ORCHID CHEMICALS AND PHARMACEUTICALS LIMITED
ANNUAL REPORT 2009-2010
CHAIRMAN'S REPORT
Dear fellow shareholders,
On behalf of the Board of Directors, I take pleasure in welcoming you to
the Eighteenth Annual General Meeting of your Company. Your Company's
annual report and accounts have been with you for some time, and with your
permission, I shall take them as read.
Over the next few minutes, I will attempt to provide a summary of the key
events of the previous year, the challenges and opportunities our business
faces and the strategy to sustain our growth and strengthen
shareholder value.
Sale of the Intertables business - a game changer
Fiscal 2009-10 will be remembered as a milestone in your Company's journey.
We took one of the most challenging decisions in our history. We sold our
generic injectable formulations business for US$400 million to Hospira
Inc., a generic injectable drug major. I must reiterate that this was a
prudent decision. It was the preferred solution for strengthening our
future growth canvas and sustaining our commitment to shareholder value
creation - which has been the foundation of our strategy since we went into
business.
Addressing shareholders' anxiety
Since inception, your Company established a strong foothold in niche
therapeutic segments which are relatively uncluttered due to the inherent
technical complexity. In doing so, your Company grew in size and is now a
global name in its operating domains.
In recent times, your Company's performance in the global and domestic
markets could not translate into robust growth for the Company and superior
shareholder value creation. This was primarily owing to the sizeable debt
burden which weighed heavy on your Company's profitability. With the debt
levels coming down and with a strong growth strategy in place, this is set
to change going forward.
My fellow shareholders may have a number of apprehensions about the future
of the Company's growth and its profitability. I take this opportunity to
put these to rest.
Shareholders may be of the opinion that the management sold the Company's
future business drivers. To this, I would like to mention that we prudently
disinvested business segments where growth would have anyway slowed owing
to the product life-cycle and generisization. Also, this segment
represented 1 7% of your Company's total business.
Shareholders feel that the valuation of the Company on the bourses could
depreciate as it might be viewed as an API manufacturer. I have a simple
answer to this. The DNA of your Company will remain unaltered - we will
continue to leverage on our inherent strengths of identifying niche
opportunities, where strong value can be created through science and
technology and where market shares and exclusive positions can be made
possible by design. For instance, we are among the first set of global
manufacturers of Tazobactam-Piperacillin, Meropenem and Imipenem APIs for
the two large regulated regions (the US and the EU). Our focus is to be in
the right place at the right time, creating the right value, be it in APIs
or finished dosage forms.
Strategies for tomorrow
What next? This is the question on the minds of the shareholders. We have
drawn up a growth blueprint for the Company, segregated into short and
medium-term business drivers focusing on ramping up of the existing
business verticals, creating front-end marketing organisations and entering
new high-growth product segments.
In the short term, we have identified key areas which will drive business
growth for your Company. We will cater to the API needs of Hospira and
other global innovators in addition to our regular API and formulation
sales in the emerging markets.
We will strengthen our geographical presence in key regulated markets like
the US, Europe and Japan. Currently, we are marketing around 10 products in
the oral cephalosporins segment and 5 products in the NPNC (Non-penicillin,
Non-cephalosporin) segment. Your Company will further strengthen its
product basket for catering to these markets.
Our focus on acquiring front-end marketing companies possessing
infrastructure, people, product registrations and approvals will augur well
in the medium term. Our product pipeline in the regulated markets will be
filled with our own molecules, ANDAs and in-licensed products. This will
help us strengthen our product basket and maximise and internalise value
which was earlier shared with our marketing partners.
Our achievements in 2010-11, so far
The performance of your Company in the first quarter of the current
financial year reflects the start of a robust growth journey. Going
forward, your Company is well poised to ramp up its API and formulations
business based on specific product-market contracts and regulatory filings
which will help spread the growth canvas wider.
We entered into an out-licensing and distribution agreement with the US-
based pharma major Alvogen for marketing 8 oral non-antibiotic generic
formulations in the US market. These products cater to the high-growth
therapeutic segments of CNS and osteoporosis, among others and have a
cumulative addressable market size estimated at USD 8 billion.
Your Company also recently acquired Karalex Pharma, LLC, a US-based generic
marketing and sales services company through an all-cash deal for creating
a front-end presence in the US market to deliver generic products to the US
customers directly. Karalex Pharma is a leading provider of generic
pharmaceuticals, focused exclusively on the US healthcare market.
This acquisition will provide a strong US-based sales capability, paving
the way for synergistic returns from our upcoming and long-term strategic
generic pharmaceuticals pipeline, comprising key first-to-file and
Paragraph-IV products. This move also provides your Company, for the first
time, with a complete end-to-end coverage capability of the entire generic
pharmaceutical business cycle from product development to product sales and
would facilitate internalization of value for shareholders.
Regulatory achievements
Your Company continues to strengthen its regulatory filings, expected to
open new vistas of opportunity upon approval from the respective regulatory
agencies.
As of June 30, 2010, your Company's cumulative ANDA filings for the US
market stood at 36. This includes 8 Para-IV FTF (First-to-File) filings.
The break-up of the total ANDA filings is: 13 in Cephalosporins and 23 in
the Non-penicillin, Non-cephalosporin (NPNC) segment.
Your Company's filing count in the EU market moved to 16. The break-up of
the total Marketing Authorisations (MAs) filed is: 10 in Cephalosporin
segment and 6 in the Non-penicillin, Non-cephalosporin (NPNC) segment.
In the API (Active Pharmaceutical Ingredients) segment, your Company
increased its cumulative US DMF filing count to 82. The break-up of the
total filings is: 30 in the Cephalosporin Segment, 39 in NPNC segment, 2 in
the Betalactam segment and 11 in the Carbapenems segment.
The cumulative filings of CoS (Certificate of Suitability) for the European
market stood at 20 which includes 13 in Cephalosporin segment, 6 in the
NPNC segment and 1 in the Betalactam segment.
With a robust product development pipeline, your Company's filing and
approval count is poised to increase in the coming months and quarters.
Regulated markets
The US generic market, valued at over USD 30 billion, is the world's
largest generic market and is a strong focus area for al I pharmaceutical
companies across the world.
In 2009, generics accounted for 72% of the US pharma market by
prescription, a number that has been steadily rising and this is expected
to continue over the coming years. This optimism is based on an important
regulation passed by the US government that aims to make healthcare more
affordable for 32 million previously medically-uninsured Americans.
Moreover, regulations that increase the growth of the generics market are
expected to continue owing to an important reality. According to a study by
GPhA, for every 2% increase in generics use, the US Medicaid program can
save an additional US$1 billion annually (Source: GPhA).
Similarly the EU and Japan generic markets are also growing at a rapid pace
and present a strong business opportunity. Your Company is drawing up
specific plans to enhance its presence in these high-value markets.
Research & Development
Your Company's drug discovery activities are channelized through the wholly
owned subsidiary, Orchid ' Research Laboratories Limited (ORLL).
During the last fiscal, ORLL continued its research in the anti-infectives,
anti-inflammation, anti-cancer and metabolic disorder areas and has
achieved progress. Developmental candidates in anti-cancer and anti-
inflammation areas have reached the stage of regulatory toxicological and
safety studies.
Under the collaborative research program with Merck which relates to the
anti-infectives area, certain NCEs have been designed, synthesized and
screened and your Company is confident of making good progress going
forward.
The multi-pronged strategy of proprietary and collaborative drug discovery
and providing research and manufacturing services to MNCs such as Merck and
Pfizer will balance the risk-reward equation in the complex drug discovery
area and will also grow the team's intellectual capital exponentially. Your
Company's state-of-the-art infrastructure for end-to-end connected
discovery and development will facilitate seamless execution of these
projects.
Strategy for the medium term
We expect strong year-on-year growth over the next three years by focusing
on the non-penicillin, non-cephalosporin (NPNC) segment where we possess a
strong basket of over 73 products spanning diverse therapeutic areas. We
possess marketing alliances in the US and Europe with prominent players
such as Actavis, North Star and Alvogen for 31 NPNC products.
We also expect to capitalise on Para IV opportunities; our 8 Para IV FTF
filings provide a revenue potential of about US$80 Mn. A favourable outcome
in any patent challenge litigation could result in our being awarded the 1
80-day exclusivity.
Going ahead, we are working on niche product areas, which have limited
global competition and strong revenue visibility. These product segments
will power the growth journey of our Company and provide a strong platform
for a well-diversified and niche product portfolio.
Message to stakeholders
Before I conclude, I take the opportunity to thank the Central and state
governments, financial institutions, public and private sector banks,
government agencies and non-government institutions for extending their
support in your Company's growth and development. I thank your Company's
valued business stakeholders namely vendors, customers, strategic alliance
partners and business associates for their exceptional support during
difficult times, in accomplishing our business plans. Most importantly, I
acknowledge the critical role played by the employees whose contribution to
your Company's business growth has been paramount. On behalf of the Board,
I would like to thank all the shareholders for their unstinted support in
helping your Company enhance its technological and business strengths and
remain on the growth path.
Thank you for your attention!.
Chairman.
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