In the financial year 2016-17 the global economy witnessed significant geo-politicalheadwinds which further intensified the volatility across major markets.
The pharma industry witnessed many impediments during the course of the fiscal yearsuch as pricing pressures on the domestic front intense competition in the US markethigher regulatory requirements etc. that impacted the sector's sales. However owing toour unique business model that caters to innovation in speciality and niche product needsof patients across select therapy areas and the strength of our local marketing &distribution network and global partnerships your Company continued to make goodprogress. Despite challenges NATCO delivered encouraging results during the year.
Year of momentum
Over the preceding few years we had been steadily growing and carefully investing inthe development of niche products.
It was during this financial year particularly NATCO ramped up by monetising on yearsof effort through the launch of first generic version of Oseltamivir Capsules inthe United States and through strong growth in our domestic formulation portfolio. As wenoticed higher competition in the global markets of US and Europe we de-risked byexpanding further in India including the launch of a new division in Cardio & Diabetictherapy segment. Changing Times. Changing Strategies.
Our combination strategy of predictable base business growth with a deep pipeline and amore unpredictable timing on potential blockbusters or markets has paid-off well for yourCompany. We saw an accelerated growth during the financial year due to Hepatitis C productgrowth in India and blockbuster launch of generic Oseltamivir in the USA.
In formulations new product sales have shown very good momentum and has improved totalsales revenue significantly. The successful execution of key products during the yearhighlights the inherent strength of our processes and capabilities of our team. Theseintroductions have fortified our position strategically in the formulations business.
We are pleased to report that our operating performance significantly improved acrossall our businesses and there was continued progress in the late and early stage R&Dpipeline. On every important front we have performed well. Your Company registered a PATof
` 4860 million an increase of 209% compared to the previous financial year. Mostimportantly our total revenue outperformed expectations and surpassed Rs. 20000 millionfor the first time ever.
As we observed the industry environment and the strong headwinds in the US market wehave decided to shift our strategic focus on consolidating our strengths across coremarkets in India and emerging markets as we continue to stay on course on the USpotential. This was important as part of our de-risking strategy.
During the year we launched a new vertical - Cardiology and Diabetology (CnD) insupport of the India growth plan. We are foraying into this segment with a clear objectiveto align it with our brand promise of offering well-focused niche products to consumers.We at NATCO are encouraged by the growth opportunities the segment has to offer forspecialised molecules.
We are a trusted name in the minds of many oncologists and healthcare providers inIndia. Our differentiated products and the first-mover advantage for most of our launcheshas propelled us to a strong position in the Indian market. We continue to focus on thissegment with full due diligence.
Our product launches in the Hepatitis C basket have helped us gain leading share of themarket in India. Owing to this our consolidated revenue in FY 2016-17 from Hepatitis Cproducts was around Rs. 5130 million as opposed to Rs. 3412 million in FY 2015-16.
Driven by science
Our business is driven by the scientific expertise of our R&D team and it forms thepillar of our product development capabilities. With 6.0-8.0% of your Company's turnoverbeing invested towards R&D each year our strategy focuses on consolidating the corestrengths of research and development. We have made significant additions in analyticaland manufacturing capabilities during the year as we try to hone and supplement ourskills.
Going forward our R&D team will focus on building competencies that minimise therisk for product development and build solutions that fortify our competitive advantages.Such a strategy will entail greater emphasis on API and Formulation research integrationand building complementing competencies. We plan to widen our focus on research anddevelopment and hopefully continue to differentiate with nicheness.
As the US business landscape is facing challenges in the form of higher regulatoryrequirements unfavourable pricing environment intense competition and threat of newentrants we aim to drive our long-term sustainability by enhancing our businessopportunities on pharmerging markets and India.
As India's economic prosperity improves drug affordability and penetration ofhealthcare products and facilities will witness a boom. According to IMS Health and AIOCDAWACS the industry's revenue is expected to grow by 10-12% CAGR over the next few years.We are cognisant of the immense growth opportunity that the domestic market can offer usto build a stronger financial profile. Hence in FY 2017-18 we will invest in buildingour domestic capacities that can support our business ambitions across geographies.
With a renewed focus we will be looking at building a stronger product portfolio andexpansion of capacities across all our manufacturing facilities. Your Company willcontinue to use capital prudently and optimise debt levels to maintain a strong balancesheet. FY 2017-18 will mark our journey into a wider spectrum of possibilities.
Your Company has the diversity and mix of skills experience and knowledge required toreach our goals successfully. As we continue to add value through innovation and optimiseour resources we remain committed to our goal of bridging unmet healthcare needs andproviding medicines that address both accessibility and affordability.
Delivering on stakeholder expectations
We are grateful to our colleagues for their tireless efforts in making Your Company apowerhouse of promise and possibilities. The overriding objective of our teams is to helpcreate a successful business enterprise of tomorrow; and to make that possible in the mostengaging and enduring way.
We believe that our success helps create a large positive social impact. NATCO Trust aCorporate Social Responsibility wing of Natco Pharma Limited is committed to building abetter society with various programmes in Health Education and Livelihood. By developinginnovative pharmaceutical products across therapeutic segments we directly benefitpatients and consumers. Our Patient Assistance Programme through NATREACH enables accessto our products for the underprivileged. By delivering profitable and sustainable businessperformance we generate value and returns for all our stakeholders.
We are grateful to all our stakeholders for helping us stay ahead of the curve in anindustry that is transforming rapidly and demands a quick buildup of agility and acumen.With enhanced focus on innovation strategy execution and talent development we are nowbetter organised to serve healthcare needs than ever before across geographies.
V. C. Nannapaneni
Chairman and Managing Director
Vice Chairman and CEO