. The RiskManagement Framework covering business operational and financial risks is

being continuously reviewed by the Audit Committee. At present in the opinion of theBoard of Directors there are no risks which may threaten the existence of the Company.

Vigil Mechanism

Your Company has a Speak Up Programme which offers people within and outside GSK arange of channels to voice concerns and report misconduct. The Speak Up culture andprocedures encourage everyone to raise concerns about potential unethical or illegalconduct and assures confidentiality and protection from retaliation retribution or anyform of harassment to those reporting such concerns. Confidential Speak Up integrity linephone numbers are available to people within and outside of your Company. An independentcompany manages these reporting lines and calls are logged through their central system toensure integrity of the programme.

Your Company endeavours to treat all questions or concerns about compliance in aconfidential manner even if the person reporting a question or concern identifiesthemselves. Your Company also has a well laid down process to prevent take disciplinaryaction and deter acts of sexual harassment.

Your company has in place a whistle blower policy with a view to provide a mechanismfor its employees/ external stakeholders to approach Local/Group management or theChairman of Audit Committee (accindrx.audicomitteechairmanaskindiarx@ask.com ) in case ofany grievance or concern. The Whistle Blower policy can be accessed on your Company'swebsite [

http://india-pharma.gsk . com/en-in/investors/shareholder-information/policies/. TheCSR report on the activities undertaken during the year given in Annexure ‘c' formsa part of this Report.

i) Certain statements in the "Management Discussion and Analysis" section maybe forward-looking and are stated as required by applicable laws and regulations. Manyfactors may affect the actual results which could be different from what the Directorsenvisage in terms of future performance and outlook.

4. DIRECTORS

Mr. R. Simard Non-Executive Director and Mr. R. Sequeira Whole-time Director resignedas Directors from 11th February 2017. The Board places on record their appreciation of thevaluable services rendered by Mr. Simard and Mr. Sequeira during their tenure and fortheir contribution to the deliberations of the Board.

The Board of Directors has appointed Mr. Marc Jones and Mr. Subesh Williams asNon-Executive Directors with effect from 7th April 2017.

In terms of the provisions under Section 149 of the Companies Act 2013 the Board andShareholders have approved the appointment of all the existing Independent Directors thatis Mr. R. R. Bajaaj Ms. A. Bansal Mr. P.V. Bhide Mr. N. Kaviratne Mr. A. N. Roy andMr. D. Sundaram for a term for five years from 30th March 2015.

The Independent Directors have submitted the Declaration of Independence as requiredpursuant to Section 149(7) of the Companies Act 2013 stating that they meet the criteriaof Independence as provided in sub-section (6).

During the year ended 31st March 2017 five Board Meetings were held the details ofwhich are given in the Corporate Governance Report. The intervening gap between theMeetings was within the period prescribed under the Companies Act 2013.

Remuneration Policy and Board Evaluation

In compliance with the provisions of the Companies Act 2013 and Regulation 27 of theListing Obligations & Disclosures Regulations (LODR) the Board of Directors on therecommendation of the Nomination & Remuneration Committee adopted a Policy onremuneration of Directors and Senior Management. The Remuneration Policy is stated in theCorporate Governance Report. Performance evaluation of the Board was carried out duringthe period under review. The details are given in the Corporate Governance Report.

Familiarisation programmes for the independent Directors

I n Compliance with the requirements of SEBI Regulations the Company has put in placea familiarisation programme for the Independent Directors to familiarise them with theirrole rights and responsibility as Directors the working of the Company nature of theindustry in which the Company operates business model etc. It is also available on theCompany website: http://india-pharma .gsk.com/en-in/investors/shareholder-information/policies/

5. particulars of contracts and related party transactions

I n line with the requirements of the Companies Act 2013 and LODR your Company hasformulated a policy on

Related Party Transactions. All related party transactions that are entered into duringthe year were on arm's length basis and were in the ordinary course of business. Therewere no materially significant related party transactions made with the PromotersDirectors or Key Managerial Personnel which may have a potential conflict of Interest withthe Company at large. The Policy of related party transactions can be accessed on Companywebsite: http://india-pharma.gsk.com/en-in/investors/shareholder- information/policies/

All Related Party Transactions are placed before the Audit Committee for review andapproval. Prior omnibus approval is obtained for Related Party Transactions on a quarterlybasis for transactions which are of repetitive nature and / or entered in the ordinarycourse of business and are at arm's length. All Related Party Transactions are subjectedto independent review by a reputed accounting firm to establish compliance with therequirements of Related Party Transactions under the Companies Act 2013 and LODR.

6. directors' responsibility statement

Your Directors confirm:

(i) that in the preparation of the annual accounts the applicable accounting standardshave been followed along with proper explanations relating to material departures if any

(ii) that the Directors have selected such accounting policies and applied themconsistently and made judgements and estimates that are reasonable and prudent so as togive a true and fair view of the state of affairs of the Company as on 31st March 2017 andof the profit of the Company for the year ended on that date;

(iii) that the Directors had taken proper and sufficient care for the maintenance ofadequate accounting records in accordance with the provisions of the Companies Act 2013for safeguarding the assets of the Company and for preventing and detecting fraud andother irregularities;

(iv) that the Directors have prepared the annual accounts on a going concern basis;

(v) that proper internal financial controls laid down by the Directors were followed bythe Company and such internal financial controls are adequate and were operatingeffectively and

(vi) that proper systems to ensure compliance with the provisions of all applicablelaws have been devised and such systems were adequate and were operating effectively.

7. CORPORATE GOVERNANCE & BUSINESS SUSTAINABILITY REPORT

Your Company is part of the GlaxoSmithKline Plc group and conforms to norms ofCorporate Governance adopted by them. As a Listed Company necessary measures are taken tocomply with the Listing Obligations & Disclosures Regulations 2015 (LODR) with theStock Exchanges. A report on Corporate Governance along with a certificate of compliancefrom the Auditors given in Annexure ‘A' forms a part of this Report. Further aBusiness Responsibility Report describing the initiatives taken by your Company from anenvironmental social and governance perspective given in Annexure ‘B' forms a partof this Report.

8. Auditors

According to the provisions of Section 139 of the Companies Act 2013 the term ofoffice of Price Waterhouse & Co Bangalore LLP Chartered Accountants the StatutoryAuditors of the Company will conclude from the close of the forthcoming Annual GeneralMeeting of the Company.

Subject to the approval of the Members the Board of Directors has recommended theappointment of Deloitte Haskins and Sells LLP Chartered Accountants as the StatutoryAuditors of the Company. Member's attention is drawn to a Resolution proposing theappointment of Deloitte Haskins and Sells LLP as Statutory Auditors of the Company whichis included as Item No 5 of the Notice convening the Annual General Meeting.

Pursuant to the provisions of Section 204 of the Act and the Rules made there underthe Company has appointed Parikh & Associates Practicing Company Secretaries toundertake Secretarial Audit of the Company. The Report of the Secretarial Auditor isannexed to the Board Report as Annexure "D" forms a part of this Report. TheSecretarial Audit Report does not contain any qualification reservation or adverseremark.

Pursuant to Section 148 of the Companies Act 2013 the Board of Directors on therecommendation of Audit Committee have appointed R. Nanabhoy & Co. Cost Accountantsfor conducting the audit of the cost accounting records maintained by the Company for itsFormulations for 2017-2018. The Committee recommended ratification of remuneration for theyear 2016-17 to the Shareholders of the Company at the ensuing Annual General Meeting. Asrequired under Section 92(3) of the Act and the Rules framed there under the extract ofthe Annual Return in Form MGT 9 is enclosed as Annexure "G" forms a part of thisReport.

9. General

The information on conservation of energy technology absorption and foreign exchangeearnings and outgo as stipulated in Section 134(3) M of the Companies Act 2013 and therules framed there under is attached herewith as Annexure "E" forms a part ofthis Report. The Disclosures pertaining to the remuneration and other details as requiredunder Section 197(12) of the Companies Act 2013 and the rules made thereunder is enclosedas Annexure "F" forms a part of this Report. Pursuant to Section 129(3) of theCompanies Act 2013 a statement in form "AOC-1" containing salient features ofthe Financial Statements of the Subsidiary Company is attached.

Although the audited statements of accounts relating to the Company's Subsidiary areno longer required to be attached to the Company's Annual Report the same is enclosed asand in way of better disclosure practice.

The information relating to top ten employees in terms of remuneration and employeeswho were in receipt of remuneration of not less than Rs 1.02 cores during the year or Rs8.5 lakhs per month during any part of the year forms part of this Report and will beprovided to any Shareholder on a written request to the Company Secretary. In terms ofSection 136 of the Companies Act 2013 the report entitled at the registered office of theCompany during the business on working day of the Company up to date of Annual GeneralMeeting.

10. acknowledgments

The Directors express their appreciation for the contribution made by the employees tothe significant improvement in the operations of the Company and for the support receivedfrom all other stakeholders including Shareholders Doctors Medical ProfessionalsCustomers Suppliers Business Partners and the Government.

The Board and the Management of your Company are indeed appreciative of the substantialsupport being received from GSK Plc the parent organisation in providing new healthcaresolutions which are products of its discovery labs and the technology improvements whichbenefits your Company immensely.

On behalf of the Board of Directors
D.S. Parekh
Chairman
Mumbai 19th May 2017