Speech delivered by the Chairman at the 23rd Annual General Meeting –September 28,2016
Very Good Morning to you all.
It is a great honour and privilege for me to address all of you on behalf of the Board of Directors and I welcome all the shareholders to 23rd AGM of your company. Your presence in this important meeting is the testimony of your strong support and faith in us and provides us great strength to sustain ourselves in these difficult times.
The Annual Report for the year ended 31st March, 2016 along with AGM Notice and Audited Annual Accounts of the company have been circulated to you. With your kind permission, I take it as read.
In 2015, the global economic activity was subdued. Growth in emerging markets and developing economies declined for the fifth consecutive year. Also, the Global trade flows have slowed significantly in recent months. Due to this effect the total volume of imports and exports are projected to grow by less than 3%, which is considered to be the lowest rate since the Great Depression in 1930’s.
It is expected that the global spending on medicines will reach $1.4 trillion by 2020, an increase of 29-32% from 2015. Spending on specialty therapies will continue to be more significant in developed markets than in pharmerging markets. The spending growth will be driven by brands, as well as increased usage in pharmerging markets.
Medicine-spending is most likely to increase and the volume growth will be driven by demographic trends such as an aging population, rising incomes and expanded access to healthcare in pharmerging markets.
The Indian pharmaceuticals market increased at a CAGR of 17.46 per cent in 2015 from US$ 6 billion in 2005 and is expected to expand at a CAGR of 15.92 per cent to US$ 55 billion by 2020. By 2020, India is likely to be among the top three pharmaceutical markets by incremental growth and sixth largest market globally in absolute size. India’s cost of production is significantly lower than that of the US and almost half of that of Europe. It gives a competitive edge to India over others.
India enjoys an important position in the global pharmaceuticals sector. The country also has a large pool of scientists and engineers who have the potential to steer the industry ahead to an even higher level. Of late, consolidation has become an important characteristic of the Indian pharmaceutical market as the industry is highly fragmented.
Through 'Pharma Vision 2020', the Government of India aims to make India a global leader in end-to-end drug manufacture.
Summing up 2015-16
Presently your company is working under the framework of CDR, initiated during the year 2013, for the revival of its operations. Amidst this backdrop, the performance of your company is satisfying. Your company registered a top line of Rs.879 crores (1736 crores in 2013-15 which includes business from Aurangabad API facility for about 9 months, until it was transferred in July 2014) despite the operations of API facility being affected for about 3 months due to floods. The gross profit before interest, depreciation and taxes stood at 199 crores (362 crores in 2013-15). The net loss after tax stood at 274 crores (191 crores (Loss) in 2013-15).
On a consolidated basis, Net Sales stood at Rs. 898 crores vis-à-vis Rs. 1789 crores. Profit before Interest, Depreciation and Tax was Rs. 196 crores as against Rs. 360 crores.
During the year, the name of your Company was changed from “Orchid Chemicals & Pharmaceuticals Ltd.” to “Orchid Pharma Ltd.” to enable distinct pharma identity. Also, your company was conferred with the Export Excellence Award for the performances during the financial years 2012-13 and 2013-14.
I am glad to inform you that your Company has received approvals from the US FDA for the Abbreviated New Drug Application (ANDA) for Rasagiline Mesylate and tentative approval for Risedronate Tablets.
Research & Development
R&D activities have been carried out in Cephalosporins and NPNC segments. It has provided scientific justification and salient data of APIs to ensure approval of ANDA with associated DMF by Regulatory Agencies.
R&D team is constantly striving to ensure the quality of the products through appropriate improvement in technology and analytical methods. Inclusion of new vendors is your Company’s prime focus to get cost-competitive KSMs and for the uninterrupted supply of KSMs to support API manufacturing.
Society and Environment
With concern for Safety, Society and Environment being a deep rooted core value of your Company, it is also making concerted efforts for creating awareness in the fields of self-employment, women empowerment, community healthcare, sanitation & hygiene and providing support for education & knowledge enhancement for the youth.
As I look ahead, I feel optimistic. The revival of the Indian economy is yet another booster. I expect Orchid too, to perform better.
Two years have lapsed since the debt restructuring scheme was implemented and as a result your company is moving in a positive direction. During this period, your Company has been transformed into a leaner, flexible and scalable organisation and is now preparing itself for facing the revival challenges.
Now, the prime objective of your company is to lower the earning volatility, improve EBITDA margins and return on investment. This shall be achieved by maintaining positive cash flows and by expanding earnings in the years to come.
Your company is focusing to increase the sale and distribution of Cephalosporins and NPNC (Non-penicillin, Non-cephalosporin) API’s and generics in regulated markets including US, Canada, Europe, Japan and Australia. Also, your company is in the process of launching new products in NPNC segments for US, EU and other markets on expiry of its patent cover. As a result of this, you can expect a positive impact on company’s revenues & profitability.
With a view to reduce cost of materials, improve productivity and to sustain competition, R&D will focus its efforts in the development of new products which are likely to go off-patent in the coming years. Your Company plans to increase its R&D spend from the current less than 4% of revenues to 5 % to 6% of revenues in the coming years.
In the international market your Company would be focusing on harmonizing the marketing model and strengthening the New Product Pipeline.
To summarize, your Company’s priority for the current and the following few years will be to further:
- strengthen the order book by unlocking and expanding the Company’s share in the growing regulated and emerging markets,
- enhance the global competitiveness by investing in the development and launch of new pharma products with reasonably good yields,
- bolster the balance sheet by converting a portion of the rupee debt into foreign currency loan thereby reducing the interest costs and
- optimise the usage of its core assets and monetizing the non-core assets.
Most importantly, I am glad to inform you that your Company is entering the “Silver Jubilee Year” preparing the organization for growth in order to have a strong and sustainable long term outlook and with an endeavour to achieve best-in-class leadership within the pharma space.
I take this opportunity to express my gratitude to all my colleagues on the Board for their invaluable contribution and guidance.
On behalf of the Board of Directors, I express my sincere appreciation and gratitude for your invaluable support and confidence reposed in us. I can assure you that we will reinstate our position, with your constant support, by meeting challenges head on.
I also express my earnest gratitude for the co-operation and support extended by the customers, bankers, financial institutions, dealers, retailers, suppliers, Government officials of both Central & State Governments.
I also take the opportunity to acknowledge the efforts, commitment and co-operation of the employees, as a whole, for their contribution in this revival journey.
I thank you ladies and gentlemen for your kind attention and extend my Seasons’ Greetings and Best Wishes to our shareholders!
Speech delivered by the Chairman at the 22nd Annual General Meeting - September 15, 2015
Hello friends and fellow shareholders,
I welcome you to the 22nd AGM of your Company. With your permission, I take as read the Directors' Report and the Audited Accounts for the 18 months period ended 31st March 2015.
Fiscal 2014-15 has been transformative for India and the average Indian, as gloom and despair gave way to hope and aspiration.
The path-breaking initiatives of the Central Government namely ‘Make in India’ ‘Clean India’ ‘Skill India’, 'Digital India' and 'Jan-Dhan Yojana', have laid the foundation for a multiplier impact on inclusive development and holds enormous promise to radically transform the Indian economy.
These announcements have raised the respect of and expectation from India among nations across the Globe.
And in raising India to an economic super-power globally, your Company commits itself to strengthen its position as a world-class Indian enterprise serving national priorities.
The recently held Global Investors’ Meet in Chennai has firmly put our State on the Global map and with more than Rupees two lakh crores worth of investment proposals getting inked, the State is sure to get stronger in the years to come.
Your Company is a leading name in the Pharmaceutical field and has been contributing well in the areas of exports, employment generation and CSR initiatives. The overall growth oriented industrial climate both at the Centre and in the State is sure to also have a positive impact on your Company’s outlook going forward.
But, before I articulate the task, which we have outlined for your Company for the current year, I would like to reflect upon your Company’s performance in 2013-15.
2013-15, in retrospect
Orchid initiated a process of restructuring its debt and accordingly made a reference to the Corporate Debt Restructuring (CDR) cell and the restructured package was implemented in July 2014 after the approval of CDR Empowered Group. Your Company’s liquidity position has steadily improved, due to rescheduled loan repayments, funding of working capital interest for a year and funding of the long term loan interest for two years by lenders and reduction in rate of interest.
Against this backdrop, your Company delivered heartening performance. Notwithstanding the hurdles faced, your Company registered a topline of Rs. 1736.19 crore (US$ 277.75 million), EBIDTA of Rs. 362.23 crore (US$ 57.95 million) and net loss of Rs. 191.04 crore (US$ 30.56 million). What was satisfying was, your Company reduced the overall debt to Rs. 3165 crore (US$ 506.3 million) and the lenders earmarked Rs. 300 Crores (US $ 48 million) from proceeds of the business transfer deal with Hospira to meet the working capital requirements. This improvement is a result of numerous small initiatives that have yielded the desired results. This would also help in improving your Company’s performance in the quarters to come. While these are only the first few baby steps in getting your Company back on track, your Company is confident of delivering superior shareholder value over the coming years.
The bedrock of my optimism rests on the following:
- The market place dynamism
- Our business model
The market place: Even as global spending on medicines is forecast to reach nearly US$1.3 trillion by 2018, an increase of about 30% over the 2013 level, the relevance of generics is expected to increase at a faster pace. Global spending on medicines is expected to shift towards generics as developed economies are increasingly implementing strategies for optimising healthcare expenditure. Generic medicines account for over 50% of the global prescriptions; in the US generic usage in volume terms is estimated at 86%.
Our business model: Orchid’s focus on generics, its strong end-to-end capabilities with a presence across the entire value chain of Active Pharmaceuticals Ingredients (API) and formulations backed by strong manufacturing and regulatory capabilities and front-end presence across markets enables it to effectively capitalise on emerging opportunities.
Allow me to explain some important aspects of the business model, which lends credibility to my optimism and promises brighter prospects over the coming years
In API space, your Company has created important barriers that will enable it grow this business over the foreseeable future.
Product focus: Orchid specializes in niche APIs for injectables and orals that have limited competition due to entry barriers. A few of them are difficult-to-make molecules involving complex chemistry, multi-step manufacturing, require dedicated infrastructure and are covered by a challenging patent environment - enabling your Company to earn strong revenue and profitability.
Marketing focus: Orchid enjoys a long-term API supply agreement with Hospira for products with limited competition. Besides, the Company has also entered into supply agreements with several pharmaceutical companies in Europe. Further, your Company has also forged a long-term agreement with a Japanese pharmaceutical company for supply of a Cephalosporin API. These partnerships will ensure a steady cash flow with long-term revenue visibility. The endeavor is to have more such supply agreements for API products in place.
In the formulation space, your Company’s oral formulations pipeline is expected to be a key growth driver. Your Company has a large product basket in both antibiotics & non–antibiotics (~ 40) across US, EU and other geographies. This is complemented by a strong track record of regulatory filings – a cumulative 77 filings across NPNC and Cephalosporins in regulated markets (46 ANDAs in the US and 31 filings in EU).
Of these filings, 65 have received approvals from the regulatory authorities (35 in the US and 30 in the EU) allowing the Company to effectively monetize the efforts of the Orchid team through wholly owned front-end chain in the US -- Orchid Pharma Inc. Interestingly, of the filings few products are in the ‘First-to-File’ pipeline in the US which when launched will allow your Company to earn superior margins. To support this, your Company also has independent arrangements for the supply of Generic Products with some of the front-end reputed marketing companies in the US.
Even today, your Company enjoys strong end-to-end capabilities, backed by strong research and manufacturing capabilities, along with front-end presence in key markets.
Your Company continues to ensure the highest standards of quality and is known across the world for its quality excellence and regulatory compliance.
While the immediate task to turnaround the Company from a loss-making outfit into a profitable organisation is daunting, I am confident that your Company’s niche business advantages and the undying spirit of your Company’s team will catalyze a superior performance faster than most well-wishers have imagined.
On behalf of the Board, I express my appreciation for your invaluable support and the confidence reposed in us. Your continued encouragement will help us in elevating your Company into a new orbit of excellence soon.
I also take this opportunity to place on record my sincere appreciation for the undying spirit of excellence, tireless effort and priceless contribution of the entire team of employees during the 18 months period under review.
I also express my earnest gratitude for the co-operation and support extended to your Company by key stakeholders - customers, bankers, financial institutions, officials of Central and State Governments, dealers, retailers, suppliers and various service providers. I will not be fulfilling my duties unless I thank all the members of the Board in providing business their invaluable guidance in successfully steering your Company.
Thank you for your attention.
Have a good day!
Speech delivered by the Chairman at the 21st Annual General Meeting - March 19, 2014
On behalf of the Board of Directors, I welcome you all to the Twenty First Annual General Meeting of Orchid Chemicals & Pharmaceuticals Limited. It’s my privilege to address this gathering and share my thoughts about the Company. You must have received the Annual Report for fiscal 2012-13, and with your permission I shall take it as read.
I will now provide a summary of the challenges and opportunities before your Company, against the backdrop of the current business scenario.
Global economic scenario
The global economic growth was adversely impacted in 2012-13 by sluggish economic performance in the advanced economies. The emerging market and developing economies, as a group, registered a marked decline in growth rates. The global growth is projected to record strong numbers during the next couple of years. This growth will be mainly from market expansion in leading emerging nations.
Summing up 2012-13
You will be glad to note that the global pharmaceutical sector continues to sustain moderate growth, despite the uncertain business scenario. Against this backdrop, your Company recorded modest numbers, recovering from tough liquidity constraints on account of redemption of outstanding FCCBs in February 2012. Your Company sustained sales and operating profitability showcasing the robustness of your Company's core business strengths. In order to rebuild its operations strongly, Orchid initiated a process of restructuring its debt and accordingly made a reference to the Corporate Debt Restructuring (CDR) cell. Upon completion of the CDR process, your Company’s liquidity position is expected to improve, supported by rescheduled loan repayments, funding of working capital interest for a year and long term loan interest for two years by lenders and reduction in rate of interest. This would also help in improving your Company’s performance in the quarters to come.
Corporate Debt Restructuring (CDR)
Your Company was admitted for Corporate Debt Restructuring process in August 2013 and subsequently approved by the CDR Empowered Group (CDR EG) with requisite support from Banks. The CDR EG has issued the CDR Letter of Approval (LoA) dated March 10, 2014.
The salient features of the CDR scheme, include:
- The sale and transfer of Orchid’s Penicillin and Penems (including Carbapenems) API business together with its manufacturing facilities at Aurangabad, Maharashtra and Associated Research and Development (R&D) facility at Sholinganallur, Chennai for a cash consideration of about Rs 1348 crs.
- Repayment of a portion (Rs 681 crore) of the total debt to lenders out of the sale proceeds and restructuring of the balance debt (Rs 2866 crore).
- Interest funding for the first two years from the cut-off date (April 01, 2013) for interest on term debts and one year for interest on working capital borrowings.
- Carving out a portion of sale proceeds (Rs 430 crore) for meeting the working capital requirements of the Company.
- The restructured debt together with funded loans would have to be repaid over a period of 8 years starting from April 2015 subject to regulatory approvals.
- The restructuring process would be supervised by an appointed Monitoring Committee (MC) of CDR lenders.
Business transfer agreement with Hospira
Your Company had entered into a Business Transfer Agreement (BTA) in August 2012 with Hospira Healthcare India Private Limited, a subsidiary of Hospira Inc., USA, for the sale and transfer of the Company’s Penicillin and Penem API Business together with its manufacturing facilities in Aurangabad and associated Research and Development Unit situated in Sholinganallur for consideration of USD 202.50 million. Subsequently, the initial consideration of USD 202.50 million was enhanced to USD 217.50 million for transfer of land and buildings at R&D Centre Shozhanganallur. As the Company is admitted for CDR process, the consummation of BTA has been included as a part of the CDR process.
Research and development provides critical support to create a consistent product pipeline and sows the seeds for the future growth of a Company.
Over the years, we have emerged as a partner of choice for global pharmaceutical companies for new chemical entity (NCE) development, novel drug delivery systems (NDDS) development, custom synthesis and other R&D services.
Many technologies were successfully transferred to the manufacturing facilities. In addition, the R&D team has been instrumental in significantly reducing manufacturing cycle-time, optimising number of stages, streamlining operations and meeting global quality standards, all of which improved the return on investment from products.
During 2012-13, your Company out-licensed Orchid’s NCE, a novel beta-lactamase inhibitor to Allecra Therapeutics GmbH for clinical development.
Your Company is focused on strengthening its regulatory pipeline which is expected to generate new growth opportunities following approvals from the respective regulatory agencies. Your Company’s strong product basket will deliver a positive thrust to the revenues going forward. Your Company has a cumulative count of 73 regulatory filings in the generic formulations domain across the Non-penicillin, Non-cephalosporin (NPNC) and Cephalosporin product domains [43 ANDAs (Abbreviated New Drug Application) in the US and 30 MA (Marketing Authorization) filings in EU], including eight Para IV FTF (First-to-file) filings.
With many products under development, your Company will further strengthen its regulatory filings / approval count going forward.
What is in store for the future?
I take this opportunity to address the concerns you may have regarding the present status and future opportunities for Orchid. I would also like to outline our strategy to grow our enterprise and enhance shareholder value going forward.
I am confident that Orchid will recoup its past glory, but it will take time. We have assimilated the learning of the past and created a blueprint, which, we are confident, will enable us reach our goal.
Core strengths of our business
The strength of the current business lies not only in product segments but also in our alliances for our API and formulations businesses. This ensures consistent revenues moving forward as well.
The US will strengthen business profitability
The distribution of Cephalosporin & un-partnered cephalosporins and non-antibiotic formulations in US through our front-end, Orchid Pharma Inc. will help us enhance our presence and improve margins.
The product pipeline and future growth opportunities
Your company's current product portfolio along with the products under development in both Cephalosporins and non-antibiotics will help the company shore up the revenues in the future.
The company's addressable market size for the products under development in non-antibiotics segment is around USD 16 Billion. The growth in the current non-antibiotics formulations business would come from timely filing and launches of products in the next 2-3 years. This business with its new launches is expected to attain critical mass by FY 2018-19.
New geographies in focus
We are working relentlessly towards expanding our customer base and establish a strong footprint in the EU region, which will help us improve revenues for both Cephalosporins & non-antibiotics.
Besides, our focus on the emerging market formulations will see us strengthening our presence in LATAM and APAC regions through the partnership model whereas our India formulations business will focus on strategic growth by offering product line extensions & new product launches.
Monetising our R&D expertise
Basic research will continue to be a focus area for Orchid and I expect the investments made in NCE research in chosen therapeutic areas such as Diabetes, Obesity, Inflammation, Pain Management and Oncology will result in out - licensing opportunities in the years to come.
In addition, your Company’s focus will be on consolidating its existing business verticals and optimising the product-mix in high value markets.
Your Company’s corporate evolution is the result of the hard work and consistent determination to transform its vision into reality. Today, your Company enjoys strong end-to-end capabilities with presence across the entire pharma value chain, backed by strong research and manufacturing capabilities, along with front-end presence in key markets. Your Company has always ensured the highest standards of quality and is known across the world for its quality excellence and stringent regulatory compliance.
On behalf of the Board of Directors, I express my sincere gratitude to the Central and State Governments, financial institutions, public and private sector banks, Government agencies and Non-government institutions for reposing their faith in the management.
I am also thankful to our valued stakeholders, namely vendors, customers, strategic alliance partners and business associates for supporting our vision and business strategies. I also acknowledge the vital role played by our valued employees in our corporate evolution. Finally, I am grateful to our community of shareholders for their confidence and continued support in the management team which has helped in steering the Company through challenging times.
Thank you for your attention!