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Sun Pharmaceutical Industries Ltd.

BSE: 524715 | NSE: SUNPHARMA |

Represents Equity.Intra - day transactions are permissible and normal trading is done in this category
Series: EQ | ISIN: INE044A01036 | SECTOR: Pharmaceuticals

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Annual Report

For Year :
2018 2016 2015 2014 2003

Chairman's Speech

Managing Director''s Letter

Dear Shareholders,

The global pharmaceutical industry offers significant opportunities to service the healthcare needs of a growing and ageing global population. The industry has witnessed major investments in developing innovative medicines like monoclonal anti-bodies, immunotherapy drugs and gene therapies. Many of these medicines have seen significant success as they are serving the unmet medical needs of patients, resulting in improved medical outcomes and thus changing the lives of patients. However, pricing in key markets like the US has come under severe pressure in the last two years. The industry will have to adapt to this changed scenario, although it also offers significant learning opportunities.

These changing dynamics are also likely to have an impact on competition since return ratios on investments in the US generics business are coming down and not every generics company will be able to remain economically viable at the current rate of price erosion. As a result, companies will have to optimize their future R&D investments.

The US generics market has been an important driver of growth and profitability for Indian pharmaceutical companies between 2005-15. However, now with the changed dynamics, the importance of other markets has increased. It has also become imperative for companies to identify new engines of growth and invest more in innovation. It is in this context, that Sun Pharma has been investing in building its global specialty business since the last few years. Through this initiative we are trying to gradually move up in the pharmaceutical value chain.

The other key focus area for us will be cost control and product rationalization, with these efforts spread across R&D projects, manufacturing footprint and other areas. These steps will ensure that we continue to earn reasonable returns on our investments.

Highlights of FY18

As guided at the start of the fiscal, FY18 was a tough year. While we witnessed a decline in our financial performance for the year, the challenges also offer us an opportunity to improve our processes and hence emerge as a much stronger company. Our FY18 revenues de-grew by 14% to Rs,261 Billion mainly due to decline in our US sales. We have recorded steady growth in all other markets except the US.

Operational Performance

Revenues in the US declined 34% to US$ 1.36 Billion due to higher base of FY17 wherein we had the benefit of 180-day exclusivity on generic Imatinib. Our subsidiary Taro recorded 25% decline in overall revenues for the year. This decline was mainly driven by more intense competition among manufacturers, new entrants to the market, buying consortium pressures, and a higher ANDA approval rate from the USFDA.

We recorded a 4% growth in our India formulations business. Overall growth for the domestic market was impacted by the temporary disruption in the trade channel due to the implementation of the Goods & Services Tax (GST) during the year. Adjusted for this impact, our India revenues have grown by about 9%.

We grew by 11% in emerging markets for the year. This growth was broad-based across various markets. Our sales in the Rest of World (RoW) markets grew by 20% for the year.


R&D is the backbone of our business and a key determinant of our future growth and profitability. Our efforts to move up the pharmaceutical value chain mandate that we keep investing in R&D. Our R&D investments for the year were Rs,22 Billion, targeted mainly at developing complex generics and specialty products. We continue to be disciplined in identifying future R&D projects for the generics market while simultaneously investing in developing a global specialty portfolio. We are also investing in enhancing our product pipeline for emerging markets and other non-US developed markets.

Nurturing specialty growth

Our journey of building a global specialty business commenced a few years ago, and over the years, we have nurtured this evolving business through increased focus and investments. We have allocated significant resources in building the specialty business.

Our specialty initiatives are directed at achieving two main objectives - to build an additional engine of future growth and secondly to move up the pharmaceutical value chain through development and commercialization of branded patented products. While we intend to target the global market with our specialty products, developed markets are likely to be key contributors to this strategy.

Our specialty portfolio targets Dermatology, Ophthalmic, Oncology and CNS segments. We are developing our specialty products pipeline with a focus on improving patient outcomes either by addressing unmet medical needs or by enhancing patient convenience through differentiated dosage forms.

Over the past two years, we have also focused on establishing the requisite front-end capabilities for our specialty business. This involves setting up a relevant sales force (for promoting these products to doctors), establishing the required regulatory and market access teams, along with support staff.

Commercialization of key specialty products

FY18 was a busy year for our specialty business and we crossed many important milestones. We filed two of our important products - Ilumya (Tildrakizumab) and OTX-101 with the USFDA and also received final approval for Ilumya in the US. We also focused on building the relevant front-end presence in the US for marketing and promoting our specialty products. Some of the key highlights for the year were:

- The USFDA approved our Biologics Licence Application (BLA) for Ilumya in March 2018. Ilumya is an IL-23p19 inhibitor approved for the treatment of moderate-to-severe plaque psoriasis in the US. Launch preparations for Ilumya are ongoing for a potential commercialization in the US in FY19. Ilumya was also filed with the European Medicines Agency (EMA) in March 2017. EMA''s approval for Ilumya is awaited.

- Our New Drug Application (NDA) for OTX-101 was accepted by USFDA in December 2017. This is an important product for Sun Pharma''s specialty ophthalmology portfolio. We are awaiting final approval for this product from the USFDA.

- Post the close of the year, we announced USFDA approval for Yonsa® (abiraterone acetate), a novel formulation in combination with methylprednisolone, for the treatment of patients with metastatic castration-resistant prostate cancer (mCRPC). Sun Pharma had acquired Yonsa® from Churchill Pharmaceuticals LLC. Churchill is eligible to receive upfront and sales-linked milestone payments, and royalties on sales from Sun Pharma. Yonsa® in combination with methylprednisolone was filed as a New Drug Application (NDA) under the 505(b)(2) regulatory pathway and will be promoted as a branded specialty product in the US. Sun Pharma has already commercialized Yonsa® in the US market.

- We also received approval from the USFDA for a new label for Odomzo® (sonidegib), an oral hedgehog inhibitor to treat patients with locally advanced basal cell carcinoma (laBCC) that has recurred following surgery or radiation therapy, or those who are not candidates for surgery or radiation therapy. The new label incorporates long-term data from the 30-month analysis of BOLT trial, in which Odomzo® continued to show sustained durable tumour response of 26 months with no new safety concerns.

- We have recently initiated investments in the development of two new indications for Ilumya, viz., psoriatic arthritis and enclosing spondylitis. Although the clinical trials for these new indications will require large front-ended investments, a successful outcome of the trials will significantly expand the addressable market for Ilumya globally.

- The clearance of the Halol facility by the USFDA paves the way for potential approvals for Elepsia XR (Levetiracetam Extended Release tablets) and Xelpros (Latanoprost BAK-free eye drops). These specialty products were in-licenced from Sun Pharma Advanced Research Company Ltd. (SPARC).

Ranbaxy synergies

FY18 was the most important year in terms of accrual of the synergy benefits from the Ranbaxy acquisition. The targeted synergy benefits for FY18 was US$ 300 Million and we are happy to have achieved this important milestone. As indicated before, we have utilized these synergy benefits to fund our evolving global specialty business.

Global cGMP compliance

Worldwide, pharmaceutical regulatory agencies are focusing on improving the quality of products approved by them. This has mandated adherence to very stringent cGMP standards by pharmaceutical manufacturers with a need to focus on 24x7 compliance status. Ability to successfully adhere to these cGMP standards has become a key determinant of future for the pharmaceutical industry.

During the year, Sun Pharma made significant progress towards 24x7 cGMP compliance. Many of our facilities underwent successful audits by multiple regulatory agencies, including the USFDA. At the same time, remediation work continued at some of the facilities, which had been impacted by cGMP deviations.

Our Halol facility, which was impacted by cGMP deviations in FY15, underwent a re-inspection by the USFDA in February 2018. On completion of the re-inspection, the USFDA issued three observations for the facility. Subsequently in June 2018, the USFDA issued the establishment inspection report (EIR) for the facility, thus clearing the facility. With this clearance, new approvals from this facility for the US market are likely to start coming through gradually.

Restructuring and rationalization

Given the tough pricing conditions in the US generics market, we continue to make efforts towards optimizing our costs. It mandates an unwavering focus on cost control across the organization. We are trying to achieve better results with lower resources as we try to make the organization more efficient.

Our efforts in this direction will cover multiple operational aspects.

The focus will be on optimizing our manufacturing footprint as well as generics R&D investments, to ensure a reasonable return on investment as well as overall cost management.

Overall outlook

We are gradually ramping up our global specialty business. We plan to increase its contribution to our consolidated revenues in the long term. This will entail significant front-ended investments, with commensurate revenue streams accruing only over a period of time.

Some of our key specialty products are likely to be commercialized in the US in FY19 and hence we expect to incur significant pre-launch and branding costs along with increasing sales force costs.

The short-term outlook for the US generics market continues to be challenging given the pricing pressures. We expect normalization of the India business in FY19 post the disruption in FY18 due to GST implementation. Favorable demographics will ensure reasonable volume growth in India. However, government-mandated price reductions/policy changes continue to be potential risks for this business. We are also expecting reasonable growth in our emerging markets business, however, as always, currency fluctuations continue to be a risk.

Given these factors, we expect a low double-digit top line growth in our consolidated revenues for FY19 over FY18. Our consolidated R&D investments for FY19 will be about 8-9% of revenues.

Our talented team of employees will be the key driver of all the above initiatives. We are also grateful to our Board of Directors for their guidance and support.

We are thankful for your support as a shareholder. You have continuously supported our endeavors over the past many years and we hope that you will continue to repose your confidence in us.

Warm regards,

Dilip Shanghvi

Managing Director