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Natco Pharma Directors Report, Natco Pharma Reports by Directors

Natco Pharma

BSE: 524816  |  NSE: NATCOPHARM  |  ISIN: INE987B01018  |  Pharmaceuticals

Explore Natco Pharma connections « Mar 07
Directors Report Year End : Mar '08
To the Members
 
 At the outset, your Directors are pleased to inform you of the company
 having completed twenty five years of operations. The Directors take
 this opportunity to thank all the shareholders, bankers, financial
 institutions and employees for the continued support extended to the
 company throughout this period.
 
 Your Directors have pleasure in presenting the 25th Annual Report
 together with the audited accounts of the Company for the year ended on
 31st March, 2008.
 
 Operating Results:
 
 The pressure on margins on APIs has slightly eased during the year,
 notwithstanding the absence of any noticeable spurt. The oncology
 business (finished dosage pharmaceutical formulations) has grown and
 has enabled the Company to record decent levels of over- all growth.
 The US retail operations also contributed to the increase in sales and
 profits.
 
 The following table summarizes the companys performance during the
 financial year 2007- 2008 :
 
                                                            Rs. in lakhs
 Particulars of Revenues                           2007-2008  2006-2007
 
 API Division                                          9,337     8,021
 Finished Dosage Formulations Division                23,365    16,665
 Job Work                                                822       991
 Other Income                                          2,858     2,317
 TOTAL                                                36,382    27,994
 
 consolidated revenues.
 
 The companys operations for the year resulted in a surplus of Rs.
 5,532 lakhs as compared to Rs. 4,008 lakhs for the financial year
 2006-2007.
 
 Your Directors have decided to make the following adjustments from out
 of the surplus :
 
                                                            Rs. in lakhs
 Particulars of write offs etc                   2007-2008   2006-2007
 
 Surplus after operational expenditure               5,532      4,008
 Write offs - bad debts / bad advances etc.              -         28
 Gross Surplus available                             5,532      3,980
 Provision for taxes                                 1,244        630
 Provision for deferred tax                            236        303
 Net surplus carried to Balance Sheet                4,052      3,047
 
 Dividend:
 
 Your Directors had recommended and paid an interim dividend of Rs. 1,25
 per equity share during October / November, 2007. Your Directors
 recommend that this may be treated as the final dividend and the
 recommendation / payment ratified.
 
 Fiscal 2008 in retrospect:
 
 API Division:
 
 The year witnessed a slight ease of the pressure on the margins for
 products from the Active Pharmaceutical Ingredients segment. However,
 in spite of the strengthening of the rupee during a major part of the
 year, the division was able to garner a revenue base of Rs. 9,337
 lakhs, an increase of around 12% over that recorded during the fiscal
 2007, Exports from this division amounted to Rs. 8,118 lakhs as against
 Rs. 7,548 lakhs during the last year.
 
 The first quarter of the fiscal 2009 has witnessed a weakness in the
 Indian rupee visi-a-vis the US Dollar and this development, if
 continued, is likely to shore up the revenues from this division during
 the fiscal 2009.
 
 The manufacturing facilities of the Division, of course, continues to
 enjoy US FDA (renewed during the year) Australian TGA and ISO:14001
 certification. Efforts to develop niche products and capture niche
 markets are continuing and your Company expects to achieve a reasonable
 penetration into new markets during the years to come. However, high
 value, low volume specialty drugs continue to be the main foray of this
 Division.
 
 The Division is slated to focus on products from cyto-toxic, peptide
 and steroid based platforms. Infrastructural facilities relating to the
 sterioids and peptides block are now complete and ready. Construction
 of the cyto-toxic facility being established by NATCO Organics Limited
 at Chennai is in progress.
 
 In a major development that can testify the strategy of the Company,
 the Company has entered into an exclusive supply and distribution
 agreement with Mylan Inc. for the generic version of Copaxone-®
 (Glatirmer Acetate), a drug used in the treatment of multiple
 sclerosis, The Company has been able to develop this drug on a peptide
 platform. Your Company believes that this agreement would be a turning
 point for the Company.
 
 Efforts are continuing to implement the definitive supply agreement
 signed with Akorn, Inc., The agreement envisages supply of two APIs (an
 anti-emetic and hyper calcemia) to Akorn on a margin sharing basis.
 Supplies under this agreement are expected to commence by the end of
 fiscal 2009. In accordance with the terms of this agreement, Akorn has
 initiated the process of regulatory submissions.
 
 During the year, satisfactory progress has been achieved in the filing
 of Drug Master Files.  The table given in Annexure A to this report
 indicates the latest status of these filings.
 
 Projects :
 
 The specialty peptide API Plant and hormone block for finished dosage
 formulations plant have been commissioned. The establishment of
 cyto-toxic production block by NATCO Organics is progressing
 satisfactorily and is expected to commence commercial production by the
 end of fiscal 2009.
 
 The Company continues to focus on introducing niche products and
 capturing niche markets.
 
 Finished Dosage Formulations Division :
 
 The Finished Dosage Formulations division continued to exhibit good
 performance. The credit for this good performance goes to the Oncology
 segment and US retail business.
 
 The company could maintain its numero-uno position in the oncology
 segment (in terms of revenues^ amongst the Indian companies). This
 division now clocks revenues in excess of Rs. 7 Crore per month, and
 for the fiscal 2008, as a whole, the division recorded a revenue base
 of Rs. 79 Crores as compared to Rs. 56 Crores during the last fiscal -
 a commendable increase of 40%. Other segments in the division have
 turned out equally good performance.
 
 The Company continued to launch new brands in various therapeutic
 segments which have been well received in the market. Tarana, the state
 of the art, world class oral contraceptive for women, launched last
 year, has been well received in the market and is doing well.
 
 In its efforts to develop new products, your Company aims to target
 products which are first ever launches in India. Due prominence is
 given to life-saving drugs as compared to life-style drugs. It must be
 mentioned that the basic drugs for most of these medicines are made at
 the Companys API division, resulting in significant cost savings.
 
 Development of the nano-technology based oncological drug - Paclitaxel
 - has been completed and is expected to be launched during the second
 half of 2008.
 
 During the year under review, the company had launched the following
 brands:
 
 Brand Name                                           Drug
 
 Lenalid capsules in different strengths         Lenalidomide
 Bortenat injection                              Bortezomib
 Docenat injection in different strengths        Docetaxel
 Iminat - C injection                            Imipenem and Cilastatin
 Planoset injection                              Palanosetron
 X-tane tablets                                  Exemestane
 Glatimer                                        Glatiramer Acetate
 Tarana                                          Drospirenone & Ethinyl
                                                 Estradiol
 Primanat injection                              Impenem & Cilastatin
 Rimnat                                          Rimonabant
 
 Western Markets :
 
 In order to ensure a quick and effective entry into the Western
 markets, your Company is aiming at :
 
 a) quick commercialization of tie-up agreements entered into with
 multi-national companies;
 
 b) completion of registration process for products in new markets
 
 c) dedicated US FDA approved manufacturing facility at Kothur
 exclusively for US / European markets.
 
 Work on the up-gradation of the Kothur facility is continuing. A
 cyto-toxic injectable facility and a cyto-toxic orals manufacturing
 facility, conforming to US FDA standards are being established at
 Kothur. The cyto-toxic orals manufacturing facility is expected to be
 commissioned by October, 2008
 
 During the year, the companys application for abbreviated new drug
 application (ANDA) in respect of Citalopram - an anti-depressant has
 been approved by the US FDA authorities.  The company has commenced
 supplies of Ondansetron tablets to the US markets. The companys
 constituents have since obtained approval from the Canadian Health
 Authorities for Citalopram and Ondansetron tablets and these tablets
 have since been launched in Canada.
 
 US Pharmacy Business:
 
 During the year under review, K & C Pharmacy - a general partnership
 firm in which the Company is a major partner - has acquired Newark
 Drugs, a retail pharmacy store in Newark, New Jersey, USA. This is the
 third pharmacy store that the company owns and manages in the USA.
 
 Nicks Drugs, which was acquired by K & C Pharmacy during the year 2006
 is doing well.  The companys share of profit from this store for the
 year ended on 31st March, 2008 amounted to Rs. 322.58 lakhs. Till 31st
 March, 2008, the companys share of profits from this store amounted to
 Rs. 825.09 lakhs.
 
 Save Mart Pharmacy, Lancaster, Pennsylvania, USA, which was acquired
 through the companys wholly owned subsidiary, NATCO Pharma Inc. also
 continues to do well and for the year ended on 31st March, 2008, the
 subsidiary has recorded a net profit, after tax, of Rs. 46 lakhs, after
 accounting for interest of Rs. 129 lakhs paid to the Company on the
 loans advanced by the parent company. The subsidiary has also repaid a
 part of the loan amounting to Rs. 151 lakhs.
 
 Efforts are on to acquire more such stores (with a target of a total
 revenue base of US $ 100 Million from the retail segment) in the USA.
 It is the intention of the Company to examine the various options
 available to it to enhance the value of this business and would
 evaluate the possibility of launching its own private generic brands
 through these stores, while developing and utilizing locally available
 manufacturing facilities.
 
 The operation of these pharmacy stores is helping the company in
 establishing a suitable channel for the companys products in USA, and
 in gaining firsthand knowledge about the US markets.
 
 Branded Generics & Institutional Sales :
 
 Business from this segment Is satisfactory, though the margins are
 meager.
 
 With a view to expand this business into newer markets, the Company is
 exploring ways and means of entering the neighbouring markets such as
 Sri Lanka, Myanmar, Nepal and Bangladesh. As a step in this direction,
 the Company has filed an application before the Controller General of
 Patents, Government of India, for compulsory licensing of certain
 life-saving drugs for marketing in Nepal. These applications are yet to
 be disposed off.
 
 The Institutional sales segment continues to be highly competitive.
 
 Manufacturing facilities :
 
 To maintain the status of the state of the art facilities, as also to
 comply with several regulatory requirements, the following up gradation
 programs are being planned for the fiscal 2009:
 
 a) Construction of a new bio-technology production block along with
 normal up- gradation of facilities at the US FDA approved API facility
 in Mekaguda.
 
 b) A new Unit containing a Cytotoxic liquid injectable facility,
 solid-dosage manufacturing facility and novel drug delivery systems is
 being planned at the US FDA approved Kothur facility.
 
 c) An annex is being added to the existing NATCO Research Centre. The
 cell biology lab, one-kg. lab for formulations and animal house would
 be completed during the fiscal 2009. Five new laboratories are also
 being established at the Research Centre.
 
 d) In order to continue to avail the tax benefits, a new facility for
 tablets, capsules and parenterals is being planned at Dehradoon.
 
 The manufacturing facility at Dehradoon, Uttarakhand continues to do
 well. Sales from this unit for the year under review amounted to Rs.
 6,178 lakhs. Construction of a parenterals block (capable of
 manufacturing cyto-toxic injectables, tablets, capsules, and small
 volume parentals - ampoules, vials, catridges etc.) is proceeding
 satisfactorily.
 
 Abbreviated New Drug Applications (ANDAs) :
 
 Annexure B to this report details the latest status on the abbreviated
 new drug applications filed by your Company.
 
 During the year under review, the companys ANDA for Citalopram tablets
 has been approved by US FDA. The company has filed and received,
 through its constituents, approval from the Canadian health authorities
 for marketing these tablets. The company has started shipments of
 Ondansetron tablets (in respect of which the companys ANDA was
 approved by the US FDA authorities) to the US which have been well
 received in the market.
 
 De-risking ANDA costs:
 
 The company has consciously followed a de-risking strategy with regard
 to the costs of filing ANDAs. The companys supply agreements with
 Akorn Inc and Mylan Inc are examples of this strategy. The company
 continues to look forward for similar tie-up for other products as
 well.
 
 Research Efforts and Intellectual Property
 
 Annexure C to this report details the latest status on the various
 patent applications filed by the Company.
 
 Your Company continues to lay emphasis on building and sustaining a
 strong research base. To this end, several compounds are being
 evaluated towards their efficacy in disease management and control. The
 Companys Research Centre has several teams, each headed by competent
 technical personnel, which are working on development of molecules,
 processes and products.
 
 Satisfactory progress has been recorded in the evaluation of the two
 new chemical entities (NRC 19 and NRC 24) which the company is
 developing. In respect of NRC 19, all the required pre-clinical studies
 have been completed. The Company has since filed an Innovative New Drug
 (IND) application and simultaneously applied to the Drug Controller
 General of India for undertaking Phase I clinical trials in India. The
 DCGI is presently scrutinizing the companys application and the
 process Involves laying down the methodology for undertaking the
 clinical trials, including constitution of a Monitoring Committee. The
 Company has also filed a preliminary clinical trial application with
 the Canadian regulatory authorities (Office of Clinical Trials -
 Therapeutic Products Directorate, Health Canada), for undertaking
 similar trials in Canada. This will be followed by the filing of a
 Innovative New Drug application in Canada.
 
 Satisfactory progress has been achieved in the development of new
 molecules for the treatment of pancreatic and lung cancer. New
 molecules - NRC 2694, NRC 1005 and NRC 1008 are undergoing toxicology
 studies. Out of these, an optimal molecule would be selected for Phase
 I clinical trials, probably by the end of fiscal 2009.
 
 The developmental work on various analogues useful in the field of
 anti-cancer, anti- depressant and anti-ulcer therapies, and new drug
 delivery systems is continuing satisfactorily.
 
 CRAMS and Contract Manufacturing:
 
 The Company is carrying out contract manufacturing activity for almost
 all reputed pharmaceutical companies. Efforts are being made to make a
 presence in CRAMS as well.
 
 Future developmental work :
 
 Work on the nano-technology platform is continuing satisfactorily.
 Developmental work on compounds useful in the treatment of non-small
 cell lung cancer, and chronic myeloid leukemia, are also progressing
 well.
 
 Corporate Social Responsibilities (CSR):
 
 NATCO Trust continues to actively pursue its social welfare activities.
 The Trust has been instrumental in providing drinking water (by
 installing reverse osmosis plants) for certain fluoride affected
 villages in Nalgonda District in Andhra Pradesh. The Trust is also
 supporting several schools in Hyderabad.
 
 The Company has started an in-house quarterly magazine called
 Spandana.
 
 Financial Matters :
 
 All the Foreign Currency Convertible Bonds issued in 2004 have been
 converted into equity shares, except for 28 bonds which have been
 redeemed during the fiscal 2008.
 
 The proceeds of the issue have been used for the purposes mentioned in
 the offer document and in accordance with the prevalent guidelines
 issued by the Reserve Bank of India.
 
 The Company has no derivative contracts outstanding as at 31st March,
 2008.
 
 Employees Stock Option Scheme :
 
 As at 31st March, 2008, in respect of NATSOP 2004, (under which 598,300
 options have been granted to some Directors and employees), 469,925
 options became due for vesting and were duly vested. The aggregate
 number of options exercised amounted to 419,775 and the process of
 allotment has since been completed, and the relevant shares have been
 listed on the Stock Exchanges. None of the options have lapsed. There
 has been no variation in the terms of the options.
 
 No fresh options have been granted during the year under review.
 
 The options have been granted at an exercise price of Rs. 10/- per
 share. Intrinsic value of these options (as on the date of grant) has
 been considered for the purpose of charge to the Profit & Loss Account.
 
 Buy-back of Equity Shares :
 
 The Company has completed the buy-back of equity shares announced in
 July, 2006.  The amount of Rs. 700 lakhs set apart for the purpose of
 buy-back has been fully utilized and the Company had bought back
 492,881 equity shares from the open market through buying on the stock
 exchanges. The paid up capital of the company as at 31st March, 2008
 stood at Rs. 2,804 lakhs.
 
 NATCO Organics Limited :
 
 Having received all necessary approvals, NATCO Organics Limited is
 implementing the bulk intermediates project at Chennai and it is
 expected that production in at least one block would commence by
 December, 2008. NATCO Organics Limited has been sanctioned working
 capital facilities as well as a term loan from Centurion Bank of Punjab
 Limited (now merged with HDFC Bank Limited).
 
 Pending finalization of the capital structure, adequate disclosures
 have been made in the financial statements regarding the amounts
 advanced to NATCO Organics Limited and the interest thereon.
 
 Directors :
 
 Dr. B.S. Bajaj, Mr. G.S. Murthy and Dr. Jasti Sambasiva Rao would be
 retiring by rotation and being eligible, offer themselves for
 re-election. Notices in writing have been received from Members
 proposing their names for the office of Director.
 
 Directors Responsibility Statement :
 
 In compliance with the provisions of Section 217(2A) of the Companies
 Act, 1956, the Directors confirm that :
 
 a) in the preparation of annual accounts, the applicable accounting
 standards have been followed;
 
 b) the Directors have selected such accounting policies as mentioned in
 Schedule 18 of the Annual Accounts and applied them consistently and
 made judgments and estimates that are reasonable and prudent so as to
 give a true and fair view of the state of affairs of the Company at the
 end of the financial year and of the profit and loss of the Company for
 that year;
 
 c) the Directors have taken proper and sufficient care for the
 maintenance of adequate accounting records in accordance with the
 provisions of the aforesaid Act for safeguarding the assets of the
 Company and for preventing and detecting fraud and other
 irregularities; and
 
 d) the annual accounts have been prepared on a going concern basis.
 
 Statutory Auditors :
 
 M/s. Brahmayya & Company, Chartered Accountants, Hyderabad, the
 statutory auditors of the Company hold office till the conclusion of
 the ensuing Annual General Meeting, and are eligible for
 re-appointment. The Board recommends their re-appointment.
 
 Internal Auditors :
 
 M/s. Seshachalam & Company, Chartered Accountants, Hyderabad, who have
 been appointed by your Board to carry-out internal audit of the Company
 will be continuing as internal auditors for this year as well.
 
 Cost Audit :
 
 The Government of India had prescribed maintenance of cost accounting
 records and ordered cost audit under the provisions of Section 233B of
 the Companies Act, 1956. in respect of your Companys operations. Your
 Company is following the prescribed guidelines in maintaining the
 requisite records.
 
 Particulars of Employees :
 
 Employees drawing remuneration in excess of prescribed amount as
 specified in terms of Section 217(2A) of the Companies Act, 1956 is
 annexed.
 
 Particulars regarding Energy conservation, etc.
 
 Information on conservation of energy, technology absorption, foreign
 exchange earnings and outgo as required to be disclosed under the
 provisions of Section 217(l)(e) of the Companies Act, 1956 is enclosed
 and forms part of this report.
 
 Listing Information :
 
 The securities of the Company are listed with and are traded in,
 dematerialized form at the Stock Exchanges at Mumbai and on the
 National Stock Exchange. The annual listing fees were paid to each of
 these exchanges for the year 2007-2008. Facilities for
 dematerialization have become fully operational. The ISIN No. of the
 Company is INE987B01018.
 
 Fixed Deposits :
 
 There are no outstanding and overdue deposits as at 31st March, 2008.
 The Company had not accepted any deposits during the year.
 
 Acknowledgements :
 
 Your Directors place on record their deep sense of gratitude for the
 support, cooperation and guidance received by the Company from various
 departments / agencies of the Central and State Governments, the
 consortium of banks led by Allahabad Bank as also to Yes Bank Limited,
 and HDFC Bank Limited (erstwhile Centurion Bank of Punjab Limited).
 The Directors also thank the shareholders, officers and staff of the
 Company for their excellent cooperation and dedicated work.
 
                                          for and on behalf of the Board
                                                    NATCO PHARMA LIMITED
 
 Place : HYDERABAD                                      V.C. NANNAPANENI
 Date  : 30th June, 2008                    Chairman & Managing Director
Source : Religare Technova

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