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Shilpa Medicare Directors Report, Shilpa Reports by Directors
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Shilpa Medicare

BSE: 530549|NSE: SHILPAMED|ISIN: INE790G01031|SECTOR: Pharmaceuticals
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Directors Report Year End : Mar '18    Mar 17

To,

The Shareholders,

The Directors have pleasure in presenting herewith the 31st Annual Report on the business of your Company together with the Audited Accounts for the financial year ended 31st March, 2018.

FINANCIAL SUMMARY (Rupees in Lakhs)

Financial Year

Financial Year

PARTICULARS

2017-18

2016-17

Standalone

Consolidated

Standalone

Consolidated

Operating Revenue

74,394.60

79,153.39

73,789.90

78,381.25

Other Income

2,331.53

2,167.76

1,988.32

1,967.13

Profit before Interest, Depreciation & Tax after exceptional items

20,238.43

18,384.11

19,798.86

18,641.00

Interest

212.69

266.12

279.46

313.47

Depreciation

3,277.70

3,722.21

2,665.52

3,064.49

Net Profit Before Tax

16,748.51

14,395.78

16,853.48

15,263.04

Provision for taxation

a. Current Tax

3,494.19

3,495.73

3,535.05

3,579.93

b. Less: MAT credit entitlement

(757.51)

(757.51)

(664.20)

(664.20)

c. Deferred tax

687.95

652.34

1,237.80

1,288.14

Profit after Tax

13,323.90

11,005.22

12,744.83

11,059.17

Share of Profit/(Loss) in Associate/Joint Venture

-

(719.03)

-

(613.81)

Share of profit ( Loss) in Non-Controlling Interest

-

238.08

-

312.46

Other comprehensive income (Expenses) (Net of taxes)

108.29

109.55

(182.60)

(182.60)

Total Comprehensive income

13,432.19

10,633.74

12,562.23

10,575.23

REVIEW OF OPERATIONS:

During the year under review the Company reported standalone operating revenues of Rs. 74,394.60 lakhs as against Rs. 73789.90 lakhs and Net Profit of Rs.13432.16 lakhs as against Rs. 12562.20 lakhs in the previous year.

Continuous focus of the management on new line of products, research & development and strategic expansion of production/ development facilities has been yielding good results in terms of high margins. Expansion of production facilities is as per schedule. Considering the fast developments in the pharma industry the Company has started focusing on development of new process and new products.

API FACILITIES

Shilpa Medicare has two API plants with world class state of art facilities at Raichur, supported by strong R&D team backed with IPM intellectuals and efficiently managed by competent operational team involving production, engineering, Quality Control, Quality Assurance & Regulatory Functions. The units are cGMP compliant and are approved by national & international regulatory bodies like USFDA, EU, Korean FDA, Cofepris-Mexico, TPD-Canada, PMDA-Japan and TGA-Australia.

The company is having 19 multiple API Products and intermediates manufacturing blocks producing latest Oncology and handle in a highly precised isolators and taking care of persons, environment & non oncology drug substances.

The Company units are also certified by IS09001-2015 for Quality systems, IS014001-2015 for Environmental Management systems & 0SHAS18001-2007 for Occupational Health & Safety Management systems. Also our R&D is certified by DSIR, Govt, of India.

The Company has developed novel and innovative technologies for the manufacture of the life saving Oncology and nononcology drug substances, validated and commercialised the same and made available at an affordable prices. This strength provides us with tremendous opportunities to enhance competitiveness, to improve our position in the market place & find the new markets.

The Company has invested in containment technologies for manufacture of oncology drug substances and made our manufacturing process sustainable. The Company has invested in latest available technologies like Bipolar system fromjapan, first in India to manufacture one of our products there by reduced the water consumption by about 10 fold in that product.

In this process the company has invested in developing continuous flow processes for its products wherever suitable. The company supports its customers by a way of providing all the necessary data for complying with their regulatory. The organizational structure ensures sharp focus on accountability especially in areas such as quality and compliance standards. Our strengths provide us with tremendous opportunities to enhance competitiveness, to improve our position in the market place.

Accelerating access to affordable and innovative medicines is at the core of our work at Shilpa Medicare. The belief that Good Health needs of patients around the world and do all that it takes to fulfill them. Even as our medicines ensure good health for millions of people around the world every day, we are aware that there are millions more, in different countries, for which high quality, affordable medicines continue to be out of reach. Developing products where affordable alternatives exists or don’t exist, working with all stakeholders in the healthcare systems across different countries to enable market access, manufacturing medicines of the highest quality in full adherence to the best global manufacturing practices, and ensuring their availability at all times through a robust, efficient and seamless supply chain.

Enabling and helping our clients to ensure that our APIs are available wherever and whenever they needed. Working with clients to help them to succeed. We have set clear goals and aspirations for our next set of milestones. In the medium term, building on proven results, we are having the power of our carefully developed product portfolio, relationships built over a long period and a diversified customer mix. Further, we have an optimized cost structure.

The technology involving complex chemistry and tough purification procedures to manufacture certain necessary drug substances for injectable and OSD products were transferred. Chemical processes were developed for quite a number of complicated drug substances, taking them to production stage on a commercial scale.

Every employee has been made aware that being safe and taking care of ourselves and each other are our highest priority. Our aim is to protect our employees against work related hazards. Employees in the manufacturing function are being trained to become safety champions. They are being trained to take ownership of production blocks.

RESEARCH AND DEVELOPMENT

Shilpa Medicare views its R&D capabilities as a vital component of its business strategy that will provide a sustainable, longterm competitive advantage. Shilpa Medicare is among the few Indian pharmaceutical companies in India to have started its research program in support of its global ambitions. The R&D environment reflects its commitment to be a leader in the Oncology generics space. Our generics business helps to reduce drug costs for individuals and governments by bringing generic drugs to market as early as possible, and making them available to as many patients as possible. We supply pharmaceutical ingredients to pharmaceutical companies, which contributes to our goal of providing affordable medicine.

We will continue to promote affordability in significant ways and work to expand our product offering of generics, focusing on increasing access to products with significant barriers to entry. We will continue to look for new opportunities to take generics to more patients, in collaboration with other companies.

Our research and development centre offers space for the development of generics meeting international development standards, including difficult to make complex API processes, such as those for Oncology/non Oncology molecule.

Shilpa Medicare R&D Centre in Raichur/Vizag has shown good progress in terms of new projects taken for development and the projects which were successfully transferred to plant.

To enhance the further productivity of the existing molecule we have started new AFR technology to reduce the reaction time for the completion of reaction followed by conventional method for workup/crystallization of final molecule.

Almost 55 products (Oncology & non-Oncology) are currently running in development.

FINISHED DOSAGE FORMULATION FACILITY

Shilpa Medicare Limited — Finished Dosage Formulation Facility is a World Class GMP compliant Facility engaged in manufacturing of potent drugs- which includes liquid and lyophilized injectables in vials, sterile dry powder injectables in vials, oral solid dosage form (Tablets and hard gelatine capsules). The facility is designed for handling of potent Drug Products (including Oncology products or adjuant therapies) for various regulatory markets in a highly contained manner. Facility is designed to handle potent molecules upto OEL 4 level of containment.

The facility is approved by various regulatory agencies including USFDA, EUGMP, ANVISA & COFEPRIS. This facility consists of Oral Solid Block with two commercial scale tablet manufacturing and one commercial scale capsule manufacturing line approved by USFDA. Three separate Injectable blocks consists of two liquid-lyophilisation commercial scale manufacturing lines approved by USFDA and 3rd Injectable combi-line for handling of liquid, lyophilized and Dry Powder Injectable under qualification.

Fully automatic packing area is under installation and commissioning. The packaging line is complying with Global Track & Trace (Serialization & Aggregation) regulations including Drug Supply Chain Security Act (DSCSA, USA) and Falsified Medicines Directive (FMD, Europe) by Strategizing, Planning and Managing Complex Serialization deployments.

CONTRACT MANUFACTURING

Shilpa Medicare Limited manufactures many products in several types of dosage forms such as tablets, capsules, liquid injection (Aseptically and terminally sterilized), Lyophilized Injectable, Sterile Dry powder injectables.

All products are manufactured under the same stringent quality Standards for export to USA, EU and RoW market.

FORMULATION R&D

Shilpa Medicare Limited Formulation Research and Development Centre is located near Vizianagaram District of Andhra Pradesh.

Formulation Research Centre is concentrating in developing generic equivalents and super generics to Reference Listed Drugs for Global Markets like USA, Europe and RoW for injectable and oral formulations used for the treatment of cancer and other indications like Multiple sclerosis, liver diseases, HIV, smoking cessation, Alopecia, Eye disorders etc...

The research centre also concentrates in the development of new formulations leading to reduced costing and enhanced stability of the drug products. Also the R&D works on converting the existing Lyophilized products to Ready to Use (RTU’s) liquid. Also R&D concentrates on development of ready to fill powders for injectable administrations. The injectable department of R&D is developing the anticancer drugs in liquid injectable infusion bags.

The oral department of R&D is concentrated in developing the generic equivalents for Global Markets. The R&D team is concentrated in developing the products as Para IV and 505((b)2). R&D is concentrated in working on products to reduce drug product administrations.

Clinical department of R&D is concentrated in surveillance of safe use of the drugs manufactured by Shilpa Medicare. Clinical study monitoring. Evaluating the patient requirements and proposing the development strategy to product development.

R&D is working on development of products with target filing as First to File and Para IV filing to US FDA.

INTELLECTUAL PROPERTY MANAGEMENT (IPM)

Shilpa’s success depends on the Company’s ability in future to obtain patents, protect the proprietary information and operate without infringing on the intellectual property rights of other pharma companies. Shilpa’s inability to obtain timely ANDA approval, thus missing out on early launch opportunities and litigation outcomes could affect product launch date.

Shilpa Medicare Limited Intellectual Property Management (IPM) team is responsible for building Shilpa’s global generic product pipeline and 505(b)2 NDA pipeline as well as creating, managing and protecting its high value patent estate. Shilpa has a dedicated IPM Team which provides stage wise IP-clearances during product/process development activities and also provides frequent updates and alerts on relevant IP (patent, trademark etc.) to R&D scientists for products/process and suggests remedial measures to deal with IP issues. Shilpa IPM team is involved in product selection activity to ensure that right products are selected for development.

Shilpa’s IPM team continues to build its future pipeline of complex products with established robust portfolio selection process, providing early launch capabilities along with intellectual property advantages.

Shilpa’s strengths, across various molecules including oral, Injectable and complex differentiated products lie in developing intellectual property in non-infringing processes and resolving complex chemistry challenges. In this process Shilpa develops dosage formulations and applies new technologies for better processes. The API Process development is focused for developing and transferring commercially viable, non-infringing and patentable novel API technologies. The development grid selection for API’s is based difficult-to-make API molecules and novel polymorphic forms of certain API’s for creating value addition.

Shilpa’s IPM Team is involved in filing of the patent applications of newer processes/newer products in India, US & EU.

Highlights FY 17-18:

- In FY 17-18, the Company has filed two ANDAs with paragraph IV certification as First to File (FTF).

- In FY 17-18, Shilpa and its group companies have filed 34 patent applications taking the cumulative total to 247 patent applications in India and other countries. Shilpa received grants for 9 patents.

Future plan FY 18-19

- Shilpa has plans for filing 5 ANDAs with paragraph IV certification with US FDA, out of which two could be first-to-file ANDAs.

- Shilpa & it’s Partners has plans for filing of two 505(b)2 NDAs.

- Shilpa plans to file at least one NDA for its differentiated product.

REGULATORY FILINGS (API RAICHUR UNIT-1 & UNIT-2) US DMFs

- 4 (Four) (Gemcitabine HC1 (route-2), Ibrutinib, Teriflunomide, Pomalidomide)— and are with CA status available.

- 5 (Five) — (Busulfan, Irinotecan HC1, Oxaliplatin, Imatinib Mesylate and Zoledronic Acid) DMFs approved for scientific assessment in support of ANDA reviews.

- Cumulative USDMF filings: 30 Products.

EDQM

- 2 (Two) (Irinotecan HC1 and Tranexamic Acid) DMFs Filed for grant of CEPs.

- 1 (One) CEP, Irinotecan HC1 granted.

- Cumulative CEP''s: 11 Products.

Europe DMFs Filed

- 6 (Six) Bortezomib, Bendamustine HC1, Pemetrexed Disodium, Melphalan HCl, Gemcitabine RTU, Clofarabine Filed through DCPs / NPs to support three MAHs for their MAAs.

- Cumulative EUDMF (DCP/CP procedures): 15 Products.

Regulatory Inspections and approvals

- During the year under review, the Company has received EIR from USFDA, for the inspection conducted during the period of November, 2017 for FDF manufacturing site, Jadcherla.

- During the year under review, two API facilities located at Raichur and FDF facility at Jadcherla inspected & approved by European authority from Austria (AGES) for GMP compliance.

- During the year under review, two API facilities located at Raichur, Karnataka, i.e. Unit-1: Deosugur Industrial Area, Deosugur, Raichur, Karnataka, India and Unit-2: Raichur Industrial Growth Centre, Chicksugur, Raichur, Karnataka, India, inspected by USFDA for PAI. EIR received.

REGULATORY FILINGS (UNIT-IVJadcherla)

US ANDA’s filed: 7 Products.

EU Dossiers filed: 7 Products

CumulativeANDA''s filings: 15 Products.

Cumulative clients ANDA''s filings: 9 Products.

Cumulative EU dossier filings: 14 Products.

Europe Approvals

Imatinib 100 mg & 400 mg Film Coated Tablets (Czech Republic, Finland, Ireland, Netherlands, Sweden) Bortezomib 3.5 mg Powder for Solution for Injection (Germany, Ireland, Italy & Romania) Irinotecan 20 mg/ml concentrate for solution for infusion (Ireland, Malta, Netherlands, Romania & United Kingdom).

Regulatory Approvals: USFDA

During the assessment year FDF site was inspected by FDA and the EIR received.

BIOLOGICS SBU UNIT

Background -

The global prescription pharmaceutical market is estimated at 1 Billion in 2018 and expected to grow at 6.5% for the next 5 years. Of this, the generics market is estimated at billion and expected to grow at a similar rate. The above figures hide the new shifting reality — Biologics now constitute about 27% of prescription pharma sales, while biologics share within the top 100 drugs is ~50% — showcasing the effectiveness of these drugs, whose target markets are — oncology, Autoimmune disorders, hematology and diabetes.

Opportunity and drivers -

a) Most biologics sales today are driven by 1st and 2nd generation biologics whose patents expire in the 2014 -2024 window.

b) All biologics today are injectables — an area which your company understands well and is well prepared to attack.

c) Price erosion in this segment is not expected to be as high as the chemical generics due to complexities in developing and manufacturing of these products.

d) Regulated markets, including the USA, that remain the main drivers for these products in terms of value - are gradually opening up to biosimilars. While automatic substitution is yet to be a reality for biosimilars today and is the single largest barrier to wide adoption of biosimilars, pressure from patient/activist groups in regulated markets, coupled with huge advances in analytical technologies and ever-increasing safety data from markets that have already taken to biosimilars add to the pressure on governments to come up with automatic substitution legislations in the regulated markets.

e) BRICS markets present the largest volume growth opportunity for biosimilars since they have the largest patient populations, backed by growth in purchasing power over the last decade and half. Despite this, these markets remain price sensitive.

f) Novel formulations and delivery devices will also help us differentiate ourselves from competitors in these markets.

g) Genericized biologics (biosimilars) growth in the generics market is expected to parallel the growth of innovator biologics above, thus presenting the largest opportunity for growth over the next decade, with sales of biosimilars expected to hit -23 billion by 2023-24 globally

Our platform & delivery technologies, molecule selection, ability to select markets, partners will play a key role in our growth in this strategic area.

Where we are -

The amalgamation of Navya Biologicals Pvt Ltd with your company was completed in late November 2017 and now is your company’s Biologics Division, based out of Hubli-Dharwad in Karnataka. This transaction has enabled your company to save about 5-7 years in development timelines for biosimilars. The company now has 13 biosimilars in its pipeline and is dominated by drugs catering to the autoimmune disorders and oncology segments, with 7 of the top 10 biologics in its pipeline. The remaining are niche, high margin opportunities catering to high unmet clinical needs. The company has also filed 3 platform patents and is pursuing these in global markets.

The first biosimilar is poised to enter human clinical studies later this year. The innovator has a global market of billion pa for this molecule, while the biosimilar opportunity is at -3.2 billion per annum. Three other molecules are ready to complete preclinical studies this year. Your company expects to commercialize its first biosimilar in 2019 in India, with the others following suit in 2020-21. We expect to be in a position of strength to penetrate the global window of opportunity for global biosimilars through strategic partnerships in the global markets, while opportunistically continuing to build our marketing channels in a few strategically important markets.

FORWARD INTEGRATION - SETUP OF BIOLOGICS MANUFACTURING UNIT IN DHARWAD -

Your company has taken steps to become a vertically integrated biopharmaceutical player, by acquiring 11 acres of industrial land in Belur industrial area, Dharwad and initiating set up a world class biologies manufacturing unit (including fill & finish), employing best in class manufacturing technologies, that reduce the footprint of the facility by about 40%, thereby reducing the capital and operational costs significantly. Phase 1 of the facility is expected to be commissioned in the first half of 2019 and will cater to global biologics markets.

The biologics unit is expected to emerge as the next growth driver for your company in the coming decade and look forward to an exciting future in biopharmaceuticals.

MANUFACTURING FACILITY - TRANSDERMAL PATCHES AND ORAL FILMS AT BANGALORE.

A transdermal patch is medicated adhesive patch that is placed on the skin to deliver a specific dose of medication through the skin and into the bloodstream. Transdermal patches have made their place in global market in past few decades as an alternative to conventional therapeutic for various disease indications. Transdermal patches are widely accepted among physicians and patients due to their non-invasive, pain free and easy administration. In recent years, the growth of transdermal patch market has increased and expected to increase significantly in coming years. Higher investments in research and development could be attributed to the success of transdermal patch market.

Similarly, the thin film drugs were recorded with high market acceptance due to its ease of application and high effectiveness. Moreover, developed economies such as the U.S. and countries in Europe recorded significant sale of thin film drugs. Thin film drugs achieve the desired therapeutic results. Therefore, they have gained attention in the market as a potential treatment option.

Looking to the market potential, we have planned to build a state of art manufacturing facility of Transdermal Patch and Oral Films at Dobaspet, Bangalore.

The lay outs confirming to cGMP requirements is finalized along with Utility, Administration and canteen building. The equipment’s are designed to cater both Transdermal Patch and Oral Film Products.

The plant construction work is already initiated and expected to be completed by end of year 2018.The High Quality critical equipment’s required for the above formulations manufacturing are already ordered from known European vendors and are expected to be received at site between Jan to June’19. Capacities are planned looking to all markets in first phase. A space for future expansion is allocated for capacity increment. Site will be ready for qualification by September 2019.

CENTRALIZED RESEARCH AND DEVELOPMENT CENTRE AT BANGALORE

We have also planned to have a state of art Research and Development centre along with a pilot plant facility for potent and non-potent formulation. Layouts are under approval process and construction shall be initiated soon. This facility also will be ready by September 2019. Initial discussion initiated with Vendors for equipment finalization.

US BUSINESS PLAN

Shilpa Medicare Limited has been investing in infrastructure and R&D capabilities to develop, manufacture and submit regulatory applications to the USFDA for marketing approval. When approved these generic alternatives will offer patients a very much needed affordable option for their health care needs. The US market is very important to Shilpa Medicare Limited as it represents the largest pharmaceutical market in the world. It has been proven in many markets the use of generic alternatives which have gone through vigorous testing requirements save healthcare systems money while providing the same level of high quality, safety and effective medicines.

During the past year Shilpa received two product approvals for Azacitidine and Capecitabine. Those products are being commercialized by partners in the US.

Since Shilpa’s roots are in developing API. The majority of the formulations coming from the company’s R&D efforts utilize API from its own plants. This is important to US customers as it insures greater control over the production process and greatly enhances continuous supply chain capabilities. Shilpa develops and manufactures different dosage forms i.e., oral and injectable drugs in the Oncology therapeutic area along with other high potent drugs that require the level of complexity that Shilpa has built into its R&D and production capabilities.

The US market has seen tremendous consolidation of the customer base. The number of customers for retail based products has decreased as mergers and acquisitions has increased in the past years. Similar trends have been observed in the hospital or institutional segment where injectable drugs are the primary dosage form. Group purchasing organizations for hospital/Institutional organizations have undergone similar consolidation. There are three GPO customers representing a majority of hospitals in the US. Oncology Clinics are another major customer group for Shilpa’s products. They purchase products from specialized distributors. There are two main distributors with a handful of smaller ones addressing the clinic market.

In order to address this consolidated and diverse group of customers. Shilpa hired in January 2018 a seasoned Executive Mr. Adam Levitt as CEO (US Market). He has a diverse background in the generic pharmaceutical business. He is an experienced leader having worked for global and International generic companies. During his career, he has developed strategies, built multiple organizations while creating sustainable value in both retail and Institutional markets. He understands the resources required to build a local presence to support the company’s business development, Regulatory and Marketing plans. Shilpa expects more products to be approved for the US market. The team in the US will be addressing local business needs around financial reporting, business development, managing relationships and preparing the company to operationalize and execute launch strategies for its pipeline. The vision for Shilpa’s US business is to build a valuable and sizable specialty pharmaceutical business in the next 5 years capable of taking Shilpa to the next stage of its evolution. In order to accomplish, the US business will create valuable relationships with the different customer channels by offering them high quality, consistent supply of cost effective important medicines that will impact patients quality of life.

CHANGE IN NATURE OF BUSINESS:

During the year under review, there is no change in the nature of business carried out by your Company.

DIVIDEND:

During the financial year under review your Company declared and paid an interim dividend of Re. 0.70 per share and the Directors recommended the same as dividend for the FY 2017-18 keeping in view the fund requirements for the on-going expansion plans. An amount of Rs. 6,86,86,700/-(Rupees Six Crores Eighty Six Lakhs Eighty Six Thousand Seven Hundred only) inclusive of dividend distribution tax was absorbed towards the dividend for the F.Y 2017-18.

The Dividend Distribution Policy of the Company is set out as Annexure-10 and the same is uploaded on the Company’s website at http://vbshilpa.com/Dividend-Distribution-Policy html.

SHARE CAPITAL

The paid up share capital of your Company increased by Rs. 13.99 lakhs to Rs. 815.26 lakhs due to allotment of 13,99,994 Equity Shares to Shareholders of erstwhile Navya Biologicals Private Limited pursuant to scheme of amalgamation of Navya Biologicals Private Limited with your Company.

Pursuant to the provisions of Section 124 (6) of the Companies Act, 2013 read with IEPF Rules, the Company has transferred 1,80,582 shares whose details are placed in the website of the Company.

TRANSFER TO RESERVES:

We propose to transfer Rs. 500 Lakhs to the general reserve. An amount of Rs. 12128.09 Lakhs is proposed to be retained in the surplus account.

MERGER OF M/s. NAVYA BIOLOGICALS PRIVATE LIMITED WITH THE COMPANY:

Pursuant to the order dated 24/11/2017 of Hon''ble National Company Law Tribunal, Bangalore Bench, the Navya Biologicals Private Limited has been merged with the Company we.f 01/04/2016 being the appointed date for merger.

DIRECTORS OR KEY MANAGERIAL PERSONNEL

Mr. Omprakash Inani (DIN No. 01301385), Director will retire by rotation at the ensuing Annual General Meeting and being eligible, offers himself for re-appointment.

During the period under review Chief Financial Officer (CFO) Mr. Rajendra Dugar has resigned from the services we.f 31/10/2017 and Mr. Sushil Bajaj has been appointed as CFO we.f 13/11/2017.

STATEMENT OF DECLARATION GIVEN BY INDEPENDENT DIRECTORS UNDER SUBSECTION (6) OF SECTION 149:

The Independent Directors have submitted the declaration of independence, as required under Section 149(7) of the Companies Act, 2013 stating that they meet the criteria of independence as provided in Section 149(6) and Regulation 25 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

AUDITORS STATUTORY AUDITORS

M/s. Brahmayya & Co, Chartered Accountants, Registration No. 000513S, were appointed at the 30th Annual General Meeting as the Statutory Auditors of the Company for five years till the conclusion of the 35th Annual General Meeting of the Company. They have confirmed their eligibility for the FY 2018-19 under Section 141 of the Companies Act, 2013 and the Rules framed thereunder. The Companies Amendment Act, 2017 has omitted the requirement of ratification of the appointment of statutory auditors at every Annual General Meeting.

COST AUDITORS:

The Board has appointed M/s. VJ. Talati & Co., Cost Accountants for conducting the audit of cost records of the Company for various segments for the financial year 2018-19 as recommended by the Audit Committee. As required under Section 148 and Rule 14 of the Companies (Audit and Auditors) Rules, 2014 a resolution is being placed at the ensuing AGM for ratification of remuneration payable to said Cost Auditors.

SECRETARIAL AUDITORS:

M/s. P.S. Rao & Associates, Practicing Company Secretaries were appointed to conduct the Secretarial Audit of the Company for the financial year 2017-18, as required under Section 204 of the Companies Act, 2013 and Rules there-under. The Secretarial Audit Report for Financial Year 2017-18 forms part of this Report as Annexure - 8.

The Board has appointed M/s. P.S. Rao & Associates, Practicing Company Secretaries, as Secretarial Auditors of the Company for the financial year 2018-19.

COMMENTS BY THE BOARD ON EVERY QUALIFICATION, RESERVATION OR ADVERSE REMARK OR DISCLAIMERS:

As there is no qualification, reservation or adverse remark in the reports made by the Auditors, your directors need not give their comments on that.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE OUTGO:

Information required under section 134(3)(m) of the Companies Act, 2013 read with Rule 8 of the Companies (Accounts) Rules, 2014, is enclosed herewith as Annexure — 7.

RISK MANAGEMENT POLICY:

Pursuant to Regulation 21 (4) of SEBI (LODR) Regulations, 2015, the Company has formulated a policy on the Risk Management. The Risk Management Policy of the Company is posted on the Company’s website:wwwvbshilpa.com. The Board formulated and implemented Risk Management Policy for the Company which identifies various elements of risks which in its opinion may threaten the existence of the Company and measures to contain and mitigate risks. Major risk to the Company apart from the general business risks related to pharmaceutical industry, is supplies at low cost countries like China and other unregulated suppliers.

CONSOLIDATED FINANCIAL STATEMENT

In accordance with the provisions of Section 129 (3) of the Companies Act, 2013, the Consolidated Financial Statements, drawn up in accordance with the applicable Accounting Standards, forms part of this Annual Report. A separate statement containing the salient features of the financial statements of Subsidiaries, Associates and Joint Ventures in Form AOC-1, is annexed herewith as Annexure - 4.

Further, the annual accounts of all the subsidiary companies shall be posted on Company’s website — wwwrvbshilpa.com.

Annual accounts of the Subsidiary Companies and related detailed information will be available for inspection by the members, at the registered office of the Company and will also be made available to the members upon request.

ADEQUACY OF INTERNAL FINANCIAL CONTROLS WITH REFERENCE TO THE FINANCIAL STATEMENTS:

The Company has an Internal Control System, commensurate with the size, scale and complexity of its operations.

Various Audit Systems in the Company monitor and evaluates the efficacy and adequacy of internal control system in the Company, its compliance with operating systems, accounting procedures and policies at all locations of the Company. Based on the audit reports the units undertake corrective action in their respective areas and strengthen the controls. Significant audit observations and corrective actions thereon are presented to the Audit Committee of the Board periodically.

The Board of Directors of the Company have adopted various policies like Related Party Transactions policy, Whistle Blower Policy, Policy to determine material subsidiaries and such other procedures for ensuring the orderly and efficient conduct of its business for safeguarding its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information.

SUBSIDIARIES, ASSOCIATES & JOINT VENTURES INM TECHNOLOGIES PRIVATE LIMITED Nano-technology Division

INM Technologies Private Limited incorporated on 23rd January 2015 is subsidiary of Shilpa Medicare Ltd. The Company has a vision to serve the humanity using Nano technology products. Company drives with Strategic intent “Innovations for All Generations”. INM Technologies profile mainly contains: High-tech know-how, competencies and expertise to meet industrial needs and strengthen industrial competitiveness in Asia, Europe, and USA. INM has expertise in the field of the Materials Engineering / Pharmaceutical Technology and service in advanced technology and product development with scale up process for the developed micro/nano materials. Based on our research activity and our experience in the chemical technology, materials science and engineering, pharmaceutical technology sectors, we develop and integrate nano structured materials in the products of our customers of various industrial sectors. INM has state-of-the-art facility for synthesis, characterization and analytical testing of nano technology based products, trained manpower for process design & monitoring and created 9 departments in the company involving major disciplines namely Biotechnology, Bio-Medical, Analytical and Pharmaceutical, Chemical, Polymer, Coatings, Electronics and Smart materials. After completion of 3 years of establishment i.e., by 2018 January, INM Technologies has received DSIR certification.

SHILPA THERAPEUTICS PVT. LTD. (STPL)

STPL situated at Cherlapally, IDA Phase-III, Hyderabad, India, a progressive novel drug delivery company with an international outlook is dedicated to the development and commercialization of innovative and patient compliant novel drug delivery systems such as fast disintegrating oral strips.

STPL is the first company to commercialize prescription products as oral thin strips/films in India.

Strong technical expertise to develop thin strips/films for oral/sub-lingual/buccal delivery

As a result of continued efforts in the research and product development, STPL had developed the most sought after novel drug delivery dosage form— orally disintegrating strip/film and obtained the manufacturing and marketing licenses for this dosage form in India and abroad.

The orally disintegrating formulation resembling a postage stamp in size and shape is a taste masked, fast dissolving, convenient and potentially effective dosage form.

Vertically integrated GMP facility from Research to Commercialization

STPL facility is capable of meeting the regular commercial supply demand from manufacturing to secondary packing with its compliance to meet the latest Schedule ‘M’, cGMP/WHO GMP compliant systems, procedures and practices.

Products available in the Domestic Market

STPL had obtained manufacturing and marketing license from the Drugs Control General (India), New Delhi for the following products and these products have also been launched in India by well-established national pharmaceutical companies.

Molecule

Category

Ondansetron Hydrochloride 2mg , 4mg & 8mg Orally Disintegrating Strips

For the prevention of chemotherapy induced nausea and vomiting (CINV)

Simethicone 62.5mg Orally Disintegrating Strips

Anti-Flatulent.

Sildenafil Citrate 25mg & 50mg Orally Disintegrating Strips

For the treatment of erectile dysfunction (ED)

Tadalafil 20mg & 10mg Orally Disintegrating Strips

For the treatment of erectile dysfunction (ED)

Methylcobalamin 1500mcg ODS

Treatment of various neuropathic conditions and vitamin deficiency

Montelukast 10 mg/5mg/4 mg ODS

Treatment of Prophylaxis and Chronic Asthma

Menthol Mouth Freshener ODS

Mouth Freshener

Products in the Pipeline

The following formulations are under various stages of Research & Product Development along with several others in the initiation phase.

Molecule

Category

Tadalafil 5mg ODS

For Treatment of Erectile Dysfunction

Vitamin D3 (Cholecalciferol) 2000IU ODS

Treatment of Vitamin deficiency

Montelukast 10 mg Levocetirizine 5 mg ODS

Treatment of Allergic Rhinitis and Chronic Asthma

Hydroxyapetite 165 mg ODS

Treatment of Velopalatal (VP) insufficiency

Paracetamol 120 mg ODS

Analgesic and Antipyreic

Sildenafil 100 mg ODS

For Treatment of Erectile Dysfunction

Nicotine 1 mg/ 2 mg ODS

For Nicotine Replacement Therapy

Loratadine 5 mg/ 10 mg ODS

For Treatment of Severe Allergic Rhinitis

Patent granted on “Perforated water-soluble polymer based edible films”

Many other patents are under approval process.

Business Scope

STPL holds bright prospects for its business scope. ODS products of Shilpa Therapeutics have already been launched in India by prominent pharma companies viz., Mankind, Delvin, Alkem, Leads Pharma and Rx Drugs. Shilpa Therapeutics has also extended its business to the external markets with its ODS products launched in Kenya, Yemen, Honduras and many other countries to follow.

Registration process like dossier submission is under process in many countries like Francophone countries, Malaysia, Thailand, Myanmar and Cambodia etc.,

STPL with its technical expertise, manufacturing capabilities and its finished products at various stages of registration in several countries is poised to attain promising business results in the very near future.

KOANAA HEALTHCARE GmbH

Koanaa Healthcare GmbH was funded in July 2016 as 100% subsidiary of Shilpa Medicare Limited and Mr. RK Somani took over the responsibility as CEO. He is initiating, developing and guiding Koanaa Healthcare GmbH as a Start-Up company to a pharmaceutical company which is distributing and selling Shilpa''s oncological portfolio in Europe.

Koanaa Healthcare GmbH will be positioned as “European Player” with Austrian basis with low prices and high service in the field of oncology with the brand “Austrian Quality”. The products will prove highest standards and quality and Koanaa Healthcare GmbH will stand for Deliverability and Service for Patients and Physicians.

Koanaa Healthcare GmbH will act as a regulatory hub here in Austria and is currently focused on getting commercial cooperation’s with other pharmaceutical companies. First cooperation with Amring is already achieved and intensive discussions to expand the existing partnership are ongoing. Further discussions with other potential partners are in discussion and business development activities will broaden the number of partnerships.

With an appropriate regulatory strategy, step by step more oncological products will be part of Koanaa Healthcare GmbH''s portfolio.

The vision of Koanaa Healthcare GmbH is to develop as a successful and reliable partner within the pharmaceutical domain.

LOBA FEINCHEMIE GmbH

Dr. Walter Erber took over the responsibility as CEO/ Managing director for LOBA Feinchemie GmbH from May 2016 and is leading and guiding and developing the company With the strategic vision, to achieve sales of 10 million Euro within the next 5 years, an euphoric and challenging strategic goal is set for Loba Feinchemie GmbH.

Main strategy of Loba Feinchemie GmbH is to enhance the focus on business development and sales & marketing within the next business years to support sales- and profit growth.

In the budget year 2017/2018, beside intensive business activities, main challenge was to increase the level of GMP in all areas, which was successfully achieved. Two main products showed unexpected reduction in sales, which only partly could be compensated with other products. Nonetheless sales forecast for the next years will show positive development. In the years 2018/2019 and onwards the sales will further increase and allow Loba Feinchemie GmbH to proceed with the expansion strategy in terms of production and in terms of human resources as well as to start with necessary investments in the facility Loba philosophy is to be a global company offering its customer a unique product by providing them a choice of operational excellence and best services with cost efficiencies. The mission is to add value to our customers by offering excellent products through continuous innovation and delivering the promises to the customers.

REVA MEDICARE PRIVATE LTD

The organization operations have commenced, and it has expanded as per its vision set-up. The key verticals are:

DOSAGE FORM:

As per strategy we have positioned in Emerging Markets by formalizing a consortium (Manufacturing Cos) backing Reva. We have secured the registration approvals in a key market and are hopeful to service both Tender (Public) & Private Trade. The license to export will be under Reva Pharma.

We have adopted module of licensing (Licence In & License Out) for Large Generic & Innovator Cos’. The 1st license out has been completed for the market of Europe (Medical Device — Women Health Care). We are evaluating positioning of the product across Middle East & CEE markets and are optimistic to close in year 2018-19.

RAICHEM MEDICARE PRIVATE LIMITED

The Company has entered into Share Purchase agreement with joint partner ICE SPA Italy to dispose off its entire stake in the Company to the joint partner ICE SPA Italy. According to the terms of agreements, the Company has so far disposed off 24% stake in the Company for which the Consideration has already been received. The Company is in the process of disposing the remaining 26% with prior approval of Reserve Bank of India.

CORPORATE SOCIAL RESPONSIBILITY (CSR)

A report on CSR Activities as required under Rule 9 of the Companies (Corporate Social Responsibility) Rules, 2014 is enclosed herewith as Annexure — 3.

CSR Policy of the Company and other details as required is placed on the Company’s website at http://vbshilpa.com/ CSRPolicy.pdf.

NOMINATION AND REMUNERATION POLICY

A committee of the Board named as “Nomination and Remuneration Committee” has been constituted to comply with the provisions of section 178, Schedule IV of the Companies Act and Regulation 19 of SEBI (LODR) Regulations, 2015. It has been entrusted with the task to recommend a policy of the Company on Directors’ appointment and remuneration, including criteria for determining qualifications, positive attributes, independence of a Director and other matters and to frame proper systems for identification, appointment of Directors & KMPs, Payment of Remuneration to them and Evaluation of their performance and to recommend the same to the Board from time to time.

Nomination and Remuneration Policy of the Company is placed on the Company’s website at http://vbshilpa.com/ pdf/NominationRemunerationPolicy.pdf.

FORMAL ANNUAL EVALUATION MADE BY THE BOARD OF ITS OWN PERFORMANCE AND OF ITS COMMITTEES AND INDIVIDUAL DIRECTORS.

As required under the provisions of Section 134 of the Companies Act, 2013 read with Rule 4 of Companies (accounts) Rules, 2014 the performance evaluation of Independent Directors has been done by the entire Board of Directors, excluding the director being evaluated. The Company has put in place a mechanism for evaluation of its own performance, its Committees and Independent Directors The evaluation of Board, Committees and Directors was conducted based on the evaluation of parameters such Board composition, structure, effectiveness of Board, participation at meetings, domain knowledge and governance adherence

DIRECTORS’ RESPONSIBILITY STATEMENT

Pursuant to Section 134 (5) of the Companies Act, 2013 Your Directors’ confirm that:

i. In preparation of annual accounts for the financial year ended 31st March, 2018 the applicable Accounting Standards have been followed along with proper explanation relating to material departures;

ii. The Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give true and fair view of the state of affairs of the Company at the end of the financial year ended 31st March, 2018 and of the profit and loss of the Company for the year;

iii. The Directors have taken proper and sufficient care for their maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

iv. The Directors had prepared the annual accounts on a ‘going concern’ basis;

v The Directors had laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively; and

vi. The Directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

EXTRACT OF ANNUAL RETURN:

The details forming part of the extract of the Annual Return in Form MGT-9 is placed at website of the Company at http://wwwvbshilpa.com/annualreturn.html and Annexure-A of this Directors Report.

OTHER DISCLOSURES:

Board Meetings

During the year under review, 6 (Six) Board Meetings were held during the year. For further details, please refer Corporate Governance Report which forms part of this Annual Report.

Committees of Board

Your company has the following committees namely:

1. Audit Committee;

2. Nomination and Remuneration Committee;

3. Stakeholders Relationship Committee and

4. Corporate Social Responsibility Committee

The constitutions of all the committees are as per the Companies Act, 2013 and SEBI (LODR) Regulations, 2015. The details of the Constitution are mentioned in Corporate Governance Report, which forms part of this Annual Report.

Corporate Governance Report

Regulation 15 of SEBI (LODR) Regulations, 2015 is applicable to your Company, as such the details as specified in Schedule V(C) of SEBI (LODR) Regulations, 2015, with regard to Corporate Governance Report including Auditor’s Certificate on compliance with the code of Corporate Governance specified in Schedule V(E) of SEBI (LODR) Regulations, 2015 forms part of this Annual report.

Management Discussion and Analysis

The Management discussion and analysis Report for the year under review as stipulated under Regulation 34 SEBI (LODR) regulations, 2015 is annexed here to and forms part of this Annual Report.

Vigil Mechanism:

In pursuance to the provisions of section 117(9) & (10) of the Companies Act, 2013 and Regulation 22 of SEBI (LODR) Regulations, 2015, a Vigil Mechanism for Directors and employees to report genuine concerns has been established. Protected disclosures can be made by a whistle blower through to the Chairman of the Audit Committee. The Policy on vigil mechanism and whistle blower policy may be accessed on the Company’s website at the link: http://vbshilpa.com/pdf/ Whistle_Blower_Policy.pdf

Remuneration ratio of the Directors/Key Managerial Personnel/Employees:

Statement showing disclosures pertaining to remuneration and other details as required under Section 197(12) of the Companies Act read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is enclosed herewith as Annexure — 1.

Particulars of Employees:

Statement of employees employed throughout the financial year and in receipt of remuneration of Rs. 1,02,00,000/- (Rupees One Crores Two Lakh) or more, or employed for part of the year and in receipt of Rs. 8,50,000/- (Rupees Eight Lakh Fifty Thousand) or more a month, under Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, is enclosed as Annexure - 2.

PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS:

Details of the Loans, guarantees and investments covered under Section 186 of the Companies Act, 2013 are given in the notes to the financial statements pertaining to the year under review;

DEPOSITS

Your Company has not accepted any fixed deposits under chapter V of the Companies Act, 2013 and as such no principal or interest was outstanding.

RELATED PARTY TRANSACTIONS:

Related Party Transactions entered during the financial year under review are disclosed in Note No. 45 of the Financial Statements. These transactions entered were at an arm’s length basis and in the ordinary course of business. There were no materially significant related party transactions with the Company’s Promoters, Directors, Management or their relatives, which could have had a potential conflict with the interests of the Company. Form AOC-2, containing the note on the aforesaid related party transactions is enclosed herewith as Annexure - 5.

Related Party Disclosure as per Schedule V of SEBI (LODR) Regulations, 2015 is enclosed herewith as Annexure - 6.

The policy on materiality of Related Party Transactions and dealing with related party transactions as approved by the Board may be accessed on the Company’s at website http://vbshilpa. com/pdf/related_party_policy.pdf

BUSINESS RESPONSIBILITY REPORT:

Pursuant to Clause 34(2)(f) of the SEBI (LODR) Regulations, 2015, Business Responsibility Report, is applicable to the Company, the same forms part of the Board Report as Annexure - 9.

MATERIAL CHANGES AND COMMITMENTS, IF ANY, AFFECTING THE FINANCIAL POSITION OF THE COMPANY WHICH HAVE OCCURRED BETWEEN THE END OF THE FINANCIAL YEAR OF THE COMPANY TO WHICH THE FINANCIAL STATEMENT RELATES AND THE DATE OF THE REPORT.

There are no material changes and commitments affecting the financial position of the Company occurred between the end of the financial year of the Company to which the financial statements relate and the date of the report.

GENERAL

Your Directors state that no disclosure or reporting is required in respect of the following items as there were no transactions on these items during the year under review:

1. Issue of equity shares with differential rights as to dividend, voting or otherwise.

2. Issue of shares (including sweat equity shares) to employees of the Company under any scheme.

3. Neither the Managing Director nor the Whole-time Director of the Company received any remuneration or commission from any of its subsidiaries.

4. No significant or material orders were passed by the Regulators or Courts or Tribunals which impact the going concern status and Company’s operations in future.

5. No frauds were reported by the auditors during the year under review

Your Directors further states that during the year under review, there were no cases filed/registered pursuant to the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013.

Your Directors further states that in accordance with the provisions of section 148 (1) of the Companies Act, 2013 read rules thereunder, the company has maintained cost accounts and records for the financial year 2017-18.

ACKNOWLEDGEMENT

Your Directors wish to express their gratitude to the Central and State Governments, investors, analysts, financial institutions, banks, business associates and customers, the medical profession, distributors and suppliers for their wholehearted support. Your Directors commend all the employees of your Company for their continued dedication, significant contributions, hard work and commitment.

For and on behalf of the Board of Directors

Sd/-

Omprakash Inani

Chairman

DIN: 01301385

Place: Raichur

Date: 13.08.2018

Source : Dion Global Solutions Limited
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