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Sun Pharmaceutical Industries

BSE: 524715|NSE: SUNPHARMA|ISIN: INE044A01036|SECTOR: Pharmaceuticals
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Mar 15
Chairman's Speech (Sun Pharmaceutical Industries) Year : Mar '16
Dear Shareholders,
 
 The Global Pharmaceutical Market is expected to touch US$ 1.4 trillion
 by 2020, compared to US$ 1.0 trillion in 2015 as per IMS. Demographics,
 increased incidence of chronic ailments, ageing population, increasing
 income levels and improved access to healthcare will be the key drivers
 of pharmaceutical demand in the coming years. However, globally rising
 health care costs continue to be a major concern for everyone from
 patients to policymakers. Population growth, ageing citizens and slower
 global economic growth are likely to pressurise global healthcare
 budgets. In such an environment, generic drugs are an essential part of
 any solution to sustaining the healthcare system and are the key
 drivers of increasing patient access to modern medicines.
 
 However, the global healthcare industry is changing rapidly.  Product
 differentiation is becoming a key driver of success in an ever
 competitive and demanding industry. Businesses will need to be more
 innovative as well highly cost competitive to ensure long-term
 sustainable value for shareholders. At the same time, with increased
 expectations of various regulators, cGMP compliance is also becoming a
 key determinant of future success. This requires focused efforts and
 investments on the part of the industry to remain 24x7 compliant with
 CGMP norms. Large companies like ours have the capabilities and
 resources to ensure that we are able to adhere to these norms.
 
 Highlights of FY16
 
 After many years of sustainable growth, our business for FY16 witnessed
 muted growth and was in line with our annual guidance. We faced
 anticipated supply constraints and delays in product approvals at the
 Halol facility driven by the cGMP compliance remediation efforts. This
 impacted our US revenues for the year. We expect to eventually resolve
 this in future.  However, this did not deter us from continuing to
 invest heavily in building the specialty business in the US. These
 investments, as of now, do not have commensurate revenue streams and
 hence they depress our profitability. Current profitability is after
 accounting for these investments. Our R&D efforts continue to be
 directed towards building a strong and differentiated product pipeline.
 These R&D efforts include a pragmatic mix of initiatives directed
 towards generating short-term, medium- term and long-term cash flows.
 
 Our subsidiary, Taro has done well, despite increased competition for
 some of its products. Adverse currency movements in certain emerging
 markets coupled with a conscious decision to reduce focus on certain
 non- remunerative businesses impacted our international revenues
 outside the US. Hence, our overall consolidated revenues were almost
 fat for the year.
 
 Enhancing presence in the specialty segment
 
 We continue to allocate significant resources towards building the
 specialty business in the US. The main objective behind this is our
 intent of building a business, which can generate sustainable value for
 all our stakeholders. These are long-gestation projects and there are
 many milestones yet to be crossed to achieve this objective. Our
 initiatives in this segment cover the entire value- chain, from
 in-licensing early-to-late stage clinical candidates, as well as
 getting access to on-market patented products.  Dermatology and
 Ophthalmic are the key segments targeted through these initiatives,
 besides a few other segments. Today, we are amongst the leading branded
 companies in the US dermatology segment driven by innovative products
 like Absorica, Kerastick and the Topicort range of products.
 
 During the year, we invested heavily in the development of
 Tildrakizumab, which we had in-licensed from Merck in 2014.  In May
 2016, we announced positive results from the Phase-3 trials of
 Tildrakizumab to treat chronic plaque psoriasis. We expect to announce
 the detailed results of these Phase-3 trials at an upcoming medical
 conference. Post the completion of these Phase-3 trials; we have
 commenced steps towards fling the Biologics License Application (BLA)
 for this product with the US FDA.
 
 During the year, we proceeded further with steps towards establishing
 the required specialty teams for the US market as well as commenced
 steps towards building the front-end distribution network necessary for
 the specialty segment.
 
 Ranbaxy Integration
 
 The integration of Ranbaxy into Sun Pharma is on track. Post the
 Ranbaxy acquisition in FY15, our organisation size had nearly doubled,
 mandating a significant integration effort to implement common values,
 systems and processes across the merged entity. The synergy benefits
 from this integration have started reflecting in our financials in
 FY16; and we expect to build further on these synergy benefits in FY17.
 We continue to target US$ 300 million in synergy benefits from this
 acquisition by FY18 and are on track to achieve this significant
 milestone.  The key objective of this merger is to accelerate growth
 and create opportunities for all stakeholders. The combined
 organisation will benefit from substantial synergies that lie in our
 technologies, combined pipeline and R&D expertise, wider product
 portfolio and rationalisation of manufacturing footprint, driven by our
 larger talent pool.
 
 Global cGMP Compliance
 
 Adherence to the stringent cGMP requirements of global regulators is a
 non-compromising objective for us. Compliance to these standards has
 become a key determinant of future success for the pharmaceutical
 industry. Our Halol facility, which was impacted by cGMP deviations in
 FY15, underwent a very significant remediation effort in FY16. These
 efforts are likely to culminate in to a request for re-inspection which
 we are likely to put in with the US FDA by June 2016. This remediation
 process has temporarily impacted our supplies and product approvals
 from this facility, which we expect to improve, once the entire
 remediation process is completed and the facility gets recertified.
 
 We are gradually progressing on the remediation process at the
 erstwhile Ranbaxy facilities, which were found to be non-compliant in
 the past. While significant efforts to make these facilities compliant
 are on, this will be a time-consuming process. We expect to complete
 the remediation steps in at least one of these facilities in FY17.
 
 We continue to invest significant time and resources in ensuring that
 we remain committed to 24x7 cGMP compliance. Over the past year, our
 cGMP capabilities have been strengthened significantly. Talent with
 long-standing global expertise has enhanced our abilities in this
 pertinent area. We are also targeting appropriate technology-based
 solutions to facilitate cGMP compliance, coupled with an increased
 focus on requisite manpower training.
 
 Transformation
 
 It is obvious that to generate long-term sustainable value for
 shareholders, businesses will need to continuously evolve and transform
 themselves to build a strong foundation for future growth. The key is
 to improve the underlying fundamentals so that we can aim for
 delivering much more from our current levels.  At Sun Pharma, we have
 embarked on a transformational journey to make Sun Pharma a Better,
 Stronger and Faster Company.  This should help us drive a stable and
 consistent growth in cash flows, which is a key objective of our
 corporate philosophy.
 
 Better
 
 It is imperative and expected of us that, as an organisation, we
 consistently deliver Better quality products. We must become Better by
 improving the quality of what we do in each of our businesses and
 functions. Sustained efforts are being made for improving manufacturing
 and sales processes. Getting it right the first time is the key
 objective and it can make a difference between success and failure. For
 this, care needs to be taken to ensure that right from product
 development to each of our processes, quality standards and compliance
 principles are adhered to.
 
 Stronger
 
 Our customers expect us to deliver quality products at highly
 competitive prices. To achieve this, focus on becoming Stronger through
 productivity enhancement becomes a key driver.  Productivity
 improvement mandates doing more with less and reducing costs and
 wastages. Cost leadership has been a critical determinant of our past
 success and will continue to do so in future as well. Sales
 productivity, throughput and yield will be the key contributors to this
 overall productivity improvement.
 
 Faster
 
 A better and stronger organisation can do well only if it is Fast in
 responding to customer requirements. Time-to-market and minimum cycle
 times are extremely critical in our business. We have to ensure that
 increasing size does not limit our agility and flexibility. Our ability
 to make our products available on time consistently to our customers
 determines our service standards to customers. A responsive
 organisation requires seamless cross-functional collaboration across
 all the markets which we service, in order to serve the customer. This
 helps us in devising the most optimum response to business
 opportunities.
 
 Overall Outlook
 
 The transformation to a Better, Stronger and Faster company will
 involve crossing critical milestones over the next few years.  As we
 transition, we have guided for our overall consolidated revenues to
 grow by 8-10% for FY17.
 
 Persistently working for patients across the world, we are targeting to
 increase the share of complex generics and specialty products to our
 overall business in the coming years.  This objective will be driven by
 a combination of our own efforts coupled with relevant inorganic
 initiatives as well as external partnerships. Our specialty strategy
 coupled with the benefits from the Ranbaxy merger and the targeted
 productivity improvements, should favorably impact our profitability in
 the long-term. Our capable and committed employees will be the key
 drivers of this profitability.
 
 As a shareholder, you have continuously supported our endeavours over
 the past many years. As always, we are grateful to you for this
 confidence.
 
 Warm regards,
 
 Dilip Shanghvi
 
 Managing Director
 
 Sun Pharmaceutical Industries Ltd.
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