20-F
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
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REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
OR
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þ |
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended March 31, 2007
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
OR
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SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report
Commission File Number: 1-15182
DR. REDDYS LABORATORIES LIMITED
(Exact name of Registrant as specified in its charter)
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Not Applicable
(Translation of Registrants name into English)
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ANDHRA PRADESH, INDIA
(Jurisdiction of incorporation or
organization) |
7-1-27, Ameerpet
Hyderabad, Andhra Pradesh 500 016, India
+91-40-23731946
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
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Title of Each Class
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Name of Each Exchange on which Registered |
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American depositary shares, each representing one equity share
Equity Shares*
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New York Stock
Exchange
New York Stock Exchange |
*Not for trading, but only in connection with the registration of American depositary shares,
pursuant to the requirements of the Securities and Exchange Commission.
Securities registered or to be registered pursuant to Section 12(g) of the Act. None.
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None.
Indicate the number of outstanding shares of each of the issuers classes of capital or common
stock as of the close of the period covered by the annual report.
167,912,180 Equity Shares
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.
Yes þ No o
If this report is an annual or transition report, indicate by check mark if the registrant is
not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934.
Yes o No þ
Note Checking the box above will not relieve any registrant required to file reports pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those
Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YesYes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Securities Exchange Act of 1934. (Check one):
Large accelerated filerYes þ Accelerated filer o Non-accelerated filer o
Indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 o Item 18 þ
If this is an annual report, indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Securities Exchange Act of 1934).
Yes o No þ
Currency of Presentation and Certain Defined Terms
In this annual report on Form 20-F, references to $ or U.S.$ or dollars or U.S.
dollars are to the legal currency of the United States and references to Rs. or rupees or
Indian rupees are to the legal currency of India. Our financial statements are presented in
Indian rupees and translated into U.S. dollars and are prepared in accordance with United States
Generally Accepted Accounting Principles (U.S. GAAP). References to Indian GAAP are to Indian
Generally Accepted Accounting Principles. References to a particular fiscal year are to our
fiscal year ended March 31 of such year. References to our ADSs are to our American Depositary
Shares.
References to U.S. or United States are to the United States of America, its territories
and its possessions. References to India are to the Republic of India. References to EU are to
the European Union. All references to we, us, our, DRL, Dr. Reddys or the Company
shall mean Dr. Reddys Laboratories Limited and its subsidiaries. Dr. Reddys is a registered
trademark of Dr. Reddys Laboratories Limited in India. Other trademarks or trade names used in
this annual report on Form 20-F are trademarks registered in the name of Dr. Reddys Laboratories
Limited or are pending before the respective trademark registries.
Except as otherwise stated in this report, all translations from Indian rupees to U.S. dollars
are based on the noon buying rate in the City of New York on March 30, 2007 for cable transfers in
Indian rupees as certified for customs purposes by the Federal Reserve Bank of New York, which was
Rs.43.10 per U.S.$1.00. No representation is made that the Indian rupee amounts have been, could
have been or could be converted into U.S. dollars at such a rate or any other rate. As of
September 24, 2007, that rate was Rs.39.50 per U.S.$1.00.
Any discrepancies in any table between totals and sums of the amounts listed are due to
rounding.
Information contained in our website, www.drreddys.com, is not part of this Annual Report and
no portion of such information is incorporated herein.
Forward-looking and Cautionary Statement
IN ADDITION TO HISTORICAL INFORMATION, THIS ANNUAL REPORT CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE EXCHANGE ACT). THE FORWARD-LOOKING
STATEMENTS CONTAINED HEREIN ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE REFLECTED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT
MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THE SECTIONS
ENTITLED RISK FACTORS AND OPERATING AND FINANCIAL REVIEW AND PROSPECTS AND ELSEWHERE IN THIS
REPORT. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS,
WHICH REFLECT MANAGEMENTS ANALYSIS ONLY AS OF THE DATE HEREOF. IN ADDITION, READERS SHOULD
CAREFULLY REVIEW THE OTHER INFORMATION IN THIS ANNUAL REPORT AND IN OUR PERIODIC REPORTS AND OTHER
DOCUMENTS FILED AND/OR FURNISHED WITH THE SECURITIES AND EXCHANGE COMMISSION (SEC) FROM TIME TO
TIME.
2
TABLE OF CONTENTS
PART I
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ITEM 1. |
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IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
Not applicable.
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ITEM 2. |
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OFFER STATISTICS AND EXPECTED TIMETABLE |
Not applicable.
3.A. Selected financial data
The selected consolidated financial data should be read in conjunction with the consolidated
financial statements, the related notes and operating and financial review and prospects, which are
included elsewhere in this annual report. The selected consolidated statements of income data for
the five years ended March 31, 2007 and selected consolidated balance sheet data as of March 31,
2003, 2004, 2005, 2006 and 2007 have been prepared and presented in accordance with U.S. GAAP and
have been derived from our audited consolidated financial statements and related notes except for
cash dividend per share. The selected consolidated financial data presented below for fiscal year
2006 reflects the acquisition of Industrias Quimicas Falcon de Mexico effective December 30, 2005
and beta Holding GmbH effective March 3, 2006. The selected consolidated financial data presented below for fiscal year 2006 reflects the
acquisition of Industrias Quimicas Falcon de Mexico effective December 30, 2005 and beta Holding
GmbH effective March 3, 2006 and therefore the results for fiscal
year 2006 are not comparable to the
results for prior fiscal years. The selected consolidated financial data presented below for
fiscal year 2007 reflects the acquisition of Industrias Quimicas Falcon de Mexico and beta Holding
GmbH for the full year and hence is not comparable with results for prior fiscal years.
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Fiscal Year Ended March 31, |
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2003** |
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2004** |
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2005** |
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2006 |
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2007 |
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(Rs.in millions, U.S.$ in thousands, except share and per share data) |
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Convenience |
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translation into |
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U.S.$
(unaudited) |
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Income Statement Data: |
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Product sales |
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Rs. |
18,069.8 |
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Rs. |
20,081.2 |
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Rs. |
19,126.2 |
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Rs. |
24,077.2 |
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Rs. |
64,185.4 |
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U.S.$ |
1,489,220 |
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License fees |
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345.7 |
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47.5 |
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27.5 |
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639 |
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Services income |
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3.9 |
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22.3 |
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47.5 |
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142.3 |
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882.2 |
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20,468 |
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Total revenues |
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18,073.7 |
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20,103.5 |
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19,519.4 |
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24,267.0 |
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65,095.1 |
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1,510,327 |
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Cost of revenues |
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7,744.9 |
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9,337.3 |
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9,385.9 |
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12,417.4 |
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34,219.5 |
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793,957 |
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Gross profit |
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10,328.8 |
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10,766.2 |
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10,133.5 |
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11,849.6 |
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30,875.6 |
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716,370 |
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Operating expenses: |
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Selling, general and administrative expenses |
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5,103.2 |
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6,542.5 |
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6,774.6 |
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8,028.9 |
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14,051.1 |
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326,012 |
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Research and development expenses, net |
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1,411.8 |
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1,991.6 |
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2,803.3 |
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2,153.0 |
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2,462.7 |
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57,138 |
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Amortization expenses |
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419.5 |
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382.9 |
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349.9 |
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419.9 |
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1,570.9 |
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36,448 |
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Write-down of intangible assets |
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1,770.2 |
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41,072 |
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Foreign exchange (gain)/loss |
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70.1 |
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(282.5 |
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488.8 |
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126.3 |
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(136.8 |
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(3,173 |
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Other operating (income) / expenses, net |
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0.2 |
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83.2 |
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6.0 |
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(320.4 |
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(67.0 |
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(1,555 |
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Total operating expenses |
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7,004.8 |
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8,717.7 |
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10,422.6 |
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10,407.7 |
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19,651.1 |
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455,942 |
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Operating income/(loss) |
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3,324.0 |
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2,048.5 |
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(289.1 |
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1,441.9 |
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11,224.5 |
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260,428 |
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Equity in loss of affiliates |
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(92.1 |
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(44.4 |
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(58.1 |
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(88.2 |
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(62.7 |
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(1,454 |
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Other (expense) / income, net |
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576.8 |
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535.9 |
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454.2 |
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533.6 |
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(661.5 |
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(15,348 |
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Income before income taxes and minority interest |
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3,808.7 |
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2,540.0 |
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107.0 |
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1,887.3 |
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10,500.3 |
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243,626 |
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Income taxes (expense)/benefit |
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(398.1 |
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(69.2 |
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94.3 |
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(258.3 |
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(1,176.9 |
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(27,307 |
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Minority interest |
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(6.7 |
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3.4 |
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9.9 |
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(0.1 |
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3.5 |
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81 |
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Net income |
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Rs. |
3,403.9 |
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Rs. |
2,474.2 |
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Rs. |
211.2 |
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Rs. |
1,628.9 |
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Rs. |
9,326.9 |
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U.S.$ |
216,400 |
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Earnings per equity share: |
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Basic |
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Rs. |
22.24 |
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Rs. |
16.17 |
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Rs. |
1.38 |
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Rs. |
10.64 |
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Rs. |
58.82 |
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U.S.$ |
1.36 |
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Diluted |
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Rs. |
22.24 |
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Rs. |
16.16 |
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Rs. |
1.38 |
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Rs. |
10.62 |
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Rs. |
58.56 |
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U.S.$ |
1.36 |
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Weighted average number of equity shares used in
computing earnings per equity share:* |
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Basic*** |
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153,031,896 |
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153,027,528 |
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153,037,898 |
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153,093,316 |
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158,552,422 |
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158,552,422 |
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Diluted*** |
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153,031,896 |
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153,099,196 |
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153,119,602 |
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153,403,846 |
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159,256,476 |
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159,256,476 |
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Cash dividend per share (excluding dividend tax) |
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Rs. |
2.50 |
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Rs. |
5.00 |
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Rs. |
5.00 |
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Rs. |
5.00 |
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Rs. |
3.75 |
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U.S.$ |
0.09 |
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* |
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Each ADR represents one equity share. |
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Effective as of fiscal year 2004, we selected the retroactive modified method of adoption
described in Statement of Financial Accounting Standards No. 148 Accounting for Stock Based
Compensation Transition and Disclosure. Accordingly, the operating results for the fiscal year
ended March 31, 2003, which is the only prior period impacted, have been modified in accordance
with the retroactive modified method of adoption. |
3
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The Company has reclassified certain expense/income for the fiscal years ended March 31, 2003, 2004 and 2005,
between cost of revenues, operating expenses, revenues, other expense/income and other operating
expense/income, to conform to the presentation for the year ended March 31, 2006. These
reclassifications increased the previously reported gross profit of fiscal year 2003, 2004 and 2005
by Rs.106.6 million, Rs.31.1 million and Rs.47.4 million, respectively, and increased / (reduced)
the previously reported operating income of fiscal years 2003 and 2004 by Rs.106.4 million and
Rs.(31.7) million, respectively, and reduced the operating loss for the fiscal year 2005 by Rs.77.3
million. There is however, no change in the previously reported net income for the fiscal
years 2003, 2004 and 2005. |
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On August 30, 2006, we distributed a stock dividend of one equity share for each equity share
and ADS issued and outstanding as of August 29, 2006. The number
of equity shares and per share information presented in the
above select consolidated financial data reflect the effect of this stock dividend. |
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Fiscal Year Ended March 31, |
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2003 |
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2004 |
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2005 |
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2006 |
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2007 |
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(Rs.in millions, U.S.$ in thousands) |
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Convenience |
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translation into |
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U.S.$(unaudited) |
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Other Data: |
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Net cash provided by / (used in): |
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Operating activities |
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Rs. |
4,366.7 |
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Rs. |
3,999.2 |
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Rs. |
2,291.6 |
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Rs. |
1,643.1 |
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Rs. |
11,804.5 |
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U.S.$273,887 |
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Investing activities |
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(1,954.7 |
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(6,506.1 |
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632.9 |
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(34,524.4 |
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592.5 |
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13,746 |
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Financing activities |
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(153 |
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(376.1 |
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1,931.3 |
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27,210.9 |
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1,753.7 |
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40,689 |
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Effect of exchange rate changes on cash |
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(95 |
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(14.2 |
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55.8 |
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95.1 |
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118.2 |
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2,741 |
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Expenditures on property, plant and
equipment |
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(1,515.7 |
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(2,415.6 |
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(1,749.2 |
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(1,873.3 |
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(4,477.2 |
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(103,879 |
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As of March 31, |
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2003 |
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2004 |
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2005 |
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2006 |
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2007 |
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(Rs.in millions, U.S.$ in thousands) |
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Convenience |
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translation into |
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U.S.$(unaudited) |
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Balance Sheet Data: |
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Cash and cash equivalents |
|
Rs. |
7,273.4 |
|
|
Rs. |
4,376.2 |
|
|
Rs. |
9,287.9 |
|
|
Rs. |
3,712.6 |
|
|
Rs. |
17,981.4 |
|
|
|
U.S.$417,203 |
|
Working capital |
|
|
12,023.5 |
|
|
|
11,103.3 |
|
|
|
10,770.9 |
|
|
|
1,345.1 |
|
|
|
18,933.0 |
|
|
|
439,280 |
|
Total assets |
|
|
23,091.7 |
|
|
|
26,619.3 |
|
|
|
29,288.4 |
|
|
|
68,768.1 |
|
|
|
85,919.1 |
|
|
|
1,993,483 |
|
Total long-term debt, excluding current portion |
|
|
40.91 |
|
|
|
31.0 |
|
|
|
25.1 |
|
|
|
20,937.1 |
|
|
|
17,871.0 |
|
|
|
414,640 |
|
Net assets |
|
|
18,831.8 |
|
|
|
21,039.4 |
|
|
|
20,953.2 |
|
|
|
22,271.7 |
|
|
|
41,578.2 |
|
|
|
964,692 |
|
Total stockholders equity |
|
|
18,831.8 |
|
|
|
21,039.4 |
|
|
|
20,953.2 |
|
|
|
22,271.7 |
|
|
|
41,578.2 |
|
|
|
964,692 |
|
Exchange Rates
The following table sets forth, for the fiscal years indicated, information concerning the
number of Indian rupees for which one U.S. dollar could be exchanged based on the average of the
noon buying rate in the City of New York on the last business day of each month during the period
for cable transfers in Indian rupees as certified for customs purposes by the Federal Reserve Bank
of New York. The column titled Average in the table below is the average of the daily noon buying
rate on the last business day of each month during the year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended |
|
|
|
|
|
|
|
|
March 31, |
|
Period End |
|
Average |
|
High |
|
Low |
2003 |
|
|
47.53 |
|
|
|
48.43 |
|
|
|
49.07 |
|
|
|
47.53 |
|
2004 |
|
|
43.40 |
|
|
|
45.96 |
|
|
|
47.46 |
|
|
|
43.40 |
|
2005 |
|
|
43.62 |
|
|
|
44.86 |
|
|
|
46.45 |
|
|
|
43.27 |
|
2006 |
|
|
44.48 |
|
|
|
44.17 |
|
|
|
46.26 |
|
|
|
43.05 |
|
2007 |
|
|
43.10 |
|
|
|
45.06 |
|
|
|
46.83 |
|
|
|
42.78 |
|
The following table sets forth the high and low exchange rates for the previous six
months and is based on the average of the noon buying rate in the City of New York on the last
business day of each month during the period for cable transfers in Indian rupees as certified for
customs purposes by the Federal Reserve Bank of New York:
|
|
|
|
|
|
|
|
|
Month |
|
High |
|
Low |
Mar 2007 |
|
|
44.43 |
|
|
|
42.78 |
|
April 2007 |
|
|
43.05 |
|
|
|
40.56 |
|
May 2007 |
|
|
41.04 |
|
|
|
40.14 |
|
June 2007 |
|
|
40.27 |
|
|
|
40.90 |
|
July 2007 |
|
|
40.12 |
|
|
|
40.42 |
|
August 2007 |
|
|
41.15 |
|
|
|
40.25 |
|
On
September 24, 2007 the noon buying rate in the city of New York was
Rs.39.50 per U.S. dollar.
4
3.B. Capitalization and indebtedness
Not applicable.
3.C. Reasons for the offer and use of proceeds
Not applicable.
3.D. Risk factors
You should carefully consider all of the information set forth in this Form 20-F and the
following risk factors that we face and that are faced by our industry. The risks below are not the
only ones we face. Additional risks not currently known to us or that we presently deem immaterial
may also affect our business operations. Our business, financial condition or results of operations
could be materially or adversely affected by any of these risks. This Form 20-F also contains
forward-looking statements that involve risks and uncertainties. Our results could materially
differ from those anticipated in these forward-looking statements as a result of certain factors,
including the risks we face as described below and elsewhere. See Forward-Looking Statements.
RISKS RELATING TO OUR COMPANY AND OUR BUSINESS
Failure of our research and development efforts may restrict introduction of new products, which is
critical to our business.
Our future results of operations depend, to a significant degree, upon our ability to
successfully commercialize additional products in our active pharmaceutical ingredients and
intermediates, generics and formulations, critical care and biotechnology and drug discovery
businesses, as well as our most recent business focus, specialty pharmaceuticals. We must develop,
test and manufacture generic products as well as prove that our generic products are the
bio-equivalent of their branded counterparts. All of our products must meet and continue to comply
with regulatory and safety standards and receive regulatory approvals; we may be forced to withdraw
a product from the market if health or safety concerns arise with respect to such product. The
development and commercialization process, particularly with respect to innovative products, is
both time consuming and costly and involves a high degree of business risk. Our products currently
under development, if and when fully developed and tested, may not perform as we expect, necessary
regulatory approvals may not be obtained in a timely manner, if at all, and we may not be able to
successfully and profitably produce and market such products.
To develop our products pipeline, we commit substantial efforts, funds and other resources to
research and development, both through our own dedicated resources and our collaborations with
third parties. Our ongoing investments in new product launches and research and development for
future products could result in higher costs without a proportionate increase in revenues. Our
overall profitability depends on our ability to continue developing commercially successful
products.
Our dependence on research and development makes it highly important that we recruit and
retain high quality researchers and development specialists. Should we fail in our efforts, this
could adversely affect our ability to continue developing commercially successful products and,
thus, our overall profitability.
If we cannot respond adequately to the increased competition we expect to face in the future, we
will lose market share and our profits will go down.
Our products face intense competition from products commercialized or under development by
competitors in all our business segments based in India and overseas. Many of our competitors have
greater financial resources and marketing capabilities than we do. Some of our competitors,
especially multinational pharmaceutical companies, have greater experience than we do in clinical
testing and human clinical trials of pharmaceutical products and in obtaining regulatory approvals.
Our competitors may succeed in developing technologies and products that are more effective, more
popular or cheaper than any we may develop or license. These developments could render our
technologies and products obsolete or uncompetitive, which would harm our business and financial
results. We believe some of our competitors have broader product ranges, stronger sales forces and
better segment positioning than us, which enables them to compete effectively.
To the extent that we succeed in being the first to market a generic version of a significant
product, and particularly if we obtain the 180-day period of market exclusivity provided under the
Hatch-Waxman Act of 1984, as amended, our sales and profit can be substantially increased in the
period following the introduction of such product and prior to a competitors introduction of the
equivalent product or the launch of an authorized generic. Selling prices of generic drugs
typically decline, sometimes dramatically, as additional companies receive approvals for a given product and competition intensifies. Our
ability to sustain our sales and
5
profitability of any product over time is dependent on both the
number of new competitors for such product and the timing of their approvals.
Our generics business is also facing increasing competition from brand-name manufacturers who
do not face any significant regulatory approvals or barriers to entry into the generics market.
These brand-name companies sell generic versions of their products to the market directly or by
acquiring or forming strategic alliances with our competitor generic pharmaceutical companies or by
granting them rights to sell authorized generics. Moreover, brand-name companies continually
seek new ways to delay the introduction of generic products and decrease the impact of generic
competition, such as filing new patents on drugs whose original patent protection is about to
expire, developing patented controlled-release products, changing product claims and product
labeling, or developing and marketing as over-the-counter products those branded products which are
about to face generic competition.
If we cannot maintain our position in the Indian pharmaceutical industry in the future, we may not
be able to attract co-development, outsourcing or licensing partners and may lose market share.
In order to attract multinational corporations into co-development and licensing arrangements,
it is necessary for us to maintain the position of a leading pharmaceutical company in India.
Multinational corporations have been increasing their outsourcing of both active pharmaceutical
ingredients and generic formulations to highly regarded companies that can produce high quality
products at low cost that conform to standards set in developed markets. If we cannot maintain our
current position in the market, we may not be able to attract outsourcing or licensing partners and
may lose market share.
If we fail to comply fully with government regulations applicable to our research and development
activities or regarding the manufacture of our products, it may delay or prevent us from developing
or manufacturing our products.
Our research and development activities are heavily regulated. If we fail to comply fully with
applicable regulations, then there could be a delay in the submission or approval of potential new
products for marketing approval. In addition, the submission of an application to a regulatory
authority does not guarantee that a license to market the product will be granted. Each authority
may impose its own requirements and/or delay or refuse to grant approval, even when a product has
already been approved in another country. In the United States, as well as many of the
international markets into which we sell our products, the approval process for a new product is
complex, lengthy and expensive. The time taken to obtain approval varies by country but generally
takes from six months to several years from the date of application. This registration process
increases the cost to us of developing new products and increases the risk that we will not be able
to successfully sell such new products.
Also, governmental authorities, including the U.S. Food and Drug Administration (U.S. FDA),
heavily regulate the manufacture of our products. If we or our third party suppliers fail to comply
fully with such regulations, then there could be a government-enforced shutdown of production
facilities, which in turn could lead to product shortages. A failure to comply fully with such
regulations could also lead to a delay in the approval of new products.
Reforms in the health care industry and the uncertainty associated with pharmaceutical pricing,
reimbursement and related matters could adversely affect the marketing, pricing and demand for our
products.
Increasing expenditures for health care have been the subject of considerable public attention
in almost every jurisdiction where we conduct business. Both private and governmental entities are
seeking ways to reduce or contain health care costs. In many countries in which we currently
operate, including India, pharmaceutical prices are subject to regulation. The existence of price
controls can limit the revenues we earn from our products. In the United States, numerous
proposals that would effect changes in the United States health care system have been introduced or
proposed in Congress and in some state legislatures, including the enactment in December 2003 of
expanded Medicare coverage for drugs, which became effective in January 2006. In Germany, an
important market for us, the government has introduced several healthcare reforms in order to
control healthcare spending and promote the prescribing of generic drugs. As a result, the prices
of generic pharmaceutical products in Germany have declined and may further decline in the future.
Similar developments may take place in our other key markets. We cannot predict the nature of the
measures that may be adopted or their impact on the marketing, pricing and demand for our products.
In addition, governments throughout the world heavily regulate the marketing of our products.
Most countries also place restrictions on the manner and scope of permissible marketing to
physicians, pharmacies and other health care professionals. The effect of such regulations may be
to limit the amount of revenue that we may be able to derive from a particular product. Moreover,
if we fail to comply fully with such regulations, then civil or criminal actions could be brought
against us.
6
If a regulatory agency amends or withdraws existing approvals to market our products, this may
cause our revenues to decline.
Regulatory agencies may at any time reassess the safety and efficacy of our products based on
new scientific knowledge or other factors. Such reassessments could result in the amendment or
withdrawal of existing approvals to market our products, which in turn could result in a loss of
revenue, and could serve as an inducement to bring lawsuits against us.
If we are sued by consumers for defects in our products, it could harm our reputation and thus our
profits.
Our business inherently exposes us to potential product liability. From time to time, the
pharmaceutical industry has experienced difficulty in obtaining desired amounts of product
liability insurance coverage. Although we have obtained product liability coverage with respect to
products that we manufacture, if any product liability claim sustained against us were to be not
covered by insurance or were to exceed the policy limits, it could harm our business and financial
condition. This risk is likely to increase as we develop our own new-patented products in addition
to making generic versions of drugs that have been in the market for some time.
In addition, product liability coverage for pharmaceutical companies is becoming more
expensive. As a result, we may not be able to obtain the type and amount of coverage we desire.
Furthermore, the severity and timing of future claims are unpredictable. Our customers may also
bring lawsuits against us for alleged product defects. The existence, or even threat of, a major
product liability claim could also damage our reputation and affect consumers views of our other
products, thereby negatively affecting our business, financial condition and results of operations.
If we are unable to patent new products and processes or to protect our intellectual property
rights or proprietary information, or if we infringe on the patents of others, our business may be
materially and adversely impacted.
Our overall profitability depends, among other things, on our ability to continuously and
timely introduce new generic as well as innovative products. Our success will depend, in part, on
our ability in the future to obtain patents, protect trade secrets, intellectual property rights
and other proprietary information and operate without infringing on the proprietary rights of
others. Our competitors may have filed patent applications, or hold issued patents, relating to
products or processes that compete with those we are developing, or their patents may impair our
ability to successfully develop and commercialize new products.
Our success with our innovative products depends, in part, on our ability to protect our
current and future innovative products and to defend our intellectual property rights. If we fail
to adequately protect our intellectual property, competitors may manufacture and market products
similar to ours. We have been issued patents covering our innovative products and processes and
have filed, and expect to continue to file, patent applications seeking to protect our newly
developed technologies and products in various countries, including the United States. Any existing
or future patents issued to or licensed by us may not provide us with any competitive advantages
for our products or may even be challenged, invalidated or circumvented by competitors. In
addition, such patent rights may not prevent our competitors from developing, using or
commercializing products that are similar or functionally equivalent to our products.
We also rely on trade secrets, unpatented proprietary know-how and continuing technological
innovation that we seek to protect, in part by confidentiality agreements with licensees,
suppliers, employees and consultants. It is possible that these agreements will be breached and we
will not have adequate remedies for any such breach. Disputes may arise concerning the ownership of
intellectual property or the applicability of confidentiality agreements. Furthermore, our trade
secrets and proprietary technology may otherwise become known or be independently developed by our
competitors or we may not be able to maintain the confidentiality of information relating to such
products.
Changes in the regulatory environment may prevent us from utilizing the exclusivity periods that
are important to the success of our generic products.
The policy of the U.S. FDA regarding the award of 180 days of market exclusivity to generic
manufacturers who challenge patents relating to specific products continues to be the subject of
extensive litigation in the United States. During this 180-day market exclusivity period, nobody
other than the generic manufacturer who won exclusivity relating to the specific product can market
that product. The U.S. FDAs current interpretation of the Hatch-Waxman Act of 1984 is to award
180 days of exclusivity to the first generic manufacturer who files a Paragraph IV certification
under the Hatch-Waxman Act challenging the patent of the branded product, regardless of whether
that generic manufacturer was sued for patent infringement.
The Medicare Prescription Drug, Improvement and Modernization Act of 2003 amended the
Hatch-Waxman Act and provide that the 180-day market exclusivity period is triggered by the
commercial marketing of the product, as opposed to the old rule under which
7
the exclusivity period
was triggered by a final, non-appealable court decision. However, the Medicare Prescription Drug
Act also contains forfeiture provisions, which, if met, will deprive the first Paragraph IV filer
of exclusivity. As a result, under certain circumstances, we may not be able to exploit our 180-day
exclusivity period since it may be forfeited prior to our being able to market the product.
In addition, legal and administrative disputes over triggering dates and shared exclusivities
may also prevent us from fully utilizing the exclusivity periods.
If we are unable to defend ourselves in patent challenges, we could be subject to injunctions
preventing us from selling our products, resulting in a decrease in revenues, or we could be
subject to substantial liabilities that would lower our profits.
There has been substantial patent related litigation in the pharmaceutical industry concerning
the manufacture, use and sale of various products. In the normal course of business, we are
regularly subject to lawsuits and the ultimate outcome of litigation could adversely affect our
results of operations, financial condition and cash flow. Regardless of regulatory approval,
lawsuits are periodically commenced against us with respect to alleged patent infringements by us,
such suits often being triggered by our filing of an application for governmental approval, such as
a new drug application. The expense of any such litigation and the resulting disruption to our
business, whether or not we are successful, could harm our business. The uncertainties inherent in
patent litigation make it difficult for us to predict the outcome of any such litigation.
If we are unsuccessful in defending ourselves against these suits, we could be subject to
injunctions preventing us from selling our products, resulting in a decrease in revenues, or to
damages, which may be substantial. An injunction or substantial damages resulting from these suits
could adversely effect our consolidated financial position, results of operations or liquidity.
If we elect to sell a generic product prior to the final resolution of outstanding patent
litigation, we could be subject to liabilities for damages.
At times we seek approval to market generic products before the expiration of patents for
those products, based upon our belief that such patents are invalid, unenforceable, or would not be
infringed by our products. As a result, we are involved in patent litigations, the outcome of which
could materially adversely affect our business. Based upon a complex analysis of a variety of legal
and commercial factors, we may elect to market a generic product even though litigation is still
pending. This could be before any court decision is rendered or while an appeal of a lower court
decision is pending. To the extent we elect to proceed in this manner, if the final court decision
is adverse to us, we could be required to cease the sale of the infringing products and face
substantial liability for patent infringement. These damages may be significant as they may be
measured by a royalty on our sales or by the profits lost by the patent owner and not by the
profits we earned. Because of the discount pricing typically involved with generic pharmaceutical
products, patented brand products generally realize a significantly higher profit margin than
generic pharmaceutical products. In the case of a willful infringer, the definition of which is
unclear, these damages may even be trebled. In April 2006, we launched, and continue to sell,
generic versions of Allegra® (fexofenadine) despite the fact that litigation
with the company that holds the patents for and sells this branded product is still pending. This
is the only product that we have launched prior to the resolution of outstanding patent litigation.
If we do not maintain and increase our arrangements for overseas distribution of our products, our
revenues and net income could decrease.
As of March 31, 2007, we market our products in over 86 countries. Our products are marketed
in most of these countries through our subsidiaries as well as joint ventures. Since we do not
have the resources to market and distribute our products ourselves in all our export markets, we
also market and distribute our products through third parties by way of marketing and agency
arrangements. These arrangements may be terminated by either party providing the other with notice
of termination or when the contract regarding the arrangement expires. We may not be able to
successfully negotiate these third party arrangements or find suitable joint venture partners in
the future. Any of these arrangements may not be available on commercially reasonable terms.
Additionally, our marketing partners may make important marketing and other commercialization
decisions with respect to products we develop without our input. As a result, many of the variables
that may affect our revenues and net income are not exclusively within our control when we enter
into arrangements like these.
If we fail to comply with environmental laws and regulations or face environmental litigation, our
costs may increase or our revenues may decrease.
We may incur substantial costs complying with requirements of environmental laws and
regulations. In addition, we may discover currently unknown environmental problems or conditions.
In all countries in which we have production facilities, we are subject to significant
environmental laws and regulations which govern the discharge, emission, storage, handling and
disposal of a variety of substances that may be used in or result from our operations. If any of our plants or the
operations of such plants are shut down, we
8
may continue to incur costs in complying with
regulations, appealing any decision to close our facilities, maintaining production at our existing
facilities and continuing to pay labor and other costs which may continue even if the facility is
closed. As a result, our overall operating expenses may increase and our profits may decrease.
Our equity shares and our ADSs may be subject to market price volatility, and the market price of
our equity shares and ADSs may decline disproportionately in response to adverse developments that
are unrelated to our operating performance.
Market prices for the securities of Indian pharmaceutical companies, including our own, have
historically been highly volatile, and the market has from time to time experienced significant
price and volume fluctuations that are unrelated to the operating performance of particular
companies. Factors such as the following can have an adverse effect on the market price of our ADSs
and equity shares:
|
|
|
general market conditions, |
|
|
|
|
speculative trading in our shares and ADSs, |
|
|
|
|
changes in the weight given to our shares in the Bombay Stock Exchange Limited (BSE)
and National Stock Exchange of India Limited (NSE) indices, and |
|
|
|
|
developments relating to our peer companies in the pharmaceutical industry. |
If the world economy is affected due to terrorism, wars or epidemics, it may adversely affect our
business and results of operations.
Several areas of the world, including India, have experienced terrorist acts and retaliatory
operations recently. For example, Mumbai was the target of serial railway bombings in July 2006.
If the economy of our major markets is affected by such acts, our business and results of
operations may be adversely affected as a consequence.
In recent years, Asia has experienced outbreaks of avian influenza and Severe Acute
Respiratory Syndrome, or SARS. If the economy of our major markets is affected by such outbreaks
or other epidemics, our business and results of operations may be adversely affected as a
consequence.
If we have difficulty in identifying acquisition candidates or consummating acquisitions, our
competitiveness and our growth prospects may be harmed.
In order to enhance our business, we frequently seek to acquire or make strategic investments
in complementary businesses or products, or to enter into strategic partnerships or alliances with
third parties. It is possible that we may not identify suitable acquisition, strategic investment
or strategic partnership candidates, or if we do identify suitable candidates, we may not complete
those transactions on terms commercially acceptable to us or at all. We compete with others to
acquire companies, and we believe that this competition has intensified and may result in decreased
availability or increased prices for suitable acquisition candidates. Even after we identify
acquisition candidates and/or announce that we plan to acquire a company, we may ultimately fail to
consummate the acquisition. For example, we may be unable to obtain necessary acquisition
financing on terms satisfactory to us or may be unable to obtain necessary regulatory approvals,
including the approval of antitrust regulatory bodies. The inability to identify suitable
acquisition targets or investments or the inability to complete such transactions and the
management and financial resources required to pursue such transactions may affect our
competitiveness and our growth prospects.
If we acquire other companies, our business may be harmed by difficulties in integration and
employee retention, unidentified liabilities of the acquired companies, or obligations incurred in
connection with acquisition financings.
All acquisitions involve known and unknown risks that could adversely affect our future
revenues and operating results. For example:
|
|
|
We may fail to successfully integrate our acquisitions in accordance
with our business strategy. |
|
|
|
|
Integration of acquisitions may divert managements attention away from
our primary product offerings, resulting in the loss of key customers and/or personnel, and
may expose us to unanticipated liabilities. |
|
|
|
|
We may not be able to retain the skilled employees and experienced
management that may be necessary to operate the businesses we acquire. If we cannot retain
such personnel, we may not be able to locate or hire new skilled employees and experienced
management to replace them. |
|
|
|
|
We may purchase a company that has contingent liabilities that include,
among others, known or unknown patent or product liability claims. |
|
|
|
|
Our acquisition strategy may require us to obtain additional debt or
equity financing, resulting in additional leverage, or increased debt obligations as compared
to equity, and dilution of ownership. |
9
|
|
|
We may purchase companies located in jurisdictions where we do not have
operations and as a result we may not be able to anticipate local regulations and the impact
such regulations have on our business. |
In addition, if we make one or more significant acquisitions in which the consideration
includes the equity shares or other securities, equity interests in us held by holders of the
equity shares may be significantly diluted. If we make one or more significant acquisitions in
which the consideration includes cash, we may be required to use a substantial portion of our
available cash or incur a significant amount of debt or otherwise arrange additional funds to
complete the acquisition, which may result in a dilution of earnings per equity share.
Our principal shareholders control us and, if they take actions that are not in your best
interests, the value of your investment in our ADSs may be harmed.
Our full time directors together with members of their immediate families, in the aggregate,
beneficially own 25.18% of our issued shares as at March 31, 2007. As a result, these people,
acting in concert, are likely to have the ability to exercise significant control over most matters
requiring approval by our shareholders, including the election and removal of directors and
significant corporate transactions. This control by these directors and their family members could
delay, defer or prevent a change in control of us, impede a merger, consolidation, takeover or
other business combination involving us, or discourage a potential acquirer from making a tender
offer or otherwise attempting to obtain control of us, even if that was in our best interest. As a
result, the value of your ADSs may be adversely affected or you might be deprived of a potential
opportunity to sell your ADSs at a premium.
If we improperly handle any of the dangerous materials used in our business and accidents result,
we could face significant liabilities that would lower our profits.
We handle dangerous materials including explosive, toxic and combustible materials like sodium
azide, acrolein and acetyl chloride. If improperly handled or subjected to the wrong conditions,
these materials could hurt our employees and other persons, cause damage to our properties and harm
the environment. This, in turn, could subject us to significant litigation, which could lower our
profits in the event we were found liable.
If there is delay and/or failure in supplies of materials, services and finished goods from third
parties, it may adversely affect our business and results of operations.
In some of our businesses, we rely on third parties for the timely supply of active
pharmaceutical ingredients (API), specified raw materials, equipment, formulation or packaging
services and maintenance services. For instance, we rely on third party manufacturers for our
entire supply of finished dosages sold in Germany. Although we actively manage these third party
relationships to ensure continuity of supplies and services on time and to our required
specifications, some events beyond our control could result in the complete or partial failure of
supplies and services or in supplies and services not being delivered on time. Any such failure
could adversely affect our results of business and results of operations.
In the event that we experience a shortage in our supply of raw materials, we might be unable
to fulfill all of the API needs of our generics and formulations segments, which could result in a
loss of production capacity for these segments. In addition, this could result in a conflict
between the API needs of our generics and formulations segments and the needs of customers of our
active pharmaceutical ingredients and intermediates segment, some of whom are also our competitors
in the formulations segment. In either case, we could potentially lose business from adversely
affected customers and we could be subjected to lawsuits.
10
If as we expand into new international markets we fail to adequately understand and comply with the
local laws and customs , these operations may incur losses or otherwise adversely affect our
business and results of operations.
Currently, we operate our business through subsidiaries and equity investees in other
countries. In those countries where we have limited experience in operating subsidiaries, such as
Germany and Mexico, and in reviewing equity investees we are subject to additional risks related to
complying with a wide variety of national and local laws, including restrictions on the import and
export of certain intermediates, drugs, technologies and multiple and possibly overlapping tax
structures. In addition, we may face competition in other countries from companies that may have
more experience with operations in such countries or with international operations generally. We
may also face difficulties integrating new facilities in different countries into our existing
operations, as well as integrating employees that we hire in different countries into our existing
corporate culture. If we do not effectively manage our operations in these subsidiaries and review
equity investees effectively, we may lose money in these countries and it may adversely affect our
business and results of operations.
Fluctuations in exchange rates and interest rate movements may adversely affect our business and
results of operations.
Our principal subsidiaries are located in the United States, United Kingdom, Germany and
Russia and each has significant local operations. A significant portion of our revenues are in
other currencies, especially the U.S. dollar, Euro, Rouble and Pound Sterling, while a significant
portion of our costs are in Indian rupees. As a result, if the value of the Indian rupee
appreciates relative to these other currencies, our revenues measured in rupees may decrease.
We have entered into borrowing arrangements in connection with our acquisition of betapharm.
In the future, we may enter into additional borrowing arrangements in connection with acquisitions
or for general working capital purposes. In the event interest rates increase, our costs of
borrowing will increase and our results of operations may be adversely affected.
Our success depends on our ability to retain and attract key qualified personnel and, if we are not
able to retain them or recruit additional qualified personnel, we may be unable to successfully
develop our business
We are highly dependent on the principal members of our management and scientific staff, the
loss of whose services might significantly delay or prevent the achievement of our business or
scientific objectives. In India, it is not our practice to enter employment agreements with our
executive officers and key employees that are as extensive as are generally used in the United
States, and each of those executive officers and key employees may terminate their employment upon
notice and without cause or good reason. Currently we are not aware that any executive officer or
key employee is planning to leave or retire. Competition among pharmaceutical companies for
qualified employees is intense, and the ability to retain and attract qualified individuals is
critical to our success. There can be no assurance that we will be able to retain and attract such
individuals currently or in the future on acceptable terms, or at all, and the failure to do so
would have a material adverse effect on our business, financial condition and results of
operations. In addition, we do not maintain key person life insurance on any officer, employee
or consultant.
We operate in a highly competitive and rapidly consolidating industry.
We operate in a highly competitive and rapidly consolidating industry. Our competitors, which
include major multinational corporations, are consolidating, and the strength of the combined
companies could affect our competitive position in all of our business areas. Furthermore, if one
of our competitors or their customers acquire any of our customers or suppliers, we may lose
business from the customer or lose a supplier of a critical raw material.
RISKS RELATING TO INVESTMENTS IN INDIAN COMPANIES
We are an Indian company and a substantial part of our operations are conducted, and most of
our assets are located, in India. In addition, approximately 14.1% of our total revenues for fiscal
2007 were derived from sales in India. As a result, the following additional risk factors apply.
A slowdown in economic growth in India may adversely affect our business and results of operations.
Our performance and the quality and growth of our business are necessarily dependent on the
health of the overall Indian economy. The Indian economy has grown significantly over the past few
years. Any future slowdown in the Indian economy could harm us, our customers and other contractual
counterparties. In addition, the Indian economy is in a state of transition. The share of
the services sector of the economy is rising while that of the industrial, manufacturing and
agricultural sector is declining. It is difficult to gauge the impact of these fundamental economic
changes on our business.
11
A significant change in the Indian government or in its economic liberalization and deregulation
policies may adversely affect the Indian economy, the health of which our business depends upon.
The Indian government has traditionally exercised and continues to exercise a dominant
influence over many aspects of the economy. The present government is a multi-party coalition and
therefore there is no assurance that it will be able to generate sufficient cross-party support to
implement economic policies or that the existing economic policies will continue. Any significant
change in the governments economic policies could have a significant effect on private-sector
entities, including us, and on market conditions and prices of Indian securities, including our
shares and our ADSs. Indias trade relationships with other countries can also influence Indian
economic conditions, which in turn can affect our business.
If communal disturbances or riots erupt in India, or if regional hostilities increase, this would
adversely affect the Indian economy, which our business depends upon.
India has experienced communal disturbances, terrorist attacks and riots during recent years.
If such disturbances continue or are exacerbated, our operational, sales and marketing activities
may be adversely affected. Additionally, India has from time to time experienced hostilities with
neighboring countries. The hostilities have continued sporadically. The hostilities between India
and Pakistan are particularly threatening, because both India and Pakistan are nuclear powers.
Hostilities and tensions may occur in the future and on a wider scale. These hostilities and
tensions could lead to political or economic instability in India and harm our business operations,
our future financial performance and the price of our shares and our ADSs.
If wage costs or inflation rise in India, it may adversely affect our competitive advantages over
higher cost countries and our profits may decline.
Wage costs in India have historically been significantly lower than wage costs in developed
countries and have been one of our competitive strengths. However, wage increases in India may
increase our costs, reduce our profit margins and adversely affect our business and results of
operations.
In addition, although Indias inflation levels were relatively moderate during fiscal 2007,
its inflation levels have been much higher at times during the past decade. According to the
monthly economic report for March 2007 released by the department of economic affairs, Ministry of
Finance in India, the annual inflation rate in India, as measured by the benchmark wholesale price
index (Base 1993-94=100), was 5.74% for the week ended March 31, 2007 as compared with 3.98% for
the week ended April 1, 2006. The trend may continue and the rate of inflation may further rise. We
may not be able to pass these costs on to our customers by increasing the price we charge for our
products. If this occurs, our profits may decline.
In the event that a natural disaster should occur in India, including drought, floods and
earthquakes, it could adversely affect our production operations and cause our revenues to decline.
Our main facilities are situated around Hyderabad, India. This region has experienced
earthquakes, floods and droughts in the past and has experienced droughts in recent years. In the
event of a drought so serious that the drinking water in the region is limited, the government
could cut the supply of water to all industries, including our facilities. This would adversely
affect our production operations and reduce our revenues. Even if we take precautions to provide
back-up support in the event of such a natural disaster, the disaster may nonetheless affect our
facilities, harming production and ultimately our business.
Indian law imposes certain restrictions that limit a holders ability to transfer the equity shares
obtained upon conversion of ADSs and repatriate the proceeds of such transfer, which may cause our
ADSs to trade at a premium or discount to the market price of our equity shares.
Under certain circumstances, the Reserve Bank of India must approve the sale of equity
shares underlying ADSs by a non-resident of India to a resident of India. The Reserve Bank of India
has given general permission to effect sales of existing shares or convertible debentures of an
Indian company by a resident to a non-resident, subject to certain conditions, including the price
at which the shares may be sold. Additionally, except under certain limited circumstances, if an
investor seeks to convert the rupee proceeds from a sale of equity shares in India into foreign
currency and then repatriate that foreign currency from India, he or she will have to obtain an
additional approval from the Reserve Bank of India for each such transaction. Required approval
from the Reserve Bank of India or any other government agency may not be obtained on terms
favorable to a non-resident investor or at all.
12
There are limits and conditions to the deposit of shares into the ADS facility.
Indian legal restrictions may limit the supply of our ADSs. The only way to add to the supply
of our ADSs will be through a primary issuance because the depositary is not permitted to accept
deposits of our outstanding shares and issue ADSs representing those shares. However, an investor
in our ADSs who surrenders an ADS and withdraws our shares will be permitted to redeposit those
shares in the depositary facility in exchange for our ADSs. In addition, an investor who has
purchased our shares in the Indian market will be able to deposit them in the ADS program, but only
in a number that does not exceed the number of underlying shares that have been withdrawn from and
not re-deposited into the depositary facility. Moreover, there are restrictions on foreign
institutional ownership of our shares as opposed to our ADSs.
There may be less company information available in Indian securities markets than securities
markets in developed countries.
There is a difference between the level of regulation and monitoring of the Indian securities
markets over the activities of investors, brokers and other participants, as compared to the level
of regulation and monitoring of markets in the United States and other developed economies. The
Securities and Exchange Board of India is responsible for improving disclosure and other regulatory
standards for the Indian securities markets. The Securities and Exchange Board of India has issued
regulations and guidelines on disclosure requirements, insider trading and other matters. There
may, however, be less publicly available information about Indian companies than is regularly made
available by public companies in developed countries, which could affect the market for our equity
shares.
Indian stock exchange closures, broker defaults, settlement delays, and Indian government
regulations on stock market operations could affect the market price and liquidity of our equity
shares.
The Indian securities markets are smaller than the securities markets in the United States and
Europe and have experienced volatility from time to time. The regulation and monitoring of the
Indian securities market and the activities of investors, brokers and other participants differ, in
some cases significantly, from those in the United States and some European countries. Indian stock
exchanges have at times experienced problems, including temporary exchange closures, broker
defaults and settlement delays and if similar problems were to recur, they could affect the market
price and liquidity of the securities of Indian companies, including our shares. Furthermore, any
change in Indian government regulations of stock markets could affect the market price and
liquidity of our shares.
Financial instability in other countries, particularly emerging market countries in Asia, could
affect our business and the price and liquidity of our shares and our ADSs.
The Indian markets and the Indian economy are influenced by economic and market conditions in
other countries, particularly emerging market countries in Asia. Although economic conditions are
different in each country, investors reactions to developments in one country can have adverse
effects on the securities of companies in other countries, including India. Any worldwide financial
instability or any loss of investor confidence in the financial systems of Asian or other emerging
markets could increase volatility in Indian financial markets or adversely affect the Indian
economy in general. Either of these results could harm our business, our future financial
performance and the price of our shares and ADSs.
If you are not able to exercise preemptive rights available to other shareholders, your investment
in our securities may be diluted.
A company incorporated in India must offer its holders of shares preemptive rights to
subscribe and pay for a proportionate number of shares to maintain their existing ownership
percentages prior to the issuance of any shares, unless these rights have been waived by at least
75.0% of the companys shareholders present and voting at a shareholders general meeting. U.S.
investors in our ADSs may be unable to exercise preemptive rights for the shares underlying our
ADSs unless a registration statement under the Securities Act of 1933 is effective with respect to
the rights or an exemption from the registration requirements of the Securities Act is available.
Our decision to file a registration statement will depend on the costs and potential liabilities
associated with a registration statement as well as the perceived benefits of enabling U.S.
investors in our ADSs to exercise their preemptive rights and any other factors we consider
appropriate at the time. We might choose not to file a registration statement under these
circumstances. If we issue any of these securities in the future, such securities may be issued to
the depositary, which may sell them in the securities markets in India for the benefit of the
investors in our ADSs. We cannot assure you as to the value, if any, the depositary would receive
upon the sale of these securities. To the extent that you are unable to exercise preemptive rights,
your proportional interests in us would be reduced.
13
If there is a change in tax regulations, it may increase our tax liabilities and thus adversely
affect our financial results.
Currently, we enjoy various tax benefits and exemptions under Indian tax laws. Any changes in
these laws, or their application in matters such as tax exemption on exportation income and
transfer pricing, may increase our tax liability and thus adversely affect our financial results.
Stringent labor laws may adversely affect our ability to have flexible human resource policies.
Labor laws in India are more stringent than in other parts of the world. These laws may
restrict our ability to have human resource policies that would allow us to react swiftly to the
needs of our business.
If we experience labor union problems our production capacity and overall profitability could be
negatively affected.
Approximately 10% of our employees belong to a number of different labor unions. If we
experience problems with our labor unions, our production capacity and overall profitability could
be negatively affected.
ITEM 4. INFORMATION ON OUR COMPANY
4.A. History and development of our company
Dr. Reddys Laboratories Limited was incorporated in India under the Companies Act, 1956, by
its promoter and our current Chairman, Dr. K. Anji Reddy as a Private Limited Company on February
24, 1984. We were converted to a Public Limited Company on December 6, 1985 and listed on the
Indian Stock Exchanges in August 1986 and on the New York Stock Exchange on April 11, 2001. We are
registered with the Registrar of Companies, Andhra Pradesh, Hyderabad, India as Company No. 4507
(Company Identification No. U85195AP1984PTC004507). Our registered office is situated at 7-1-27,
Ameerpet, Hyderabad 500 016, Andhra Pradesh, India and the telephone number of our registered
office is +91-40-23731946. The name and address of our registered agent in the United States is Dr.
Reddys Laboratories, Inc. 200 Somerset Corporate Boulevard (Bldg II), Bridgewater, New Jersey
08807.
Key business developments:
In April 2006, we launched sales of fexofenadine hydrochloride, the AB-rated generic
equivalent of Allegra®, despite the fact that litigation was still pending with
Sanofi-Aventis, the holder of patents for this branded product. We continue to sell this generic
product. This is the only product that we have launched prior to the resolution of outstanding
patent litigation. In September 2002, we filed an ANDA for fexofenadine hydrochloride tablets 30
mg, 60 mg and 180 mg with a Paragraph IV certification on all orange book patents. We were granted
summary judgment with respect to three patents. Five patents remain in the litigation, which is
pending in the United States District Court for the District of New Jersey.
In May 2006, our wholly owned subsidiary, Reddy Pharma Iberia, S.A., acquired marketing
authorizations and marketing authorization applications for certain specialty pharmaceutical
products, along with the related trademark rights and physical inventories of the products, from
Laboratorios Litaphar, S.A. (Litaphar) for a total consideration of Rs.218.9 million (Euro 3.7
million). As a result of this acquisition, we acquired an opportunity to sell those products using
their existing brand names through our generics sales and marketing network.
In June 2006, we launched sales of Proscar® and Zocor® as authorized generics pursuant to an
agreement we entered into with Merck & Co., Inc. (Merck) in January 2006. This agreement
permitted us to distribute and sell generic versions of finasteride and simvastatin (sold by Merck
under the brand names Proscar® and Zocor®, respectively) upon the expiration of Mercks patents
covering these products, provided that one or more other companies obtain 180-day exclusivity after
the expiration of the patents for either product. Subsequent to our entering into this agreement,
the patents for both of these products expired and other companies obtained 180-day exclusivity,
thereby allowing us to launch the authorized generics products. Under this agreement, during the
180-day exclusivity period, we procured these products from Merck at specified rates and sold them
to our customers.
In September 2006, we entered into an agreement with ClinTec International for the joint
development of an anti-cancer compound, DRF 1042, belonging to the Topoisomerase inhibitors class
of compounds, for use as potential treatment of various types of cancer. We have completed Phase I
clinical trials for DRF 1042 in India. Under the terms of the agreement, we and ClinTec
International will co-develop DRF 1042, undertaking Phase II and Phase III clinical trials, with
the aim of securing U.S. FDA and European Agency for the Evaluation of Medicinal Products (EMEA)
approvals. We have granted ClinTec International the commercialization rights for most of Europe,
including major European markets, and we retain the commercialization rights for the
rest of the world, including the United States. Upon commercialization of the product, we will
receive a royalty on sales by ClinTec
14
International in its designated territories and ClinTec International will receive a royalty
on sales by us in the United States. In the event either party out-licenses the drug product, the
proceeds from such an arrangement will be shared by both the parties in a pre-determined ratio
(excluding the proceeds from out-licenses of the drug product to our territories outside the United
States). We will also retain the exclusive, worldwide rights to supply commercial quantities of the
drug product.
In October 2006, we settled patent litigation with GlaxoSmithKline plc (GlaxoSmithKline)
relating to sumatriptan succinate tablets, the generic version of GlaxoSmithKlines
Imitrex® tablets. The terms of the settlement, which remain subject to government
review, provide that we may exclusively distribute an authorized generic version of sumatriptan
succinate tablets (in the 25 mg, 50 mg and 100 mg strengths) in the United States, with an expected
launch date late in the fourth quarter of calendar year 2008, ahead of the expiration of the
pediatric exclusivity on the applicable patent on February 6, 2009. GlaxoSmithKlines
Imitrex® tablets, which are indicated for the acute treatment of migraine attacks in
adults, had U.S. sales of U.S.$890 million for the 12 month period ending June 30, 2006 according
to Operations Research Group International Medical Statistics (ORG IMS) in its moving annual
total report.
In November 2006, we completed a public offering of 14,300,000 American Depositary Shares and
raised U.S.$228.8 million (including sales pursuant to the underwriters over allotment option).
The final prospectus supplement was filed with the Securities and Exchange Commission on November
17, 2006 and the offering was completed on November 22, 2006.
In December 2006, the U.S. FDA granted final approval for our Abbreviated New Drug Application
(ANDA) for Ondansetron Hydrochloride tablets, 4 mg, 8 mg, 16 mg and 24 mg. As the first company
to file an ANDA containing a paragraph IV certification for this product, we were awarded a 180-day
period of marketing exclusivity. We commenced the shipment of this product in December 2006. Our
Ondansetron Hydrochloride tablets are the AB-rated generic equivalent of GlaxoSmithKlines Zofran®
tablets, a product indicated for the prevention of nausea and vomiting associated with cancer
treatment.
During fiscal 2007, we filed 33 ANDAs, including seven Paragraph IV filings. As of March 31,
2007, we had 69 ANDAs pending at the U.S. FDA. During fiscal 2007, we filed 56 Drug Master Files
(DMFs) with the U.S. FDA. We also filed 479 dossiers in various international markets.
As of March 31, 2007, our capital work-in-progress was Rs.2,805.2 million, primarily in India.
Our capital work-in-progress is financed entirely through internally generated funds. We are in the
process of expanding our existing facilities in our API, generics, integrated product development
organization, custom pharmaceutical services and biotechnology businesses.
During fiscal 2006 and fiscal 2007, no third party made any public takeover offers in respect
of our shares and we did not make any public offers to take over any other company.
4.B. Business overview
We are an emerging global pharmaceutical company with proven research capabilities. We produce
active pharmaceutical ingredients and intermediates and finished dosage forms and biotechnology
products and market them globally, with a focus on India, the United States, Europe and Russia. We
are vertically integrated and use our active pharmaceutical ingredients and intermediates in our
own finished dosage products. We conduct basic research in the areas of cancer, diabetes,
cardiovascular disease, inflammation and bacterial infection.
Our total revenues for fiscal 2007 were Rs.65,095.1 million (U.S.$1,510.3 million).
We derived 14.1% of these revenues from sales in India, 43.5% from the United States and Canada
(North America), 7.3% from Russia and other countries of the former Soviet Union, 22.8% from
Europe and 12.3% from other countries. Our net income for fiscal 2007 was Rs.9,326.8 million
(U.S.$216.4 million).
OUR STRATEGY
Our vision is to build a discovery-led global pharmaceutical company, with a strong pipeline
of generics as well as innovative products. Our strategy to achieve this vision is as follows:
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|
|
Our core businesses of active pharmaceutical ingredients and intermediates and
formulations are well established with a track record of growth and profitability. We
are focused on cost competitiveness and improving our position in existing markets and
expanding into selected new markets in an effort to continue this growth and
profitability. |
|
|
|
|
In our global generics business, we are building a pipeline of products that will
help us drive growth in the medium-term in the United States and Europe. We are
focusing on key markets in Europe, including Germany, Spain, Italy, France and Poland
in order to build a dominant presence in these markets. |
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|
We are also actively pursuing external business development opportunities to
supplement our internal growth initiatives, including acquisitions and alliances. |
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We are also focused on positioning our custom pharmaceutical services business as
partner of choice for the strategic outsourcing needs of innovator pharmaceutical
companies. |
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In addition, we are focusing our investments on innovation led businesses,
including drug discovery with a goal of building our drug discovery pipeline, and
specialty pharmaceuticals, which is currently in the research and development phase.
These businesses, while being investment intensive and having long lead times, have
the potential to provide significant growth as well as sustained revenues and
profitability for much longer periods due to patent protected franchises. |
15
OUR PRINCIPAL AREAS OF OPERATIONS
The following table shows our revenues and percentage of total revenues of our formulations,
active pharmaceutical ingredients and intermediates, generics, critical care and biotechnology and
drug discovery segments for fiscal 2005, 2006 and 2007, respectively:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, |
|
Segment |
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
|
(Rs.in millions, U.S.$ in thousands) |
|
Formulations |
|
Rs. |
7,822.9 |
|
|
|
40.1 |
% |
|
Rs. |
9,925.9 |
|
|
|
40.9 |
% |
|
Rs. |
12,318.9 |
|
|
|
18.9 |
% |
|
U.S.$ |
285,822 |
|
Active pharmaceutical
ingredients and intermediates |
|
|
6,944.5 |
|
|
|
35.6 |
|
|
|
8,238.0 |
|
|
|
34.0 |
|
|
|
11,826,8 |
|
|
|
18.2 |
|
|
|
274,404 |
|
Generics |
|
|
3,577.4 |
|
|
|
18.3 |
|
|
|
4,055.8 |
|
|
|
16.7 |
|
|
|
33,224.2 |
|
|
|
51.0 |
|
|
|
770,863 |
|
Critical care and biotechnology |
|
|
527.1 |
|
|
|
2.7 |
|
|
|
691.1 |
|
|
|
2.8 |
|
|
|
823.9 |
|
|
|
1.3 |
|
|
|
19,115 |
|
Drug discovery |
|
|
288.4 |
|
|
|
1.5 |
|
|
|
|
|
|
|
|
|
|
|
136.8 |
|
|
|
0.2 |
|
|
|
3,174 |
|
Custom pharmaceutical services |
|
|
311.6 |
|
|
|
1.6 |
|
|
|
1,326.8 |
|
|
|
5.5 |
|
|
|
6,599.8 |
|
|
|
10.1 |
|
|
|
153,127 |
|
Other |
|
|
47.5 |
|
|
|
0.2 |
|
|
|
29.4 |
|
|
|
0.1 |
|
|
|
164.8 |
|
|
|
0.3 |
|
|
|
3,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
Rs. |
19,519.4 |
|
|
|
100.0 |
% |
|
Rs. |
24,267.0 |
|
|
|
100.0 |
% |
|
Rs. |
65,095.1 |
|
|
|
100.0 |
% |
|
U.S.$ |
1,510,327 |
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
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|
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Formulations Segment
Formulations, also referred to as branded finished dosages, are finished pharmaceutical
products ready for consumption by the patient. Branded means we package the formulations for sale
under our brand name. We sell branded formulations in India, Russia and other emerging markets.
Formulations accounted for 18.9% of our revenues in fiscal 2007.
Markets
We export our branded formulations to over 40 countries worldwide. Our major markets in this
segment are India, Russia and other countries of the former Soviet Union, Central Eastern Europe,
Southeast Asian countries and Latin America. We have also expanded our presence in emerging
markets, such as Romania, Albania, South Africa, Venezuela and in the Middle East region. We have
progressively increased the number of countries in which we market our formulations by registering
our products in various markets around the world. During fiscal 2007, we filed 376 new product
dossiers in various countries around the world. Our formulations portfolio includes brands covering
several therapeutic segments.
The following table sets forth formulations revenues by geographic area for fiscal 2005, 2006
and 2007, respectively:
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|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, |
|
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
Country |
|
Revenues |
|
|
% Total(1) |
|
|
Revenues |
|
|
% Total(1) |
|
|
Revenues |
|
|
% Total(1) |
|
|
|
(in millions) |
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
India |
|
Rs. |
4,360.2 |
|
|
|
55.7 |
% |
|
Rs. |
5,525.7 |
|
|
|
55.7 |
% |
|
Rs. |
6,415.0 |
|
|
U.S.$ |
148.8 |
|
|
|
52.1 |
% |
Russia |
|
|
2,107.2 |
|
|
|
26.9 |
|
|
|
2,583.2 |
|
|
|
26.0 |
|
|
|
3,494.3 |
|
|
|
81.1 |
|
|
|
28.4 |
|
Ukraine |
|
|
257.8 |
|
|
|
3.3 |
|
|
|
413.4 |
|
|
|
4.2 |
|
|
|
557.3 |
|
|
|
12.9 |
|
|
|
4.5 |
|
Kazakhstan |
|
|
183.7 |
|
|
|
2.3 |
|
|
|
239.4 |
|
|
|
2.4 |
|
|
|
319.8 |
|
|
|
7.4 |
|
|
|
2.6 |
|
Romania |
|
|
102.6 |
|
|
|
1.3 |
|
|
|
192.3 |
|
|
|
1.9 |
|
|
|
337.5 |
|
|
|
7.8 |
|
|
|
2.7 |
|
Belarus |
|
|
140.1 |
|
|
|
1.8 |
|
|
|
156.4 |
|
|
|
1.6 |
|
|
|
203.0 |
|
|
|
4.7 |
|
|
|
1.6 |
|
South Africa |
|
|
52.1 |
|
|
|
0.7 |
|
|
|
142.0 |
|
|
|
1.4 |
|
|
|
179.0 |
|
|
|
4.2 |
|
|
|
1.5 |
|
Vietnam |
|
|
73.5 |
|
|
|
0.9 |
|
|
|
95.0 |
|
|
|
1.0 |
|
|
|
57.9 |
|
|
|
1.3 |
|
|
|
0.5 |
|
Venezuela |
|
|
96.0 |
|
|
|
1.2 |
|
|
|
55.6 |
|
|
|
0.6 |
|
|
|
153.1 |
|
|
|
3.6 |
|
|
|
1.2 |
|
Myanmar |
|
|
68.1 |
|
|
|
0.9 |
|
|
|
81.4 |
|
|
|
0.8 |
|
|
|
101.4 |
|
|
|
2.4 |
|
|
|
0.8 |
|
Others |
|
|
381.6 |
|
|
|
4.9 |
|
|
|
441.7 |
|
|
|
4.4 |
|
|
|
500.4 |
|
|
|
11.6 |
|
|
|
4.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
Rs. |
7,822.9 |
|
|
|
100.0 |
% |
|
Rs. |
9,925.9 |
|
|
|
100.0 |
% |
|
Rs. |
12,318.9 |
|
|
U.S.$ |
285.8 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Refers to our revenues from formulations sales in the applicable country expressed as a
percentage of our total revenues from formulations sales throughout the world. |
India. Our revenues from sales of formulations in India were 52.1% of our total formulations
sales in fiscal 2007. In India, our formulations business focuses mainly on the therapeutic
categories of cardiovascular, diabetes management, gastro-intestinal and pain
16
management. As of March 31, 2007, we had a total of 130 brands. Our top ten brands together
accounted for 51.5% of our formulations revenues in India in fiscal 2007. Our sales of formulations
in India grew 16.6% in fiscal 2007 as compared to the industry average growth of 14.3% according to
ORG IMS in its March Moving Annual Total report for the 12-month period ending March 2007.
According to ORG IMS, as of March 2007, we had 38 brands that were ranked either first or second in
terms of sales in India in their respective product categories. According to the Center for
Marketing and Advertising Research Consultancy (CMARC) report for the period November 2006 to
February 2007, which measures doctors prescriptions, we were the sixth most prescribed company in
India.
New product launches during fiscal 2007 accounted for 3.8% of our revenues from sales of
formulations in India. Key product launches included Leon, our brand of levofloxacin; Pecef, our
brand of cefpodoxime; Becelac Forte, our brand of lactic acid bacillus fortified with vitamins;
Doxobid, our brand of and Doxofylline; and Niltan, our brand of a combination of four
phytochemicals, arbutin, glabridin, boswellin, and umbelliferin.
The following table provides a summary of our sales in India in our therapeutic categories for
fiscal 2005, 2006 and 2007, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, |
|
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
|
Number |
|
|
|
|
|
|
|
|
|
|
Number |
|
|
|
|
|
|
|
|
|
|
Number |
|
|
|
|
|
|
|
Therapeutic |
|
of our |
|
|
|
|
|
|
|
|
|
|
of our |
|
|
|
|
|
|
|
|
|
|
of our |
|
|
|
|
|
|
|
Category (1) |
|
Products |
|
|
Revenues |
|
|
%(2) |
|
|
Products |
|
|
Revenues |
|
|
%(2) |
|
|
Products(3) |
|
|
Revenues |
|
|
%(2) |
|
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cardiovascular |
|
|
35 |
|
|
Rs. |
937.6 |
|
|
|
21.5 |
|
|
|
32 |
|
|
Rs. |
1,094.1 |
|
|
|
19.8 |
|
|
|
45 |
|
|
Rs. |
1222.5 |
|
|
U.S.$ |
28.1 |
|
|
|
19.1 |
|
Gastro-intestinal |
|
|
38 |
|
|
|
902.00 |
|
|
|
20.7 |
|
|
|
33 |
|
|
|
1037.5 |
|
|
|
18.8 |
|
|
|
35 |
|
|
|
1292.1 |
|
|
|
29.7 |
|
|
|
20.1 |
|
Pain management |
|
|
19 |
|
|
|
713.7 |
|
|
|
16.4 |
|
|
|
19 |
|
|
|
781.6 |
|
|
|
14.1 |
|
|
|
20 |
|
|
|
968.4 |
|
|
|
22.3 |
|
|
|
15.1 |
|
Diabetes management |
|
|
21 |
|
|
|
297.9 |
|
|
|
6.8 |
|
|
|
24 |
|
|
|
458.5 |
|
|
|
8.3 |
|
|
|
25 |
|
|
|
479.9 |
|
|
|
11.0 |
|
|
|
7.5 |
|
Neutraceuticals |
|
|
16 |
|
|
|
243.9 |
|
|
|
5.6 |
|
|
|
14 |
|
|
|
313.8 |
|
|
|
5.7 |
|
|
|
13 |
|
|
|
324.0 |
|
|
|
7.5 |
|
|
|
5.1 |
|
Anti-infectives |
|
|
19 |
|
|
|
324.1 |
|
|
|
7.4 |
|
|
|
16 |
|
|
|
295.9 |
|
|
|
5.4 |
|
|
|
21 |
|
|
|
367.6 |
|
|
|
8.5 |
|
|
|
5.7 |
|
Dermatology |
|
|
16 |
|
|
|
206.5 |
|
|
|
4.7 |
|
|
|
18 |
|
|
|
253.5 |
|
|
|
4.6 |
|
|
|
16 |
|
|
|
285.6 |
|
|
|
6.6 |
|
|
|
4.5 |
|
Dental |
|
|
22 |
|
|
|
177.3 |
|
|
|
4.1 |
|
|
|
21 |
|
|
|
220.4 |
|
|
|
4 |
|
|
|
23 |
|
|
|
235.5 |
|
|
|
5.4 |
|
|
|
3.7 |
|
Urology |
|
|
17 |
|
|
|
131.5 |
|
|
|
3.0 |
|
|
|
14 |
|
|
|
148.7 |
|
|
|
2.7 |
|
|
|
16 |
|
|
|
205.9 |
|
|
|
4.7 |
|
|
|
3.2 |
|
Respiratory |
|
|
14 |
|
|
|
177.5 |
|
|
|
4.1 |
|
|
|
11 |
|
|
|
140.2 |
|
|
|
2.5 |
|
|
|
13 |
|
|
|
172.4 |
|
|
|
4.0 |
|
|
|
2.7 |
|
Gynecology |
|
|
7 |
|
|
|
110.9 |
|
|
|
2.5 |
|
|
|
8 |
|
|
|
124.1 |
|
|
|
2.2 |
|
|
|
9 |
|
|
|
126.7 |
|
|
|
2.9 |
|
|
|
2.0 |
|
Others |
|
|
10 |
|
|
|
137.3 |
|
|
|
3.1 |
|
|
|
25 |
|
|
|
657.4 |
|
|
|
11.9 |
|
|
|
38 |
|
|
|
734.4 |
|
|
|
16.9 |
|
|
|
11.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
234 |
|
|
Rs. |
4,360.2 |
|
|
|
100.0 |
% |
|
|
235 |
|
|
Rs. |
5,525.7 |
|
|
|
100.0 |
% |
|
|
274 |
|
|
Rs. |
6415.0 |
|
|
U.S.$ |
147.6 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The categorization into therapeutic segments is based on current marketing
practice and focuses on therapies. |
|
(2) |
|
Refers to the therapeutic categorys revenues from sales in India expressed as a percentage
of our total revenues from sales in all of our therapeutic categories in India. |
|
(3) |
|
Products of the same strength sold in different packs have been re-grouped as one product in
fiscal 2007. |
The following tables summarize the position of our top 10 brands in the Indian market for
fiscal 2005, 2006 and 2007, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rank of our Brand |
|
Market Share of |
|
|
|
|
Therapeutic |
|
Therapeutic Sub- |
|
Within Product |
|
Our Brand Within |
|
Brand |
Brand |
|
Category |
|
Category(1) |
|
Category(1) |
|
Product Category (2) |
|
Growth(3) |
Nise |
|
Pain management |
|
Non-steroidal anti-inflammatory |
|
|
1 |
|
|
|
28 |
% |
|
|
25 |
% |
Omez |
|
Gastro-intestinal |
|
Anti-ulcerant |
|
|
1 |
|
|
|
49.3 |
|
|
|
13.4 |
|
Stamlo |
|
Cardiovascular |
|
Anti-hypertensive |
|
|
1 |
|
|
|
23.6 |
|
|
|
4.1 |
|
Stamlo beta |
|
Cardiovascular |
|
Anti-hypertensive |
|
|
2 |
|
|
|
16.4 |
|
|
|
7.9 |
|
Enam |
|
Cardiovascular |
|
Anti-hypertensive |
|
|
2 |
|
|
|
24.8 |
|
|
|
(2.3 |
) |
Atocor |
|
Cardiovascular |
|
Lipid lowering agent |
|
|
4 |
|
|
|
8.8 |
|
|
|
15.3 |
|
Razo |
|
Gastro-intestinal |
|
Anti-ulcerant |
|
|
1 |
|
|
|
11.7 |
|
|
|
41.9 |
|
Reclimet |
|
Diabetes management |
|
Sulphonylurea anti-diabetic |
|
|
2 |
|
|
|
13.0 |
|
|
|
49.7 |
|
Clamp |
|
Anti-infectives |
|
Anti-infectives |
|
|
4 |
|
|
|
8.4 |
|
|
|
15.6 |
|
Mintop |
|
Dermatology |
|
Alopecia |
|
|
1 |
|
|
|
62.2 |
|
|
|
8 |
|
|
|
|
(1) |
|
Therapeutic sub-categories are the specific groups within each therapeutic category and
product categories are the compound groups within each therapeutic sub-category. Source: Derived
from Operations Research Group March 2007. |
|
(2) |
|
Refers to our brands revenues from sales in India expressed as a percentage of total
revenues from sales in respective product categories in India. Source: Derived from ORG IMS in its
Moving Annual Total report for the 12 month period ending March 2007. |
|
(3) |
|
Revenue growth determined based on retail sales over the corresponding 12-month period for
the previous year. Source: Derived from ORG IMS in its Moving Annual Total report for the 12 month
period ending March 2007. |
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, |
|
Brand |
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
|
%Total(1) |
|
Nise |
|
Rs. |
537.9 |
|
|
Rs. |
736.0 |
|
|
Rs. |
872.5 |
|
|
U.S.$ |
20.1 |
|
|
|
13.5 |
% |
Omez |
|
|
528.1 |
|
|
|
690.8 |
|
|
|
829.2 |
|
|
|
19.1 |
|
|
|
12.9 |
|
Stamlo |
|
|
298.2 |
|
|
|
339.7 |
|
|
|
369.8 |
|
|
|
8.5 |
|
|
|
5.8 |
|
Stamlo Beta |
|
|
186.7 |
|
|
|
262.8 |
|
|
|
267.3 |
|
|
|
6.1 |
|
|
|
4.2 |
|
Razo |
|
|
65.2 |
|
|
|
127.3 |
|
|
|
211.0 |
|
|
|
4.9 |
|
|
|
3.3 |
|
Atocor |
|
|
115.8 |
|
|
|
167.2 |
|
|
|
188.8 |
|
|
|
4.3 |
|
|
|
2.9 |
|
Enam |
|
|
162.1 |
|
|
|
172.7 |
|
|
|
174.1 |
|
|
|
4.0 |
|
|
|
2.7 |
|
Reclimet |
|
|
79.1 |
|
|
|
123.7 |
|
|
|
137.9 |
|
|
|
3.2 |
|
|
|
2.2 |
|
Clamp |
|
|
100.6 |
|
|
|
118.3 |
|
|
|
134.7 |
|
|
|
3.1 |
|
|
|
2.1 |
|
Mintop |
|
|
98.4 |
|
|
|
109.1 |
|
|
|
118.7 |
|
|
|
2.7 |
|
|
|
1.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
Rs. |
2,172.1 |
|
|
Rs. |
2,847.6 |
|
|
Rs. |
3304.0 |
|
|
U.S.$ |
76.0 |
|
|
|
51.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Refers to the brands revenues from sales in India expressed as a percentage of our total
revenues from sales in all of our therapeutic categories in India. |
Russia. Russia is our largest international market in our formulations business and our
sales of formulations in this market accounted for 28.4% of our revenues in the formulations
segment in fiscal 2007. Pharmexpert, a market research firm, ranked us 15th in sales in
Russia with a market share of 1.31% as of March 2007 in its moving annual total report for first
quarter 2007 (the Pharmexpert MAT Q1 2007 Report). Pharmexpert also reported that the market
growth during fiscal 2007 was 24%. All of the companies ranked ahead of us by Pharmexpert were
either multinational corporations or of European origin. Accordingly, we were the top ranked
Indian pharmaceutical company in Russia.
The following table provides a summary of our revenues in Russia by therapeutic category for
fiscal 2005, 2006 and 2007, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, |
|
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
|
Number |
|
|
|
|
|
|
|
|
|
|
Number |
|
|
|
|
|
|
|
|
|
|
Number |
|
|
|
|
|
|
|
|
|
|
|
|
Therapeutic |
|
of |
|
|
|
|
|
|
% |
|
|
of |
|
|
|
|
|
|
% |
|
|
of |
|
|
|
|
|
|
|
|
|
|
% |
|
Category |
|
Products |
|
|
Revenues |
|
|
Total(1) |
|
|
Products |
|
|
Revenues |
|
|
Total(1) |
|
|
Products |
|
|
Revenues |
|
|
Total(1) |
|
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
Pain management |
|
|
9 |
|
|
Rs. |
660.3 |
|
|
|
31.3 |
% |
|
|
9 |
|
|
Rs. |
929.6 |
|
|
|
36.0 |
% |
|
|
9 |
|
|
Rs. |
1324.8 |
|
|
U.S.$ |
30.5 |
|
|
|
37.9 |
% |
Anti-infectives |
|
|
7 |
|
|
|
505.1 |
|
|
|
24.0 |
|
|
|
6 |
|
|
|
546.5 |
|
|
|
21.2 |
|
|
|
6 |
|
|
|
602.2 |
|
|
|
13.9 |
|
|
|
17.2 |
|
Gastro-intestinal |
|
|
2 |
|
|
|
493 |
|
|
|
23.4 |
|
|
|
3 |
|
|
|
608.6 |
|
|
|
23.6 |
|
|
|
6 |
|
|
|
841.8 |
|
|
|
19.4 |
|
|
|
24.1 |
|
Cardiovascular |
|
|
4 |
|
|
|
306.2 |
|
|
|
14.5 |
|
|
|
4 |
|
|
|
288.9 |
|
|
|
11.2 |
|
|
|
4 |
|
|
|
266.1 |
|
|
|
6.1 |
|
|
|
7.6 |
|
Dermatology |
|
|
4 |
|
|
|
96.4 |
|
|
|
4.6 |
|
|
|
4 |
|
|
|
142.4 |
|
|
|
5.5 |
|
|
|
4 |
|
|
|
192.2 |
|
|
|
4.4 |
|
|
|
5.5 |
|
Others |
|
|
7 |
|
|
|
46.2 |
|
|
|
2.2 |
|
|
|
6 |
|
|
|
67.1 |
|
|
|
2.6 |
|
|
|
10 |
|
|
|
267.3 |
|
|
|
6.8 |
|
|
|
7.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
33 |
|
|
Rs. |
2,107.2 |
|
|
|
100.0 |
% |
|
|
32 |
|
|
Rs. |
2,583.1 |
|
|
|
100.0 |
% |
|
|
39 |
|
|
Rs. |
3,494.3 |
|
|
|
81.1 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Refers to the therapeutic categorys revenues from sales in Russia expressed as a
percentage of our total revenues from sales in all of our therapeutic categories in Russia. |
The following table provides a summary of our principal products in the Russian market
for fiscal 2005, 2006 and 2007, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, |
|
|
|
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
|
Therapeutic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brand |
|
Category |
|
Revenues |
|
|
%Total(1) |
|
|
Revenues |
|
|
%Total(1) |
|
|
Revenues |
|
|
%Total(1) |
|
|
|
|
|
(in millions) |
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
Omez |
|
Gastro-intestinal |
|
Rs. |
488.7 |
|
|
|
23.2 |
% |
|
Rs. |
603.5 |
|
|
|
23.4 |
% |
|
Rs. |
819.7 |
|
|
U.S.$ |
18.9 |
|
|
|
23.5 |
% |
Ketorol |
|
Pain management |
|
|
339.3 |
|
|
|
16.1 |
% |
|
|
511.9 |
|
|
|
19.8 |
% |
|
|
633.0 |
|
|
|
14.6 |
|
|
|
18.1 |
% |
Nise |
|
Pain management |
|
|
296.8 |
|
|
|
14.1 |
% |
|
|
379.2 |
|
|
|
14.7 |
% |
|
|
665.3 |
|
|
|
15.3 |
|
|
|
19.0 |
% |
Ciprolet |
|
Anti-infectives |
|
|
450.2 |
|
|
|
21.4 |
% |
|
|
484.7 |
|
|
|
18.8 |
% |
|
|
543.9 |
|
|
|
12.5 |
|
|
|
15.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
Rs. |
1,575.0 |
|
|
|
74.7 |
% |
|
Rs. |
1,979.3 |
|
|
|
76.6 |
% |
|
Rs. |
2,661.9 |
|
|
U.S.$ |
61.2 |
|
|
|
76.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Refers to the brands revenues from sales in Russia expressed as a percentage of our total
revenues from all formulation sales in Russia. |
Our top four brands, Omez, Ciprolet, Ketorol and Nise, accounted for 76.2% of our
formulations revenues in Russia in fiscal 2007. Omez, our anti-ulcerant product and Ciprolet, our
product in the anti-infective segment, are ranked as the 47th and 83rd best selling formulation
brands, respectively, in the Russian market as of March 2007 by Pharmexpert in its MAT Q1 2007
Report. Nise has also entered Pharmexperts top 100 rankings at number 79 and has become the top
selling non-steroidal anti-inflammatory drug on the Russian pharmaceutical market for the year
ended December 2006 according to Pharmexpert MAT Q1 2007 Report.
Our strategy in Russia is to focus on the therapeutic areas of gastro-intestinal, pain
management, anti-infectives and cardiovascular. Our focus is on building brand leaders in these
therapeutic segments. Omez, Ciprolet, Enam and Nise continued to be brand leaders in their
respective categories, as reported by the Pharmexpert MAT Q1 2007 Report.
18
Growth during the year was driven by marketing initiatives such as targeting the hospital
segment, greater penetration in the key cities of Moscow and St. Petersburg, marketing campaigns
for key products and an over the counter ( OTC), initiative for certain brands.
During fiscal 2007, we further expanded our Russian sales force. The hospital division has 26
hospital specialists and nine key account managers, focused on expanding our present network of
relationships with hospitals and institutes. The OTC division has 39 medical representatives, whose
focus is to establish a network of relationships with OTC distributors in preparation for future
OTC product launches
Other Markets. We have operations in former Soviet Union countries other than Russia,
including Ukraine, Kazakhstan, Belarus and Uzbekistan. We also have operations in other emerging
markets, such as Venezuela, Vietnam, South Africa, Romania and Myanmar. Our export of formulations
to these countries accounted for 15.4% of the revenues in our formulations segment in fiscal 2007.
In South Africa, we market through our partially owned subsidiary, Dr. Reddys Laboratories
(Proprietary) Limited (DRLPL). As of March 31, 2007, we held a 60% equity interest in DRLPL. We
currently market eight products through DRLPL in South Africa and have 22 products pending
registration. During fiscal 2007, we launched sales of amlodipine maleate tablets, terbinafine
tablets, fluoxetine capsules, cypreterone and ethynyl estradiol tablets and allerway capsules in
South Africa through an in-licensing arrangement.
In China, we market through our equity investee, Kunshan Rotam Reddy Pharmaceuticals Co.
Limited (KRRP or Reddy Kunshan). As of March 31, 2007, we held a 51.33% equity interest in
KRRP. We currently market ten products through KRRP in China and have three products pending
registration. During fiscal 2007, KRRP sold one product license. Also, we opened a representative
office in China during fiscal 2006 to expand our presence there. We have applied for registration
of six products from our representative office, which applications are pending approval.
Sales, marketing and distribution network
India. We generate demand for our products by promoting them to doctors who prescribe them,
and meeting with pharmacists to ensure that the pharmacists stock our brands. Our focus on brand
building is thus primarily driven through efforts to build relationships with the medical
community. While we do not sell directly to doctors or pharmacists, our approximately 1,695 field
personnel frequently visit doctors and pharmacists throughout the country to promote our products.
In addition, we sponsor medical conferences in different parts of the country and conduct seminars
for doctors. During fiscal 2007, we increased our sales personnel in India by 69.
We sell our formulations primarily through clearing and forwarding agents to approximately
2,000 stockists who decide which brands to buy based on demand. The stockists pay for our products
in an agreed credit period and in turn sell these products to retailers. Our clearing and
forwarding agents are responsible for transporting our products to the stockists and ensuring that
the stockists maintain adequate supplies of our products. We pay our clearing and forwarding agents
on a commission basis. We have insurance policies that cover our products during shipment and
storage at clearing and forwarding locations.
Russia. In Russia, we sell our formulations to some of the principal national distributors
directly as well as through our wholly-owned subsidiary located in Russia, OOO Dr. Reddys
Laboratories, Russia. Our sales and marketing efforts are driven by a team of 195 marketing
representatives, 11 regional managers, 4 zone managers and 9 key account managers to promote our
products to doctors in 48 cities in Russia. During fiscal 2007, we increased our sales personnel in
Russia by 78.
In the Russian market, credit is generally extended only to customers after they have
established a satisfactory history of payment with us. The credit ratings of these customers are
based on turnover, payment record and the number of the customers branches or pharmacies and are
reviewed on a periodic basis. There were no material changes in the credit terms which we extended
to our major customers during fiscal 2007.
Other Markets. Our other key focus markets are South Africa, China, Kazakhstan, Uzbekistan,
Ukraine, Belarus, Vietnam, Romania, Venezuela and Sri Lanka, where we have our own sales personnel
to promote our products. In South Africa, we sell our products to wholesale distributors,
dispensing doctors and retail pharmacies. In China, where we market through KRRP, we have 88 (as of
March 31, 2007) marketing representatives covering hospitals. In several of these markets, we
market and distribute through local agents. We also have representative offices in several of these
countries.
19
Manufacturing and Raw Materials
We have four facilities for the manufacture of formulation products, all of which are situated
in India, as of March 31, 2007. We manufacture most of our finished products at these facilities
and also use third-party manufacturing facilities as we determine necessary. For each of our
products, we endeavor to identify alternate suppliers of our products and the processes applicable
to our products. The main difference between active pharmaceutical ingredients as compared to
formulations and generics is the form in which they are produced and the way they are packaged.
Active pharmaceutical ingredients are manufactured and distributed in bulk. In formulations and
generics, these bulk ingredients are converted into finished dosages by adding other ingredients,
called excipients, and packaged into individual doses that are ready for consumption by the
patient. In fiscal 2007, our active pharmaceutical ingredients and intermediates business provided
59.9% of the active pharmaceutical ingredients and intermediates requirements of our formulations
business, with the balance coming from various other suppliers.
We also established a facility to manufacture oral solid and injectable forms of cyto-toxic
and hormonal formulations at a Special Economic Zone located in Visakhapatnam, India. After
commercialization of those products, the facility will cater to the requirements of our key markets
for those products.
Our manufacture of formulations is subject to strict quality and contamination controls
throughout the manufacturing process. Each production line consists of a series of rooms through
which the product passes at different stages of its conversion to a finished dosage. In our
facilities, we manufacture formulations in various dosage forms including tablets, capsules,
injections and liquids. These dosage forms are then packaged and quarantined to be tested for
quality and contamination. The Ministries of Health of Brazil, Latvia and Romania have
inspected some of our manufacturing plants. One of our facilities also has the approval of the U.K.
Medicines and Health Care Products Regulatory Agency (MHRA). In April 2006, we completed the
construction of a new facility at Baddi in the state of Himachal Pradesh, India. We are
manufacturing our key brands at this facility in Baddi to take advantage of certain financial
benefits, which include exemption from income tax and excise duty for a specified period, offered
by the government of India to encourage industrial growth in the state of Himachal Pradesh.
Competition
We compete with different companies in different countries, depending upon therapeutic and
product categories, and within each category upon dosage strengths and drug delivery. On the basis
of sales, we are the seventh largest pharmaceutical seller in India, with a market share of 2.4%
according to the ORG IMS March Moving Annual Total report for the 12-month period ending March
2007. Of the top ten participants in the Indian formulations market, three are multinational
corporations and the rest are Indian corporations.
We believe growth opportunities in India exist and the Indian pharmaceutical business
environment underwent considerable changes in fiscal 2006. Some of the most significant changes in
the industry are as follows:
|
|
|
Introduction of the product patent regime, effective as of January 1, 2005; |
|
|
|
|
Implementation of the Value Added Tax (VAT) system, effective as of April 1, 2005; |
|
|
|
|
Introduction of the Maximum Retail Price (MRP)-based excise duty structure for the pharmaceutical industry; |
|
|
|
|
Higher investments by Indian companies in research and development, as well as an
increase in the number of new product launches by Indian companies; and |
|
|
|
|
Improvement in sales of multinational corporations and increasing interest of global
multinationals in India. |
Our formulation segments principal competitors in the Indian market are Cipla Limited, Glaxo
SmithKline Pharmaceuticals Limited, Ranbaxy Laboratories Limited, Nicholas Piramal India Limited,
Sun Pharmaceuticals Industries Limited and Zydus-Cadila.
Our formulation segments principal competitors in the Russian market include Berlin Chemi AG,
Gedeon Richter Ltd., Krka, dd, Novo mesto, Pliva dd, Nycomed A/S and Egis Pharmaceuticals Ltd.
In our export markets, we compete with local companies, multinational corporations and
companies from other emerging markets. In Russia and in most of our export markets, we believe our
products occupy a niche position between the less expensive local products and the more expensive
products of the multinational corporations.
20
Government regulations
All pharmaceutical companies that manufacture and market products in India are subject to
various national and state laws and regulations, which principally include the Drugs and Cosmetics
Act, 1940, the Drugs (Prices Control) Order, 1995 (DPCO), various environmental laws, labor laws
and other government statutes and regulations. These regulations govern the testing, manufacturing,
packaging, labeling, storing, record-keeping, safety, approval, advertising, promotion, sale and
distribution of pharmaceutical products.
In India, manufacturing licenses for drugs and pharmaceuticals are generally issued by state
drug authorities. Under the Drugs and Cosmetics Act, 1940, the state drug administrations are
empowered to issue manufacturing licenses for drugs if they are approved for marketing in India by
the Drug Controller General of India (DCGI). Prior to granting licenses for any new drugs or
combinations of new drugs, DCGI clearance has to be obtained in accordance with the Drugs and
Cosmetics Act, 1940.
Pursuant to the amendments in May 2005 to the Schedule Y of the Drugs and Cosmetics Act, 1940,
manufacturers of finished dosages are required to submit additional technical data to the DCGI in
order to obtain a no-objection certificate for conducting clinical trials as well as to manufacture
new drugs for marketing.
All pharmaceutical manufacturers that sell products in any country are subject to regulations
issued by the ministry of health (MoH) of the respective country. These regulations govern or
influence the testing, manufacturing, packaging, labeling, storing, record-keeping, safety,
approval, advertising, promotion, sale and distribution of products.
Our facilities and products are periodically inspected by various regulatory authorities such
as the U.K. MHRA, the South African Medicines Control Council, the Brazilian National Agency of
Sanitary Surveillance (also known as ANVISA), the Romanian National Medicines Agency, and the
World Health Organization, all of which have extensive enforcement powers over the activities of
pharmaceutical manufacturers operating within their jurisdiction.
MoH approval of an application is required before a generic equivalent of an existing or
referenced brand drug can be marketed. When processing a generics application, the MoH waives the
requirement of conducting complete clinical studies, although it normally requires bioavailability
and/or bioequivalence studies. Bioavailability indicates the rate and extent of absorption and
levels of concentration of a drug product in the blood stream needed to produce a therapeutic
effect. Bioequivalence compares the bioavailability of one drug product with another, and when
established, indicates that the rate of absorption and levels of concentration of the active drug
substance in the body are the equivalent for the generic drug and the previously approved drug. A
generic application may be submitted for a drug on the basis that it is the equivalent of a
previously approved drug. Before approving a generic product, the MoH also requires that our
procedures and operations conform to Current Good Manufacturing Practice (cGMP) regulations,
relating to good manufacturing practices as defined by various countries. We must follow the cGMP
regulations at all times during the manufacture of our products. We continue to spend significant
time, money and effort in the areas of production and quality testing to help ensure full
compliance with cGMP regulations.
The timing of final MoH approval of a generic application depends on various factors,
including patent expiration dates, sufficiency of data and regulatory approvals.
Under the present drug policy of the government of India, certain drugs have been specified
under the DPCO as subject to price control. The government of India established the National
Pharmaceutical Pricing Authority (NPPA) to control pharmaceutical prices. Under the DPCO, the
NPPA has the authority to fix the maximum selling price for specified products. At present, 74
drugs and their formulations are categorized as specified products under the DPCO. A limited number
of our formulation products fall in this category. Adverse changes in the DPCO list or in the span
of price control can affect pricing, and hence, our Indian revenues.
On March 22, 2005, the government of India passed the Patents (Amendment) Bill 2005 (the
Amendment), introducing a product patent regime for food, chemicals and pharmaceuticals in India.
The Amendment specifically provides that new medicines (patentability of which is not specifically
excluded) for which a patent has been applied for in India on or after January 1, 1995 and for
which a patent is granted cannot be manufactured or sold in India by other than the patent holder
and its assignees and licensees. This will result in a reduction of the new product introductions
in India, as well as other countries where similar legislation has been introduced, for all Indian
pharmaceutical companies engaged in the development and marketing of generic finished dosages and
APIs. Processes for the manufacture of APIs and formulations were patentable in India even prior
to the Amendment, so no additional impact is anticipated from patenting of such processes.
21
Active Pharmaceutical Ingredients and Intermediates Segment
Our active pharmaceutical ingredients and intermediates business contributed 18.2% of our
total revenues for fiscal 2007. Active pharmaceutical ingredients are the principal ingredients for
finished dosages and are also known as bulk actives or bulk drugs. Active pharmaceutical
ingredients become formulations when the dosage is prepared for human consumption in the form of a
tablet, capsule or liquid using additional inactive ingredients. Intermediates are the compounds
from which active pharmaceutical ingredients are prepared. We produce and market more than 100
different active pharmaceutical ingredients and intermediates in several markets. We export active
pharmaceutical ingredients to emerging as well as developed markets covering 78 countries. Our
principal markets in this business segment include North America and Europe, which together
contributed 34.9% of this segments revenues. Our active pharmaceutical ingredients and
intermediates business is operated independently from our formulations and generics businesses and,
in addition to supplying API to our formulations and generics businesses, we sell APIs to third
parties for use in creating generic products, subject to any patent rights of other third parties.
Our active pharmaceutical ingredients business also manufactures and supplies all of the API
required in our custom pharmaceutical services business. The research and development group within
the active pharmaceutical ingredients and intermediates segment contributes to our business by
creating intellectual property (principally with respect to novel and non-infringing manufacturing
processes and intermediates), providing research intended to reduce the cost of production of our
products and developing approximately 15-20 new products every year.
The following table sets forth active pharmaceutical ingredients and intermediates revenues by
geographic area for fiscal 2005, 2006 and 2007, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, |
|
|
2005 |
|
2006 |
|
2007 |
|
|
Revenues |
|
% Total(1) |
|
Revenues |
|
% Total(1) |
|
Revenues |
|
% Total(1) |
|
|
(in millions) |
|
|
|
|
|
(in millions) |
|
|
|
|
|
(in millions) |
|
|
|
|
|
|
Rs. |
|
|
|
|
|
Rs. |
|
|
|
|
|
Rs. |
|
U.S.$ |
|
|
|
|
Emerging markets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
India |
|
|
1,972.1 |
|
|
|
28.4 |
% |
|
|
2,296.4 |
|
|
|
27.8 |
% |
|
|
2,075.1 |
|
|
|
48.1 |
|
|
|
17.5 |
% |
Bangladesh |
|
|
127.4 |
|
|
|
1.8 |
% |
|
|
265.7 |
|
|
|
3.2 |
% |
|
|
155.0 |
|
|
|
3.6 |
|
|
|
1.3 |
% |
Other countries |
|
|
1,841.8 |
|
|
|
26.5 |
% |
|
|
2,558.9 |
|
|
|
31.1 |
% |
|
|
5,397.8 |
|
|
|
125.3 |
|
|
|
45.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total emerging markets |
|
|
3,941.3 |
|
|
|
56.8 |
% |
|
|
5,121.0 |
|
|
|
62.1 |
% |
|
|
7,627.9 |
|
|
|
177.0 |
|
|
|
64.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed markets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
1,849.0 |
|
|
|
26.6 |
% |
|
|
1,655.0 |
|
|
|
20.1 |
% |
|
|
2,029.6 |
|
|
|
47.1 |
|
|
|
17.2 |
% |
Europe |
|
|
1,091.1 |
|
|
|
15.7 |
% |
|
|
1,420.9 |
|
|
|
17.3 |
% |
|
|
2,089.4 |
|
|
|
48.5 |
|
|
|
17.7 |
% |
Japan |
|
|
63.1 |
|
|
|
0.9 |
% |
|
|
41.1 |
|
|
|
0.5 |
% |
|
|
79.9 |
|
|
|
1.8 |
|
|
|
0.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total developed markets |
|
|
3,003.2 |
|
|
|
43.2 |
% |
|
|
3,117.0 |
|
|
|
37.9 |
% |
|
|
4,198.9 |
|
|
|
97.4 |
|
|
|
35.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
6,944.5 |
|
|
|
100.0 |
% |
|
|
8,238.0 |
|
|
|
100.0 |
% |
|
|
11,826.8 |
|
|
|
274.4 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Refers to our revenues from API sales in the applicable country expressed as a percentage of
our total revenues from API sales throughout the world. |
The following table sets forth the sales of our key active pharmaceutical ingredients and
intermediates for fiscal 2005, 2006 and 2007, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, |
|
|
|
|
|
|
2005 |
|
2006 |
|
2007 |
|
|
|
|
|
|
Revenues |
|
%Total(1) |
|
Revenues |
|
%Total(1) |
|
Revenues |
|
U.S.$ |
|
%Total(1) |
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product |
|
Category |
|
Sub-Category |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sertraline hydrochloride |
|
Cardiovascular |
|
Anti-hypertensive |
|
|
138.2 |
|
|
|
2.0 |
% |
|
|
494.1 |
|
|
|
6.0 |
% |
|
|
2,461.5 |
|
|
|
57.1 |
|
|
|
20.8 |
% |
Rabeprazole sodium |
|
Gastrointestinal |
|
Anti-ulcerative |
|
|
7.4 |
|
|
|
0.1 |
% |
|
|
18.4 |
|
|
|
0.2 |
% |
|
|
875.2 |
|
|
|
20.3 |
|
|
|
7.4 |
% |
Ramipril |
|
Cardiovascular |
|
Anti-hypertensive |
|
|
783.4 |
|
|
|
11.3 |
% |
|
|
642.5 |
|
|
|
7.8 |
% |
|
|
760.7 |
|
|
|
17.6 |
|
|
|
6.4 |
% |
Ciprofloxacin Hcl |
|
Anti-infective |
|
Anti-bacterial |
|
|
619.1 |
|
|
|
8.9 |
% |
|
|
778.5 |
|
|
|
9.5 |
% |
|
|
739.6 |
|
|
|
17.2 |
|
|
|
6.3 |
% |
Finasteride |
|
Prostatic Inhibition |
|
Benign Prostatic Hyperplasia |
|
|
58.4 |
|
|
|
0.8 |
% |
|
|
98.3 |
|
|
|
1.2 |
% |
|
|
580.8 |
|
|
|
13.5 |
|
|
|
4.9 |
% |
Ranitidine HCl Form 2 |
|
Gastro-intestinal |
|
Anti-ulcerant |
|
|
734.3 |
|
|
|
10.6 |
% |
|
|
552.8 |
|
|
|
6.7 |
% |
|
|
523.5 |
|
|
|
12.1 |
|
|
|
4.4 |
% |
Naproxen sodium |
|
Pain management |
|
Anti-inflammatory |
|
|
470.0 |
|
|
|
6.8 |
% |
|
|
380.4 |
|
|
|
4.6 |
% |
|
|
521.2 |
|
|
|
12.1 |
|
|
|
4.4 |
% |
Terbinafine HCl |
|
Anti-infective |
|
Anti-fungal |
|
|
194.5 |
|
|
|
2.8 |
% |
|
|
537.2 |
|
|
|
6.5 |
% |
|
|
483.9 |
|
|
|
11.2 |
|
|
|
4.1 |
% |
Naproxen |
|
Pain management |
|
Anti-inflammatory |
|
|
229.6 |
|
|
|
3.3 |
% |
|
|
375.0 |
|
|
|
4.6 |
% |
|
|
408.0 |
|
|
|
9.5 |
|
|
|
3.4 |
% |
Clopidogrel |
|
Cardiovascular |
|
Anti-platelet agent |
|
|
79.6 |
|
|
|
1.1 |
% |
|
|
139.9 |
|
|
|
1.7 |
% |
|
|
384.2 |
|
|
|
8.9 |
|
|
|
3.2 |
% |
Ibuprofen |
|
Pain management |
|
Analgesic |
|
|
460.5 |
|
|
|
6.6 |
% |
|
|
502.3 |
|
|
|
6.1 |
% |
|
|
328.9 |
|
|
|
7.6 |
|
|
|
2.8 |
% |
Montelukast |
|
Respiratory |
|
Anti-allergic |
|
|
52.6 |
|
|
|
0.8 |
% |
|
|
241.1 |
|
|
|
2.9 |
% |
|
|
285.2 |
|
|
|
6.6 |
|
|
|
2.4 |
% |
Losartan potassium |
|
Cardiovascular |
|
Anti-hypertensive |
|
|
180.5 |
|
|
|
2.6 |
% |
|
|
172.7 |
|
|
|
2.1 |
% |
|
|
234.4 |
|
|
|
5.4 |
|
|
|
2.0 |
% |
Nizatidine |
|
Gastro-intestinal |
|
Anti-ulcerant |
|
|
216.8 |
|
|
|
3.1 |
% |
|
|
160.9 |
|
|
|
2.0 |
% |
|
|
223.6 |
|
|
|
5.2 |
|
|
|
1.9 |
% |
Atorvastatin |
|
Cardiovascular |
|
Lipid-lowering agent |
|
|
252.5 |
|
|
|
3.6 |
% |
|
|
321.1 |
|
|
|
3.9 |
% |
|
|
161.9 |
|
|
|
3.8 |
|
|
|
1.4 |
% |
|
|
|
(1) |
|
Refers to our revenues from key API sales expressed as a percentage of our total API
revenues. |
22
Sales, Marketing and Distribution
Emerging Markets. India is an important emerging market, contributing 17.5% to the segments
revenues in fiscal 2007. In India, we market our active pharmaceutical ingredients to Indian and
multinational companies who are also our competitors in our formulations segment.
In India, our top six products are ciprofloxacin, ranitidine, losartan potassium,
sparfloxacin, ramipril and atorvastatin. The market in India is highly competitive with severe
pricing pressure and competition from cheaper Chinese imports in several products.
In India, our sales team works closely with our sales agents to market our products. We market
our products through these sales agents, commonly referred to as indenting agents, with a focus
on regional sales and marketing. The sales are made directly from the factory and to a limited
extent through clearing and forwarding agents. Distribution through clearing and forwarding agents
is done to give better service to the customer.
Our sales to other emerging markets were Rs.5,552.8 million for fiscal 2007. Our other key
emerging markets include Israel, Turkey, South Korea, Mexico, Brazil, Syria, Argentina, Egypt,
Iran, Saudi Arabia, China, South Africa, Indonesia, Jordan and Thailand. While we work through our
agents in these markets, our zonal marketing managers also interact directly with our key customers
in order to service their requirements. Our strategy is to build relationships with top customers
in each of these markets and partner with them in product launches by providing timely technical
and analytical support.
Developed Markets. Our principal markets are North America and Europe. In the United States
and Europe, over the next five years, a large number of products are expected to lose patent
protection, providing growth opportunities for our active pharmaceutical ingredients and
intermediates business. We have been marketing APIs in the United States for over a decade. We
market through our subsidiaries in the United States and Europe. These subsidiaries are engaged in
all aspects of marketing activity and support our customers pursuit of regulatory approval for
their products focusing on building long-term relationships with the customers.
As of March 31, 2007, we had 104 DMFs on file in the United States. As of March 31, 2007, we
had filed 51 DMFs in Europe and had 20 certificates of suitability granted by European authorities.
For most of these, we are either already supplying commercial quantities or development quantities
of API to various generic formulators.
Manufacturing and Raw Materials
We have seven facilities for the manufacture of our APIs. Six of these facilities have been
inspected by the U.S. FDA and follow cGMP. All of these facilities are situated in the state of
Andhra Pradesh, India. Six of these facilities have ISO 9001 certification, which is valid until
December 5, 2009, at which time we will be reinspected. With over 650 reactors of different sizes
offering 2.1 million litres of reaction volume annually, we have the flexibility to produce
quantities that range from a few kilograms to several metric tons. The manufacturing process
consumes a wide variety of raw materials that we obtain from sources that comply with the
requirements of regulatory authorities in the markets to which we supply our products. We procure
raw materials on the basis of our requirement planning cycles. We utilize a broad base of suppliers
in order to minimize risk arising from dependence on a single supplier. Where possible, we have
also entered into annual quantity and price contracts to reduce possible supply risks and minimize
costs. Our formulations and generics businesses source approximately 59.9% and 65.2%, respectively,
of their API purchases from our active pharmaceutical ingredients and intermediates segment. We
also outsource the manufacturing of some of our APIs to third-party manufacturers. The active
pharmaceutical ingredients and intermediates segment also sources several APIs from third party
suppliers for the emerging markets to optimally utilize the in-house manufacturing capacities for
the developed markets, which are more profitable relative to the emerging markets. During fiscal
2007, 5.8% of our total revenues resulted from sale of APIs procured from third-party suppliers. We
maintain stringent quality controls when procuring materials from third-party suppliers.
Competition
The global API market can broadly be divided into regulated and less regulated markets. The
less regulated markets offer low entry barriers in terms of regulatory requirements and
intellectual property rights. The regulated markets, like the United States and Europe, have high
entry barriers in terms of intellectual property rights and regulatory requirements, including
facility approvals. As a result, there is a premium for quality and regulatory compliance along
with relatively greater stability for both volumes and prices.
During fiscal 2007, the competitive environment for the API industry underwent significant
changes. These changes included increasing consolidation in the global generics industry and
vertical integration of some key generic pharmaceutical companies.
As an API supplier, we compete with a number of manufacturers within and outside India, which
vary in size. Our main competitors in this segment are Hetero Drugs Limited, Divis Laboratories
Limited, Shasun Chemicals and Drugs Limited, Aurobindo
23
Pharma Limited, Ranbaxy Laboratories
Limited, Cipla Limited, Matrix Laboratories Limited , Sun Pharmaceutical Industries Limited and MSN
Laboratories Limited, all based in India. In addition, we experience competition from European and
Chinese manufacturers, as well as from Teva Pharmaceuticals Industries Limited, based in Israel.
Government regulations
All pharmaceutical companies that manufacture and market products in India are subject to
various national and state laws and regulations, which principally include the Drugs and Cosmetics
Act, 1940, the Drugs (Prices Control) Order, 1995, various environmental laws, labor laws and other
government statutes and regulations. These regulations govern the testing, manufacturing,
packaging, labeling, storing, record-keeping, safety, approval, advertising, promotion, sale and
distribution of pharmaceutical products.
In India, manufacturing licenses for drugs and pharmaceuticals are generally issued by state
drug authorities. Under the Drugs and Cosmetics Act, 1940, the state drug administrations are
empowered to issue manufacturing licenses for drugs if they are approved for marketing in India by
the DCGI. Prior to granting licenses for any new drugs or combinations of new drugs, the DCGI
clearance has to be obtained in accordance with the Drugs and Cosmetics Act, 1940.
Our active pharmaceutical ingredients and intermediates segment is subject to a number of
government regulations with respect to pricing and patents as discussed above under our
formulations segment.
We submit a DMF for active pharmaceutical ingredients to be commercialized in the United
States. Any drug product for which an Abbreviated New Drug Application (ANDA) is being filed
must have a DMF in place with respect to a particular supplier supplying the underlying active
pharmaceutical ingredient. The manufacturing facilities are inspected by the U.S. FDA to assess
cGMP compliance. The manufacturing facilities and production procedures utilized at the
manufacturing facilities must meet U.S. FDA standards before products may be exported to the United
States. Six of our manufacturing facilities have been inspected by the U.S. FDA and found
Acceptable. For European markets, we submit a European DMF and, where applicable, obtain a
certificate of suitability from the European Directorate for the Quality of Medicines.
Generics Segment
Generic drugs are the chemical and therapeutic equivalents of reference brand drugs, typically
sold under their generic chemical names at prices below those of their brand drug equivalents.
Generic drugs are finished pharmaceutical products ready for consumption by the patient. Our
generic products are marketed principally in North America and Europe. These drugs are required to
meet governmental standards that are similar to those applicable to their brand-name equivalents
and must receive regulatory approval prior to their sale in any given country.
Our generics operations started in the second half of fiscal 2001. This segment accounted for
51.0% of our total revenues for fiscal 2007, contributing Rs.33,224.2 million. In fiscal 2007,
revenues in this segment were Rs.9,601.0 million from sales in Europe, Rs.23,619.4 million from
sales in North America and Rs.3.8 million from sales in the rest of the world.
24
The following table sets forth the sales of our principal generics finished dosages for fiscal
2005, 2006 and 2007, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, |
|
|
|
|
|
|
2005 |
|
2006 |
|
|
|
|
|
2007 |
|
|
|
|
Therapeutic |
|
Therapeutic |
|
Revenues |
|
% |
|
Revenues |
|
% |
|
Revenues |
|
Revenues |
|
% |
Region / Product |
|
Category |
|
Sub-Category |
|
(in millions) |
|
Total(1) |
|
(in millions) |
|
Total(1) |
|
(in millions) |
|
(in millions) |
|
Total(1)(2) |
North America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fluoxetine capsules |
|
Central nervous system |
|
Anti-psychotic |
|
Rs.928.5 |
|
|
26.0 |
|
|
Rs.373.8 |
|
|
9.2 |
|
|
Rs.249.8 |
|
U.S. $5.8 |
|
|
0.8 |
% |
Ibuprofen tablets |
|
Pain management |
|
Analgesic |
|
|
198.7 |
|
|
|
5.6 |
|
|
|
235.1 |
|
|
|
5.8 |
|
|
|
86.1 |
|
|
|
2.0 |
|
|
|
0.3 |
% |
Ranitidine tablets |
|
Gastro-intestinal |
|
Anti-ulcerant |
|
|
194.0 |
|
|
|
5.4 |
|
|
|
225.9 |
|
|
|
5.6 |
|
|
|
206.0 |
|
|
|
4.8 |
|
|
|
0.6 |
% |
Famotidine tablets |
|
Gastro-intestinal |
|
Anti-ulcerant |
|
|
141.1 |
|
|
|
3.9 |
|
|
|
156.1 |
|
|
|
3.9 |
|
|
|
172.1 |
|
|
|
4.0 |
|
|
|
0.5 |
% |
Citalopram tablets |
|
Central nervous system |
|
Anti-psychotic |
|
|
201.6 |
|
|
|
5.6 |
|
|
|
143.4 |
|
|
|
3.5 |
|
|
|
289.9 |
|
|
|
6.7 |
|
|
|
0.9 |
% |
Ciproflaxacin tablets |
|
Anti-infective |
|
Anti-bacterial |
|
|
166.1 |
|
|
|
4.6 |
|
|
|
135.3 |
|
|
|
3.3 |
|
|
|
259.5 |
|
|
|
6.0 |
|
|
|
0.8 |
% |
Tizanidine tablets |
|
Spasticity |
|
Muscle relaxant |
|
|
206.2 |
|
|
|
5.8 |
|
|
|
62.8 |
|
|
|
1.6 |
|
|
|
108.7 |
|
|
|
2.5 |
|
|
|
0.3 |
% |
Ranitidine capsules |
|
Alimentary Tract |
|
Stomach ulcer |
|
|
84.9 |
|
|
|
2.4 |
|
|
|
27.9 |
|
|
|
0.7 |
|
|
|
36.1 |
|
|
|
0.8 |
|
|
|
0.1 |
% |
Simvastatin AG |
|
Cardiovascular |
|
Cholestrol regulator |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,899.4 |
|
|
|
322.5 |
|
|
|
41.8 |
% |
Ondansetron |
|
Gastro-intestinal |
|
Antiemetic antinausient solids |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,890.1 |
|
|
|
67.1 |
|
|
|
8.7 |
% |
Fexofinadine |
|
Respiratory |
|
Antihistamine Systemic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,429.3 |
|
|
|
56.4 |
|
|
|
7.3 |
% |
|
|
|
|
Benign Prostate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finasteride AG |
|
Urology |
|
Hyperlesian |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,913.6 |
|
|
|
44.4 |
|
|
|
5.8 |
% |
Pravastatin |
|
Cardiovascular |
|
Statins |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158.2 |
|
|
|
3.7 |
|
|
|
0.5 |
% |
Simvastatin |
|
Cardiovascular |
|
Cholestrol regulator |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
164.3 |
|
|
|
3.8 |
|
|
|
0.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
2,121.1 |
|
|
|
59.3 |
|
|
|
1,360.3 |
|
|
|
33.6 |
|
|
|
22,863.1 |
|
|
|
525.1 |
|
|
|
68.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Simvastatin |
|
Cardiovascular |
|
Cholestrol regulator |
|
|
|
|
|
|
|
|
|
|
119.0 |
|
|
|
2.9 |
|
|
|
1,370.62 |
|
|
|
30.29 |
|
|
|
4.1 |
% |
Omeprazole |
|
Gastro- Intestinal |
|
Anti-Ulcerant |
|
|
434.1 |
|
|
|
12.1 |
|
|
|
786.3 |
|
|
|
19.4 |
|
|
|
976.57 |
|
|
|
21.58 |
|
|
|
2.9 |
% |
Alendronate |
|
Women's health |
|
Bone calcium regulator |
|
|
|
|
|
|
|
|
|
|
21.5 |
|
|
|
0.5 |
|
|
|
676.23 |
|
|
|
14.94 |
|
|
|
2.0 |
% |
Amlodipine |
|
Cardiovascular |
|
Anti-Hypertensive |
|
|
219.9 |
|
|
|
6.1 |
|
|
|
371.5 |
|
|
|
9.2 |
|
|
|
525.05 |
|
|
|
11.6 |
|
|
|
1.6 |
% |
Enalapril & HCT |
|
Cardiovascular |
|
Anti-Hypertensive |
|
|
|
|
|
|
|
|
|
|
23.1 |
|
|
|
0.6 |
|
|
|
265.34 |
|
|
|
5.86 |
|
|
|
0.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Rs.654.0 |
|
|
|
18.2 |
|
|
|
Rs.1,321.4 |
|
|
|
32.6 |
|
|
|
Rs.3,813.81 |
|
|
U.S.$ 84.27 |
|
|
|
11.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Refers to our revenues from generics sales in the applicable region expressed as a
percentage of our total revenues from generics sales throughout the world. |
|
(2) |
|
Sales for betapharm, our recently acquired subsidiary in Germany, have been included from the
date of its acquisition in March 2006. |
Generic drugs may be manufactured and marketed only if relevant patents on their brand
name equivalents and any additional government-mandated market exclusivity periods have expired,
been challenged and invalidated, or otherwise validly circumvented.
Generic pharmaceutical sales have increased significantly in recent years, due in part to an
increased awareness and acceptance among consumers, physicians and pharmacists that generic drugs
are the equivalent of brand-name drugs. Among the factors contributing to this increased awareness
are the passage of legislation permitting or encouraging substitution and the publication by
regulatory authorities of lists of equivalent drugs, which provide physicians and pharmacists with
generic drug alternatives. In addition, various government agencies and many private managed care
or insurance programs encourage the substitution of generic drugs for brand-name pharmaceuticals as
a cost-savings measure in the purchase of, or reimbursement for, prescription drugs. We believe
that these factors, together with the large volume of branded products losing patent protection
over the coming years, should lead to continued expansion of the generic pharmaceuticals market as
a whole. We intend to capitalize on the opportunities resulting from this expansion of the market
by leveraging our product development capabilities, manufacturing capacities inspected by various
international regulatory agencies and access to our own APIs, which offer significant supply chain
efficiencies.
Through the coordinated efforts of our teams in the United States, Europe and India, we
constantly seek to expand our pipeline of generic products. As of March 31, 2007, our U.S. generics
pipeline included 69 ANDA applications pending approval at the U.S. FDA. As of March 31, 2007, we
had received 37 product approvals from the U.S. FDA and 10 tentative product approvals (tentative
approvals do not allow us to market the generic product and are not converted to final approvals
until all patent or exclusivity issues for the reference listed drug product have been resolved).
As of March 31, 2007, we had received two product approvals in Europe, four product approvals in
South Africa, two product approvals in Canada and one product approval in each of Australia and New
Zealand. Our product launch plans in Germany will depend on the marketing capacities which we build
up and the marketing authorizations which we obtain. As of March 31, 2007, we had obtained 27
marketing authorizations in Germany for products in varying dosage strengths.
During fiscal 2005, we entered into an agreement with I-VEN Pharma Capital Limited (I-VEN)
for the joint development and commercialization of generic drug products for the U.S. markets. The
agreement gives I-VEN the right to fund up to fifty percent of
25
the project costs (development, registration and legal costs) related to these products and the
related U.S. Abbreviated New Drug Applications (ANDA) filed or to be filed in 2004-05 and
2005-06, subject to a maximum funding right of U.S.$56.0 million. During fiscal 2007, we signed an
amendment agreement with I-VEN to reflect a change in the product portfolio and the royalty rate.
Sales, Marketing and Distribution Network
North America. Dr. Reddys Laboratories, Inc., our wholly-owned subsidiary in the United
States, is engaged in the marketing of our generic products in North America. In early 2003, we
commenced sales of generic products under our own label. We have our own sales and marketing team
to market these generic products. During fiscal 2007, we launched ondansetron tablets (under 180
days exclusivity), fexofenadine tablets, nizatidine tablets, pravastatin tablets, meloxicam
tablets, simvastatin tablets, finasteride tablets, ranitidine tablets (Rx), famotidine 20mg OTC and
ibuprofen/pseudoephedrine OTC. Key account representatives for generic products call on purchasing
agents for chain drug stores, drug wholesalers, health maintenance organizations and pharmacy
buying groups.
In January 2006, we entered into an agreement with Merck & Co., Inc. allowing us to distribute
and sell generic versions of finasteride and simvastatin (sold by Merck under the brand names
Proscar® and Zocor®), upon the expiration of Mercks patents covered by these products, provided
that some other company obtains 180-day exclusivity after the expiration of the patents for either
product. Subsequently, the patents for both of these products expired and other companies obtained
180-day exclusivity. Accordingly, we launched sales of these products on June 19, 2006 and June
23, 2006, respectively.
On March 13, 2006, we acquired trademark rights to three off-patent products, along with all
the physical inventories of the products, from PDL Biopharma, Inc (PDL) for a total consideration
of Rs.122.7 million. PDL is a company focused on the development and commercialization of novel
therapies for treatment of inflammation and autoimmune diseases, acute cardiac conditions and
cancer. As a result of the acquisition, we acquired an opportunity to sell these products using
their existing brand names through our generics sales and marketing network.
In 2001, we entered into a profit sharing marketing alliance with Par Pharmaceuticals, Inc. to
market certain prescription generic formulations, none of which are over-the-counter products. We
currently market six generic products through Par Pharmaceuticals, Inc.
We market famotidine 10 mg tablets and ranitidine 75 mg tablets through Leiner Health
Products, LLC (Leiner). In 2002, we entered into a 15-year exclusive agreement with Leiner to
market additional over-the-counter products in the United States pursuant to which we launched our
first product, ibuprofen/pseudoephedrine, during fiscal 2007. However, we terminated these
over-the-counter product agreements with Leiner on April 18, 2007. This action was taken by us
after receiving notice that, on March 16, 2007, Leiner had been served with a list of inspection
observations on a Form 483 from the U.S. FDA and, in response thereto, on March 20, 2007, suspended
all of its packaging, production and distribution of over-the-counter products manufactured,
packaged or tested at its facilities in the United States. Under the terminated agreement, we had
provided Leiner with supplies of API to produce over-the-counter products as well as supplies of
finished dosage tablets, and rights to market certain of our over-the-counter products under
development.
In Canada, in fiscal 2002, we entered into a profit sharing arrangement with Cobalt
Pharmaceuticals Inc. and Pharmascience Inc. to market certain of our generic products.
United Kingdom. Dr. Reddys Laboratories (U.K.) Limited, which we acquired in fiscal 2003, is
engaged in the marketing of our generic products in the United Kingdom and other European Union
countries. We currently market approximately 30 generic products representing over 89 dosage
strengths. New product launches in fiscal 2007 included the generic versions of Sumatriptan. We
also seek to expand our presence to the other European countries either directly or through
strategic alliances.
Germany. In March 2006, we acquired 100% of beta Holding GmbH (betapharm) from 3i Group plc,
a European private equity house. This acquisition allowed us to enter the German market. The
German market has significant barriers to entry that largely emanate from the fact that generics in
Germany are prescribed by brand rather than by active ingredient. The German generics market has
certain distinct characteristics, as compared with other major markets including the United States,
Japan and the United Kingdom. These include the method of promoting generics, the reimbursement and
insurance system and the structure of the retail channel.
The German government is currently focused on reducing healthcare spending. During fiscal 2007, the
German government passed the Economic Optimization of Pharmaceutical Care Act
(Arzneimittelversorgungs-Wirtschaftlichkeisgestz or AVWG) which became effective as of May 1,
2006, which also is designed to contain increased pharmaceutical costs. The AVWGs provisions
include, among other things: prohibitions on the provision of free goods to health professionals
(including wholesalers, pharmacists, medical institutions, physicians etc.); limitations on the
payment of rebates to wholesalers and pharmacists; prohibitions on price
increases for medicinal products prior to March 31, 2008; implementation of additional mandatory
rebates of 10% if pharmaceutical prices are not 30% below the reference prices as published by the
Federal Associations of Healthcare Insurance funds; reduction of
26
fixed prices as of July 1, 2006;
and empowering the statutory health insurance funds to waive copayments by patients. Due to the
AVWG, insurance companies operating in Germany have the power to influence prices in that country,
and they have done so by releasing several products from co-payment. Going forward, we expect these
insurance companies to further exert their influence to contain healthcare costs via the Federal
Association of Healthcare Insurance Funds, which has far-reaching powers in the German health care
system based on self-government of the participants in the system.
Through our national German sales force, we sell a broad and diversified range of generic
pharmaceutical products, under the beta brand. The sales force targets primary care physicians
and pharmacists and the key account management team targets insurance companies, various doctors
and pharmacist associations. These efforts are supported by a direct marketing team and an active
public relations program. Value-added services provided by the beta institut fur sozialmedizinische
Forschung und Entwicklung GmbH, also known as the beta Institute for Sociomedical Research, are
fully integrated into the sales and marketing effort and provide a unique differentiation point for
our sales calls. The beta Institute for Sociomedical Research is a non-profit organization engaged
in research and development in order to seek means of improving the healthcare process in ways
which promote the psychological welfare of patients.
Our sales force promotes products to physicians and pharmacies by emphasizing product-specific
factors, promoting our reputation and other promotional and customer relationship activities.
betapharms key account management function focuses on statutory health insurance funds and
various associations, to increase their influence in the generics market. betapharm is one of the
few generic companies that have concluded agreements with the statutory health insurance funds.
Manufacturing and Raw Materials
As with formulations, generics are packaged in individual doses for consumption by the
patient. In fiscal 2007, our generics segment procured 65.2% of its API requirements from our
active pharmaceutical ingredients and intermediates segment.
For a majority of the products we sell in the United States and the United Kingdom (to the
extent not manufactured in the United Kingdom), we manufacture our finished products at our plant
in Bachupally, Andhra Pradesh, India. The facility in Andhra Pradesh, India is designed for the
manufacture of tablets and hard gelatin capsules. We added large batch size tableting and pellets
capabilities in this facility during fiscal 2003. We are dependent on third parties for the supply
of the inactive pharmaceutical ingredients used in our products.
For our manufacturing operations in India, we source most of the raw material requirements
with respect to the active pharmaceutical ingredients internally from our active pharmaceutical
ingredients and intermediates segment. We are required to identify the suppliers of all the raw
materials for our products in the drug applications that we file with the U.S. FDA If raw materials
for a particular product become unavailable from an approved supplier specified in a drug
application, we would be required to qualify a substitute supplier with the U.S. FDA, which would
likely interrupt manufacturing of the affected product. To the extent practicable, we attempt to
identify more than one supplier in each drug application. However, some raw materials are available
only from a single source and, in some of our drug applications, only one supplier of raw materials
has been identified, even in instances where multiple sources exist. In addition, we obtain a
significant portion of our inactive pharmaceutical ingredients from foreign suppliers. Arrangements
with international raw material suppliers are subject to, among other things, U.S. FDA regulations,
various import duties and other government clearances.
Our facility in the United Kingdom is located at Beverley. This facility is designed for the
packaging and warehousing of pharmaceutical products in a variety of dosage forms, including
tablets, capsules, liquids and creams. The facility holds all relevant licenses and authorizations
required to conduct all necessary activities, including the supply of materials for use in clinical
studies. In addition, the quality systems for ensuring product quality planning and control are ISO
9000 accredited. We closed our other U.K. facility, which had been located at Battersea, in fiscal
2007. We transferred the manufacturing of most of the products from the Battersea facility to our
facilities in India.
For our manufacturing operations in the United Kingdom, we are dependent on third parties for
the supply of all pharmaceutical ingredients and packaging materials used in manufactured products.
Supply agreements are in place with all of our suppliers. We are required to identify the suppliers
of key raw materials, including all active materials used in our products, within our applications
to market products within the United Kingdom and Europe. If we wish to change to an alternative
supplier, then we are required to
substantiate the suitability of the alternative raw materials and seek prior approval from the
health authority in each market where our products using the alternative raw materials are
marketed.
We are in the process of expanding our facility at Bachupally, Andhra Pradesh to manufacture
tablets and capsules. We are also
27
in the process of establishing a facility at a Special Economic
Zone located in Visakhapatnam, India to manufacture tablets and capsules. Upon completion of the
facility, and commercialization of such products, the facility will cater to the requirements of
North American and European customers for those products.
In Germany, manufacturing of betapharms products and the logistics function have been
outsourced to third party providers under supply and service agreements. In fiscal 2008, we intend
to commence shifting manufacturing of betapharms products and the logistics function from third
party providers to our facilities in India.
Competition
Revenues and gross profit derived from the sales of generic pharmaceutical products are
affected by certain regulatory and competitive factors. As patents and regulatory exclusivity for
brand name products expire, the first off-patent manufacturer to receive regulatory approval for
generic equivalents of such products is generally able to achieve significant market penetration.
As competing off-patent manufacturers receive regulatory approvals on similar products, market
share, revenues and gross profit typically decline, in some cases significantly. Accordingly, the
level of market share, revenues and gross profit attributable to a particular generic product is
normally related to the number of competitors in that products market and the timing of that
products regulatory approval and launch, in relation to competing approvals and launches.
Consequently, we must continue to develop and introduce new products in a timely and cost-effective
manner to maintain our revenues and gross margins. In addition, the other competitive factors
critical to this business include price, product quality, prompt delivery, customer service and
reputation. Many of our competitors seek to participate in sales of generic products by, among
other things, collaborating with other generic pharmaceutical companies or by marketing their own
generic equivalent to their branded products. Our major competitors in the U.S. market include
Ranbaxy Laboratories Limited, Teva Pharmaceutical Industries Limited, Barr Laboratories Inc., Mylan
Laboratories Inc., Andrx Corporation, Watson Laboratories Inc., and Sandoz, a division of Novartis
Pharma A.G.
Brand-name manufacturers have devised numerous strategies to delay competition from lower cost
generic versions of their products. One of these strategies is to change the dosage form or dosing
regimen of the brand product prior to generic introduction, which may reduce the demand for the
original dosage form as sought by a generic ANDA dossier applicant or create regulatory delays,
sometimes significant, while the generic applicant, to the extent possible, amends its ANDA dossier
to match the changes in the brand product. In many of these instances, the changes to the brand
product may be protected by patent or data exclusivities, further delaying generic introduction.
Another strategy is the launch by the innovator or its licensee of an authorized generic during
the 180-day generic exclusivity period, resulting in two generic products competing for the market
rather than just the product that obtained the generic exclusivity. This may result in reduced
revenues for the generic company which has been awarded the generic exclusivity period. In January
2006, we entered into an agreement with Merck & Co., Inc., allowing us to distribute and sell
generic versions of finasteride and simvastatin (sold by Merck under the brand names Proscar® and
Zocor®), upon the expiration of Mercks patents covered by these products, provided that some other
company obtains 180-day exclusivity after the expiration of the patents for either product.
Subsequently, the patents for both of these products expired and other companies obtained 180-day
exclusivity. Accordingly, we launched sales of these products on June 19, 2006 and June 23, 2006,
respectively.
In Germany, the companies with the largest generics market shares are continuing to increase
their generics market shares. The top five generics companies (including their subsidiaries) in
Germany hold an aggregate market share of approximately 54.9%, according to INSIGHT HEALTHs NPI-Gx
(Sales March 2007) report. Our key competitors within the German generics market include Sandoz
(including its Hexal, Sandoz and 1A Pharma subsidiaries), a division of Novartis Pharma A.G.,
Ratiopharm GmbH and Stada Arzneimittel AG (including its Stada and Aliud subsidiaries).
Government regulations
U.S. Regulatory Environment
All pharmaceutical manufacturers that sell products in the United States are subject to
extensive regulation by the U.S. federal government, principally pursuant to the Federal Food, Drug
and Cosmetic Act, the Hatch-Waxman Act, the Generic Drug Enforcement Act and other federal
government statutes and regulations. These regulations govern or influence the testing,
manufacturing, packaging, labeling, storing, record-keeping, safety, approval, advertising,
promotion, sale and distribution of products.
Our facilities and products are periodically inspected by the U.S. FDA, which has extensive
enforcement powers over the activities of pharmaceutical manufacturers. Non-compliance with
applicable requirements can result in fines, criminal penalties, civil injunction against shipment
of products, recall and seizure of products, total or partial suspension of production, sale or
import of products, refusal of the U.S. government to enter into supply contracts or to approve new
drug applications and criminal prosecution. The U.S. FDA also has the authority to deny or revoke
approvals of drug active ingredients and dosage forms and the power to halt the
28
operations of
non-complying manufacturers. Any failure by us to comply with applicable U.S. FDA policies and
regulations could have a material adverse effect on the operations in our generics business.
U.S. FDA approval of an ANDA is required before a generic equivalent of an existing or
referenced brand drug can be marketed. The ANDA process is abbreviated because when processing an
ANDA, the U.S. FDA waives the requirement of conducting complete clinical studies, although it
normally requires bio-availability and/or bio-equivalence studies. An ANDA may be submitted for a
drug on the basis that it is the equivalent of a previously approved drug or, in the case of a new
dosage form, is suitable for use for the indications specified.
An ANDA applicant in the United States is required to review the patents of the innovator
listed in the U.S. FDA publication entitled Approved Drug Products with Therapeutic Equivalence
Evaluations, popularly known as the Orange Book, and make an appropriate certification. There are
several different types of certifications that can be made. A Paragraph IV filing is made when the
ANDA applicant believes its product or the use of its product does not infringe on the innovators
patents listed in the Orange Book or where the applicant believes that such patents are not valid
or enforceable. The first generic company to file a Paragraph IV filing may be eligible to receive
a six-month marketing exclusivity period from the date a court rules the patent is invalid or not
infringed. A Paragraph III filing is made when the ANDA applicant does not intend to market its
generic product until the patent expiration. A Paragraph II filing is made where the patent has
already expired. A Paragraph I filing is made when the innovator has not submitted the required
patent information for listing in the Orange Book. Another type of certification is made where a
patent claims a method of use, and the ANDA applicants proposed label does not claim that method
of use. When an innovator has listed more than one patent in the Orange Book, the ANDA applicant
must file separate certifications as to each patent. Generally, Paragraph IV and Paragraph III
filings are made before the product goes off patent, and Paragraph II and Paragraph I filings are
made after the patent has expired.
Before approving a product, the FDA also requires that our procedures and operations conform
to Current Good Manufacturing Practice (cGMP) regulations, relating to good manufacturing
practices as defined in the U.S. Code of Federal Regulations. We must follow cGMP regulations at
all times during the manufacture of our products. We continue to spend significant time, money and
effort in the areas of production and quality testing to help ensure full compliance with cGMP
regulations.
The timing of final U.S. FDA approval of an ANDA depends on a variety of factors, including
whether the applicant challenges any listed patents for the drug and whether the brand-name
manufacturer is entitled to one or more statutory exclusivity periods, during which the U.S. FDA
may be prohibited from accepting applications for, or approving, generic products. In certain
circumstances, a regulatory exclusivity period can extend beyond the life of a patent, and thus
block ANDAs from being approved on the patent expiration date. For example, in certain
circumstances the U.S. FDA may now extend the exclusivity of a product by six months past the date
of patent expiration if the manufacturer undertakes studies on the effect of their product in
children, a so-called pediatric extension.
In June 2003, the U.S. FDA announced reforms in its generic drug review program with the goal
of providing patients with greater and more predictable access to effective, low cost generic
alternatives to brand name drugs.
The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Medicare Act
of 2003) has modified certain provisions of the Hatch-Waxman Act. In particular, significant
changes have been made to provisions governing 180-day exclusivity and forfeiture thereof. The new
statutory provisions governing 180-day exclusivity may or may not apply to an ANDA, depending on
whether the first Paragraph IV certification submitted by any applicant for the drug was submitted
prior to the enactment of the Medicare Amendments on December 8, 2003.
Where the first Paragraph IV certification was submitted on or after December 8, 2003, the new
statutory provisions apply. Under these provisions, 180-day exclusivity is awarded to each ANDA
applicant submitting a Paragraph IV certification for the same drug with regard to any patent on
the first day that any ANDA applicant submits a Paragraph IV certification for the same drug. The
180-day exclusivity period begins on the date of first commercial marketing of the drug by any of
the first applicants. However, a first applicant may forfeit its exclusivity in a variety of ways,
including, but not limited to (a) failure to obtain tentative approval within 30 months after the
application is filed or (b) failure to market its drug by the later of two dates calculated as
follows: (x) 75 days after approval or 30 months after submission of the ANDA, whichever comes
first, or (y) 75 days after each patent for which the first applicant is qualified for 180-day
exclusivity is either (1) the subject of a final court decision holding that the patent is invalid,
not infringed, or unenforceable or (2) withdrawn from listing with the U.S. FDA (court decisions
qualify if either the first applicant or any
applicant with a tentative approval is a party; a final court decision is a decision by a
court of appeals or a decision by a district court that is not appealed). The foregoing is an
abbreviated summary of certain provisions of the Medicare Act, and accordingly it should be
consulted for a complete understanding of both the provisions described above and other important
provisions related to 180-day exclusivity and forfeiture thereof.
Where the first Paragraph IV certification was submitted prior to enactment of the Medicare Act,
the statutory provisions governing
29
180-day exclusivity prior to the Medicare Act still apply. The
U.S. FDA interprets these statutory provisions to award 180-day exclusivity to each ANDA applicant
submitting a Paragraph IV certification for the same drug on the same day with regard to the same
patent on the first day that any ANDA applicant submits a Paragraph IV certification for the same
drug with regard to the same patent. The 180-day exclusivity period begins on the date of first
commercial marketing of the drug by any of the first applicants or on the date of a final court
decision holding that the patent is invalid, not infringed, or unenforceable, whichever comes
first. A final court decision is a decision by a court of appeals or a decision by a district
court that is not appealed
European Union Regulatory Environment
The activities of pharmaceutical companies within the European Union are governed by Directive
2001/83EC as amended. This Directive outlines the legislative framework, including the legal basis
of approval, specific licensing procedures, and quality standards including manufacture, patient
information and pharmaco-vigilance activities.
Our U.K. facilities are licensed and periodically inspected by the U.K. MHRA Inspectorate,
which has extensive enforcement powers over the activities of pharmaceutical manufacturers.
Non-compliance can result in product recall and closure. In addition, the U.K. MHRA Inspectorate
has approved and periodically inspected our manufacturing facility based in Andhra Pradesh, India
for the manufacture of generic tablets and capsules for supply to Europe.
All pharmaceutical companies that manufacture and market products in Germany are subject to
the rules and regulations defined by the German drug regulator, the Bundesinstitut für Arzneimittel
und Medizinprodukte (BfArM) and the Federal Drug Authorities. Our facilities in Germany are
licensed and periodically inspected by the Federal Drug Authorities, which has extensive
enforcement powers over the activities of pharmaceutical companies. Non-compliance can result in
closure of the facility.
Prior approval of a Marketing Authorization is required to supply products within the European
Union. Such Marketing Authorizations may be restricted to one member state then recognized in other
member states or can cover the whole of the European Union, depending upon the form of registration
elected. In Germany, Marketing Authorizations have to be submitted for approval to the BfArM.
Generic or abridged applications omit full non-clinical and clinical data but contain limited
non-clinical and clinical data, depending upon the legal basis of the application or to address a
specific issue. The majority of our generic applications are made on the basis of essential
similarity although other criteria may be applied. In the case of an essentially similar
application, the applicant is required to demonstrate that its generic product contains the same
active pharmaceutical ingredients in the same dosage form for the same indication as the innovator
product. Specific data is included in the application to demonstrate that the proposed generic
product is essentially similar to the innovator product with respect to quality, safe usage and
continued efficacy. The applicant is also required to demonstrate bioequivalence with the
reference product. Once all these criteria are met then a Marketing Authorization may be
considered for grant.
Unlike in the United States, there is no regulatory mechanism within the European Union to
challenge any patent protection. Nor is any period of market exclusivity conferred upon the first
generic approval. In situations where the period of exclusivity given to the branded product
expires before their patent expires, the launch of our product would then be delayed until patent
expiration.
In Germany, the new government passed a new healthcare reform, the Statutory Health Insurance
- Competition Strengthening Act or Wettbewerbsstärkungsgesetz (WSG), which became effective as of
April 1, 2007. Highlights of this new act are:
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private insurance funds cannot refuse to provide health insurance to anyone who is
without private health insurance coverage or who wants to switch from the public system;
for these patients, private insurance funds need to offer basic rates in the future; |
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insurance funds are encouraged to enter into contracts with doctors, pharmacies and
the pharmaceutical industry designed to lower the costs for the supply of patients with
medicinal products (e.g., rebate agreements with the pharmaceutical industry and
pharmacists) and integrating different fields of care to lower medical treatment costs
(e.g., agreements with doctors requiring general practitioners to be the gatekeepers to
access to medical specialists); |
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insurance funds can cause drugs that are covered by rebate contracts with the
pharmaceutical industry to be exempt from co-payments by patients; |
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in filling prescriptions, pharmacists are required to give prefererence to drugs
subject to rebates, unless the physician has explicitly excluded replacement of the
prescribed drug; |
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rebated medicinal products might, depending on individual agreements with physicians,
be exempted from individual prescribing limits of the physicians (in Germany, physicians
are given prescribing limits by insurance funds based on their number of patients, and
if those limits are exceeded, the physicians can be penalized); |
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patients included in integrated care routes (see above) shall preferably receive
rebated medicinal products; and |
30
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in making decisions pertaining to the prescription of drugs or filling of
prescriptions, drugs will be evaluated not only from a benefit perspective but also from
a cost perspective. |
Canada and South Africa Regulatory Environment
In Canada and South Africa, we are required to file product dossiers with the particular
countrys regulatory authority for permission to market the generic formulation. The regulatory
authorities may inspect our manufacturing facility before approval of the dossier.
Critical Care and Biotechnology Segment
The critical care and biotechnology businesses were started in 1998 to focus on and create a
strong technology base in these areas. While this area of our business generates low sales volume,
these products generally carry a higher profit margin. Our critical care products are formulations
used in hospitals to treat cancer and for supportive care. Our biotechnology products cover
recombinant protein therapeutics development.
The following table provides revenues for this segment for fiscal 2005, 2006 and 2007. The
critical care division accounted for 78.02% of this segments revenues in fiscal 2007, contributing
Rs.642.77 million. The biotechnology division accounted for 21.98% of this segments revenues in
fiscal 2007, contributing Rs.181.09 million.
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Fiscal Year ended March 31, |
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2005 |
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|
2006 |
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|
2007 |
|
Division |
|
Revenues |
|
|
% |
|
|
Revenues |
|
|
% |
|
|
Revenues |
|
|
% Total |
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(in millions) |
|
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Total |
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(in millions) |
|
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Total |
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(in millions) |
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|
|
Critical Care |
|
Rs. |
407.9 |
|
|
|
77.4 |
% |
|
Rs. |
517.5 |
|
|
|
74.9 |
% |
|
Rs. |
642.8 |
|
|
U.S.$ |
14.9 |
|
|
|
78.0 |
% |
Biotechnology |
|
|
119.2 |
|
|
|
22.6 |
% |
|
|
173.6 |
|
|
|
25.1 |
% |
|
|
181.1 |
|
|
|
4.2 |
|
|
|
22.0 |
% |
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|
|
|
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|
|
|
|
|
|
|
|
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|
|
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|
|
|
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Total |
|
Rs. |
527.1 |
|
|
|
100.0 |
% |
|
Rs. |
691.1 |
|
|
|
100.0 |
% |
|
Rs. |
823.9 |
|
|
U.S.$ |
19.1 |
|
|
|
100.0 |
% |
The following table sets forth revenues of our critical care and biotechnology segment by
geographic area for fiscal 2005, 2006 and 2007, respectively:
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|
|
|
|
|
|
|
|
Fiscal Year ended March 31, |
|
|
2005 |
|
2006 |
|
2007 |
Division |
|
Revenues |
|
% |
|
Revenues |
|
% |
|
Revenues |
|
% |
|
|
(in millions) |
|
Total(1) |
|
(in millions) |
|
Total(1) |
|
(in millions) |
|
Total(1) |
India |
|
Rs. |
360.7 |
|
|
|
68.4 |
% |
|
Rs. |
450.4 |
|
|
|
65.2 |
% |
|
Rs. |
555.5 |
|
|
U.S.$ |
12.9 |
|
|
|
67.4 |
% |
Russia |
|
|
62.3 |
|
|
|
11.8 |
% |
|
|
93.0 |
|
|
|
13.4 |
% |
|
|
89.9 |
|
|
|
2.1 |
|
|
|
10.9 |
% |
Other CIS(1) |
|
|
19.4 |
|
|
|
3.7 |
% |
|
|
56.5 |
|
|
|
8.2 |
% |
|
|
50.2 |
|
|
|
1.2 |
|
|
|
6.1 |
% |
Other |
|
|
84.7 |
|
|
|
16.1 |
% |
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|
91.2 |
|
|
|
13.2 |
% |
|
|
128.3 |
|
|
|
2.9 |
|
|
|
15.6 |
% |
Total |
|
Rs. |
527.1 |
|
|
|
100 |
% |
|
Rs. |
691.1 |
|
|
|
100.0 |
% |
|
Rs. |
823.9 |
|
|
U.S.$ |
19.1 |
|
|
|
100 |
% |
|
|
|
(1) |
|
Refers to our revenues from market sales in the applicable country expressed as a
percentage of our total revenues throughout the world. |
Product Portfolio
The following table sets forth the sales of our key products in fiscal 2005, 2006 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year ended March 31, |
|
|
Therapeutic |
|
2005 |
|
2006 |
|
2007 |
Product |
|
Category |
|
Revenues |
|
% |
|
Revenues |
|
% |
|
Revenues |
|
% |
|
|
|
|
(Rs. in millions) |
|
Total(1) |
|
(Rs. in millions) |
|
Total(1) |
|
(in millions) |
|
Total(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs. |
|
U.S.$ |
|
|
|
|
Mitotax |
|
Ovarian/breast/lung cancer |
|
|
178.8 |
|
|
|
33.9 |
% |
|
|
231.8 |
|
|
|
33.5 |
% |
|
|
194.17 |
|
|
|
4.51 |
|
|
|
23.57 |
% |
Docetere |
|
Breast/lung cancer |
|
|
73.2 |
|
|
|
13.9 |
% |
|
|
81.6 |
|
|
|
11.8 |
% |
|
|
94.11 |
|
|
|
2.18 |
|
|
|
11.42 |
% |
Cytogem |
|
Lung/pancreatic cancer |
|
|
59.1 |
|
|
|
11.2 |
% |
|
|
55.7 |
|
|
|
8.1 |
% |
|
|
130.64 |
|
|
|
3.03 |
|
|
|
15.86 |
% |
Dacotin |
|
Colorectal cancer |
|
|
25.9 |
|
|
|
4.9 |
% |
|
|
43.8 |
|
|
|
6.3 |
% |
|
|
63.29 |
|
|
|
1.47 |
|
|
|
7.68 |
% |
Grafeel |
|
Supportive therapeutic |
|
|
119.2 |
|
|
|
22.6 |
% |
|
|
173.6 |
|
|
|
25.1 |
% |
|
|
181.09 |
|
|
|
4.20 |
|
|
|
21.98 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
456.2 |
|
|
|
86.5 |
% |
|
|
586.5 |
|
|
|
84.9 |
% |
|
|
663.29 |
|
|
|
15.39 |
|
|
|
80.51 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Refers to our revenues from sales of the applicable product expressed as a
percentage of the total revenues of our critical care and biotechnology segment. |
Critical care. We focus on high margin, low volume products for niche markets in India in the
area of critical care. Our main
31
products are Mitotax (paclitaxel), Cytogem (gemcitabine), Docetere (docetaxel) and Irinocam
(irinotecan). We also market Dacotin (oxaliplatin), which is licensed and imported from Debiopharm
S.A. of Switzerland. We are also developing oncology generics focused on U.S. and European
markets. We have entered into a revenue sharing agreement with Pliva d.d., an Eastern European
generics company, for the development and marketing of a group of oncology products for the
European markets.
Biotechnology. Grafeel, the bio-generic version of filgrastim, is the only biotechnology
product we sold in fiscal 2007. Filgrastim is a recombinant protein used in chemotherapy-induced
neutropenia and in bone marrow transplantation. Grafeel has been launched in India, Brazil and
certain other countries.
We are developing cell-culture and E. Coli based biogeneric recombinant proteins and have a
portfolio of products in various stages of development. The most advanced of these developing
biotechnology products is rituximab, which we expect to launch in India during the first half of
fiscal 2008.
We view biotechnology as a business with significant potential. Our commitment to the business
is reflected in our investments in building the research and development infrastructure, including
laboratories and scientific teams.
Sales, Marketing and Distribution Network.
The marketing of our critical care and biotechnology products is handled by a dedicated sales
and marketing team. We sell our products through clearing and forwarding agents in India. In India,
the marketing team promotes our products to medical specialists and focuses on sales to hospitals,
government agencies and non-government institutional organizations.
We also have a partnership agreement with Pliva d.d., an Eastern European generics company,
for the development by us and marketing by Pliva d.d. of a group of oncology products for the
European markets.
Manufacturing and Raw Materials
Critical care. For our critical care products, we manufacture all of the active
pharmaceutical ingredients. The manufacturing of the formulation is undertaken at our formulations
facility. We source some of the products from third party suppliers. We have completed construction
of a completely contained API facility for the manufacture of cytotoxic products. Construction of
another API facility for anti-hormonal products for cancer therapy was completed in August 2005.
We have completed construction of a fully contained facility (i.e., an isolated environment
where the workers are not exposed to the materials or machinery) in Visakhapatnam, India for the
manufacture of oral solid dosage form and injectable forms of cytotoxic as well as hormonal
products catering primarily to the U.S. and European markets. The exhibit batches of these products
are in progress. As part of our plan to increase our range of cancer therapy products, we also plan
to introduce certain other cancer therapy products in the Indian market.
Biotechnology. We have a facility at Bachupally, Andhra Pradesh, India for the manufacture of
our biotechnology products. The manufacture of our biotechnology products involves cloning proteins
and then extracting the proteins by fermentation and purification.
Competition
Critical care. For our critical care products, our main competitors in the oncology market in
India are Dabur Pharma Limited, Cipla Limited, Eli Lily & Co. and Aventis India Limited. For our
oncology products currently under development, our main competitors include generics companies in
India, Europe and the United States with a focus on development of oncology products, including
Mayne Group Limited (Australia), Zydus Cadila Group (India) and Pliva d.d. (Croatia).
Biotechnology. In our biotechnology business, our marketed product faces competition primarily
from the innovator company. Given the significant potential of the biogenerics market, several
companies are focused on the development of biogenerics, including Sandoz, a division of Novartis
Pharma A.G., Teva Pharmaceutical Industries Limited, and Barr Laboratories, Inc.
Government Regulations
Critical care. For critical care products, the regulations are similar to those discussed in
the formulations, API and generics segments.
Biotechnology. The biotechnology sector in India is governed by the guidelines/rules
formulated by the Department of Biotechnology (DBT), under the Indian governments Ministry of
Science and Technology. The guidelines cover the entire requirements of various other related
ministries/statutory departments of the government of India.
32
A business which intends to manufacture and market biotechnology products is required to form
an Institutional Bio Safety Committee (IBSC) consisting of internal experts on related fields as
well as a nominee of the DBT and Central Pollution Control Board (CPCB). The IBSC reviews,
verifies and approves the product application before submitting it to the Review Committee of
Genetic Manipulation (RCGM) under the Indian governments Ministry of Science and Technology. The
RCGM verifies and approves all the data included in the application including the protocol and
final reports on animal toxicity and human clinical trials.
Once clearance is obtained from the RCGM, the business is required to obtain clearance from
the Genetic Engineering Approval Committee (GEAC) under the Ministry of Environment and Forest,
government of India. The GEAC forwards its recommendation to the DBT and DCGI. Upon receipt of a
No Objection Certificate from the DCGI, the business is required to obtain a manufacturing
license from the State Drugs Authority and thereafter can commence commercial marketing.
Drug Discovery Segment
Drug discovery is a key segment of our business. In this segment, we are actively pursuing
discovery and development of new molecules, sometimes referred to as New Chemical Entities or
NCEs. Our research programs focus on the following therapeutic areas:
|
|
|
Metabolic disorders |
|
|
|
|
Cardiovascular disorders |
|
|
|
|
Bacterial infections |
|
|
|
|
Inflammation |
|
|
|
|
Cancer |
Our research laboratories are based in Hyderabad, India and Atlanta, Georgia, U.S. As of March
31, 2007, we employed a total of 283 scientists, including approximately 56 scientists who held
Ph.D. degrees. We pursue an integrated research strategy with our laboratories in the United
States focusing on discovery of new molecular targets and designing of screening assays to screen
for promising lead molecules followed by selection and optimization of lead molecules and further
clinical development of those optimized leads at our laboratories in India. By establishing a
research facility in the United States, we have better access to research scientists in the United
States, enhancing our screening abilities for new molecular targets and access to high technology
platforms.
While we continue to seek licensing and development arrangements with third parties to further
develop our pipeline products, we also conduct clinical development of some of the candidate drugs
ourselves where it is economically and technically feasible. Our long-term strategy for drug
discovery is to increasingly undertake clinical testing ourselves, as we believe that this will
enable us to derive higher value for our compounds. Our goal is to balance internal development of
our own product candidates with in-licensing of promising compounds that complement our strengths.
We also pursue licensing and joint development of some of our lead compounds with companies looking
to implement their own product portfolio.
In September 2005, we entered into a co-development and commercialization agreement with
Denmark based Rheoscience A/S for the joint development and commercialization of balaglitazone (DRF
2593), a partial PPAR-gamma agonist, for the treatment of type 2 diabetes. Under the terms of the
agreement, Rheoscience will fund all the costs associated with the Phase III clinical trials of DRF
2593 and we will pay Rheoscience a pre-determined amount towards its share of the development
costs. Rheoscience has exclusive marketing rights in the European Union and China, and we have
exclusive marketing rights in the rest of the world. Rheoscience is obligated to obtain all
necessary regulatory approvals on our behalf in the United States. Upon receiving final approval
from the U.S. FDA, we are obligated to make a pre-determined milestone payment to Rheoscience. The
agreement is valid for a period of ten years from the date of commercialization. Under the terms of
the agreement, if either party chooses to commercialize the product without the other, then the
other party will be entitled to a milestone-based royalty on sales. However, if the parties choose
to commercialize the product through a third party, then each of the parties is entitled to share a
pre-determined percentage of the net proceeds of commercialization received. We also retain the
right to supply clinical development and commercial quantities of the requisite active
pharmaceutical ingredients on arms-length basis to the party that commercializes DRF 2593. After
completion of long term carcinogenicity studies, as at March 2007, DRF 2593 is scheduled to enter
Phase III clinical trials.
In September 2005, we announced the formation of an integrated drug development company,
Perlecan Pharma Private Limited (Perlecan Pharma), as a joint venture with Citigroup Venture
Capital International Growth Partnership Mauritius Limited (CVC) and ICICI Venture Funds
Management Company (ICICI Venture). The terms of the joint venture were amended in March 2006.
Under the terms of the joint venture agreement, CVC and ICICI Venture each contributed Rs.1,018
million and we contributed Rs.170 million towards Perlecans initial equity capital.
Furthermore, the agreement grants us the first right to conduct product development and clinical
trials on behalf of Perlecan Pharma on an arms length basis, subject to the final decision by the
board of
33
directors of Perlecan Pharma. During fiscal 2007, we entered into a Research Services
Agreement with Perlecan Pharma pursuant to which we provide Perlecan Pharma with clinical
development support and services.
Perlecan Pharma has certain development rights with respect to additional NCE assets that we
discover and we have certain commercialization rights with respect to products that Perlecan Pharma
develops. In addition, as part of this arrangement, we transferred all rights and title,
including the development and commercialization rights, of four NCE assets to Perlecan Pharma. As a
result, we own approximately 14.31% of the equity of Perlecan Pharma and we have the right to
designate three out of seven directors on the board of Perlecan Pharma. In addition, Perlecan
Pharma has issued warrants to us to purchase 45,000,000 equity shares of Perlecan Pharma, the
exercise of which is contingent upon the success of certain research and development milestones.
If the warrants are fully exercised, then we will own approximately 62.5% of the equity shares of
Perlecan Pharma. During fiscal 2007, Perlecan Pharma discontinued the development of DRL 11605, one
of the the four NCE assets.
In September 2006, we entered into an agreement with ClinTec International for the joint
development of an anti-cancer compound, DRF 1042, belonging to the Topoisomerase inhibitors class
of compounds for use as potential treatment of various types of cancer. We have completed Phase I
clinical trials for DRF 1042 in India. Under the terms of the agreement, we and ClinTec
International will co-develop DRF 1042, undertaking Phase II and Phase III clinical trials, with
the aim of securing U.S. FDA and EMEA approvals. ClinTec International is granted the
commercialization rights for most of Europe, including major European markets, and we retain the
commercialization rights for the rest of the world, including the United States. Upon
commercialization of the product, we will receive a royalty on sales by ClinTec International in
its designated territories and ClinTec International will receive a royalty on sales by us in the
United States. In the event either party out-licenses the drug product, the proceeds from such an
arrangement will be shared by both the parties in a pre-determined ratio (excluding the proceeds
from out-licenses of the drug product to our territories outside the United States). We will also
retain the exclusive, worldwide rights to supply commercial quantities of the drug product.
As part of our research program, we pursue collaborations with leading institutions and
laboratories all over the world. We enter into these collaborations to utilize the expertise and
facilities these institutions and laboratories provide. We have collaborated with the National
Cancer Institute in Maryland, which is a part of the United States National Institutes of Health.
In February 2006, we entered into an agreement with Argenta Discovery Limited (Argenta) for the
joint development and commercialization of a novel approach to the treatment of Chronic Obstructive
Pulmonary Disease (COPD). Under the terms of the agreement, the parties agreed to collaborate to
identify clinical candidates from a certain class of our compounds for use as potential treatments
for COPD. Both parties agreed to jointly develop the selected candidates from the pre-clinical
stage up to Phase IIa (proof-of-concept). Upon successful completion of a Phase IIa trial, the
parties may either license-out the candidate for further development and commercialization to a
larger pharmaceutical company or continue the further co-development and commercialization
themselves. We and Argenta have agreed to fund the joint collaboration up to proof-of-concept and
share the development expenses equally and profits at a predetermined ratio. DRF 2546 was
identified as candidate that could be developed for COPD, and preclinical development has begun.
Our investments into research and development of NCEs have been consistently focused towards
developing promising therapeutics. In fiscal 2005, 2006 and 2007, we spent Rs.868.9 million,
Rs.814.5 million and Rs.774.6, respectively, towards drug discovery activities. In fiscal 2005,
2006 and 2007, we received Rs.288.4 million, Rs.0 and Rs.136.8 in revenues, respectively, from drug
discovery activities.
The compounds currently under development in our pipeline include:
|
|
|
|
|
|
|
|
|
DRF 2593
|
|
Metabolic disorders
|
|
Phase II completed
|
|
Rheoscience
|
|
Long-term carcinogenicity studies completed.
Entered Phase III clinical testing in July 2007. |
|
|
|
|
|
|
|
|
|
DRF 10945
|
|
Metabolic disorders
|
|
Phase II in progress
|
|
Assigned to Perlecan
|
|
Completed Proof of Concept for Type IV/V dyslipidemia. |
|
|
|
|
|
|
|
|
|
RUS 3108
|
|
Cardiovascular
|
|
Phase I completed
|
|
Assigned to Perlecan
|
|
Perlecan inducer for the treatment of atherosclerosis. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scheduled to enter Phase II clinical testing in April 2008. |
|
|
|
|
|
|
|
|
|
DRL 16536
|
|
Metabolic disorders
|
|
Phase I in progress
|
|
Assigned to Perlecan
|
|
AMPK modulator for the treatment of diabetes. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Phase I Multiple Ascending Dose scheduled to begin in November
2007. |
|
|
|
|
|
|
|
|
|
DRF 1042
|
|
Oncology
|
|
Phase I
|
|
Clintec
|
|
Scheduled to enter Phase II clinical testing for solid tumors. |
Patents. The status of patents filed and issued as of March 31, 2007 is summarized below:
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Category |
|
USPTO(1) |
|
USPTO(1) |
|
PCT(2) |
|
India |
|
India |
|
|
(Filed) |
|
(Granted) |
|
(Filed) |
|
(Filed) |
|
(Granted) |
Anti-diabetic |
|
|
68 |
|
|
|
39 |
|
|
|
60 |
|
|
|
110 |
|
|
|
30 |
|
Anti-cancer |
|
|
13 |
|
|
|
8 |
|
|
|
12 |
|
|
|
43 |
|
|
|
12 |
|
Anti-bacterial |
|
|
7 |
|
|
|
4 |
|
|
|
7 |
|
|
|
20 |
|
|
|
2 |
|
Anti-inflammation/
Cardiovascular |
|
|
33 |
|
|
|
9 |
|
|
|
13 |
|
|
|
14 |
|
|
|
1 |
|
Anti-ulcerant |
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
Miscellaneous |
|
|
4 |
|
|
|
1 |
|
|
|
3 |
|
|
|
23 |
|
|
|
5 |
|
TOTAL |
|
|
126 |
|
|
|
62 |
|
|
|
95 |
|
|
|
211 |
|
|
|
50 |
|
|
|
|
(1) |
|
USPTO means the United States Patent and Trademark Office. |
|
(2) |
|
PTC means the Patent Cooperation Treaty, an international treaty that
facilitates foreign patent filings for residents of member countries when obtaining patents in
other member countries. |
Stages of Testing / Development. The stages of testing required before a pharmaceutical
product can be marketed in the United States are generally as follows:
|
|
|
Stage of Development |
|
Description |
Preclinical
|
|
Animal studies and laboratory tests to evaluate safety and efficacy,
demonstrate activity of a product candidate and identify its chemical and
physical properties. |
|
|
|
Phase I
|
|
Clinical studies to test safety and pharmacokinetic profile of a drug in humans. |
|
|
|
Phase II
|
|
Clinical studies conducted with groups of patients to determine preliminary
efficacy, dosage and expanded evidence of safety. |
|
|
|
Phase III
|
|
Larger scale clinical studies conducted in patients to provide sufficient data
for statistical proof of efficacy and safety. |
For ethical, scientific and legal reasons, animal studies are required in the discovery and
safety evaluation of new medicines. Preclinical tests assess the potential safety and efficacy of a
product candidate in animal models. The results of these studies must be submitted to the U.S. FDA
as part of an Investigational New Drug (IND) application before human testing may proceed.
U.S. law further requires that studies conducted to support approval for product marketing be
adequate and well controlled. In general, this means that either a placebo or a product already
approved for the treatment of the disease or condition under study must be used as a reference
control. Studies must also be conducted in compliance with good clinical practice requirements, and
adverse event and other reporting requirements must be followed.
The clinical trial process can take five to ten years or more to complete, and there can be no
assurance that the data collected will be in compliance with good clinical practice regulations,
will demonstrate that the product is safe or effective, or, in the case of a biologic product, pure
and potent, or will provide sufficient data to support U.S. FDA approval of the product. The U.S.
FDA may place clinical trials on hold at any point in this process if, among other reasons, it
concludes that clinical subjects are being exposed to an unacceptable health risk. Trials may also
be terminated by institutional review boards, who must review and approve all research involving
human subjects. Side effects or adverse events that are reported during clinical trials can delay,
impede, or prevent marketing authorization.
Scientific Advisory Board. Our Scientific Advisory Board is composed of leading professionals
in the field of healthcare and chemical sciences. These professionals contribute to the strategic
definition and implementation of pre-clinical development plans for our products. Members of the
advisory committee meet individually and as a group with our management on an annual basis.
|
|
|
Members |
|
|
Dr. Daniel Rader
|
|
Faculty in the Department of Medicine and the Director of
Cardiovascular Metabolism unit at the Institute for Diabetes,
Obesity and Metabolism, University of Pennsylvania |
|
|
|
Dr. K. Janardhan Reddy
|
|
Professor and Chairman, Department of Pathology, Northwestern
University Medical School, Chicago, Illinois, U.S.A. |
|
|
|
Dr. Henry Ginsberg
|
|
Herbert Irving Professor of Medicine, Division of Preventive
Medicine, Presbyterian Hospital, New York, U.S.A. |
|
|
|
Dr. Ira J. Goldberg
|
|
Professor of Medicine, Division of Preventive Medicine and
Nutrition Columbia University College of Physicians and
Surgeons, New York, U.S.A. |
|
|
|
Dr. K. Anji Reddy
|
|
Chairman, Dr. Reddys Laboratories Limited |
|
|
|
Dr. Uday Saxena
|
|
Chief Scientific Officer, Dr. Reddys Laboratories Limited |
|
|
|
Dr. R. Rajagopalan
|
|
President, Discovery Research, Dr. Reddys Laboratories Limited |
35
Competition
The pharmaceutical and biotechnology industries are highly competitive. We face intense
competition from organizations such as large pharmaceutical companies, biotechnology companies and
academic and research organizations. The major pharmaceutical organizations competing with us have
greater capital resources, larger overall research and development staff and facilities and
considerably more experience in drug development. Biotechnology companies competing with us may
have these advantages as well. In addition to competition for collaborators and investors, these
companies and institutions also compete with us in recruiting and retaining highly qualified
scientific and management personnel.
Government regulations
Virtually all pharmaceutical and biotechnology products that we or our collaborative partners
develop will require regulatory approval by governmental agencies prior to commercialization. The
nature and extent to which these regulations apply varies depending on the nature of the products
and also vary from country to country. In particular, human pharmaceutical products are subject to
rigorous pre-clinical and clinical testing and other approval procedures by the relevant regulatory
agency. The requirements governing the conduct of clinical trials, product licensing, pricing and
reimbursement vary widely from country to country.
In India, under the Drugs and Cosmetics Act, 1940, the regulation of the manufacture, sale and
distribution of drugs is primarily the concern of the state authorities while the Central Drug
Control Administration is responsible for approval of new drugs, clinical trials in the country,
laying down the standards for drugs, control over the quality of imported drugs, coordination of
the activities of state drug control organizations and providing expert advice with a view of
bringing about the uniformity in the enforcement of the Drugs and Cosmetics Act, 1940.
For marketing a drug in the United States, we or our partners will be subject to regulatory
requirements governing human clinical trials, marketing approval and post-marketing activities for
pharmaceutical products and biologics. Various federal and, in some cases, state statutes and
regulations also govern or influence the manufacturing, safety, labeling, storage, record-keeping
and marketing of these products. The process of obtaining these approvals and the subsequent
compliance with applicable statutes and regulations is time consuming and requires substantial
resources, and the approval outcome is uncertain.
Generally, in order to gain U.S. FDA approval, a company first must conduct pre-clinical
studies in the laboratory and in animal models to gain preliminary information on a compounds
activity and to identify any safety problems. Pre-clinical studies must be conducted in accordance
with U.S. FDA regulations. The results of these studies are submitted as part of an IND application
that the U.S. FDA must review before human clinical trials of an investigational drug can start. If
the U.S. FDA does not respond with any questions, a drug developer can commence clinical trials
thirty days after the submission of an IND.
In order to eventually commercialize any products, we or our collaborator first will be
required to sponsor and file an IND and will be responsible for initiating and overseeing the
clinical studies to demonstrate the safety and efficacy that are necessary to obtain U.S. FDA
marketing approval. Clinical trials are normally done in three phases and generally take several
years, but may take longer to complete. The clinical trials have to be designed taking into account
the applicable U.S. FDA guidelines. Furthermore, the U.S. FDA may suspend clinical trials at any
time if the U.S. FDA believes that the subjects participating in trials are being exposed to
unacceptable risks or if the U.S. FDA finds deficiencies in the conduct of the trials or other
problems with our product under development.
After completion of clinical trials of a new product, U.S. FDA marketing approval must be
obtained. If the product is classified as a new pharmaceutical, we or our collaborator will be
required to file a New Drug Application (NDA), and receive approval before commercial marketing
of the drug. The testing and approval processes require substantial time and effort. NDAs submitted
to the U.S. FDA can take several years to obtain approval and the U.S. FDA is not obligated to
grant approval at all.
Even if U.S. FDA regulatory clearances are obtained, a marketed product is subject to
continual review. If and when the U.S. FDA approves any of our or our collaborators products under
development, the manufacture and marketing of these products will be subject to continuing
regulation, including compliance with cGMP, adverse event reporting requirements and prohibitions
on promoting a product for unapproved uses. Later discovery of previously unknown problems or
failure to comply with the applicable regulatory requirements may result in restrictions on the
marketing of a product or withdrawal of the product from the market as well
as possible civil or criminal sanctions. Various federal and, in some cases, state statutes
and regulations also govern or influence the manufacturing, safety, labeling, storage, record
keeping and marketing of pharmaceutical products.
Our research and development processes involve the controlled use of hazardous materials and
controlled substances. We are subject to federal, state and local laws and regulations governing
the use, manufacture, storage, handling and disposal of these materials and waste products.
Custom Pharmaceutical Services
Our Custom Pharmaceutical Services (CPS) business unit markets process development and
manufacturing services to
36
customers primarily consisting of innovator pharmaceutical and
biotechnology companies. This segment accounted for 10.1% of our total revenues for fiscal 2007,
contributing Rs.6,599.8 million.
The CPS business unit was established in 2001 to leverage our strength in process chemistry to
serve the niche segment of the specialty chemical industry. Over the years, our CPS business
strategy has evolved to focus on the marketing of process development and manufacturing services.
The objective of our CPS segment is to be the preferred partner for innovator pharmaceutical
companies, providing a complete range of services that are necessary to take their innovations to
the market speedily and more efficiently. The focus is to leverage our skills in process
development, analytical development, formulation development and cGMP manufacture to serve various
needs of innovator pharmaceutical companies.
With the acquisition of the Falcon plant in Mexico, we are positioning our CPS segment to be
the partner of choice for large and emerging innovator companies across the globe, with service
offerings spanning the entire value chain of pharmaceutical services.
Sales, Marketing and Distribution Network.
We have focused business development teams dedicated to our key geographies of North America,
the European Union and India targeting large and emerging innovator companies to build long-term
business relationships focused on catering to their outsourcing needs.
Manufacturing and Materials
Our CPS segment has well-resourced synthetic organic chemistry laboratories, analytical
laboratories, kilo laboratories and pilot plants at our technology development center at Miyapur,
Hyderabad. To support our increasing CPS business, we added a new facility in fiscal 2007 at
Jeedimetla, Hyderabad. We have already set up four laboratories at the new facility and are in the
process of establishing another three laboratories in that region. Our chemists and engineers
understand cGMP manufacturing and regulatory requirements for synthesis, manufacture and
formulation of an NCE from pre-clinical stage to commercialization. Larger quantities of APIs and
intermediates are sourced internally from our API segment. We acquired the Falcon plant, which was
Roches API manufacturing facility at Cuernavaca, Mexico, during fiscal 2006. This facility is U.S.
FDA inspected and consists of seven manufacturing bays. The facility is well maintained with good
systems and processes which were developed by Roche over the last decade. In addition to
manufacturing the active pharmaceutical ingredients naproxen and naproxen sodium and a range of
intermediates for Roche products, this facility synthesizes steroids for use in pharmaceutical and
veterinary products.
Competition
Globally, the pharmaceutical manufacturing services industry is estimated to generate sales of
U.S.$25-30 billion and is set to grow to sales of U.S.$45 billion by 2010, according to Express
Pharma, an Indian pharmaceutical publication, in its June 1-15, 2006 edition. Contract
manufacturing is still a nascent industry in India with sales in excess of U.S.$300 million,
according to Express Pharma. Contract manufacturing is a significant opportunity for Indian
pharmaceutical companies based on their low-cost manufacturing infrastructure. Key competitors in
India include Torrent Pharmaceuticals Ltd., Shasun Chemicals & Drugs Ltd., Divis Laboratories
Ltd., Matrix Laboratories Ltd., Dishman Pharmaceuticals & Chemicals Ltd., Syngene Ltd. and Nicholas
Piramal India Ltd. Key competitors from outside India include Lonza Group Ltd., Koninklijke DSM
N.V., Albany Molecular Research, Inc., Patheon, Inc. and Cardinal Health, Inc. Our CPS segment
distinguishes itself from its key competitors by offering a wider range of services spanning the
entire pharmaceutical value chain.
Growth in contract manufacturing is likely to be driven by increasing outsourcing of
late-stage and off-patent molecules by large pharmaceutical companies to compete with generics.
India is emerging as an alliance and outsourcing destination of choice for global pharmaceutical
companies. Companies such as Roche, Bayer, Aventis and Chiron are all executing plans to make India
the regional hub for API and supply of bulk drugs.
Government Regulations
For Custom Pharmaceutical Services, the regulations are similar to those as discussed in the
formulations, API and generics segments.
4.C. Organizational structure
Dr. Reddys Laboratories Limited is the parent company in our group. We had the following
subsidiary companies where our direct and indirect ownership was more than 50% as of March 31,
2007:
37
|
|
|
|
|
|
|
|
|
|
|
Percentage of Direct/ |
|
|
Country of |
|
Indirect Ownership |
Name of Subsidiary |
|
Incorporation |
|
Interest |
DRL Investments Limited |
|
India |
|
|
100 |
% |
Reddy Pharmaceuticals Hong Kong Limited |
|
Hong Kong |
|
|
100 |
% |
OOO JV Reddy Biomed Limited |
|
Russia |
|
|
100 |
% |
Reddy Antilles N.V. |
|
Netherlands |
|
|
100 |
% |
Reddy Netherlands B.V. |
|
Netherlands |
|
|
100 |
%(1) |
Reddy US Therapeutics, Inc. |
|
U.S.A. |
|
|
100 |
%(1) |
Dr. Reddys Laboratories, Inc. |
|
U.S.A. |
|
|
100 |
% |
Dr. Reddys Farmaceutica do Brasil Ltda |
|
Brazil |
|
|
100 |
% |
Cheminor Investments Limited |
|
India |
|
|
100 |
% |
Aurigene Discovery Technologies Limited |
|
India |
|
|
100 |
% |
Aurigene Discovery Technologies, Inc. |
|
U.S.A. |
|
|
100 |
%(3) |
Kunshan Rotam Reddy Pharmaceutical Co. Limited |
|
China |
|
|
51.33 |
%(4) |
Dr. Reddys Laboratories (EU) Limited |
|
United Kingdom |
|
|
100 |
% |
Dr. Reddys Laboratories (U.K.) Limited |
|
United Kingdom |
|
|
100 |
%(5) |
Dr. Reddys Laboratories (Proprietary) Limited |
|
South Africa |
|
|
60 |
% |
Reddy Cheminor S.A. |
|
France |
|
|
100 |
%(2) |
OOO Dr. Reddys Laboratories Limited |
|
Russia |
|
|
100 |
% |
Dr. Reddys Bio-sciences Limited |
|
India |
|
|
100 |
% |
Reddy Pharmaceuticals, Inc. |
|
U.S.A. |
|
|
100 |
%(6) |
Trigenesis Therapeutics, Inc. |
|
U.S.A. |
|
|
100 |
% |
Industrias Quimicas Falcon de Mexico, SA de CV |
|
Mexico |
|
|
100 |
% |
Reddy Holding GmbH |
|
Germany |
|
|
100 |
%(7) |
Lacock Holdings Limited |
|
Cyprus |
|
|
100 |
% |
betapharm Arzneimittel GmbH |
|
Germany |
|
|
100 |
%(8) |
beta Healthcare Solutions GmbH |
|
Germany |
|
|
100 |
%(8) |
beta institut fur sozialmedizinische
Forschung und Entwicklung GmbH |
|
Germany |
|
|
100 |
%(8) |
Reddy Pharma Iberia SA |
|
Spain |
|
|
100 |
% |
Reddy Pharma Italia SPA |
|
Italy |
|
|
100 |
%(7) |
Dr. Reddys Laboratories (Australia) Pty Ltd. |
|
Australia |
|
|
70 |
% |
|
|
|
(1) |
|
Indirectly owned through Reddy Antilles N.V. |
|
(2) |
|
Subsidiary under liquidation. |
|
(3) |
|
Indirectly owned through Aurigene Discovery Technologies Limited. |
|
(4) |
|
Kunshan Rotam Reddy is a subsidiary as we hold a 51.33 % stake in it; however, we account for
this investment by the equity method and do not consolidate it in our financial statements. |
|
(5) |
|
Indirectly owned through Dr. Reddys Laboratories (EU) Limited. |
|
(6) |
|
Indirectly owned through Dr. Reddys Laboratories Inc. |
|
(7) |
|
Indirectly owned through Lacock Holdings Limited. |
|
(8) |
|
Indirectly owned through Reddy Holding GmbH. |
38
4.D. Property, plant and equipment
The following table sets forth current information relating to our principal facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate |
|
Built up |
|
|
|
Installed |
|
Actual |
Location |
|
Area |
|
Area |
|
Certification |
|
Capacity |
|
Production |
|
|
(Square feet) |
|
(Square feet) |
|
|
|
|
|
|
|
|
|
|
Formulations |
|
|
|
|
|
|
|
|
|
|
|
|
3,440 |
(6)(7) |
|
|
3,715 |
(6) |
Bollaram, Andhra Pradesh, India |
|
|
217,729 |
|
|
|
207,959 |
|
|
(1) |
|
|
|
|
|
|
|
|
Bachupally, Andhra Pradesh, India |
|
|
1,306,372 |
|
|
|
198,909 |
|
|
(2) |
|
|
|
|
|
|
|
|
Yanam, Pondicherry, India |
|
|
457,000 |
|
|
|
26,226 |
|
|
None |
|
|
|
|
|
|
|
|
Baddi, Himachal Pradesh, India |
|
|
765,542 |
|
|
|
247,028 |
|
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Pharmaceutical Ingredients and Intermediates |
|
|
|
|
|
|
|
|
|
|
|
|
3,393 |
(8) |
|
|
3,039 |
(8) |
Bollaram, Andhra Pradesh, India |
|
|
734,013 |
|
|
|
172,879 |
|
|
U.S. FDA and EuGMP |
|
|
|
|
|
|
|
|
Bollaram, Andhra Pradesh, India |
|
|
648,173 |
|
|
|
286,193 |
|
|
U.S. FDA and EuGMP |
|
|
|
|
|
|
|
|
Bollaram, Andhra Pradesh, India |
|
|
285,235 |
|
|
|
210,630 |
|
|
U.S. FDA and EuGMP |
|
|
|
|
|
|
|
|
Jeedimetla, Andhra Pradesh, India |
|
|
228,033 |
|
|
|
74,270 |
|
|
U.S. FDA and EuGMP |
|
|
|
|
|
|
|
|
Miryalguda, Andhra Pradesh, India |
|
|
2,787,840 |
|
|
|
337,063 |
|
|
U.S. FDA |
|
|
|
|
|
|
|
|
Pydibheemavaram, Andhra Pradesh, India |
|
|
8,523,466 |
|
|
|
905,612 |
|
|
U.S. FDA |
|
|
|
|
|
|
|
|
Pydibheemavaram, Andhra Pradesh, India (4) |
|
|
737,134 |
|
|
|
53,854 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Generics |
|
|
|
|
|
|
|
|
|
|
|
|
7,500 |
(6) |
|
|
3,014 |
(6) |
Bachupally, Andhra Pradesh, India (4) |
|
|
783,823 |
|
|
|
253,503 |
|
|
(3) |
|
|
|
|
|
|
|
|
Beverley, East Yorkshire, United Kingdom |
|
|
64,904 |
|
|
|
15,179 |
|
|
U.K. Medicine Control Agency, ISO
9001: 2000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Critical Care and Biotechnology
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bachupally, Andhra Pradesh, India |
|
|
174,183 |
|
|
|
123,300 |
|
|
(1) |
|
|
370 |
(9) |
|
|
61.6 |
(9) |
Bollaram, Andhra Pradesh, India |
|
|
20,089 |
|
|
|
20,089 |
|
|
U.S. FDA |
|
|
|
|
|
|
|
|
Pydibheemavaram, Andhra Pradesh, India |
|
|
15,494 |
|
|
|
15,494 |
|
|
U.S. FDA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drug Discovery(10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miyapur, Andhra Pradesh, India |
|
|
576,941 |
|
|
|
234,591 |
|
|
None |
|
|
|
|
|
|
|
|
Georgia, United States (5) |
|
|
24,733 |
|
|
|
24,733 |
|
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Custom Pharmaceutical Services |
|
|
|
|
|
|
|
|
|
|
|
|
3,428 |
(9) (11) |
|
|
2,533 |
(9) (11) |
Miyapur, Andhra Pradesh, India |
|
|
113,211 |
|
|
|
73,644 |
|
|
None |
|
|
|
|
|
|
|
|
Jeedimetla, Andhra Pradesh, India |
|
|
68,825 |
|
|
|
16,597 |
|
|
None |
|
|
|
|
|
|
|
|
Cuernavaca, Mexico |
|
|
2,793,665 |
|
|
|
1,345,488 |
|
|
None |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Ministry of Health, Sudan; Ministry of Health, Uganda; ANVISA, Brazil; National Medicines
Agency, Romania. |
|
(2) |
|
Medicine Control Council, Republic of South Africa; The State Company for Marketing Drugs and
Medical Appliances, Ministry of Health, Iraq; Sultanate of Oman, Ministry of Health, Muscat;
Ministry of Health, Sudan; Ministry of Health, State of Bahrain; State Pharmaceutical
Inspection, Republic of Latvia; Pharmaceutical and Herbal Medicines, Registration and Control
Administrations, Ministry of Health, Kuwait; National Medicines Agency, Romania; ANVISA,
Brazil; Medicines and Health Care Products Regulatory Agencies (MHRA), U.K. |
|
(3) |
|
U.S. FDA; Medicines and Healthcare Products Regulatory Agency, U.K.; Ministry of Health,
UAE; Medicines Control Council, South Africa; ANVISA, Brazil ; Environmental Management
System ISO 14001; Occupational Health and Safety Management System OHSAS 18001; Quality
Management System-ISO 9001:2000. |
|
(4) |
|
100% Export Oriented Unit. |
|
(5) |
|
Leased facilities. |
|
(6) |
|
Million units. |
|
(7) |
|
On a single shift basis. |
|
(8) |
|
Tonnes. |
|
(9) |
|
Grams. |
|
(10) |
|
Laboratories only. |
|
(11) |
|
Mexico only. |
Except as indicated in the notes above, we own all of our facilities. All properties
mentioned above, including leased properties, are either used for manufacturing and packaging of
pharmaceutical products or for research and development activities. In addition,
39
we have sales, marketing and administrative offices, which are leased properties. We believe that
our facilities are optimally utilized.
The new facility for the manufacture of formulations at Baddi, Himachal Pradesh, India was
completed in April 2006. This project was initiated to take advantage of certain financial
benefits, which include exemption from income tax and excise duty for a specified period, offered
by the government of India to encourage industrial growth in the state of Himachal Pradesh, India.
We expanded our Generics plant at Bachupally, Hyderabad, Andhra Pradesh, India in a two phase
process to increase the production capacity to manage high demand periods. Both phases of expansion
have been completed, although only the facilities added in the first phase have been put into
operation. The plant is intended to be a 100% export oriented unit under Indian law, meaning that
it will export its total production to customers abroad and, as a result, will qualify for certain
tax exemptions and other benefits under Indian law. We are also in the process of establishing a
global distribution centre at Bachupally, Hyderabad, Andhra Pradesh, India, which is expected to
commence operations in fiscal 2008. An integrated product development facility is under
construction at Bachupally, Hyderabad, Andhra Pradesh, India, which is expected to commence
operations in fiscal 2008.
We have completed construction of a facility at a Special Economic Zone in Visakhapatnam,
Andhra Pradesh, India for the manufacture of oral and injectible cytotoxic finished dosages.
Exhibit batches are being produced at this facility and we are expecting commercial production to
commence in fiscal 2008.
We are also in the process of establishing a plant in a Special Economic Zone in Andhra
Pradesh, India for the manufacture of Formulations and APIs. Preliminary steps for this purpose
have been initiated.
We have working capital facilities with banks and, in order to secure those facilities, we
have created encumbrance charges on certain of our immovable and movable properties.
We are subject to significant national and state environmental laws and regulations which
govern the discharge, emission, storage, handling and disposal of a variety of substances that may
be used in or result from our operations at the above facilities. Non-compliance with the
applicable laws and regulations may subject us to penalties and may also result in the closure of
our facilities.
ITEM 4A. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Overview
We are an emerging global pharmaceutical company with proven research capabilities. We derive
our revenues from the sale of finished dosage forms, active pharmaceutical ingredients and
intermediates and biotechnology products, with a focus on India, the United States, Europe and
Russia; from development and manufacturing services provided to innovator pharmaceutical and
biotechnology companies; and from license fees from our drug discovery operations.
As of March 31, 2007, we had the following business segments:
Formulations. In this segment we derive revenues from the sale of finished dosage
forms, primarily in India and other emerging markets. Key drivers of profitability in this segment
are the volume and price of products sold, which in turn are dependent upon the popularity of our
branded products in the relevant markets. Increases in this segment in recent periods have been on
account of our increased marketing efforts and expansion of our markets.
Active pharmaceutical ingredients and intermediates. In this segment we derive
revenues from our sales to third parties of the principal ingredients for finished dosages. Our
principal markets are Europe, the United States and India. Revenues in this segment are dependent
upon the number of products that lose patent protection in any given period, and the price of those
products, which tends to decline over time. These being commoditized products, our ability to set
prices is limited, while the cost of revenues generally remains stable. Thus, in any given period,
different products will contribute varying amounts to our revenues and our gross profits. Recent
increases in revenues from this segment have generally been due to increased sales volumes.
Generics. In this segment we derive revenues from the sale of therapeutic equivalents
of branded drugs, primarily in Europe and the United States. Revenues from beta Holding GmbH
(betapharm), our recently acquired subsidiary in Germany, are included
in this segment from March 3, 2006 and thus will tend to increase revenues from this segment
in future periods. Revenues from our sale of generics are highly cyclical. In the event that we
obtain 180-day exclusivity for a particular product, we generally experience
40
significantly
increased revenues for this period, particularly at the beginning of the period, with sales prices
decreasing toward the end of the 180 days as other manufacturers enter the market. Cost of sales
remains generally constant, however, and thus products coming off patent contribute significantly
to gross margins for a limited period, tending to increase volatility in this segment. In fiscal
2007, we launched two products pursuant to an agreement for authorized generics, which the
innovator company licensed us to distribute generic versions of their branded product and sell it
in competition with the companies that have 180-day exclusivity. In these cases, while sales
volumes increase significantly (again, more significantly in the early part of the 180-day period),
profit-sharing agreements with the innovator company mean that gross margins are much lower than
would be the case if we were distributing the product under 180-day exclusivity. Additionally, the
existence of authorized generic arrangements (a relatively new development) by innovator
companies with other manufacturers in cases where we have obtained 180-day exclusivity could
adversely affect overall sales revenues during the 180-day period.
Critical care and biotechnology. In this segment we derive revenues from the sale of
our critical care and biotechnology products, primarily to hospitals in India. Revenues are driven
by the volume of products sold, and the price of those products. These are generally low-volume,
higher gross margin products, although pricing pressure in key products has recently reduced gross
margins.
Drug discovery. Revenues in this segment are derived from licensing fees for new
molecules that we discover. Thus, revenues are dependent upon the success of our research
activities, and may vary significantly from period to period depending upon whether specified
milestones in licensing agreements are reached. In September, 2005, we formed Perlecan Pharma
Private Limited as a joint venture with Citigroup Venture Capital International Growth Partnership
Mauritius Limited and ICICI Venture Funds Management Company and contributed capital and four NCE
assets to Perlecan. Perlecan has continued development of these NCE assets.
Custom pharmaceutical services. In this segment we derive revenues from service fees
for process development and manufacturing services provided to innovator pharmaceutical and
biotechnology companies. Revenue from our acquired subsidiary Falcon are included in this segment
from December 30, 2005 and thus would tend to increase revenues from this segment in future
periods. The key driver of revenue in this segment is likely to be the increasing outsourcing of
late-stage and off-patent molecules by large pharmaceutical companies to compete with generics.
In addition, we are currently in the research and development phase of a specialty
pharmaceuticals business, which may become a separate segment at some point in the future.
Our total revenues for fiscal 2007 were Rs.65,095.1 million (U.S.$1,510.3 million).
We derived 14.1% of these revenues from sales in India, 43.5% from the United States and Canada
(North America), 7.3% from Russia and other countries of the former Soviet Union, 22.8% from
Europe and 12.3% from other countries. Our net income for fiscal 2007 was Rs.9,326.8 million
(U.S.$216.4 million).
Acquisition of betapharm Group
During fiscal 2006, we acquired beta Holding Gmbh (betapharm) which, according to INSIGHT
Healths NPI-Gx reports, was Germanys fourth largest generic pharmaceuticals company at the time
of acquisition. The aggregate purchase price was 482.6 million (Rs.26,063.3 million) in cash.
betapharm has a portfolio of 145 products and, according to INSIGHT Healths NPI-Gx reports, has
been the fastest growing among the 10 largest generics companies in Germany. As a result of this
acquisition, the financials of betapharm have been consolidated with our generics segment effective
as of March 3, 2006.
Acquisition of Industrias Quimicas Falcon de Mexico
During fiscal 2006,we acquired Industrias Quimicas Falcon de Mexico (Falcon), one of Roches
manufacturing subsidiaries with facilities located at Cuernavaca, Mexico for a total purchase
consideration of U.S.$61.2 million (Rs.2,773.1 million). Falcon was acquired with an intent to add
steroid manufacturing capabilities and permit us to offer a full range of services in our custom
pharmaceutical services business. Falcon is engaged in the manufacture and sale of APIs,
intermediates and steroids and has a portfolio of 18 products. As a result of this acquisition, the
financials of Falcon have been consolidated with our custom pharmaceuticals services segment
effective as of December 30, 2005.
41
Critical Accounting Policies
Critical accounting policies are those most important to the portrayal of our financial
condition and results and that require the most exercise of our judgment. We consider the policies
discussed under the following paragraphs to be critical for an understanding of our financial
statements. Our significant accounting policies and application of these are discussed in detail in
Note 2 to the Consolidated Financial Statements.
Accounting estimates
While preparing financial statements we make estimates and assumptions that affect the
reported amount of assets, liabilities, disclosure of contingent liabilities at the balance sheet
date and the reported amount of revenues and expenses for the reporting period. Financial reporting
results rely on our estimate of the effect of certain matters that are inherently uncertain. Future
events rarely develop exactly as forecast and the best estimates require adjustments, as actual
results may differ from these estimates under different assumptions or conditions. We continually
evaluate these estimates and assumptions based on the most recently available information.
Specifically, we make estimates of:
|
|
|
the useful life of property, plant and equipment and intangible assets; |
|
|
|
|
impairment of long-lived assets, including identifiable intangibles and goodwill; |
|
|
|
|
our future obligations under employee retirement and benefit plans; |
|
|
|
|
allowances for doubtful accounts receivable; |
|
|
|
|
inventory write-downs; |
|
|
|
|
allowances for sales returns; and |
|
|
|
|
valuation allowance against deferred tax assets. |
We depreciate property, plant and equipment over their useful lives using the straight-line
method. Estimates of useful life are subject to changes in economic environment and different
assumptions. Assets under capital leases are amortized over their estimated useful life or lease
term as appropriate. We review long-lived assets, including identifiable intangibles and goodwill,
for impairment whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. We measure recoverability of assets to be held and used by comparing
the carrying amount of an asset to future net undiscounted cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the fair value of the
assets. Considerable management judgment is necessary to estimate discounted future cash flows.
Accordingly, actual outcomes could vary significantly from such estimates. Factors such as changes
in the planned use of buildings, machinery or equipment or lower than anticipated sales for
products with capitalized rights could result in shortened useful lives or impairment.
In accordance with applicable Indian laws, we provide a defined benefit retirement plan
(Gratuity Plan) covering certain categories of employees. The Gratuity Plan provides a lump sum
payment to vested employees at retirement or termination of employment, in an amount based on the
respective employees last drawn salary and the years of employment with us. Liabilities with
regard to the Gratuity Plan are determined by an actuarial valuation, based upon which we make
contributions to the Gratuity Fund. In calculating the expense and liability related to the plans,
assumptions are made about the discount rate, expected rate of return on plan assets, withdrawal
and mortality rates and rate of future compensation increases as determined by us, within certain
guidelines. The assumptions used may differ materially from actual results, resulting in a
significant impact to the amount of expense recorded by us.
We make allowance for doubtful accounts receivable, including receivables sold with recourse,
based on the present and prospective financial condition of the customer and ageing of the accounts
receivable after considering historical experience and the current economic environment. Actual
losses due to doubtful accounts may differ from the allowances made. However, we believe that such
losses will not materially affect our consolidated results of operations.
We provide for inventory obsolescence, expired inventory and inventories with carrying values
in excess of realizable values based on our assessment of future demands, market conditions and our
specific inventory management initiatives. If the market conditions and actual demands are less
favorable than our estimates, additional inventory write-downs may be required. In all cases,
inventory is carried at the lower of historical costs or realizable value.
42
Revenue recognition
Product sales
Revenue is recognized when significant risks and rewards in respect of ownership of products
are transferred to the customer, generally stockists or formulations manufacturers, and when the
following criteria are met:
|
|
|
Persuasive evidence of an arrangement exists; |
|
|
|
|
The price to the buyer is fixed and determinable; and |
|
|
|
|
Collectibility of the sales price is reasonably assured. |
Revenue from domestic sales of formulation products is recognized on dispatch of the product
to the stockist by our consignment and clearing and forwarding agent. Revenue from domestic sales
of active pharmaceutical ingredients and intermediates is recognized on dispatch of products to
customers from our factories. Revenue from export sales is recognized when significant risks and
rewards are transferred to the customer, generally upon shipment of products.
Revenue from product sales includes excise duties and is shown net of sales tax and applicable
discounts and allowances.
Sales of formulations in India are made through clearing and forwarding agents to stockists.
Significant risks and rewards in respect of ownership of formulation products is transferred by us
when the goods are shipped to stockists from clearing and forwarding agents. Clearing and
forwarding agents are generally compensated on a commission basis as a percentage of sales made by
them.
Sales of active pharmaceutical ingredients and intermediates in India are made directly to the
end customers, generally formulation manufacturers, from the factories. Sales of formulations and
active pharmaceutical ingredients and intermediates outside India are made directly to the end
customers, generally stockists or formulations manufacturers, from us or our consolidated
subsidiaries.
We have entered into marketing arrangements with certain marketing partners for the sale of
goods. Under such arrangements, we sell generic products to our marketing partners at a price
agreed in the arrangement. Revenue is recognized on these transactions upon delivery of products
to our marketing partners as all the conditions under Staff Accounting Bulletin No.104 (SAB 104)
are then met. Subsequently, the marketing partners remit an additional amount upon further sales
made by them to the end customer. Such amount is determined as per the terms of the arrangement
and is recognized by us when the realization is certain under the guidance given in SAB 104.
We have entered into certain dossier sales, licensing and supply arrangements that include
certain performance obligations. Based on an evaluation of whether or not these obligations are
inconsequential or perfunctory, we defer the upfront payments received towards these arrangements.
Such deferred amounts are recognized in the income statement in the period in which we complete our
remaining performance obligations.
Sales of generic products are recognized as revenue when the products are shipped and title
and risk of loss passes on to the customer. Provisions for chargeback, rebates and medicaid
payments are estimated and provided for in the year of sales and recorded as a reduction of
revenue. A chargeback claim is a claim made by the wholesaler for the difference between the price
at which the product is initially invoiced to the wholesaler and the net price at which it is
agreed to be procured from us. Provision for such chargebacks are accrued and are estimated based on
the historical average chargeback rate actually claimed over a period of time, current contract
prices with wholesalers and other customers and the wholesalers average inventory holding. Such
provisions are disclosed as a reduction of accounts receivable.
We account for sales returns in accordance with Statement of Financial Accounting Standards
(SFAS) No. 48 by establishing an accrual in an amount equal to our estimate of sales recorded for
which the related products are expected to be returned.
We deal in various products and operate in various markets and our estimate is determined
primarily by our experience in these markets for the products. For returns of established products,
we determine an estimate of the sales returns accrual primarily based on our historical experience
regarding sales returns. Additionally other factors that we consider in our estimate of sales
returns include levels of inventory in the distribution channel, estimated shelf life, product
discontinuances, price changes of competitive products, introductions of generic products and
introductions of competitive new products to the extent each of them has an impact on our business
and markets. We consider all of these factors and adjust the accrual to reflect actual experience.
In respect of certain markets, we consider the level of inventory in the distribution channel
and determine whether an adjustment to our sales return accrual is appropriate. For example, if the
level of inventory in the distribution channel increases, we analyze the reasons for the increase
and if the reasons indicate that sales returns will be larger than expected, we adjust the sales
returns accrual.
Further, the products and markets in which we operate have a rapid distribution cycle and
therefore products are sold to the ultimate customer within a very short period of time. As a
result, the impact of changes in levels of inventory in the distribution channel
43
historically has
not caused any material changes in our return estimates. Further, we have not had any significant
product recalls / discontinuances within our product portfolio, which could potentially require us
to make material changes to our estimates.
With respect to new products that we introduce, they are either extensions of an existing line
of products or in a general therapeutic category where we have historical experience. Our new
product launches have historically been in therapeutic categories where established products exist
and are sold either by us or our competitors. We have not yet introduced products in any new
therapeutic category where the acceptance of such products is not known. The amount of sales
returns for our newly launched products are not significantly different from current products
marketed by us, nor are they significantly different from the sales returns of our competitors as
we understand them to be based on industry publications and discussions with our customers.
Accordingly, we do not expect sales returns for new products to be significantly different than
expected sales returns of current products. We evaluate the sales returns of all of the products
at the end of each reporting period and necessary adjustments, if any, are made. However, to date,
no significant revision has been determined to be necessary.
License fees
Non-refundable milestone payments are recognized in the statement of income when earned, in
accordance with the terms prescribed in the license agreement, and where we have no future
obligations or continuing involvement pursuant to such milestone payment. Non-refundable up-front
license fees are deferred and recognized when the milestones are earned, in proportion that the
amount of each milestone earned bears to the total milestone amounts agreed in the license
agreement. As the upfront license fees are a composite amount and cannot be attributed to a
specific molecule, they are amortized over the development period. The milestone payments during
the development period increase as the risk involved decreases. The agreed milestone payments
reflect the progress of the development of the molecule and may not be spread evenly over the
development period. Further, the milestone payments are a fair representation of the extent of
progress made in the development of these molecules. Hence, the upfront license fees are amortized
over the development period in proportion to the milestone payments received. In the event, the
development is discontinued, the corresponding amount of deferred revenue is recognized in the
income statement in the period in which the project is effectively terminated.
Service income
Income from service, which primarily relates to contract research, is recognized as the
related services are performed in accordance with the terms of the contract and as all the
conditions of SAB 104 are met. Arrangements with customers for contract research and other related
services are either on a fixed price, fixed timeframe or a time and material basis.
Stock Based Compensation
We use the Black-Scholes option pricing model to determine the fair value of each option
grant. The Black-Scholes model includes assumptions regarding dividend yields, expected volatility,
expected lives and risk free interest rates. These assumptions reflect our best estimates, but
these assumptions involve inherent market uncertainties based on market conditions generally
outside of our control. As a result, if other assumptions had been used in the current period,
stock-based compensation expense could have been materially impacted. Furthermore, if we use
different assumptions in future periods, stock based compensation expense could be materially
impacted in future years.
The fair value of each option is estimated on the date of grant using the Black-Scholes model
with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, |
|
|
2005 |
|
2006 |
|
2007 |
Dividend yield |
|
|
0.5 |
% |
|
|
0.5 |
% |
|
|
0.5 |
% |
Expected life |
|
12-78 |
months |
|
12-78 |
months |
|
12-48 |
months |
Risk free interest rates |
|
|
4.5-6.7 |
% |
|
|
5.7-7.5 |
% |
|
|
6.5-7.4 |
% |
Volatility |
|
|
39.4-44.6 |
% |
|
|
23.4-36.9 |
% |
|
|
30.5-33.6 |
% |
At March 31, 2007, we had four equity -based employee compensation plans, which are
described more fully in Section 6.E. under Employee Stock Incentive Plans. Our parent company
and our subsidiary, Aurigene Discovery Technologies Limited, have two equity based employee
compensation plans each.
Prior to April 1, 2006, we accounted for our equity-based compensation plans under SFAS 123
Accounting for Stock Based Compensation. On April 1, 2006, we adopted SFAS No. 123R (revised
2004), Share Based Payment (SFAS No. 123(R)) under the modified-prospective application. Under
the modified-prospective-application, SFAS No. 123(R) applies to new awards and to awards modified,
repurchased, or cancelled after adoption.
44
The adoption of SFAS No. 123(R) did not have a material impact on our equity-based
compensation expense for the year ended March 31, 2007. Furthermore, we believe that the adoption
of SFAS No.123(R) will not have a material impact on our future equity-based compensation expense.
As of March 31, 2007, there was approximately Rs.201,490 of total unrecognized compensation cost
related to unvested equity-based compensation arrangements. That cost is expected to be recognized
over a weighted-average period of 3.7 years.
Under SFAS No. 123, we had a policy of recognizing the effect of forfeitures only as they
occurred. Accordingly, as required by SFAS No. 123(R), on April 1, 2006, we estimated the number
of outstanding instruments which are not expected to vest and recognized an income of Rs.14,806
representing the reversal of compensation cost for such instruments previously recognized in the
income statement. For the years ended March 31, 2005, 2006 and 2007, an amount of Rs.144,001,
Rs.162,249 and Rs.190,186, respectively, have been recorded as total employee equity-based
compensation expense.
Functional Currency
Our foreign subsidiaries have different functional currencies, determined based on the
currency of the primary economic environment in which they operate. For subsidiaries that operate
in a highly inflationary economy, the functional currency is determined as the Indian rupee. Due to
various subsidiaries operating in different geographic locations, a significant level of judgment
is involved in evaluating the functional currency for each subsidiary.
In respect of our foreign subsidiaries which market our products in their respective
countries/regions, the functional currency has been determined as the Indian rupee, based on an
individual and collective evaluation of the various economic factors listed below.
The operations of these foreign subsidiaries are largely restricted to importing finished
goods from us in India, sale of these products in the foreign country and remitting the sale
proceeds to us. The cash flows realized from sale of goods are readily available for remittance to
us and cash is remitted to us on a regular basis. The costs incurred by these subsidiaries are
primarily the cost of goods imported from us. The financing of these subsidiaries is done directly
or indirectly by us.
In respect of other subsidiaries, the functional currency is determined as the local currency,
being the currency of the primary economic environment in which the subsidiary operates.
Income Taxes
As part of the process of preparing our financial statements, we are required to estimate our
income taxes in each of the jurisdictions in which we operate. We are subject to tax assessments in
each of these jurisdictions. A tax assessment can involve complex issues, which can only be
resolved over extended time periods. Additionally, the provision for income tax is calculated based
on our assumptions as to our entitlement to various benefits under the applicable tax laws in the
jurisdictions in which we operate. The entitlement to such benefits depends upon our compliance
with the terms and conditions set out in these laws. Although we have considered all these issues
in estimating our income taxes, there could be an unfavorable resolution of such issues that may
affect our results of operations.
We also assess the temporary differences resulting from differential treatment of certain
items for tax and accounting purposes. These differences result in deferred tax assets and
liabilities, which are recognized in our consolidated financial statements. Deferred taxes are
accounted for using the asset and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax bases and
operating loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in the statement of operations in the period that includes the enactment
date. In assessing the realizability of deferred tax assets, we consider whether it is more likely
than not that some portion or all of the deferred tax assets will not be realized. We consider the
scheduled reversal of the projected future taxable income and tax planning strategy in making this
assessment. If we estimate that the deferred tax assets cannot be realized at the recorded value, a
valuation allowance is created with a charge to the statement of income in the period in which such
assessment is made.
Litigation
We are involved in various patent challenges, product liability, commercial litigation and
claims, investigations and other legal proceedings that arise from time to time in the ordinary
course of our business. We assess in consultation with our counsel, the need to accrue a liability
for such contingencies and record a reserve when we determine that a loss related to a matter is
both probable and
45
reasonably estimable. Because litigation and other contingencies are inherently
unpredictable, our assessment can involve judgments about future events.
5.A. Operating results
Financial Data
The selected consolidated financial data presented below for fiscal year 2007 reflects first
full year consolidation of the acquisition of Falcon and betapharm and therefore the results for
fiscal year 2007 are not comparable to the results for prior fiscal years.
The following table sets forth, for the periods indicated, our consolidated net operating
revenues by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, |
|
Segment |
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2007 |
|
|
|
(Rs. in millions, U.S.$ in thousands) |
|
Formulations |
|
Rs. |
7,822.9 |
|
|
Rs. |
9,925.9 |
|
|
Rs. |
12,318.9 |
|
|
U.S.$ |
285,821 |
|
Active pharmaceutical ingredients
and intermediates |
|
|
6,944.5 |
|
|
|
8,238.0 |
|
|
|
11,826.8 |
|
|
|
274,404 |
|
Generics |
|
|
3,577.4 |
|
|
|
4,055.8 |
|
|
|
33,224.2 |
|
|
|
770,863 |
|
Critical care and
biotechnology |
|
|
527.1 |
|
|
|
691.1 |
|
|
|
823.9 |
|
|
|
19,116 |
|
Drug discovery |
|
|
288.4 |
|
|
|
|
|
|
|
136.8 |
|
|
|
3,174 |
|
Custom pharmaceuticals services |
|
|
311.6 |
|
|
|
1,326.8 |
|
|
|
6,599.8 |
|
|
|
153,128 |
|
Others |
|
|
47.5 |
|
|
|
29.4 |
|
|
|
164.7 |
|
|
|
3,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
Rs. |
19,519.4 |
|
|
Rs. |
24,267.0 |
|
|
Rs. |
65,095.1 |
|
|
U.S.$ |
1,510,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth, for the periods indicated, our cost of revenues by
segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, |
|
Segment |
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2007 |
|
|
|
(Rs. in millions, U.S.$ in thousands) |
|
Formulations |
|
Rs. |
2,492.8 |
|
|
Rs. |
3,084.1 |
|
|
Rs. |
3,651.5 |
|
|
U.S.$ |
84,722 |
|
Active pharmaceutical ingredients and intermediates |
|
|
5,013.5 |
|
|
|
5,916.5 |
|
|
|
7,242.3 |
|
|
|
168,035 |
|
Generics |
|
|
1,620.3 |
|
|
|
2,168.8 |
|
|
|
18,098.6 |
|
|
|
419,921 |
|
Critical care and biotechnology |
|
|
176.5 |
|
|
|
235.9 |
|
|
|
272.0 |
|
|
|
6,311 |
|
Drug discovery |
|
|
|
|
|
|
0.0 |
|
|
|
121.5 |
|
|
|
2,819 |
|
Custom pharmaceuticals services |
|
|
82.6 |
|
|
|
999.4 |
|
|
|
4,662.5 |
|
|
|
108,179 |
|
Others |
|
|
0.1 |
|
|
|
12.6 |
|
|
|
171.1 |
|
|
|
3,972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues |
|
Rs. |
9,385.8 |
|
|
Rs. |
12,417.3 |
|
|
Rs. |
34,219.5 |
|
|
U.S.$ |
793,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth, for the periods indicated, our gross profit by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, |
|
Segment |
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2007 |
|
|
|
(Rs. in millions, U.S.$ in thousands) |
|
Formulations |
|
Rs. |
5,330.1 |
|
|
Rs. |
6,841.8 |
|
|
Rs. |
8,667.4 |
|
|
U.S.$ |
201,099.8 |
|
Active pharmaceutical ingredients
and intermediates |
|
|
1,931.0 |
|
|
|
2,321.5 |
|
|
|
4,584.5 |
|
|
|
106,369 |
|
Generics |
|
|
1,957.1 |
|
|
|
1,887.0 |
|
|
|
15,125.6 |
|
|
|
350,942 |
|
Critical care and
biotechnology |
|
|
350.6 |
|
|
|
455.2 |
|
|
|
551.9 |
|
|
|
12,805 |
|
Drug discovery |
|
|
288.4 |
|
|
|
0.0 |
|
|
|
15.3 |
|
|
|
355 |
|
Custom pharmaceuticals services |
|
|
229.0 |
|
|
|
327.4 |
|
|
|
1,937.3 |
|
|
|
44,949 |
|
Others |
|
|
47.4 |
|
|
|
16.8 |
|
|
|
(6.4 |
) |
|
|
(149 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross margin |
|
Rs. |
10,133.6 |
|
|
Rs. |
11,849.7 |
|
|
Rs. |
30,875.6 |
|
|
U.S.$ |
716,370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
The following table sets forth, for the periods indicated, financial data as percentages
of total revenues and the increase (or decrease) by item as a percentage of the amount over the
previous year. Cost of revenues and gross profit by segment are shown as a percentage of that
segments revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Sales |
|
Percentage Increase (Decrease) |
|
|
Fiscal Year Ended March 31, |
|
|
|
|
|
|
2005 |
|
2006 |
|
2007 |
|
2005 to 2006 |
|
2006 to 2007 |
Income Statement Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Formulations |
|
|
40.1 |
|
|
|
40.9 |
|
|
|
18.9 |
|
|
|
26.9 |
|
|
|
24.1 |
|
Active pharmaceutical ingredients and intermediates |
|
|
35.6 |
|
|
|
33.9 |
|
|
|
18.2 |
|
|
|
18.6 |
|
|
|
43.6 |
|
Generics |
|
|
18.3 |
|
|
|
16.7 |
|
|
|
51.0 |
|
|
|
13.4 |
|
|
|
719.2 |
|
Diagnostics, critical care and biotechnology |
|
|
2.7 |
|
|
|
2.8 |
|
|
|
1.3 |
|
|
|
31.1 |
|
|
|
19.2 |
|
Drug discovery |
|
|
1.5 |
|
|
|
0.0 |
|
|
|
0.2 |
|
|
|
(100.0 |
) |
|
|
|
|
Custom pharmaceutical services |
|
|
1.6 |
|
|
|
5.5 |
|
|
|
10.1 |
|
|
|
325.8 |
|
|
|
397.4 |
|
Other |
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.3 |
|
|
|
(38.1 |
) |
|
|
461.1 |
|
Total revenues |
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
24.3 |
|
|
|
168.2 |
|
Cost of revenues by segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Formulations |
|
|
31.9 |
|
|
|
31.1 |
|
|
|
29.6 |
|
|
|
23.7 |
|
|
|
18.4 |
|
Active pharmaceutical ingredients and intermediates |
|
|
72.2 |
|
|
|
71.8 |
|
|
|
61.2 |
|
|
|
18.0 |
|
|
|
22.4 |
|
Generics |
|
|
45.3 |
|
|
|
53.5 |
|
|
|
54.5 |
|
|
|
33.8 |
|
|
|
734.5 |
|
Diagnostics, critical care and biotechnology |
|
|
33.5 |
|
|
|
34.1 |
|
|
|
33.0 |
|
|
|
33.6 |
|
|
|
15.3 |
|
Drug discovery |
|
|
|
|
|
|
|
|
|
|
88.8 |
|
|
|
|
|
|
|
|
|
Custom pharmaceutical services |
|
|
26.5 |
|
|
|
75.3 |
|
|
|
70.6 |
|
|
|
1,111.4 |
|
|
|
366.5 |
|
Other |
|
|
0.0 |
|
|
|
42.8 |
|
|
|
103.9 |
|
|
|
|
|
|
|
1,261.5 |
|
Total cost of revenues |
|
|
48.1 |
|
|
|
51.2 |
|
|
|
52.6 |
|
|
|
32.3 |
|
|
|
175.6 |
|
Gross profit by segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Formulations |
|
|
68.1 |
|
|
|
68.9 |
|
|
|
70.4 |
|
|
|
28.4 |
|
|
|
26.7 |
|
Active pharmaceutical ingredients and intermediates |
|
|
27.8 |
|
|
|
28.2 |
|
|
|
38.8 |
|
|
|
20.2 |
|
|
|
97.5 |
|
Generics |
|
|
54.7 |
|
|
|
46.5 |
|
|
|
45.5 |
|
|
|
(3.6 |
) |
|
|
701.6 |
|
Diagnostics, critical care and biotechnology |
|
|
66.5 |
|
|
|
65.9 |
|
|
|
67.0 |
|
|
|
29.8 |
|
|
|
21.2 |
|
Drug discovery |
|
|
100.0 |
|
|
|
|
|
|
|
11.2 |
|
|
|
(100.0 |
) |
|
|
|
|
Custom pharmaceutical services |
|
|
73.5 |
|
|
|
24.7 |
|
|
|
29.4 |
|
|
|
42.9 |
|
|
|
491.7 |
|
Other |
|
|
100.0 |
|
|
|
57.2 |
|
|
|
(3.9 |
) |
|
|
(64.6 |
) |
|
|
(137.9 |
) |
Total gross profit |
|
|
51.9 |
|
|
|
48.8 |
|
|
|
47.4 |
|
|
|
16.9 |
|
|
|
160.6 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
34.7 |
|
|
|
33.1 |
|
|
|
21.6 |
|
|
|
18.5 |
|
|
|
75.0 |
|
Research and development expenses |
|
|
14.4 |
|
|
|
8.9 |
|
|
|
3.8 |
|
|
|
(23.2 |
) |
|
|
14.4 |
|
Amortization expenses |
|
|
1.8 |
|
|
|
1.7 |
|
|
|
2.4 |
|
|
|
20.0 |
|
|
|
274.1 |
|
Write-down of intangible assets |
|
|
|
|
|
|
|
|
|
|
2.7 |
|
|
|
|
|
|
|
|
|
Foreign exchange (gain)/loss |
|
|
2.5 |
|
|
|
0.5 |
|
|
|
(0.2 |
) |
|
|
(74.2 |
) |
|
|
208.2 |
|
Other operating expense/(income) |
|
|
0.0 |
|
|
|
(1.3 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
(79.1 |
) |
Total operating expenses |
|
|
53.4 |
|
|
|
42.9 |
|
|
|
30.2 |
|
|
|
(0.1 |
) |
|
|
88.8 |
|
Operating income |
|
|
(1.5 |
) |
|
|
5.9 |
|
|
|
17.2 |
|
|
|
598.8 |
|
|
|
678.4 |
|
Equity in loss of affiliates |
|
|
(0.3 |
) |
|
|
(0.4 |
) |
|
|
(0.1 |
) |
|
|
51.9 |
|
|
|
(29.0 |
) |
Other (expense) / income, net |
|
|
2.3 |
|
|
|
2.2 |
|
|
|
(1.0 |
) |
|
|
17.5 |
|
|
|
224.0 |
|
Income before income taxes and minority interest |
|
|
0.5 |
|
|
|
7.8 |
|
|
|
16.1 |
|
|
|
1,663.4 |
|
|
|
456.4 |
|
Income tax benefit / (expenses) |
|
|
0.5 |
|
|
|
(1.1 |
) |
|
|
(1.8 |
) |
|
|
374.1 |
|
|
|
355.5 |
|
Minority interest |
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
1.1 |
|
|
|
6.7 |
|
|
|
14.3 |
|
|
|
671.1 |
|
|
|
472.6 |
|
47
Fiscal Year Ended March 31, 2007 Compared to Fiscal Year Ended March 31, 2006
Revenues
Total revenues increased by 168.2% to Rs.65,095.1 million in fiscal 2007, as compared to
Rs.24,267.0 million in fiscal 2006, primarily due to revenues from sales of authorized generics,
revenues from Falcon (acquired December 30, 2005) and betapharm (acquired March 3, 2006), and an
increase of revenues across our other business segments. Excluding revenues from sales of
authorized generics and revenues from Falcon and betapharm, revenues increased by 57.7% to
Rs.35,881.2 million in fiscal 2007. In fiscal 2007, we received 43.5% of our revenues from North
America (United States and Canada), 14.1% of our revenues from India, 7.3% of our revenues from
Russia and other countries of the former Soviet Union, 22.8% of our revenues from Europe and 12.3%
of our revenues from other countries.
Revenues from sales to Russia and other former Soviet Union countries increased by 33.5% to
Rs.4,752.0 million in fiscal 2007, as compared to Rs.3,559.5 million in fiscal 2006. The increase
was primarily due to an increase in sales of our major brands such as Nise, our brand of
nimesulide, Keterol, our brand of ketorolac tromethamine, Ciprolet, our brand of ciprofloxacin,
Cetrine, our brand of cetrizine, and Omez, our brand of omeprazole. Revenues from sales in India
increased by 11.0% to Rs.9,178.6 million in fiscal 2007, as compared to Rs.8,272.5 million in
fiscal 2006, primarily due to an increase in revenues in our formulations segment and partially
offset by a decline in revenues of our active pharmaceutical ingredients and intermediates segment.
Revenues from sales to Europe increased by 243.0% to Rs.14,839.1 million in fiscal 2007, as
compared to Rs.4,326.4 million in fiscal 2006, primarily as a result of an increase in revenues
from sales in our generics, custom pharmaceuticals services and API segments, as well as revenues
from betapharm. Revenues from sales to North America increased by 611.3% to Rs.28,336.5 million in
fiscal 2007, as compared to Rs.3,983.9 million in fiscal 2006. Excluding the revenues from sale of
authorized generics, revenues increased by 214.4% to Rs.12,523.7 in fiscal 2007, primarily due to
increases in sales in our generics, CPS and API segments.
Formulations. In fiscal 2007, we received 18.9% of our total revenues from the formulations
segment, as compared to 40.9% in fiscal 2006. Revenues in this segment increased by 24.1% to
Rs.12,318.9 million in fiscal 2007, as compared to Rs.9,925.9 million in fiscal 2006.
Revenues in India constituted 52.1% of our total formulations revenues in fiscal 2007 as
compared to 55.7% in fiscal 2006. Revenues from sales of formulations products in India increased
by 16.1% to Rs.6,415.0 million in fiscal 2007, as compared to Rs.5,525.7 million in fiscal 2006.
This was driven by increased sales volumes of our key brands such as Omez, our brand of omeprazole,
Nise, our brand of nimesulide, Stamlo, our brand of amlodipine, Razo, our brand of rabeprazole, and
Recliment, our brand of gliclazide and metformin. The revenue increases were led by special
marketing initiatives and other product specific initiatives and focused promotion with specialist
physicians. The revenue increases were also attributable to the launch of extensions of current
product lines such as Omez D and Razo D. New products launched in fiscal 2007 contributed revenues
of Rs.247 million (4% of revenues in India).
Revenues from sales of formulations products outside India increased by 34.2% to Rs.5,903.9
million in fiscal 2007, as compared to Rs.4,400.3 million in fiscal 2006. Revenues from sales of
formulations products in Russia accounted for 59.2% of our formulation revenues outside India in
fiscal 2007, as compared to 58.7% in fiscal 2006. Revenues from sales of formulations products in
Russia increased by 35.3% to Rs.3,494.3 million in fiscal 2007, as compared to Rs.2,583.1 million
in fiscal 2006. The increase was primarily due to an increase in revenues from the sale of key
brands such as Nise, our brand of nimesulide, Omez, our brand of omeprazole, and Cetrine, our brand
of cetrizine. This increase in revenues was primarily driven by an increase in our sales volumes to
hospitals, as well as increased prescription sales due to various advertising campaigns. Revenues
from sales to other countries of the former Soviet Union increased by 35.2% to Rs.1,117.6 million
for fiscal 2007, as compared to Rs.826.8 million for fiscal 2006, primarily driven by an increase
in revenues from sales in Ukraine, Uzbekistan and Kazakhstan.
Revenues from sales of formulations products in Europe increased by 45.3% to Rs.376.6 million
in fiscal 2007 as compared to Rs.259.2 million in fiscal 2006, primarily due to an increase in
revenues from sales in Romania. The increase in revenues from Romania was primarily due to an
increase in sales volume attributable to an increase in Romanian government spending on medical
reimbursement to comply with EU standards, as well as promotional campaigns.
Revenues from sales to the rest of the world increased by 25.2% to Rs.915.3 million in fiscal
2007, as compared to Rs.731.1 million in fiscal 2006. This increase was primarily due to an
increase in revenues from sales of products in South Africa, Myanmar, Venezuela and Jamaica, and
was offset by a decrease in revenues from sales of products in Vietnam.
Active Pharmaceutical Ingredients and Intermediates. In fiscal 2007, we received 18.2% of our
total revenues from this
48
segment, as compared to 33.9% in fiscal 2006. Revenues in this segment
increased by 43.6% to Rs.11,826.8 million in fiscal 2007, as compared to Rs.8,238.0 million in
fiscal 2006.
During fiscal 2007, revenues from sales in India accounted for 17.5% of our revenues from this
segment, as compared to 27.9% in fiscal 2006. Revenues from sales in India decreased by 9.6% to
Rs.2,075.0 million in fiscal 2007, as compared to Rs.2,296.4 million in fiscal 2006. This decrease
was primarily due to a decrease in revenues from sales of quinolones (antibiotics), due to a
significant decline in prices resulting from increased competition.
Revenues from sales outside India increased by 64.1% to Rs.9,751.8 million in fiscal 2007, as
compared to Rs.5,941.6 million in fiscal 2006. Revenues from sales in Europe increased by 47.0% to
Rs.2,089.4 million in fiscal 2007, as compared to Rs.1,420.9 million in fiscal 2006, primarily due
to an increase in revenues from sales of sertraline, finasteride, losartan and ramipril. Revenues
from sales of API in North America (United States and Canada) increased by 22.6% to Rs.2,029.6
million in fiscal 2007, as compared to Rs.1,655.0 million in fiscal 2006, primarily due to an
increase in sales volumes of naproxen sodium, ibuprofen, naproxen and sertraline, as well as
increase in sales volumes of API used by our customers in the development of their formulations.
Revenues from sales of API in the rest of the world increased from Rs.2,865.8 million in fiscal
2006 to Rs.5,632.7 in fiscal 2007, driven primarily by the growth of revenues from Israel, South
Korea, Brazil and Japan.
Generics. In fiscal 2007, we received 51.0% of our total revenues from this segment, as
compared to 16.7% in fiscal 2006. This segments revenues increased by 719.2% to Rs.33,224.2
million in fiscal 2007, as compared to Rs.4,055.8 million in fiscal 2006. Revenues from sales of
products in North America increased to Rs.23,619.4 million in fiscal 2007, as compared to
Rs.1,630.6 million in fiscal 2006. The increase was primarily due to revenues of Rs.15,812.8
million from sales of simvastatin and finasteride (our authorized generic versions of Mercks
Zocor® and Proscar®, respectively), launched in June 2006; revenues of Rs.2,429.3 million from
sales of fexofenadine (our generic version of Allegra ®), launched in April 2006; and revenues of
Rs.2,890.1 million from sales of ondansetron (our generic version of Zofran®), launched at the end
of December 2006 with 180 day marketing exclusivity. Excluding revenues from authorized generics,
fexofenadine and ondansetron, revenues from sales of generic products increased by 52.5% to
Rs.2,487.1 million, primarily on account of an increase in sales volumes as well as the launch of
new products, such as pravastatin and simvastatin (a non-authorized generic product).
Revenues from sales of generic products in Europe and other markets increased by 296.6% to
Rs.9,604.8 million in fiscal 2007, as compared to Rs.2,425.2 million in fiscal 2006. Revenues of
betapharm (in its first full year of consolidation) and sales of products acquired from Litaphar in
Spain (in fiscal 2007) together contributed Rs.8,065.0 million to revenues in fiscal 2007, as
compared to revenues contributed by betapharm of Rs.704.9 million in fiscal 2006 (which represented
less than one month of revenues, as it was acquired on March 3, 2006 and the fiscal year ended
March 31, 2006). In the United Kingdom, we experienced a decline in the prices of some of our key
generics products, amlodipine and omeprazole. As a result, our U.K. generics revenues declined by
10.5% to Rs.1,539.8 million in fiscal 2007 from Rs.1,716.6 million in fiscal 2006.
Custom Pharmaceutical Services. Revenues from custom pharmaceutical services, including
revenues from our subsidiary Falcon, grew to Rs.6,599.8 million in fiscal 2007 as compared to
Rs.1,326.8 million in fiscal 2006. Revenues contributed from Falcon increased from Rs.804.9 in
fiscal 2006 (this represents approximately three months of revenues, as it was acquired on December
30, 2005 and the fiscal year ended March 31, 2006) to Rs.5,396.8 million (this represents the first
full year of consolidation of Falcons revenues). Revenues in Falcon were driven by sales of
naproxen sodium, naproxen and epoxide. Excluding revenues from Falcon, revenues in this segment
grew to Rs.1,203.0 million in fiscal 2007, from Rs.521.9 in fiscal 2006, driven by growth in our
customer base and product portfolio.
Critical Care and Biotechnology. We received 1.3% of our total revenues from this segment in
fiscal 2007, as compared to 2.8% in fiscal 2006. Revenues in this segment increased to Rs.823.9
million in fiscal 2007, as compared to Rs.691.1 million in fiscal 2006.
Revenues from our critical care division increased to Rs.642.9 million in fiscal 2007 from
Rs.517.51 in fiscal 2006, primarily on account of an increase in revenues from sales in India of
key products such as Dacotin, our brand of oxaliplatin, Docetere, our brand of docetaxel, and
Mitotax, our brand of paclitaxel. Revenues from our biotechnology division increased to Rs.181.01
million in fiscal 2007 from Rs.173.56 million, primarily due to growth in sales volumes of Grastim,
our brand of filgrastim.
Cost of revenues
Total cost of revenues
increased by 175.6% to Rs.34,219.5 million for fiscal 2007, as compared
to Rs.12,417.3 million for fiscal 2006. As a percentage of total revenues, total cost of revenues
was 52.6% for fiscal 2007, as compared to 51.2% for fiscal 2006.
49
Formulations. Cost of revenues in this segment increased by 18.4% to Rs.3,651.5 million in
fiscal 2007, as compared to Rs.3,084.1 million in fiscal 2006. Cost of revenues in this segment was
29.6% of revenues for fiscal 2007, as compared to 31.1% of revenues for fiscal 2006. As a
percentage of revenues, cost of revenues decreased by 1.5% primarily on account of a decrease in
excise duties in fiscal 2007. This decrease in excise duties was due to our new formulations
facility at Baddi (operational from July 2006), which enjoys excise duty exemption.
Active Pharmaceutical Ingredients and
Intermediates. Cost of revenues increased by 22.4% to
Rs.7,242.3 million in fiscal 2007, as compared to Rs.5,916.5 million in fiscal 2006. Cost of
revenues in this segment as a percentage of revenue decreased to 61.2% of this segments revenues in fiscal 2007, as compared
to 71.8% of this segments revenues in fiscal 2006. One reason for this decrease was an increase
in the proportion of higher margin revenues from sales outside of India from 72.1% of total
revenues in fiscal 2006 to 82.5% of total revenues in fiscal 2007. Another reason for this
decrease was an increase of sales of high gross margin products, such as our generic version of
sertraline (launched in June, 2006).
Generics. Cost of revenues in this segment increased by 734.5% to Rs.18,098.6 million in
fiscal 2007, as compared to Rs.2,168.8 million in fiscal 2006. Cost of revenue was 54.5% of this
segments revenues in fiscal 2007, as compared to 53.5% in fiscal 2006. The increase in cost of
revenues as a percentage of sales in this segment was primarily as a result of revenues from newly
launched authorized generics, which contributed 47.6% to total revenues of this segment and have
gross margins which are significantly below the average gross margin of this segment. The increase
in cost of revenues associated with sales of these lower margin products was substantially offset
by increased sales of ondansetron and fexofenadine, which have gross margins which are
significantly above the average gross margin of this segment.
Custom Pharmaceutical Services. Cost of revenues in this segment increased by 366.5%
from Rs.999.4 million in fiscal 2006 (this represents approximately three months of revenues from
Falcon, as it was acquired on December 30, 2005 and the fiscal year ended March 31, 2006) to
Rs.4,662.5 million in fiscal 2007 (this represents the first full year of consolidation of the
cost of Falcons revenues). Cost of revenues was 70.6% of this segments revenues in fiscal 2007,
as compared to 75.3% in fiscal 2006. This decrease was primarily on account of increased sales of
naproxen sodium and naproxen, which are higher margin products.
Gross profit
As a result of the trends described in Revenues and Cost of revenues above, our gross
profit increased by 160.6% to Rs.30,875.6 million for fiscal
2007 from Rs.11,849.7 million for
fiscal 2006. Gross margin percentage was 47.4% in fiscal 2007, as compared to 48.8% in fiscal 2006.
Gross profit of the formulations segment increased to 70.4% in fiscal 2007, as compared to
68.9% in fiscal 2006. The gross profit for our active pharmaceutical ingredients segment increased
to 38.8% in fiscal 2007, as compared to 28.2% in fiscal 2006. The gross profit for our generics
segment decreased to 45.5% in fiscal 2007, as compared to 46.5% in fiscal 2006. The gross profit
for our custom pharmaceutical services segment was 29.4% in fiscal 2007, as compared to 24.7% in
fiscal 2006.
Selling, general and administrative expenses
Selling, general and administrative expenses, as a percentage of total revenues, were 21.6%
for fiscal 2007 as compared to 33.1% for fiscal 2006. The decrease in these expenses as a
percentage of revenues was due to an increase in our total revenues with no commensurate increase
in costs. Selling, general and administrative expenses increased by 75.0% to Rs.14,051.1 million
in fiscal 2007, as compared to Rs.8,028.9 million in fiscal 2006.
The increase in selling, general and administrative expenses as a whole was largely due to the
full year consolidation of expenses of betapharm and Falcon, as well as an increase in employee
costs and marketing costs. After excluding expenses of betapharm and Falcon, employee costs
increased by 41.1% in fiscal 2007, primarily due to annual compensation increases and market
corrections as well as an increase in the number of employees. Marketing expenses increased by
33.2% in fiscal 2007, primarily on account of higher selling expenses and higher shipping costs,
all incurred in connection with the increase in total revenues.
Research and development expenses
Research and development costs increased by 14.4% to Rs.2,462.7 million for fiscal 2007, as
compared to Rs.2,153.0 million for fiscal 2006. As a percentage of total revenue, research and
development expenses were 3.8% of our total revenue in fiscal 2007 as compared to 8.9% in fiscal
2006.
Under the terms of our research and development partnership agreement with I-VEN Pharma
Capital Limited (I-VEN), we
50
received Rs.985.4 million (U.S.$22.5 million) in March 2005 to be
applied to research and development costs in our generics segment, of which Rs.452.8 million
(U.S.$10.5 million) was recorded as a reduction in the research and development expense line item
in fiscal 2007 as compared to Rs.384.5 million (U.S.$8.6 million) recognized in fiscal 2006.
Furthermore, in fiscal 2007, our research and development expenses in our drug discovery segment
were lower on account of our receipt of Rs.372.6 million from Perlecan Pharma Private Limited
(Perlecan) as reimbursement of expenses incurred by us in the development of New Chemical
Entities (NCEs) assigned to Perlecan under the terms of our research and development partnership
agreement. This reimbursement payment was recorded as a reduction in research and
development expenses. Excluding the impact of the above arrangements with I-VEN and Perlecan,
expenses increased to Rs.3,288.1 million in fiscal 2007 as
compared to Rs.2,537.5 million in fiscal 2006.
The increase in expenses was primarily on account of an increase in product development studies in
our formulations and generics segments, as well as an increase in clinical trials expenses in our
discovery segment.
Amortization expenses
Amortization
expenses increased by 274.1% to Rs.1,570.9 million in fiscal 2007 from Rs.419.9
million in fiscal 2006. The increase was primarily on account of amortization of intangibles
acquired in the acquisition of betapharm and Falcon amounting to Rs.1,247.8 million and Rs.26.8
million, respectively, in fiscal 2007.
Write-down of Intangible Assets
During
fiscal 2007, we wrote-down certain intangible assets in an aggregate amount of
Rs.1,770.2 million. These write-downs primarily consisted of :
|
|
|
Write-down expense amounting to Rs.213.5 million associated with core technology rights
and other product related intangible assets acquired through Trigenesis Therapeutics, Inc.
During the fourth quarter ended March 31, 2007, we completed our detailed review of
business opportunities against each of the core technology rights, licenses and marketing
rights. As a result of this review, we determined that the further commercialization of
the intangible assets that are being carried forward may not be economically viable because
of further regulatory and approval process requirements and unfeasible partnering
prospects, and therefore discontinued our efforts to further develop these assets. |
|
|
|
|
Due to legislative reforms in Germany designed to control healthcare spending, including
the WSG and the AVWG, severe pricing pressures thereafter, and impact of the Salutas
contract amendment, certain of our product-related intangibles faced loss in economic
value. Consequently, based on a detailed review carried out by management, an impairment
provision of Rs.1,556.7 million was recorded in the current year financial statements. |
Foreign exchange gain/loss
Foreign
exchange gain was Rs.136.8 million for fiscal 2007, as compared to a loss of Rs.126.3
million for fiscal 2006. In fiscal 2007, the rupee appreciated by 2.57%. The fiscal 2007 foreign
exchange gain was primarily on account of our marking to market of our outstanding forward foreign
exchange contracts (entered into in order to hedge our receivables exchange risk) and foreign
currency loans, which gains were partially offset by our marking to market of our U.S.$ deposits
and receivables. In contrast to this, the rupee depreciated by 1.99% in fiscal 2006. Foreign
exchange loss in fiscal 2006 was primarily on account of our marking to market of our forward
foreign exchange contracts and foreign currency loans.
Other operating expense/(income), net
Other
operating income, net, amounted to Rs.67.0 million in fiscal 2007, as compared to
Rs.320.4 million in fiscal 2006.
This includes a profit of Rs.387.3 million in fiscal 2006
resulting from the sale of our finished dosages manufacturing facility located in Goa, India.
Operating income
As
a result of the foregoing, our operating income was Rs.11,224.4 million in fiscal 2007, as
compared to operating income of Rs.1,442.0 million in fiscal
2006. Operating income as a percentage
of total revenues was 17.2% in fiscal 2007, as compared to 5.9% in fiscal 2006.
Other income (expense), net
For
fiscal 2007, our net other expense was (Rs.661.5 million), as compared to net other income
of Rs.533.6 million for fiscal 2006.
51
This was primarily on account of net interest expense of
Rs.1,054.7 million in fiscal 2007 compared to net interest
income Rs.418.8 million in fiscal 2006. Net interest
expense was primarily on account of interest expense incurred on a loan in the original principal
amount of 400 million (Rs.21,598.30 million) taken for the acquisition of betapharm in fiscal
2006, partially offset by interest income on fixed deposits.
Equity in loss of affiliates
Equity in loss of affiliates was Rs.62.7 million for fiscal 2007, a decline from Rs.88.2
million for fiscal 2006. The fiscal 2007 loss consists of a loss
pick-up from Perlecan Pharma
Private Limited of Rs.63.3 million offset by a gain pick-up from Kunshan Rotam Reddy
Pharmaceuticals of Rs.0.7 million. In fiscal 2006, equity in loss of affiliates consisted of a
Rs.40.0 million loss pick-up from Perlecan Pharma Private Limited plus a Rs.48.2 million loss
pick-up from Kunshan Rotam Reddy Pharmaceuticals.
Income before income taxes and minority interest
As a result of the foregoing, income before income taxes and minority interest increased to
Rs.10,500.3 million in fiscal 2007, as compared to Rs.1,887.3 million in fiscal 2006. As a
percentage of revenues, income before income taxes and minority interest was 16.1% of revenues in
fiscal 2007, as compared to 7.8% of revenues in fiscal 2006.
Income tax expense
Income tax expense for fiscal 2007 was Rs. 1,176.9 million as compared to an income tax
expense of Rs. 258.4 million for fiscal 2006. As a percentage of income before taxes and minority
interest, income tax expense decreased from 13.7% for fiscal 2006 to 11.2% for fiscal 2007. In
absolute terms, the income tax expense increased primarily a result of significantly higher income
from operations in fiscal 2007 as compared to fiscal 2006. The effective tax rate decreased
primarily on account of increased sales in generics business, which in India enjoys tax exemptions.
Further, whilst a significant portion of the increased profitability has been out of North America
generics operations, the corresponding tax expense has been lower since the business had net
operating losses, which were utilized in the current year. The Company had recorded a full
valuation allowance on the deferred tax assets on net operating losses, which was reversed in the
current year.
Minority interest
Minority
interest for fiscal 2007, was a gain of Rs.3.5 million resulting from the allocation of
our minoritys share in the losses of Dr. Reddys Laboratories (Proprietary) Limited, our partially owned
subsidiary in South Africa. During fiscal 2006, we realized a loss of Rs.0.1 million representing
our minority share in the profits of this partially owned subsidiary.
Net income
As a result of the above factors, our net income increased to Rs.9,326.8 million in fiscal
2007, as compared to Rs.1,628.9 million in fiscal 2006. Net income as a percentage of total
revenues increased to 14.3% in fiscal 2007 from 6.7% in fiscal 2006.
Fiscal Year Ended March 31, 2006 Compared to Fiscal Year Ended March 31, 2005
Revenues
Total revenues increased by 24.3% to Rs.24,267.0 million in fiscal 2006, as compared to
Rs.19,591.4 million in fiscal 2005, primarily due to an increase in revenues in our formulations
segment and our active pharmaceutical ingredients and intermediates segment, as well as new
revenues contributed by our recently acquired subsidiaries, Falcon in Mexico (starting December 30,
2005) and betapharm in Germany (starting March 3, 2006). Excluding revenues from Falcon and
betapharm, revenues increased by 16.6% to Rs.22,758.2 million. betapharm contributed Rs.704.9
million and Falcon contributed Rs.804.0 million to our revenues for fiscal 2006. In fiscal 2006, we
received 16.4% of our revenues from North America (United States and Canada), 34.1% of our revenues
from India, 14.7% of our revenues from Russia and other countries of the former Soviet Union, 17.8%
of our revenues from Europe and 17.0% of our revenues from other countries.
Revenues from sales to Russia and other former Soviet Union countries increased by 27.9% to
Rs.3,559.5 million in fiscal 2006, as compared to Rs.2,782.2 million in fiscal 2005. The increase
was primarily due to an increase in sales of our major brands such as Nise, our brand of
nimesulide, Keterol, our brand of ketorolac tromethamine, Ciprolet, our brand of ciprofloxacin, and
Omez, our brand of omeprazole. Revenues from sales in India increased by 23.6% to Rs.8,272.5
million in fiscal 2006, as
52
compared to Rs.6,693.0 million in fiscal 2005, primarily due to an
increase in revenues in our formulations and active pharmaceutical ingredients and intermediates
segments. Revenues from sales to Europe increased by 50.8% to Rs.4,326.3 million in fiscal 2006,
as compared to Rs.2,868.2 million in fiscal 2005, primarily as a result of an increase in revenues
from sales in our generics segment and active pharmaceutical ingredients and intermediates segment,
as well as new revenues contributed from betapharm. Excluding betapharm revenues, revenues from
sales to Europe increased by 26.3% to Rs.3,621.4 million in fiscal 2006. Revenues from sales to
North America decreased by 8.4% to Rs.3,983.9 million in fiscal 2006, as compared to Rs.4,349.2
million in fiscal 2005, primarily due to a decrease in sales in our generics segment and active
pharmaceutical ingredients and intermediates segment.
Formulations. In fiscal 2006, we received 40.9% of our total revenues from the formulations
segment, as compared to 40.1% in fiscal 2005. Revenues in this segment increased by 26.9% to
Rs.9,925.9 million in fiscal 2006, as compared to Rs.7,822.9 million in fiscal 2005.
Revenues in India constituted 55.7% of our total formulations revenues in fiscal 2006, which
is the same percentage it constituted in fiscal 2005. Revenues from sales of formulations in India
increased by 26.7% to Rs.5,525.7 million in fiscal 2006, as compared to Rs.4,360.2 million in
fiscal 2005. This was driven by an increase in revenues from increased sales volumes of our key
brands such as Omez, our brand of omeprazole, Nise, our brand of nimesulide, Stamlo our brand of
amlodipine, and Recliment, our brand of gliclazide and metformin. The increase was also
attributable to our focused marketing strategy, in which we reorganized our Indian sales force by
therapeutic categories, as well as the positive impact of inventory restocking by stockists and
retailers after implementation of Indias Value Added Tax system in April 2005.
Revenues from sales of formulations outside India increased by 27.1% to Rs.4,400.3 million in
fiscal 2006, as compared to Rs.3,462.7 million in fiscal 2005. Revenues from sales of formulations
in Russia accounted for 58.7% of our formulation revenues outside India in fiscal 2006, as compared
to 60.9% in fiscal 2005. Revenues from sales of formulations in Russia increased by 22.6% to
Rs.2,583.1 million in fiscal 2006, as compared to Rs.2,107.2 million in fiscal 2005. The increase
was primarily due to an increase in sales volumes as a result of marketing activities as well as
the Russian governments implementation in January 2005 of the Dopolnitelnoye Lekarstvennoye
Obespechenoye (DLO) program pursuant to which the Russian government purchases drugs for free
distribution to low income individuals. Revenues from sales to other countries of the former Soviet
Union increased by 39.4% to Rs.826.8 million for fiscal 2006 as compared to Rs.593.3 million for
fiscal 2005, primarily driven by an increase in revenues in the Ukraine and Kazakhstan. Revenues
from sales to the rest of the world increased by 19.2% to Rs.731.1 million in fiscal 2006, as
compared to Rs.613.1 million in fiscal 2005. This increase was primarily due to higher revenues
from sales to South Africa, Myanmar, Vietnam and Jamaica and was offset by a decrease in revenues
from sales to Venezuela and Sri Lanka.
Active Pharmaceutical Ingredients and Intermediates. In fiscal 2006, we received 33.9% of our
total revenues from this segment as compared to 35.6% in fiscal 2005. Revenues in this segment
increased by 18.6% to Rs.8,238.0 million in fiscal 2006, as compared to Rs.6,944.5 million in
fiscal 2005.
During fiscal 2006, revenues from sales in India accounted for 27.8% of our revenues from this
segment, as compared to 28.4% in fiscal 2005. Revenues from sales in India increased by 16.1% to
Rs.2,296.4 million in fiscal 2006, as compared to Rs.1,972.1 million in fiscal 2005. This increase
was primarily due to an increase in sales volumes of ciprofloxacin, sparfloxacin and ranitidine as
well as an increase in the sales price of ciprofloxacin.
Revenues from sales outside India increased by 19.5% to Rs.5,941.7 million in fiscal 2006, as
compared to Rs.4,972.5 million in fiscal 2005. Revenues from sales in Europe increased by 30.2% to
Rs.1,420.9 million in fiscal 2006, as compared to Rs.1,091.2 million in fiscal 2006, primarily due
to an increase in revenues from new product launches. Revenues from sales in North America (United
States and Canada) decreased by 10.5% to Rs.1,655.0 million in fiscal 2006, as compared to
Rs.1,849.0 million in fiscal 2005, primarily due to a decrease in sales of ranitidine Hcl Form 1.
Revenues from sales in the rest of the world increased from Rs.2,032.3 million in fiscal 2005 to
Rs.2,865.7 in fiscal 2006, driven primarily by the growth of sales in Israel, Turkey, Mexico and
Brazil.
Generics. In fiscal 2006, we received 16.7% of our total revenues from this segment, as
compared to 18.3% in fiscal 2005. This segments revenues, including revenues contributed by
betapharm (starting March 3, 2006), increased by 13.4% to Rs.4,055.8 million in fiscal 2006, as
compared to Rs.3,577.4 million in fiscal 2005. Excluding revenues contributed by betapharm, this
segments revenues declined by 6.3% to Rs.3,350.8 million. Revenues from sales in North America
(United States and Canada) decreased by 26.9% to Rs.1,630.6 million in fiscal 2006, as compared to
Rs.2,230.1 million in fiscal 2005. This was primarily on account of a decrease in prices of
tizanidine and fluoxetine due to increased competition. Together, these products contributed
Rs.437.8 million in revenue in fiscal 2006, as compared to Rs.1,134.7 million in fiscal 2005. This
decline was partially offset by the revenues from new product launches of glimpiride and zonisamide
as well as an increase in sales of ibuprofen and naproxen. The benefit of high pricing in
omeprazole and amlodipine was more than offset by a decline in revenues from sales of key products
in North America. Revenues from sales in Europe increased by 80.8% to Rs.2,421.5 million in fiscal
2006, as compared to Rs.1,339.6 million in fiscal 2005. Revenues contributed by betapharm (starting
March 3, 2006) of Rs.704.9 million have been included in this segments fiscal 2006 revenues.
Excluding revenues contributed by betapharm, revenues from sales in Europe increased by 28.1% to
Rs.1,716.6 million in
53
fiscal 2006 primarily due to growth of sales volume and higher pricing of
omeprazole and amlodipine maleate in the U.K. market.
Critical Care and Biotechnology. We received 2.8% of our total revenues from this segment in
fiscal 2006, as compared to 2.7% in fiscal 2005. Revenues in this segment increased to Rs.691.1
million in fiscal 2006, as compared to Rs.527.1 million in fiscal 2005.
Revenues from our critical care division increased by Rs.109.6 million in fiscal 2006,
primarily on account of an increase in revenues from sales in India of key products such as
Dacotin, our brand of oxaliplatin, Docetere, our brand of docetaxel, and Mitotax, our brand of
paclitaxel. Revenues from our biotechnology division increased by Rs.54.4 million in fiscal 2006,
primarily due to growth in sales volumes of Grastim, our brand of filgrastim.
Discovery Research. There were no revenues from discovery research in fiscal 2006, as
compared to Rs.288.4 million in fiscal 2005 (which was attributable to the recognition of Rs.235.6
million from Novartis Pharma A.G. and Rs.52.8 million from Novo Nordisk as the result of
termination of license agreements with both of these companies)
Custom Pharmaceutical Services. Revenues from custom pharmaceutical services, including
revenues from our recently acquired subsidiary Falcon, grew to Rs.1,326.8 million in fiscal 2006 as
compared to Rs.311.6 million in fiscal 2005. Excluding revenues from Falcon, revenues grew by 67.8%
to Rs.522.8 million driven by growth in our customer base and product portfolio.
Others. Revenues from our other businesses (consisting of service income in Aurigene Discovery
Technologies Limited) were Rs.29.4 million in fiscal 2006 as compared to Rs.47.5 million in fiscal
2005.
Cost of revenues
Cost of revenues increased by Rs.3,031.6 million to Rs.12,417.4 million for fiscal 2006, as
compared to Rs.9,385.8 million for fiscal 2005. As a percentage of total revenues, cost of revenues
was 51.2% for fiscal 2006, as compared to 48.1% for fiscal 2005. Excluding revenues and cost of
revenues from betapharm and Falcon, cost of revenues increased by Rs.1,987.9 million to Rs.11,373.8
million, which was 50% of total revenues for fiscal 2006, as compared to 48.1% for fiscal 2005.
Formulations. Cost of revenues in this segment was 31.1% of revenues for fiscal 2006, as
compared to 31.9% of revenues for fiscal 2005. Cost of revenues increased by 23.7% to Rs.3,084.1
million in fiscal 2006, as compared to Rs.2,492.8 million in fiscal 2005 which is roughly in line
with our overall increase in this segments revenues.
Active Pharmaceutical Ingredients and Intermediates. Cost of revenues in this segment
decreased to 71.8% of this segments revenues in fiscal 2006, as compared to 72.2% of the segments
revenues in fiscal 2005. Cost of revenues increased by 18.0% to Rs.5,916.6 million in fiscal 2006,
as compared to Rs.5,013.5 million in fiscal 2005. The decrease in cost of revenues as a percentage
of revenues was primarily due to an overall increase in sales.
Generics. Cost of revenues, including revenues from betapharm, was 53.5% of this segments
revenues in fiscal 2006, as compared to 45.3% in fiscal 2005. Cost of revenues increased by 33.8%
to Rs.2,168.8 million in fiscal 2006, as compared to Rs.1,620.3 million in fiscal 2005. The
increase in cost of revenues as a percentage of sales in this segment was primarily as a result of
a decline in average price realization in our U.S. generics businesses due to continued pricing
pressure.
Critical Care and Biotechnology. Cost of revenues in this segment increased to 34.1% of this
segments revenues in fiscal 2006, as compared to 33.5% in fiscal 2005. Cost of revenues increased
by 33.6% to Rs.235.9 million in fiscal 2006, as compared to Rs.176.5 million in fiscal 2005. The
increase was due to a decrease in prices of key products as well as an increase in production
overhead costs.
Custom Pharmaceutical Services. Cost of revenues in this segment increased from Rs.82.6
million to Rs.999.4 million primarily as a result of the acquisition of Falcon, which is included
within this segment. The cost of revenue as a percentage of revenue was at 75.3% as compared to
26.5% in the previous year. This increase was primarily a result of increased sales of API
products having lower margins.
Gross profit
As a result of the trends described in Revenues and Cost of revenues above, our gross
profit, including profit from betapharm and Falcon, increased by 16.9% to Rs.11,849.6 million for
fiscal 2006 from Rs.10,133.6 million during fiscal 2005. Excluding profit from betapharm and
Falcon, gross profit increased by 12.3% to Rs.11,384.4 million for fiscal 2006. Gross margin
percentage was
54
48.8% in fiscal 2006, as compared to 51.9% in fiscal 2005.
Gross margin of the formulations segment increased to 68.9% in fiscal 2006, as compared to
68.1% in fiscal 2005. The gross margin for our active pharmaceutical ingredients segment increased
to 28.2% in fiscal 2006, as compared to 27.8% in fiscal 2005. The gross margin for our generics
segment decreased to 46.5% in fiscal 2006, as compared to 54.7% in fiscal 2005. The gross margin
for our critical care and biotechnology segment was 65.9% in fiscal 2006, as compared to 66.5% in
fiscal 2005. The gross margin for our custom pharmaceutical services segment reduced to 24.7% in
fiscal 2006, as compared to 73.5% in fiscal 2005.
Selling, general and administrative expenses
Selling, general and administrative expenses, including expenses of betapharm and Falcon,
increased by 18.5% to Rs.8,028.9 million in fiscal 2006, as compared to Rs.6,774.6 million in
fiscal 2005. Excluding expenses of betapharm and Falcon, selling, general and administrative
expenses increased 13.4% to Rs.7,687.4 million for fiscal 2006. Selling, general and
administrative expenses, including expenses of betapharm and Falcon, as a percentage of revenues
were 33.1% for fiscal 2006 as compared to 34.7% for fiscal 2005.
The increase in selling, general and administrative expenses as a whole was largely due to an
increase in employee costs as well as marketing costs, largely offset by a decrease in legal and
professional expenses. Employee costs increased by 18.0% primarily due to annual compensation
increases and market corrections as well as an increase in the number of employees. Marketing
expenses increased by 36.0% primarily on account of higher selling expenses and higher shipping
costs. Legal and professional expenses decreased by 10.6% primarily due to lower legal and
consultancy activity in fiscal 2006.
Research and development expenses
Research and development costs decreased by 23.2% to Rs.2,153.0 million for fiscal 2006, as
compared to Rs.2,803.3 million for fiscal 2005. The acquisitions of betapharm and Falcon did not
have any significant impact on research and development expenditure. As a percentage of revenue,
research and development expenses were 8.9% of our total revenue in fiscal 2006 as compared to
14.4% in fiscal 2005. The decrease was primarily on account of lower research and development costs
in our drug discovery segment and lower research and development costs in our generics segment,
which includes costs for research and development related to our specialty pharmaceuticals
business, offset by an increase in expenses in our formulations, biotechnology and CPS segments.
Under the terms of the research and development partnership agreement with I-VEN Pharma Capital
Limited, we received Rs.985.4 million (U.S.$22.5 million) in March 2005 to be applied to research
and development costs in our generics segment, of which Rs.384.5 million (U.S.$8.6 million) was
recorded as a reduction in the research and development expense line item in fiscal 2006 as
compared to Rs.96.2 million (U.S.$2.2 million) recognized in fiscal 2005.
Amortization expenses
Amortization expenses, including expenses of betapharm and Falcon, increased by 20.0% to
Rs.419.9 million from Rs.350.0 million. The increase was primarily on account of amortization of
intangibles acquired in the acquisition of betapharm and Falcon amounting to Rs.87.2 million and
Rs.6.8 million, respectively.
Foreign exchange gain/loss
Foreign exchange loss was Rs.126.3 million for fiscal 2006 as compared to a loss of Rs.488.8
million for fiscal 2005. In fiscal 2006, the rupee depreciated by 1.95%, resulting in a gain on
translation and realization of foreign currency receivables and a loss on translation of foreign
currency loans. This also caused a loss on forward foreign exchange contracts entered into to hedge
receivables.
Other operating expense/(income), net
Other operating income net amounted to Rs.320.4 million in fiscal 2006, as compared to Rs.6.0
million in fiscal 2005. This includes profit of Rs.387.3 million in fiscal 2006 on sale of our
finished dosages manufacturing facility located in Goa, India.
Operating income
As a result of the foregoing, our operating income was Rs.1,441.9 million in fiscal 2006, as
compared to an operating loss of Rs.289.2 million in fiscal 2005. Operating gain as a percentage of
total revenues was 5.9% in fiscal 2006, as compared to (1.5%) in fiscal 2005.
55
Other income, net
For fiscal 2006 our other income was Rs.533.6 million, as compared to Rs.454.2 million for
fiscal 2005. This includes net interest income of Rs.418.8 million in fiscal 2006 as compared to
Rs.271.9 million in fiscal 2005. The increase in other income was primarily a result of an
increase in interest income earned on investment of surplus funds.
Equity in loss of affiliates
Equity in loss of affiliates increased by Rs.30.1 million to Rs.88.2 million for fiscal 2006
from Rs.58.1 million for fiscal 2005, primarily due to a loss allocation from Perlecan Pharma
Private Limited of Rs.40 million for fiscal 2006. However, the increase was offset by a decrease in
loss allocation from Kunshan Rotam Reddy Pharmaceuticals by Rs.9.9 million on account of a
reduction in losses.
Income before income taxes and minority interest
As a result of the foregoing, income before income taxes and minority interest increased to
Rs.1,887.3 million in fiscal 2006, as compared to Rs.107 million in fiscal 2005. As a percentage of
revenues, income before income taxes and minority interest was 7.8% of revenues in fiscal 2006, as
compared to 0.5% of revenues in fiscal 2005.
Income tax expense
Income tax expense for fiscal 2006 was Rs.258.4 million as compared to an income tax net
benefit of Rs.94.3 million for fiscal 2005. The income tax expense increase in fiscal 2006 was
primarily a result of significantly higher income from operations in fiscal 2006 as compared to
fiscal 2005, in which year we recorded a tax loss. Further, we had a higher weighted average
deduction in fiscal 2005 as a result of research and development expenses principally related to
increased research and development spending and lower credits arising from the I-VEN transaction.
Minority interest
Minority
interest for fiscal 2006 was an expense of Rs.0.1 million
representing minoritys
share in the profits of Dr. Reddys Laboratories (Proprietary) Limited, our subsidiary in South
Africa. During fiscal 2005, we realized a gain of Rs.9.9 million on account of allocation of minoritys share in the losses of this subsidiary.
Net income
As a result of the above, our net income increased to Rs.1,628.9 million in fiscal 2006, as
compared to Rs.211.1 million in fiscal 2005. Net income as a percentage of total revenues increased
to 6.7% in fiscal 2006 from 1.1% in fiscal 2005.
56
Recent Accounting Pronouncements
In July 2006, the Financial Accounting Standard Board (FASB) issued FASB Interpretation No.
48, Uncertainty in Income Taxes (FIN 48). FIN 48 applies to all tax positions within the scope of
Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, and clarifies
when and how to recognize tax benefits in the financial statements with a two-step approach of
recognition and measurement. FIN 48 is effective for fiscal years beginning after December 15,
2006. FIN 48 also requires the enterprise to make explicit disclosures about uncertainties in their
income tax positions, including a detailed roll forward of tax benefits taken that do not qualify
for financial statement recognition. Differences between the amounts recognized in the statements
of financial position prior to the adoption of FIN 48 and the amounts reported after adoption
should be accounted for as a cumulative-effect adjustment recorded to the beginning balance of
retained earnings. We have evaluated the impact of this pronouncement and do not believe that our
adoption of FIN 48 for the fiscal year beginning April 1, 2007 will have a material effect on our
financial position, cash flows or results of operations.
In September 2006, the FASB issued Statement of Financial Accounting Standards No.157, Fair
Value Measurements (SFAS 157). SFAS 157 defines fair value as the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. SFAS 157 provides guidance on determination of fair value,
and lays down the fair value hierarchy to classify the source of information used in fair value
measurements. We will be required to adopt this new standard for the fiscal year beginning April 1,
2008. We are currently evaluating the requirements of SFAS 157 and have not yet determined the
impact on our consolidated financial statements.
In February 2007, the FASB released Statement of Financial Accounting Standards No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159). SFAS 159 permits
entities to choose to measure many financial instruments and certain other items at fair value. The
objective is to improve financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting provisions. We will be required to adopt this new
standard for the fiscal year beginning April 1, 2008. We are currently evaluating the requirements
of SFAS 159 and have not yet determined the impact on our consolidated financial statements.
In June 2007, the Emerging Issues Task Force (EITF) issued EITF Issue No. 07-3, Accounting
for Nonrefundable Advance Payments for Goods or Services to be Used in Future Research and
Development Activities. EITF Issue No. 07-3 provides guidance concerning the accounting for
non-refundable advance payments for goods and services that will be used in future research and
development activities and requires that they be expensed when the research and development
activity has been performed and not at the time of payment. The provisions of EITF Issue No. 07-3
are effective for fiscal years beginning after December 15, 2007, with a cumulative-effect
adjustment to retained earnings as of the beginning of the year of adoption. We are currently
evaluating the impact of adopting EITF Issue No. 07-3 on our consolidated financial statements.
5.B. Liquidity and capital resources
Liquidity
We have primarily financed our operations through cash flows generated from operations and
through short-term borrowings for working capital. Our principal liquidity and capital needs are
for making investments, the purchase of property, plant and equipment, regular business operations
and drug discovery.
Our principal sources of short-term liquidity are internally generated funds and short-term
borrowings, which we believe are sufficient to meet our working capital requirements and currently
anticipated capital expenditures over the near term. As part of our growth strategy, we continue to
review opportunities to acquire companies, complementary technologies or product rights. To fund
the acquisition of betapharm in Germany in fiscal 2006, we borrowed 400 million under a bank loan
facility with a maturity period of five years. If our future acquisitions involve significant cash
payments, rather than the issuance of shares, we may need to further borrow from banks or raise
additional funds from the debt or equity markets.
As of March 31, 2007 we anticipate expenditures of approximately U.S. $115 million over the
next two fiscal years in connection with the addition of manufacturing capacity in and expansion of
infrastructure requirements for our business.
The following table summarizes our statements of cash flows for the periods presented:
57
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Fiscal Year Ended March 31, |
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2005 |
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2006 |
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2007 |
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2007 |
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(Rs. in million, U.S.$ in thousands) |
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Net cash provided by /(used in): |
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|
|
Operating activities |
|
Rs. |
2,291.6 |
|
|
Rs. |
1,643.1 |
|
|
Rs. |
11,804.5 |
|
|
U.S.$ |
273,887 |
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Investing activities |
|
|
632.9 |
|
|
|
(34,524.4 |
) |
|
|
592.5 |
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|
13,746 |
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Financing activities |
|
|
1,931.3 |
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|
|
27,210.9 |
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|
|
1,753.7 |
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|
|
40,689 |
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Effect of exchange rate changes on cash |
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55.8 |
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95.1 |
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118.1 |
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2,741 |
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Net increase / (decrease) in cash and cash
Equivalents |
|
Rs. |
4,911.6 |
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|
Rs. |
(5,575.2 |
) |
|
Rs. |
14,268.8 |
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U.S.$ |
331,063 |
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Cash Flow from Operating Activities
Net cash provided by operating activities increased from Rs.1,643.1 million in fiscal 2006 to
Rs.11,804.5 million in fiscal 2007. The significant increase in net cash was primarily
attributable to the increase in our overall revenues and profits as there was growth in our
operations in North America (United States and Canada) resulting from the launch of key products
such as simvastatin, finasteride and fexofenadine.
Net cash provided by operating activities in fiscal 2007 is based upon our fiscal 2007 net
income (which was Rs.9,326.8 million), as increased to add back non-cash items (resulting in an
increase of Rs.5,597.0 million) and as decreased to account for the fiscal 2007 increase in working
capital (resulting in a decrease of Rs.3,119.6 million).
The increase in working capital was caused by an increase in accounts receivable by Rs.2,705.8
million and inventories by Rs.995 million, partly offset by an increase in trade payables by
Rs.889.6 million, all in line with our increased sales and anticipated product launches.
Cash Flow from Investing Activities
Net cash provided by investing activities was Rs.592.5 million for fiscal 2007, as compared to
net cash used by investing activities of Rs.34,524.4 million for fiscal 2006. This was primarily on
account of a decrease in restricted cash by Rs.5,468.9 million during fiscal 2007, partly offset by
additional expenditures of Rs.4,477.1 million on property, plant and equipment and Rs.325.8 million
on intangible assets.
Cash Flows from Financing Activities
Net cash provided by financing activities for fiscal 2007 decreased to Rs.1,753.7 million, as
compared to Rs.27,210.9 million for fiscal 2006. Net cash provided by financing
activities for fiscal 2007 was primarily due to Rs.10,029.5 million in cash inflows resulting from
our November 2006 public offering of American Depositary Shares, partly offset by the repayment of
borrowings and short term loans from banks net of proceeds from a short term loan of Rs.5,870.7
million, repayment of long-term debt of Rs.1,888.5 million and payment of dividends of Rs.437.5
million. In comparison, net cash provided by financing activities for fiscal 2006 was primarily
due to short-term borrowings from banks of Rs.6,322.0 million and long-term borrowings from banks
incurred in connection with the acquisition of betapharm of Rs.21,598.30 million.
Principal obligations
The
following table summarizes our principal debt obligations outstanding as of March 31,
2007:
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Payments due by period |
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(Rs. in millions) |
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Financial Contractual |
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Less than |
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After |
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Obligations |
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Total |
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1 year |
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1-3 years |
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3-5 years |
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5 years |
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Annual Interest Rate |
Short-term borrowings
from banks
|
|
|
3,212.7 |
|
|
|
3,212.7 |
|
|
|
|
|
|
|
|
|
|
|
|
LIBOR + 60bps for foreign currency denominated loans and 8% to 10% for rupee denominated loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term debt
|
|
|
21,288.7 |
|
|
|
3,664.6 |
|
|
|
6,187.8 |
|
|
|
11,436.3 |
|
|
|
|
|
From Indian Renewable
Energy Development
Agency
|
|
|
19.2 |
|
|
|
5.9 |
|
|
|
11.8 |
|
|
|
1.5 |
|
|
|
|
2%* |
For betapharm acquisition
|
|
|
21,269.5 |
|
|
|
3,658.7 |
|
|
|
6,176.0 |
|
|
|
11,434.8 |
|
|
|
|
EURIBOR + 70 bps 200 bps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total obligations
|
|
|
24,501.4 |
|
|
|
6,877.3 |
|
|
|
6,187.8 |
|
|
|
11,436.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58
|
|
|
* |
|
Loan received at a subsidized rate of interest from Indian Renewable Energy Development Agency
Limited promoting use of alternative sources of energy. |
Subject to obtaining certain regulatory approvals, there are no legal or economic
restrictions on the transfer of funds between us and our subsidiaries or for the transfer of funds
in the form of cash dividends, loans or advances.
The maturities of our short-term borrowings from banks vary from one month to approximately
six months. Our objective in determining the borrowing maturity is to ensure a balance between
flexibility, cost and the continuing availability of funds. All of our debts except for short-term
working capital loans from banks are at fixed rates of interest.
Cash
and cash equivalents are primarily held in Indian rupees, U.S. dollars, U.K. pounds sterling,
Singapore dollars, Brazilian real, Euros, Russian roubles, Chinese yuan, South African rand and
Hong Kong dollars.
As of March 31, 2006 and 2007, we had committed to spend approximately Rs.744.0 million and
Rs.1,186.0, respectively, under agreements to purchase property and equipment and other capital
commitments. These amounts are net of capital advances paid in respect of such purchases and we
anticipate funding them from internally generated funds.
5.C. Research and development, patents and licenses, etc.
Research and Development
Our research and development activities can be classified into several categories, which run
parallel to the activities in our principal areas of operations:
|
|
Formulations, where our research and development activities are
directed at the development of product formulations, process
validation, bioequivalency testing and other data needed to
prepare a growing list of drugs that are equivalent to numerous
brand name products for sale in the emerging markets. |
|
|
|
Active pharmaceutical ingredients and intermediates, where our
research and development activities concentrate on development of
chemical processes for the synthesis of active pharmaceutical
ingredients for use in our generics and formulations segments and
for sales in the emerging and developed markets to third parties. |
|
|
|
Generics, where our research and development activities are
directed at the development of product formulations, process
validation, bioequivalency testing and other data needed to
prepare a growing list of drugs that are equivalent to numerous
brand name products whose patents and regulatory exclusivity
periods have expired or are nearing expiration in the regulated
markets of the United States and Europe. |
|
|
|
Critical care and biotechnology, where research and development
activities are directed at the development of oncology and
biotechnology products for the emerging as well as regulated
markets. Our new biotechnology research and development facility
caters to the highest development standards, including cGMP, Good
Laboratory Practices and bio-safety level IIA. We are in the
process of building our bio-generics pipeline. During fiscal 2005,
we entered into an agreement with a U.S. based biotechnology
company for the development of a bio-generics portfolio. |
|
|
|
Drug discovery, where we are actively pursuing discovery and
development of NCEs. Our research programs focus on the following
therapeutic areas: |
|
§ |
|
Metabolic disorders |
|
|
§ |
|
Cardiovascular disorders |
|
|
§ |
|
Bacterial infections |
|
|
§ |
|
Inflammation |
|
|
§ |
|
Cancer |
|
|
Custom pharmaceutical services, where we intend to leverage the
strength of our process chemistry and finished dosage development
expertise to target innovator as well as emerging pharmaceutical
companies. The research and development is directed toward
providing services to support the entire pharmaceutical value
chain from discovery all the way to the market. |
In fiscal 2005, 2006 and 2007, we expended Rs.2,803.3 million, Rs.2,153.0 million and
Rs.2,462.7, respectively, on research and development activities.
Patents, Trademarks and Licenses
59
We have filed and been issued numerous patents in our principal areas of operations: drug
discovery, active pharmaceutical ingredients and intermediates and generics. We expect to continue
to file patent applications seeking to protect our innovations and novel processes in several
countries, including the United States. Any existing or future patents issued to or licensed by us
may not provide us with any competitive advantages for our products or may even be challenged,
invalidated or circumvented by our competitors. In addition, such patent rights may not prevent our
competitors from developing, using or commercializing products that are similar or functionally
equivalent to our products. We have filed 1,058 trademarks with the Registrar of Trademarks in
India of which 558 are already registered. We also have made application for registration for
non-U.S. trademarks in other countries in which we do business. We market several products under
licenses in several countries where we operate.
5.D. Trend information
Formulations. According to ORG IMS in its March 2007 Moving Annual Total (MAT) report, our
sales of formulations in India had a growth rate of 17%, as compared to the industry growth rate of
14% in India. According to the Center for Marketing and Advertising Research Consultancy (CMARC)
report for the period November to February 2007, which measures doctors prescriptions, we were the
fastest growing company among the top 10 companies in terms of sales of formulations in India. We
launched 21 new products (including extentions of existing product lines) in India during fiscal
2007. We expect to grow at a rate higher than the pharmaceutical industry growth rate in India.
The competitive environment in the developing markets outside of India is changing, with most
countries having moved or moving towards recognizing product patents. This implies that the new
product launches in the future will depend either on the innovator patent expiries or developing
non-infringing processes and/or invalidating the patents. Further, the governments in several
countries are in the process of implementing various healthcare reforms to promote the consumption
of generic drugs in order to contain their healthcare costs. This will present growth opportunities
in several of these markets though we could experience a reduction of the reimbursement prices.
However, an increasing number of patent expiries over the next few years and changing demographic
conditions also present additional growth opportunities.
As part of our global business development program, we will continue to explore in-licensing
and other opportunities to strengthen our product pipeline. Among our international markets, Russia
is our single largest market. In 2006, the pharmaceutical market in Russia grew by 27% driven by
20% growth in the retail segment and 78% growth in the Dopolnitelnoye lekarstvennoye obespechenoye
(DLO) program. Pursuant to the DLO program, the Russian government purchases drugs for free
distribution to low income individuals. During fiscal 2007, we launched several new products in
Russia through a combination of owned as well as in-licensed products. Our entry into the hospitals
and over-the-counter segments also added to our overall growth in Russia. We expect our growth
momentum to continue in Russia as a result of the above initiatives. We are also focusing on
driving growth in other countries in the former Soviet Union, South Africa and China through new
product launches.
Active Pharmaceutical Ingredients and Intermediates. In this segment, we are focused on
increasing our level of customer engagement in key markets globally to market additional products
from our product portfolio to key customers. We are also focused on identifying unique product
opportunities in key markets and protecting them through patenting strategies. As of March 31,
2007, we had a pipeline of 104 drug master filings (DMFs) in the United States. With patent
expiries in several markets in the next few years, we intend to promote growth in fiscal 2008 and
beyond by leveraging our portfolio of markets and products. During fiscal 2007, our sales growth
and gross profit margins were positively impacted by an increase in sales of high margin products,
particularly benefiting from the launch of commercial supplies of sertraline (Zoloft®) in the
United States as well as one-time supply of rabeprazole to Teva. Following expiration of the 180
days of marketing exclusivity in sertraline, the selling price has normalized. The success of our
API products in our key markets is contingent upon the extent of competition in the generics
market, and we anticipate that such competition will continue to be significant.
Generics. In this segment, we are focused on the regulated markets of North America (the
United States and Canada) and Europe. In the United States, our revenues during fiscal 2007
benefited significantly from the launch of fexofenadine, the generic version of
Allegra® (launched at risk (i.e., prior to resolution of patent infringement
claims) in April 2006), simvastatin, the authorized generic version of
Zocor®, finasteride 5 mg, the authorized generic version of
Proscar®, and ondansetron, the generic version of
Zofran®. See Recent developments for a discussion of litigation related to
fexofenadine.
In January 2006, we entered into an agreement with Merck allowing us to distribute and sell
authorized generic versions of two of their products, finasteride and simvastatin (sold by Merck
under the brand names Zocor® and Proscar®), provided
that some other company obtained 180-day exclusivity after the expiration of the patents for either
product. Subsequently, the patents for both of these products expired and other companies obtained
180-day marketing exclusivity. Accordingly, we launched sales of these products on June 19, 2006
and June 23, 2006, respectively. Upon the expiration of the 180-days of marketing exclusivity
(towards the end of December 2006), we launched simvastatin under our own Abbreviated New Drug
Application. The prices and volume of simvastatin have decreased significantly following the
expiration of the 180-day marketing exclusivity period. On December 27, 2006, we launched a generic
version of GSKs Zofran® (ondansetron) tablets with 180-days of marketing exclusivity. The prices
and volume of ondansetron have decreased significantly following the expiration of the 180-day
marketing exclusivity period in June 2007.
60
We intend to expand our portfolio over the next few years by adding solid dosages forms as
well as alternate dosage forms of each product through alliances to complement our internal product
development effort. In the U.S., we have been pursuing a strategy to increase our operating
leverage by selling our pipeline into new channels for meaningful incremental revenue and margin
generation with limited incremental selling, general and administrative expenses and research and
development. During fiscal 2008, we expect to implement this strategy along two lines. The first
aspect of this strategy is our decision to enter the private label OTC business following the
suspension of OTC packaging and distribution activities at Leiner. The initial response from various customer groups has been positive. The first product (ranitidine
150 mg) was successfully launched and launch planning for additional products has been progressing
well.
The second aspect of this
strategy is an opportunity to supply generics to U.S. government agencies such as veteran affairs
and department of defense. In support of this opportunity, Dr. Reddys has become an authorized
supplier to the U.S. government. The first product to be supplied to the U.S. government is
finasteride 5mg.
We are also expanding our presence in Canada by leveraging the infrastructure and assets that
we have established for the U.S. market. The success of our existing products is contingent upon
the extent of competition in the generics market, which we anticipate will continue to be
significant. As of March 31, 2007, we had 76 ANDAs pending approval (including ANDAs through
alliances with third parties) with the U.S. FDA. This included 33 patent challenges. The launch of
these products is contingent upon the successful outcome of litigation related to such products.
In the United Kingdom, we do not anticipate any significant product launches in fiscal 2008.
In Germany, the first full year of revenues and net income of betapharm, which we acquired in
March 2006, is reflected in our fiscal 2007 results. During fiscal 2007, the German government
passed the Economic Optimization of the Pharmaceutical Care Act (AVWG), which became effective
May 1, 2006. In addition, a new list of products for which the co-payment fee is waived came into
effect in Germany from November 1, 2006. As a response to this legislation, some of the leading
pharmaceutical companies in Germany announced aggressive price cuts and we responded with
significant price cuts on those of our products subject to the new regulations. Further, in the
quarter ended March 31, 2007, we witnessed supply constraints from our lead supplier. We have
re-negotiated our supply agreement with our lead supplier, Salutas Pharma GmbH (Salutas) whereby
we have converted the agreement to a non-exclusive supply arrangement allowing us the flexibility
to move individual products out of Salutas. While the products are
transferred out of Salutas to alternate manufacturing locations, we agreed to pay higher costs
for the products supplied by Salutas which will be reflected in our results in fiscal 2008. The
German government passed the WSG, which became effective April 1, 2007, which empowers insurance
companies to influence the pricing of products through tenders and rebate contracts.
The future growth of betapharm is based on the continued success of our existing products
which are contingent upon the extent of competition in the German market, changes in the market
dynamics due to the AVWG, WSG and additional healthcare reforms further impacting the pricing, the
successful transfer of key products out of Salutas to alternate supply locations, the competitive
environment for our key products as well as successful new product introductions.
Critical Care and Biotechnology. We expect that we will continue to market our existing
products and develop additional products in this segment. The success of our existing products is
contingent upon the extent of competition in this segment. In April 2007, we launched our second
biotechnology product, RedituxTM, Dr. Reddys brand of rituximab, a monoclonal antibody
used the in the treatment of Non-Hodgkins Lymphoma. We expect to continue with our investments in
building the infrastructure and capabilities for the development and launch of additional
biogenerics in the less regulated markets in the next few years. Longer-term, we intend to target
launches in the regulated markets as and when the regulatory pathway becomes clear in these
markets.
Custom Pharmaceutical Services. In fiscal 2007, this segment benefited from the full year
impact of the acquisition of Falcon. Excluding the impact of the Falcon acquisition, the base
business in this segment almost doubled as we continue to expand the portfolio of relationships and
projects with large pharmaceutical companies and emerging pharmaceutical and biotechnology
companies. In fiscal 2008, we witnessed some supply constraints in the raw material for one of the
our key products manufactured at Falcon due to which we were not able to service part of the
customer requirements during the quarter ended June 30, 2007. We have commissioned a facility in
India to supply this ingredient to Falcon. We expect to grow this business on the strength of
expanding customer relationships. In addition, we are also actively pursuing inorganic growth
opportunities.
Drug Discovery. Currently, we have a pipeline of 6 NCEs of which 5 are in clinical development
and 1 is in pre-clinical development. Three of these NCEs have been assigned to Perlecan under the
terms of our research and development arrangement with I-VEN entered into during fiscal 2006, and
one NCE is under a co-development arrangement with Denmark based Rheoscience A/S. During August
2007, Rheoscience A/S and Dr. Reddys announced the commencement of the Phase III clinical trials
for Balaglitazone (DRF 2593), which is an insulin sensitizer that acts as a partial PPAR
(peroxisome proliferator-activated receptor) gamma agonist. The study is the first in a series of
planned Phase III trials which will investigate the safety and efficacy of Balaglitazone as an oral
anti-diabetic drug. As we make progress in advancing our pipeline through various stages of
clinical development we are building capabilities in drug development. We believe this will help to
enhance the value of our NCE assets. We expect to further complement our internal research and
development efforts by pursing strategic partnerships and alliances in our key focus areas.
Specialty. We are currently in the research and development phase of our specialty
pharmaceuticals business, which may become a separate segment at some point in the future.
Following the acquisition of Trigenesis Therapeutics Inc. in May 2004, we commenced
61
the pursuit of
the development of dermatology products targeted towards specialty prescription dermatology
segment, which products will have patent protected franchises.
Research and Development Expenses. In fiscal 2007, our research and development investments
benefited from the recognition of income under the Perlecan and I-VEN agreements described above.
The income recognition under the agreement with I-VEN was completed in fiscal 2007. Based on our
historical research and development expense trends, we expect our research and development expenses
to be higher in the first half of fiscal 2008 as compared to the first half of fiscal 2007, and
higher in the second half of fiscal 2008 as compared to the first half of fiscal 2008.
5.E. Off-Balance Sheet Arrangements
Guarantees. We adopted the provisions of FASB Interpretation No. 45, Guarantors Accounting
and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of
Others. The Interpretation requires that we recognize the fair value of guarantee and
indemnification arrangements issued or modified by us after December 31, 2002, if these
arrangements are within the scope of that Interpretation. In addition, under previously existing
generally accepted accounting principles, we continue to monitor the conditions that are subject to
the guarantees and indemnifications to identify whether it is probable that a loss has occurred,
and would recognize any such losses under the guarantees and indemnifications when those losses can
be estimated.
Kunshan Rotam Reddy Pharmaceutical Co. Limited (KRRP) secured a credit facility of Rs.32
million from Citibank, N.A. (Citibank). To enhance the credit standing of KRRP, during fiscal
2006 we issued a corporate guarantee amounting to Rs.45.0 million in favor of Citibank. The
guarantee is required to be renewed every year and our liability may arise in case of non-payment
or non-performance of other obligations of KRRP under its credit facility agreement with Citibank.
As of March 31, 2007, we believe that the fair value of such liability is not material.
5.F. Tabular Disclosure of Contractual Obligations
The following summarizes our contractual obligations as of March 31, 2007 and the effect such
obligations are expected to have on our liquidity and cash flows in future periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
(Rs. in millions) |
|
|
|
|
|
|
|
Less than |
|
|
|
|
|
|
|
|
|
|
More than |
|
Contractual Obligations |
|
Total |
|
|
1 year |
|
|
1-3 years |
|
|
3-5 years |
|
|
5 years |
|
Operating lease obligations |
|
|
Rs.474.3 |
|
|
|
Rs.136.6 |
|
|
|
Rs.159.3 |
|
|
|
Rs.111.2 |
|
|
|
Rs.67.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations |
|
|
252.5 |
|
|
|
5.7 |
|
|
|
12.4 |
|
|
|
14.1 |
|
|
|
220.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion |
|
|
5.7 |
|
|
|
5.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current portion |
|
|
246.8 |
|
|
|
|
|
|
|
12.4 |
|
|
|
14.1 |
|
|
|
220.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agreements to purchase property and
equipment and other capital
commitments(1) |
|
|
1,186.0 |
|
|
|
1,186.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings from banks |
|
|
3,212.7 |
|
|
|
3,212.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term
debt obligations |
|
|
21,288.7 |
|
|
|
3,664.6 |
|
|
|
6,187.8 |
|
|
|
11,436.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion |
|
|
3,664.6 |
|
|
|
3,664.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current portion |
|
|
17,624.1 |
|
|
|
|
|
|
|
6,187.8 |
|
|
|
11,436.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations |
|
|
Rs.24,414.2 |
|
|
|
Rs.8,205.6 |
|
|
|
Rs.6,359.5 |
|
|
|
Rs.11,561.6 |
|
|
|
Rs.297.5 |
|
|
|
|
(1) |
|
These amounts are net of capital advances paid in respect of such purchases and are expected to
be funded from internally generated funds. |
In accordance with SFAS No. 87, Employers Accounting for Pensions, and SFAS No. 106,
"Employers Accounting for Postretirement Benefits Other Than Pensions, as amended by SFAS No.
158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans an
amendment of FASB Statements No. 87, 88, 106, and 132(R), the total accrued benefit liability for
defined benefit and contribution plans recognized as of March 31, 2007, was Rs.39 million. This
accrued liability is included under other long-term liabilities in the consolidated balance sheet.
This amount is impacted by, among other items, pension expense funding levels, change in plan
demographics and assumptions, return on plan assets, etc. Because the accrued liability does not
represent expected liquidity needs, we did not include this amount in the contractual obligation
table.
5.G. Safe harbor
62
See page 2.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
6.A. Directors and senior management
The list of our directors and executive officers and their respective age and position as of
March 31, 2007 are as follows:
Directors
|
|
|
|
|
Name(1) |
|
Age (in yrs) |
|
Position |
Dr. K. Anji Reddy(2) |
|
68 |
|
Chairman |
Mr. G.V. Prasad(2),(3) |
|
46 |
|
Chief Executive Officer and Executive Vice Chairman |
Mr. Satish Reddy(2),(4) |
|
39 |
|
Chief Operating Officer and Managing Director |
Mr. Anupam Puri |
|
61 |
|
Director |
Prof. Krishna G. Palepu |
|
52 |
|
Director |
Dr. Omkar Goswami |
|
50 |
|
Director |
Mr. P.N. Devarajan |
|
72 |
|
Director |
Mr. Ravi Bhoothalingam |
|
61 |
|
Director |
Dr. V. Mohan(5) |
|
52 |
|
Director |
|
|
|
(1) |
|
Except for Dr. K. Anji Reddy, Mr. G.V. Prasad and Mr. Satish Reddy, all of the directors
are independent directors under the corporate governance rules of the New York Stock
Exchange. |
|
(2) |
|
Full-time director. |
|
(3) |
|
Son-in-law of Dr. K Anji Reddy. |
|
(4) |
|
Son of Dr. K Anji Reddy. |
|
(5) |
|
Dr. V. Mohan ceased to be a Director of the Company with effect from July 28, 2006. |
In addition, Dr. J.P. Moreau and Ms. Kalpana Morparia joined our Board as additional Directors
on May 18, 2007 and June 5, 2007, respectively. Our shareholders approved appointment of Dr. J. P. Moreau and Ms. Kalpana Morparia as Directors on
July 24, 2007.
Executive Officers
Our policy is to classify our officers as executive officers if they have membership on our
Management Council. Our Management Council consists of various business and functional heads and is
our senior management organization. As of March 31, 2007, the Management Council consisted of:
|
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|
|
Date of |
|
|
|
|
Education/ |
|
|
|
|
|
Experience in |
|
commencement of |
|
|
Name and Designation |
|
Degrees Held |
|
Age |
|
years |
|
employment |
|
Particulars of last employment |
|
G.V. Prasad(1)
Vice Chairman and Chief Executive Officer
|
|
B. Sc.(Chem. Eng.),
M.S. (Indl. Admn.)
|
|
|
46 |
|
|
23 |
|
|
|
June 30, 1990
|
|
Promoter Director, Benzex
Labs Private Limited |
|
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Satish Reddy (2)
Managing Director and Chief Operating
Officer
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B.Tech., M.S.
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39 |
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15 |
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January 18,1993
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Director, Globe Organics
Limited |
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Abhijit Mukherjee
President Developing Businesses
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B. Tech. (Chem.)
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48 |
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26 |
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January 15, 2003
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President, Atul Limited |
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Alan Sheppard(3)
Executive Vice President Europe Generics
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B. Tech. (Hons.)
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59 |
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36 |
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November 1, 2004
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Vice President Global
Corporate Strategy, Pliva |
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Andrew J. Miller (4)
Executive Vice President and U.S. General
Counsel
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B.A., J.D.
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51 |
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27 |
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January 8, 2002
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Shareholder, Budd Larner, P.C. |
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Arun Sawhney
President API
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B. Com. PGDBM
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51 |
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30 |
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June 1, 2001
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Chief Executive, Max-GB Ltd. |
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Ashwani Kumar Malhotra
Executive Vice President Formulations
TechOps
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M. Pharma.,
PGD-IE&M, PGD-CD
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51 |
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27 |
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February 8, 2001
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Unit Head, Cipla Limited |
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Date of |
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Education/ |
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Experience in |
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commencement of |
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Degrees Held |
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years |
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employment |
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Particulars of last employment |
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Jaspal Singh Bajwa
President Branded Formulations (Rest Of
the World)(5)
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MBA
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55 |
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30 |
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April 10, 2003
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Executive Director and COO,
Marico Industries Limited |
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Jeffrey Wasserstein
Executive Vice President Specialty
Operations
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B.A., J.D.
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48 |
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24 |
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January 31, 2005
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EVP & Chief Business Officer
-Avigenics, Inc. |
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K. B. Sankara Rao
Executive Vice President Integrated
Product Development
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M. Pharma.
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29 |
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September 29, 1986
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Production Executive, Cipla
Limited |
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Mark Hartman
President North America Generics
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B.Sc. Dairy Science
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January 4, 2002
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VP Sales & Marketing -
Generics, Watson Laboratories |
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Dr. R. Rajagopalan
President Discovery Research
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Ph.D.
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April 18, 1994
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Principal Research Scientist,
Hoechst India Limited |
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Raghu Cidambi
Advisor
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B.Sc., PGDBM, LLB.
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October 1,.2001
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Director Eenadu, Margadarsi
Group |
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Saumen Chakraborty
Chief Financial Officer and President
Information Technology and Business
Process Excellence
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PGDM
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July 2, 2001
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Vice President, Tecumseh |
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Dr. Uday Saxena
Chief Scientific Officer
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Ph.D.
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March 3, 2003
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Vice President, Preclinical
Research, AtheroGenics Inc. |
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V. S. Vasudevan
President Eurpoean Generics Business
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B. Com. ACA
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33 |
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April 1, 1986
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Finance Head, Standard Equity
Fund Limited |
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(1) |
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Son-in-law of Dr. K Anji Reddy. |
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(2) |
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Son of Dr. K Anji Reddy. |
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(3) |
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Ceased to be our employee effective March 31, 2007. |
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(4) |
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Term of employment expired on July 31, 2006. |
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(5) |
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Does not include North America and Europe. |
In addition, the following new members joined the Management Council after March 31, 2007:
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Name |
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Age |
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Position |
Dr. Rajinder Kumar(1)
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51 |
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President Research, Development and Commercialization |
Mr. Prabir Jha(2)
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40 |
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Senior Vice President and Global Chief of Human Resources |
Mr. Amit Patel(3)
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32 |
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Vice President Corporate Development and Strategic Planning |
Mr. Cartikeya Reddy(3)
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37 |
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Vice President and Head Biologics |
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(1) |
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Joined in April 2007 |
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(2) |
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Joined in May 2007 |
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(3) |
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Joined in August 2007 |
There was no arrangement or understanding with major shareholders, customers, suppliers or
others pursuant to which any director or executive officer referred to above was selected as a
director or member of senior management.
Biographies
Directors
Dr. K. Anji Reddy is our Founder and Chairman of our Board of Directors. He is also the
Founder of Dr. Reddys Research Foundation and Dr. Reddys Foundation. He has an undergraduate
degree in Technology of Pharmaceuticals and Fine Chemicals from the University of Bombay and a
Ph.D. in Chemical Engineering from National Chemical Laboratories, Pune. He has six years
experience with Indian Drugs and Pharmaceuticals Limited in the manufacture and implementation of
new technologies in bulk drugs. He is a member of the Board of Trade as well as the Prime
Ministers Task force on pharmaceuticals and knowledge-based industries. The government of India
bestowed the Padmashri Award upon him for his distinguished service in the field of trade and
commerce. In addition to positions held in our subsidiaries and joint ventures, he is a Director in
Diana Hotels Limited, OOO JV
64
Reddy
Biomed Limited, Pathenco APS and GAIN Foundation, Switzerland.
Mr. G.V. Prasad is a member of our Board of Directors and serves as our Vice-Chairman and
Chief Executive Officer. He was the Managing Director of Cheminor Drugs Limited, a Dr. Reddys
Group Company, prior to its merger with us. He has a Bachelor of Science degree in Chemical
Engineering from Illinois Institute of Technology, Chicago, U.S.A. and an M.S. in Industrial
Administration from Purdue University, U.S.A. He is also an active member of several associations
including the National Committee on Drugs & Pharmaceuticals. In addition to positions held in our
subsidiaries and joint ventures, he is a Director of Diana Hotels Limited, Nipuna Services Limited
and Ocimum Bio Solutions Limited.
Mr. Satish Reddy is a member of our Board of Directors and serves as our Managing Director and
Chief Operating Officer. He has a Master of Science degree in Medicinal Chemistry from Purdue
University, U.S.A. and a Bachelor of Technology degree in Chemical Engineering from Osmania
University, Hyderabad. He is the member of the Confederation of Indian Industries for Andhra
Pradesh. In addition to positions held in our subsidiaries and joint ventures, he is also a
Director of Diana Hotels Limited and OOO JV Reddy Biomed Limited..
Mr. Anupam Puri has been a member of our Board of Directors since 2002. He retired from
McKinsey & Company in late 2000. He was a Director and played a variety of other leadership roles
during his 30-year career there. Before joining McKinsey & Company, he was Advisor for Industrial
Development to the President of Algeria, and consultant to General Electrics Center for Advanced
Studies. He holds a Bachelor of Arts degree in Economics from St. Stephens College, Delhi
University, and Master of Arts and M. Phil. degrees from Oxford University. He is also on the
Boards of ICICI Bank Limited, Mahindra & Mahindra Limited and Tech Mahindra Limited.
Professor Krishna G. Palepu has been a member of our Board of Directors since 2002. He is the
Ross Graham Walker Professor of Business Administration at the Harvard Business School. He holds
the title of Senior Associate Dean, Director of Research. Professor Palepu has a Masters degree in
physics from Andhra University, an M.B.A. from the Indian Institute of Management and a
Ph.D. from the Massachusetts Institute of Technology. He is also a recipient of an honorary
M.A. from Harvard, and an honorary Doctorate from the Helsinki School of Economics. He teaches
finance, control and strategy in Harvards M.B.A. and Executive programs. He has published numerous
research papers and is also the co-author of the book titled Business Analysis & Valuation: Text
and Cases. He serves as a consultant to a wide variety of businesses and is on the boards of
Satyam Computer Services Limited, Exetor Group, Enamics Limited and Harvard Business School
Publishing Company.
Dr. Omkar Goswami has been a member of our Board of Directors since 2000. He is a founder and
Chairman of CERG Advisory Private Limited, a corporate advisory and economic research and
consulting company. He was a senior consultant and chief economist at the Confederation of Indian
Industry for six years. He has also served as editor of Business India, associate professor at the
Indian Statistical Institute, Delhi, and as an honorary advisor to the Ministry of Finance. He
holds a Bachelor of Economics degree from St. Xaviers College, Calcutta University, a Master of
Economics degree from the Delhi School of Economics, Delhi University and a Ph.D. degree from
Oxford University. He is also a Director on the Boards of Infosys Technologies Limited,
DSP-Merrill-lynch Fund Managers Limited, Crompton Greaves Limited, Infrastructure Development
Finance Company Limited, SRF Limited, Gujarat Ambuja Cements Limited, Sona Koyo Steering Systems
Limited and Cairn India Limited.
Mr. P.N. Devarajan has been a member of our Board of Directors since 2000. He has previously
served as a Director of Cheminor Drugs Limited. He was a member of the Planning Board of Madhya
Pradesh, Chairman of Research at the Council of National Environment Engineering Research
Institute, member of the Assessment Committee of the Council of Scientific and Industrial Research
and a member of the Research Council of National Chemical Laboratory. He has previously served as a
Director of the Bank of Baroda, a member of the Central Board of Directors of the Reserve Bank of
India and Group President and consultant of Reliance Industries Limited. Currently, he is also a
Director on the Board of Kothari Sugars and Chemicals Limited, Shriram EPC Ltd. and Tropical
Technologies Pvt Ltd.
Mr. Ravi Bhoothalingam has been a member of our Board of Directors since 2000. He has served
as the President of The Oberoi Group and was responsible for its worldwide operations. He has also
served as the Head of Personnel at BAT Plc, Managing Director of VST Industries Limited, and as a
Director of ITC Limited. He holds a Bachelor of Science degree in physics from St. Stephens
College, Delhi and a Master of experimental psychology degree from Gonville and Caius College,
Cambridge University. He is also a Director of Nicco Internet Ventures Limited and Sona Koyo
Steering Systems Limited.
Dr. V. Mohan has been a member of our Board of Directors since 1996. He is also a visiting
professor of Diabetology at Sri Ramachandra Medical College and a professor of International Health
at the University of Minnesota, U.S.A. He holds a Bachelor of Medicine degree, Doctor of Medicine
degree, Ph.D. and a Doctor of Science degree from Madras University. He was awarded the prestigious
Dr. B.C. Roy National Award by the Medical Council of India in 2005. He is also the Chairman and
Managing Director of Dr. Mohans Diabetes Specialties Centre Private Limited and Dr. Mohans
Diabetes Specialties Centre (Hyderabad) Private Limited
65
and he is also the President of the Madras
Diabetes Research Foundation. He retired from the Board on July 28, 2006.
Dr. J.P. Moreau joined our Board as a member on May 18, 2007. He is presently working as
Executive Vice-President and Chief Scientific Officer of the IPSEN Group where he is responsible
for the Groups research and development programs in Paris, London, Barcelona and Boston. Before
that, he was IPSEN Groups Vice-President, Research from April 1994 and has been a member of the
Executive Committee of IPSEN Group since that date. Dr. Moreau has a degree in Chemistry from the
University of Orléans and a D.Sc in biochemistry. He has also conducted post-doctorate research at
the École polytechnique. He has published over 50 articles in scientific journals and is named as
inventor or co-inventor in more than 30 patents. He is a regular speaker at scientific conferences
and a member of Nitto Denko Scientific Advisory Board. In October 1976, Dr. Moreau founded
Biomeasure Incorporated, based near Boston, and has been its President and CEO since then. He was
also responsible for establishing Kinerton Ltd. in Ireland in March 1989, a wholesale manufacturer
of therapeutic peptides, of which he is currently a Director.
Ms. Kalpana Morparia joined our Board as a member on June 5, 2007. She is Chief Strategy and
Communications Officer of ICICI Group. She was previously the Joint Managing Director of ICICI Bank
Limited and was responsible for the Corporate Centre at ICICI Bank Limited, comprising operations,
planning and strategy, risk management, human resources management, legal and corporate
communications and corporate brand management. A graduate in law from Bombay University, Ms.
Morparia joined ICICI Limited in 1975. She worked in the areas of planning, treasury, resources and
corporate legal services. In 2001, she led the ICICI Groups major corporate structuring
initiative, the merger of ICICI Limited with ICICI Bank to create Indias second largest bank. Ms.
Morparia has served on several committees constituted by the Government of India. In November 2005,
she was honored with the Economic Times Business Women of the Year award. In September 2006, she
was named one of The 100 Most Powerful Women by Forbes Magazine. She also serves on
the Board of ICICI Lombard General Insurance Company Limited, ICICI
Prudential Life Insurance Company Limited, ICICI Prudential Asset Management Company Limited and
ICICI Securities Limited.
Executive Officers
Mr. Abhijit Mukherjee is our President of Developing Business. Before joining us, he worked
with Atul Limited for 10 years, where he held numerous positions of increasing responsibility. In
his last assignment there he was President, Bulk Chemicals and Intermediates Business, and Managing
Director, Amal Products Limited. He started his career as a management trainee in Hindustan Lever
Limited (HLL) and put in 13 years in that company including 3 years in a Unilever company. He was
primarily involved in the technical assignments in Aroma chemicals business in HLL and Unilever and
also in detergents and sulphonation plants of HLL. He is a graduate in Chemical Engineering from
the Indian Institute of Technology, Kharagpur.
Mr. Alan Shepard was our Executive Vice President Europe Business. He had joined us from
Pliva, where he was Vice President for Global Corporate Strategy. He has a unique combination of
experience in areas of commercial, general management, research and development, manufacturing and
strategic planning across a variety of product lines, including generics, ethical branded, over the
counter and vaccines. He has been associated with several pharmaceutical companies and held several
management positions such as General Manager of Rhone-Poulenc Rorer (now Aventis), European
Marketing Director for Medeva and held various positions with Institute Merieux, Smith Kline and
Upjohn. He has a Bachelors of Technology (Honors) degree from Bradford University and is an
honorary lecturer for the University of Wales Medical faculty. He has served on several U.K.
government committees and been a long-standing member of the Association of British Pharmaceutical
Industrys code of practice committee. He resigned as Executive-Vice President -Europe business
effective March 31, 2007.
Mr. Andrew Miller was Executive Vice President Legal and Intellectual Property Management. He
is also a principal at Budd Larner, P.C., our legal counsel in the United States. He has
represented us since the formation of our first U.S. entity in 1992. He is a graduate of the
University of Michigan Law School where he was an Editor of the University of Michigans Journal of
Law Reform. He holds a B.A. degree from the State University of New York at Buffalo, where he
graduated summa cum laude in 1977 and was elected a member of Phi Beta Kappa. Mr. Millers term of
employment ended on July 31, 2006.
Mr. Arun Sawhney is President of our Europe and Global API businesses. He joined us in 2001 as
President of our API business from Max-GB Limited, where he was Chief Executive. Prior to that he
headed the Global Business Development function at Ranbaxy Laboratories Limited. He has also had
successful stints as Manager Exports with Hindustan Ciba Geigy and as Regional Sales Manager with
Bayer India, earlier in his career. He is an MBA and silver-medalist (an award for being at the top
of his class) from the International Management Institute, New Delhi, and a Bachelors degree in
Commerce from Sydenham College of Commerce and Economics, Mumbai.
Mr. Ashwani Kumar Malhotra is Executive Vice President of our Formulations Technical
Operations and from March 2004 is responsible for formulation manufacturing operations, supply
chain management and projects. He joined us as Vice President in February 2001, and was responsible
for the India operations supporting our generics and specialty businesses with new product
66
development filings and manufacturing and supply of products to regulated markets such as the
United States, Canada, Europe, the United Kingdom, South Africa, Australia and New Zealand. Prior
to joining us, he worked with Cipla Limited for 13 years in various capacities and with Warner
Hindustan, a division of Parke Davis in formulations development and manufacturing for 7 years. He
holds a postgraduate degree in Pharmacy from the Institute of Technology, Banaras Hindu University.
He also holds a Diploma in Industrial Engineering & Management and a Postgraduate Diploma in
Computer Systems from the Institute of Public Enterprises, government of India.
Mr. Jaspal Singh Bajwa is President of our Branded Formulations (Rest of the World) business.
He joined us from Marico Industries, where he was Executive Director and Chief Operating Officer.
He has 27 years of diverse experience in the consumer and healthcare products industries, having
worked with Nestlé, S.A. and Bausch and Lomb, Inc. He started his career with Nestlé, S.A. After 15
years with Nestlé, S.A. in Sales and Marketing, his last position was Chief of Marketing in India.
Subsequently, he spent over 10 years with Bausch and Lomb, Inc., where he held several senior
management positions including those of Managing Director for India/ SAARC, and Head of their
Canadian Subsidiary. He has a Bachelors degree in Food Technology and an MBA from the Indian
Institute of Management, Ahmedabad.
Mr. Jeffrey Wasserstein is Executive Vice President of our North America Specialty business
and head of our North America business. He joined us in January 2005. He focuses on building our
specialty business in North America and in addition works with the North American Management Team
on selected opportunities for adding value to our other businesses in North America. He is also
head of our New Jersey office where he leads our North America Operations function. Immediately
prior to joining us he was EVP and Chief Business Officer of Avigenics, Inc., a biotechnology
company engaged in the development of therapeutic proteins. He had a long career with Schering
Plough Corporation where he was Senior Vice President of Corporate Consent Decree Integration.
Prior to this role, he was the President of Schering Canada. He also held several positions of
increasing responsibility at the Vice President level over Corporate Business Development,
Strategic Planning and Internal Consulting and as Associate General Counsel-Commercial. Prior to
joining Schering Plough Corporation, he was an Associate Attorney with Wachtell, Lipton, Rosen &
Katz. He holds a Bachelor of Arts degree from Franklin & Marshall College and a J.D. degree from
New York University School of Law.
Mr. K.B. Sankara Rao is Executive Vice President responsible for Integrated Product
Development for our Branded Formulations, Generics, API and specialty businesses and for
formulation development of NCEs. He has been with us since 1986 in various capacities, establishing
the manufacturing facilities, quality assurance systems, formulation research and development and
managing supply chain for our formulations business. He also upgraded manufacturing facilities to
the present day business needs, which resulted in the attainment of various statutory approvals,
including U.K. MHRA approval. He is also responsible for the design and implementation of the
Self Managed Team concept in two of our formulations manufacturing units. He holds a Masters
degree in Pharmacy from Andhra University. He is a life member of the Indian Pharmaceutical
Association, Indian pharmacy graduates association amongst his other affiliations. He has also
been a member of CII-Southern Regional Quality & Productivity Sub-committee.
Mr. Mark Hartman is President of our North America Generics business. He has 22 years of
experience in the pharmaceutical industry. Before joining us, Mark spent five years at Watson
Laboratories. His last three positions at Watson were Director of Marketing for Trade and Managed
Care, Executive Director, Sales and Marketing Watson Generics, and Vice President, Sales and
Marketing, Watson Generics. He was involved in multiple product and company acquisitions during his
tenure with Watson. Before Watson, he was Director of Marketing for Alpharma USPD, Marketing
Manager at Geneva Pharmaceuticals, and held various brand and generic sales and marketing positions
during his 10 years at Lederle Laboratories. He holds a bachelors degree in Dairy Science from
Virginia Tech, Virginia.
Dr. R..Rajagopalan is the President of our Discovery Research division. A distinguished
postgraduate student from the University of Madras, Rajagopalan obtained his doctoral degree from
the University of Bombay. He began his career about three decades ago in Hoechst India Ltd. and
made impressive contributions in cardiovascular and general pharmacology research. He joined Dr.
Reddys Discovery Research in 1994, and was instrumental in building discovery biology capabilities
in Hyderabad. He has headed the Discovery Research Program as President since 2001, and under his
management, our company has created a leadership position in the areas of metabolic disorders and
cardiovascular research. He has several research publications and patents to his credit, and is
associated with several academic and professional organizations. He has also been the recipient of
a number of prestigious awards, including the R. N. Chopra Oration Award as an accomplished
Discovery Research Pharmacologist in 2005.
Mr. Raghu Cidambi is Advisor and Head of Corporate Intellectual Property Management and
Strategic Planning. Prior to joining us, he served with the Eenadu Group, a large south India-based
media conglomerate, where he was responsible for its legal affairs. He has graduated from the
Indian Institute of Management, Calcutta and thereafter obtained a Bachelors Degree in Law from
the Osmania University in Hyderabad.
Mr. Saumen Chakraborty is currently our Chief Financial Officer and President- Information
Technology & Business Process
67
Excellence. Prior to this role he was our Global Chief of HR. He has
23 years of experience in strategic and operational aspects of management. Prior to joining us, he
held various positions including line manager and a human resources facilitator, with diverse
portfolios such as Senior Manager (Finance and Accounts) in Eicher, and Vice President (Operations)
in Tecumseh. A member of various industry forums including the CII and the National HRD Network, he
graduated with honors as the valedictorian of his class from Visva-Bharati University in Physics,
and went on to pursue management from the Indian Institute of Management, Ahmedabad. He continues
to be responsible for Information Technology and Business Process Excellence.
Dr. Uday Saxena is our Chief Scientific Officer. Since 2000, he has also been the President
and CEO of Reddy US Therapeutics, Inc., our subsidiary located in Atlanta, Georgia. Reddy US
Therapeutics, Inc. is engaged in drug discovery in the areas of diabetes, inflammation and
cardiovascular disease. He has been in the pharmaceutical/biotech industry for over a decade. From
1997 to early 2000, he was Vice President of Research and a member of the executive committee at
AtheroGenics, Inc, a publicly traded biopharmaceutical company located in Alpharetta, Georgia.
While at AtheroGenics, he directed several drug discoveries and early development programs that
lead to identification of novel compounds currently in late phase clinical trails for restenosis,
atherosclerosis and chronic inflammation. Prior to that he was at Parke-Davis Research Division,
Ann Arbor, Michigan, where he was responsible for establishing a discovery program in inflammation
and atherosclerosis.
Mr. V.S. Vasudevan is currently the President European Generics business. Prior to this role
he was our Chief Financial Officer. In the position of Chief Financial Officer, he was responsible
for managing our finance organization. He also was the head of the Secretarial, Legal, Compliance,
Investor Relations and Internal Audit functions. He played an important role in establishment of
our corporate governance framework. Under his leadership, we received external recognition for our
corporate governance and financial reporting practices from the Institute of Company Secretaries of
India and the Institute of Chartered Accountants of India. He played a key role in the integration
of Cheminor Drugs Limited with us, the acquisition of betapharm in Germany and in our growth
through various other corporate initiatives, including the acquisition of other companies in India
and overseas and the acquisition of brands in India. He is a Chartered Accountant by
qualification, and a member of the Peer Review Board of the Institute of Chartered Accountants of
India.
Dr. Rajinder Kumar is our President Research, Development and Commercialization. He is a
graduate of University of London, University of Birmingham and University of Dundee. After
receiving his degree in Medicine and Surgery, he obtained his post-graduate diploma in psychiatry
and neurology from The Royal College of Surgeons in Ireland in 1990. He has held various leadership
roles in the vision, development and implementation of the overall brand strategies to support the
research and development and business development operations across different therapeutic areas
within the pharmaceutical industry. He has extensive experience in drug development, regulatory
affairs, and commercial strategy in North America, Europe, Japan and Asia. He has presented at
various international meetings, has chaired international symposia and scientific advisory boards
and has to his credit a range of highly respected publications. He is a member of many
international scientific and clinical organizations, including Fellow of the Royal Society of
Medicine and is a member of the Institute of Directors in the United Kingdom. He has an extensive
history of building and managing strong result-focused teams. With his wide array of experience
across research and development, expertise in regulatory affairs across the globe and clinical
expertise, coupled with membership in various international forums, Dr. Kumar adds significant
strength to our organizational capabilities. Prior to joining us, he was an independent consultant
to several organizations in the areas of medical and commercial strategy and in the development of
early stage molecules to proof-of-concept.
Prabir Jha is our Senior Vice President and Global Chief of Human Resources. He moved to the
private sector after almost 10 years in the Indian government. He has worked for organizations such
as Thermax and Mahindra British Telecom prior to joining us, where he has been key to many of the
high-end human resources interventions. He has handled all areas in human resources, with special
interest in change management, global human resources strategy, employer branding and leadership
capability development. He is an alumnus of St. Stephens College, Delhi and XLRI Jamshedpur.
During his time as a government employee, he handled the entire gamut of human resources and
industrial relations issues in the Indian Ordinance Factories. A recipient of several academic and
professional awards, he has been on the CII Panel for human resources and industrial relations for
Andhra Pradesh.
Amit Patel is Vice President of Corporate Development & Strategic Planning. His
responsibilities include chairing our Global Business Development Council, pursuing alliances and
M&A, and driving global strategic initiatives to accelerate growth in various businesses and
regions. He is also responsible for select long-term strategic business planning efforts and for
coordination of external relations activities in North America. Prior to joining us in 2003, Amit
was co-founder and CEO of a healthcare services startup called MedOnTime that was later acquired by
CTIS, at which he served as Vice President of Corporate Development. Earlier, he was a strategy
consultant with Marakon Associates where he focused on value-based management and M&A. He received
a Bachelor of Science degree in Economics from the Wharton School of Business at the University of
Pennsylvania, a Bachelor of Applied Science degree in Systems Engineering from the Moore School at
the University of Pennsylvania, and a Master of Business Administration degree from Harvard
Business School.
68
Cartikeya Reddy is a Vice President and heads our Biologics division that focuses on the
development of biosimilar molecules for the Indian and global markets. Prior to joining us in 2004,
he worked with Genentech Inc, where he was a Group Leader in the area of Cell Culture Process
Development. Before that, he was with the Biotechnology Division of Bayer Corporation, where he
successfully led teams in the areas of Bioprocess Development & Pilot Scale Manufacturing. He
holds a Master of Science degree and Ph.D. in Chemical Engineering from the University of Illinois,
Urbana-Champaign, and was a Visiting Scholar at the Massachusetts Institute of Technology,
Cambridge, USA. He also graduated with a Bachelor of Technology degree in Chemical Engineering
from the Indian Institute of Technology, Chennai, India.
6.B. Compensation of directors and executive officers
Directors compensation
Full-Time Directors. The compensation of our Chairman, Chief Executive Officer and Chief
Operating Officer (who we refer to as our full-time directors) is divided into salary, commission
and benefits. They are not eligible to participate in the stock option plan. The compensation
committee of the Board of Directors initially recommends the compensation for full-time directors.
If the Board of Directors (the Board) approves the recommendation, it is then submitted to the
shareholders for approval at the general shareholders meeting.
On July 28, 2006, our shareholders re-appointed Dr. K. Anji Reddy as Chairman with effect from
July 13, 2006 and Mr. G. V. Prasad as Vice Chairman and CEO with effect from January 30, 2006. On
May 18, 2007, our Board recommended re-appointment of Mr. Satish Reddy as Managing Director and COO
for a period of 5 years. The re-appointment was approved by the shareholders at its meeting on July
24, 2007. Our Managing Director and COO and Vice Chairman and CEO are each entitled to receive a
maximum commission of up to 0.75% of our net profit (as defined under the Indian Companies Act,
1956) for the fiscal year. Our Chairman is entitled to receive a maximum commission of up to 1.0%
of our net profit (as defined under the Indian Companies Act, 1956) for the
fiscal year. The compensation committee, which is composed of independent directors,
recommends the commission for our Chairman, Vice Chairman and CEO and Managing Director and COO
within the limits of 1%, 0.75% and 0.75%, respectively, of the net profits (as defined under the
Indian Companies Act, 1956) for each fiscal year.
Non-Full Time Directors. Each of our non-full time directors receives an attendance fee of
Rs.5,000 (U.S.$115.02) for every Board meeting and Board committee meeting they attend. In fiscal
2007, we paid an aggregate of Rs.350,000 (U.S.$8,051.5) to our non-full time directors as
attendance fees. Non-full time directors are also eligible to receive a commission on our net
profit (as defined under the Indian Companies Act, 1956) for the fiscal year. Our shareholders have
approved a maximum commission of up to 0.5% of the net profits (as defined under the Indian
Companies Act, 1956) for the fiscal year for all non-full time directors in a year. The Board
determines the entitlement of each of the non-full time directors to commission within the overall
limit. The non-full time directors were granted stock options under the Dr. Reddys Employee Stock
Option Scheme, 2002 in fiscal 2007 as provided in the table below.
For fiscal 2007, the directors were entitled to the following amounts as compensation:
|
|
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|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount Rs. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
Name of Directors |
|
Attendance fees |
|
Commission |
|
Salary |
|
Perquisites |
|
Total |
|
Stock Options |
Dr. K. Anji Reddy |
|
|
|
|
|
|
139,196 |
|
|
|
4,384 |
|
|
|
382 |
|
|
|
143,962 |
|
|
|
|
|
Mr. G.V. Prasad |
|
|
|
|
|
|
104,400 |
|
|
|
3,600 |
|
|
|
679 |
|
|
|
108,679 |
|
|
|
|
|
Mr. Satish Reddy |
|
|
|
|
|
|
104,400 |
|
|
|
3,600 |
|
|
|
679 |
|
|
|
108,679 |
|
|
|
|
|
Mr. Anupam Puri |
|
|
60 |
|
|
|
2,608 |
|
|
|
|
|
|
|
|
|
|
|
2,668 |
|
|
|
1,500 |
|
Prof. Krishna G. Palepu |
|
|
40 |
|
|
|
2,608 |
|
|
|
|
|
|
|
|
|
|
|
2,648 |
|
|
|
1,500 |
|
Dr. Omkar Goswami |
|
|
80 |
|
|
|
2,608 |
|
|
|
|
|
|
|
|
|
|
|
2,688 |
|
|
|
1,500 |
|
Mr. P.N. Devarajan |
|
|
100 |
|
|
|
2,608 |
|
|
|
|
|
|
|
|
|
|
|
2,708 |
|
|
|
1,500 |
|
Mr. Ravi Bhoothalingam |
|
|
65 |
|
|
|
2,608 |
|
|
|
|
|
|
|
|
|
|
|
2,673 |
|
|
|
1,500 |
|
Dr. V. Mohan(1) |
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
1,500 |
|
|
|
|
(1) |
|
ceased to be our Director effective July 28, 2006. |
The options granted to directors in fiscal 2007 have an exercise price of Rs.5 per
option, vest in one year, and expire five years from the date of vesting.
Executive officers compensation
The initial compensation to all our executive officers is determined through appointment
letters issued at the time of employment. The appointment letter provides the initial amount of
salary and benefits the executive officer will receive as well as a confidentiality provision and a
non-compete provision applicable during the course of the executive officers employment with us.
We provide salary,
69
certain perquisites, retirement benefits, stock options and variable pay to our
executive officers. The compensation committee of the Board reviews the compensation of executive
officers on a periodic basis.
All of our employees at the managerial and staff levels are eligible to participate in a
variable pay program, which consists of performance bonuses based on the performance of their
function or business unit, and a profit sharing plan through which part of our profits can be
shared with our employees. Our variable pay program is aimed at rewarding performance of the
individual, business unit/function and the organization, with significantly higher rewards for
superior performances.
We also have two employee stock option schemes: the Dr. Reddys Employee Stock Option Scheme,
2002 and the Dr. Reddys Employees ADR Stock Option Scheme, 2007. The stock option schemes are
applicable to all of our employees and directors and employees and directors of our subsidiaries.
The stock option schemes are not applicable to promoter directors, promoter employees and persons
holding 2% or more of our outstanding share capital. The compensation committee of the Board of
Directors awards options pursuant to the stock option schemes based on the employees performance
appraisal. Some employees have also been granted options upon joining us.
Compensation for executive officers who are full time directors is summarized in the table
under Directors compensation, above. The following table presents the annual compensation paid
for services rendered to us for fiscal 2007 and stock options held by all of our other executive
officers as of March 31, 2007:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation |
|
Stock Options |
|
|
|
|
|
|
Fiscal Year |
|
|
|
|
|
|
|
|
|
Vesting and |
Name |
|
Rs. |
|
of Grant |
|
No. of options |
|
Exercise price |
|
Expiration Date |
|
Mr. Abhijit Mukherjee |
|
Rs. |
10,517,204 |
|
|
|
2005 |
|
|
|
3,200 |
|
|
Rs. |
5.00 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
2006 |
|
|
|
7,500 |
|
|
|
5.00 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
2007 |
|
|
|
8,000 |
|
|
|
5.00 |
|
|
|
(1 |
) |
Mr. Arun Sawhney |
|
|
12,373,847 |
|
|
|
2005 |
|
|
|
9,140 |
|
|
|
5.00 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
2006 |
|
|
|
6,000 |
|
|
|
5.00 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
2007 |
|
|
|
6,400 |
|
|
|
5.00 |
|
|
|
(1 |
) |
Mr. Ashwani Kumar Malhotra |
|
|
8,561,095 |
|
|
|
2005 |
|
|
|
6,004 |
|
|
|
5.00 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
2006 |
|
|
|
5,250 |
|
|
|
5.00 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
2007 |
|
|
|
5,000 |
|
|
|
5.00 |
|
|
|
(1 |
) |
Mr. Jaspal Singh Bajwa |
|
|
14,028,455 |
|
|
|
2005 |
|
|
|
7,000 |
|
|
|
5.00 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
2006 |
|
|
|
7,500 |
|
|
|
5.00 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
2007 |
|
|
|
8,000 |
|
|
|
5.00 |
|
|
|
(1 |
) |
Mr. Jeffrey Wasserstein |
|
|
22,787.701 |
|
|
|
2005 |
|
|
|
15,000 |
|
|
|
5.00 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
2007 |
|
|
|
8,000 |
|
|
|
5.00 |
|
|
|
(1 |
) |
Mr. K.B. Sankara Rao |
|
|
8,521,312 |
|
|
|
2005 |
|
|
|
6,160 |
|
|
|
5.00 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
2006 |
|
|
|
6,000 |
|
|
|
5.00 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
2007 |
|
|
|
6,400 |
|
|
|
5.00 |
|
|
|
(1 |
) |
Mr. Mark Hartman |
|
|
37,378,470 |
|
|
|
2004 |
|
|
|
20,000 |
|
|
|
441.50 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
2005 |
|
|
|
12,000 |
|
|
|
442.50 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
2006 |
|
|
|
12,000 |
|
|
|
5.00 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
2007 |
|
|
|
8,000 |
|
|
|
5.00 |
|
|
|
(1 |
) |
Dr. R. Rajagopalan |
|
|
8,359,076 |
|
|
|
2005 |
|
|
|
7,240 |
|
|
|
5.00 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
2006 |
|
|
|
4,500 |
|
|
|
5.00 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
2007 |
|
|
|
5,000 |
|
|
|
5.00 |
|
|
|
(1 |
) |
Mr. Raghu Cidambi |
|
|
8,200,000 |
|
|
|
2005 |
|
|
|
7,000 |
|
|
|
5.00 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
2006 |
|
|
|
7,500 |
|
|
|
5.00 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
2007 |
|
|
|
5,000 |
|
|
|
5.00 |
|
|
|
(1 |
) |
Mr. Saumen Chakraborty |
|
|
11,588,887 |
|
|
|
2004 |
|
|
|
5,000 |
|
|
|
441.50 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
2005 |
|
|
|
5,100 |
|
|
|
5.00 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
2006 |
|
|
|
7,500 |
|
|
|
5.00 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
2007 |
|
|
|
8,000 |
|
|
|
5.00 |
|
|
|
(1 |
) |
Dr. Uday Saxena |
|
|
18,669,027 |
|
|
|
2005 |
|
|
|
7,000 |
|
|
|
5.00 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
2006 |
|
|
|
6,000 |
|
|
|
5.00 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
2007 |
|
|
|
6,400 |
|
|
|
5.00 |
|
|
|
(1 |
) |
Mr. V.S. Vasudevan |
|
|
10,589,454 |
|
|
|
2003 |
|
|
|
11,480 |
|
|
|
531.51 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
2004 |
|
|
|
20,000 |
|
|
|
441.50 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
2005 |
|
|
|
20,000 |
|
|
|
442.50 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
2006 |
|
|
|
50,000 |
|
|
|
362.50 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
2007 |
|
|
|
8,000 |
|
|
|
5.00 |
|
|
|
(1 |
) |
|
|
|
(1) |
|
The expiration date is five years from the date of vesting. The options vest in annual
increments over a period of four years. |
70
Retirement benefits.
We provide the following benefit plans to our employees:
Gratuity benefits: In accordance with applicable Indian laws, we provide for gratuity, a
defined benefit retirement plan (the Gratuity Plan) covering certain categories of employees.
The Gratuity Plan provides a lump sum payment to vested employees, at retirement or termination of
employment, an amount based on the respective employees last drawn salary and the years of
employment with the Company. Effective September 1, 1999, we established Dr. Reddys Laboratories
Gratuity Fund (the Gratuity Fund). Liabilities with regard to the Gratuity Plan are determined
by an actuarial valuation, based upon which we make contributions to the Gratuity Fund. Trustees
administer the contributions made to the Gratuity Fund. The amounts contributed to the Gratuity
Fund are invested in specific securities as mandated by Indian law and generally consist of federal
and state Indian government bonds and the debt instruments of Indian government-owned corporations.
The net contribution amounts recognized by us were Rs.21.2 million, Rs.52.3 million and Rs.31.5
million during the years ended March 31, 2005, 2006 and 2007, respectively.
Superannuation benefits. Apart from being covered under the Gratuity Plan described above, our
senior officers also participate in superannuation, a defined contribution plan administered by the
LIC. We make annual contributions based on a specified percentage of each covered employees
salary. We have no further obligations under the plan beyond our annual contributions. We
contributed Rs.27.0 million, Rs.24.8 million and Rs.28.0 million to the superannuation plan during
the years ended March 31, 2005, 2006 and 2007, respectively.
Provident fund benefits. In addition to the above benefits, all employees receive benefits
from a provident fund, a defined contribution plan. Both the employee and employer each make
monthly contributions to the plan each equal to 12% of the covered employees basic salary. We have
no further obligations under the plan beyond our monthly contributions. We contributed Rs.64.2
million, Rs.64.4 million and Rs.75.5 million to the provident fund plan during the years ended
March 31, 2005, 2006 and 2007,
respectively.
6.C. Board practices
Our Articles of Association require us to have a minimum of three and a maximum of 20
directors. As of March 31, 2007, we have eight directors on our Board, of which five are non-full
time independent directors.
The Companies Act, 1956 and our Articles of Association require that at least two-thirds of
our directors be subject to re-election by our shareholders in rotation. At every annual general
meeting, one-third of the directors who are subject to re-election must retire and, if eligible for
re-election, may be reappointed at the annual general meeting. Our full time directors are not
subject to re-election.
The terms of each of our directors and their expiration dates are provided in the table below.
|
|
|
|
|
|
|
|
|
Expiration of Current |
|
|
|
|
Name |
|
Term of Office |
|
Term of Office |
|
Period of Service |
Dr. K. Anji Reddy (1)
|
|
July 12, 2011
|
|
5 years
|
|
23 years |
Mr. Satish Reddy (1)
|
|
September 30, 2007
|
|
5 years
|
|
14 years |
Mr. G.V. Prasad (1)
|
|
January 30, 2011
|
|
5 years
|
|
21 years |
Mr. Anupam Puri (2)
|
|
Retirement by rotation
|
|
Due for retirement by rotation in 2007
|
|
5 years |
Dr. Krishna G. Palepu (2)
|
|
Retirement by rotation
|
|
Due for retirement by rotation in 2008
|
|
5 years |
Mr. P.N. Devarajan (2)
|
|
Retirement by rotation
|
|
Due for retirement by rotation in 2006
|
|
6.5 years |
Dr. Omkar Goswami (2)
|
|
Retirement by rotation
|
|
Due for retirement by rotation in 2007
|
|
6.5 years |
Mr. Ravi Bhoothalingam (2)
|
|
Retirement by rotation
|
|
Due for retirement by rotation in 2008
|
|
6.5 years |
Dr. V. Mohan (2)(4)
|
|
Retirement by rotation
|
|
Due for retirement by rotation in 2006
|
|
11 years |
|
|
|
(1) |
|
Full time director. |
|
(2) |
|
Non-full time independent director. |
|
(3) |
|
Reappointed at the 22nd Annual General Meeting of Shareholders held on July
28, 2006. |
|
(4) |
|
Retired at the 22nd Annual General Meeting of Shareholders held on July 28,
2006. |
The terms of the contracts with our full-time directors are also disclosed to all the
shareholders in the notice of the general meeting. The directors are not eligible for any
termination benefit on the termination of their tenure with us.
Committees of the Board
Committees appointed by the Board focus on specific areas and take decisions within the
authority delegated to them. The Committees also make specific recommendations to the Board on
various matters from time-to-time. All decisions and recommendations of the Committees are placed
before the Board for information or approval. We have seven Board-level Committees:
71
|
|
|
Audit Committee. |
|
|
|
|
Compensation Committee. |
|
|
|
|
Nomination Committee. |
|
|
|
|
Shareholders Grievance Committee. |
|
|
|
|
Management Committee. |
|
|
|
|
Investment Committee. |
|
|
|
|
Strategy Committee. |
The details of the Audit Committee, Compensation Committee and Nomination Committee are
discussed hereunder.
Audit Committee. Our management is primarily responsible for our internal controls and
financial reporting process. Our statutory auditors are responsible for performing independent
audits of our financial statements in accordance with generally accepted auditing standards and for
issuing reports based on such audits. The Board of Directors has entrusted the Audit Committee to
supervise these processes and thus ensure accurate and timely disclosures that maintain the
transparency, integrity and quality of financial controls and reporting.
The Audit Committee consists of the following five non-full time independent directors:
|
|
|
Dr. Omkar Goswami (Chairman) |
|
|
|
|
Mr. Anupam Puri |
|
|
|
|
Prof. Krishna G. Palepu |
|
|
|
|
Mr. P. N. Devarajan |
|
|
|
|
Mr. Ravi Bhoothalingam |
Our Company Secretary is the Secretary of the Audit Committee. This Committee met on four
occasions during fiscal 2007. Our statutory auditors were present at all Audit Committee meetings
during the year.
The primary responsibilities of the Audit Committee are to:
|
|
|
Supervise the financial reporting process; |
|
|
|
|
Review the financial results, along with the related public filings, before recommending them to the Board; |
|
|
|
|
Review the adequacy of our internal controls, including the plan, scope and performance of our internal audit function; |
|
|
|
|
Discuss with management our major policies with respect to risk assessment and risk management; |
|
|
|
|
Hold discussions with statutory auditors on the nature and scope of audits, and any
views that they have about the financial control and reporting processes; |
|
|
|
|
Ensure compliance with accounting standards, and with listing requirements with respect to the financial statements; |
|
|
|
|
Recommend the appointment and removal of external auditors and their fees; |
|
|
|
|
Review the independence of our auditors; |
|
|
|
|
Ensure that adequate safeguards have been taken for legal compliance both for us and for
our Indian and foreign subsidiaries; |
|
|
|
|
Review related party transactions; and |
|
|
|
|
Review the functioning of our whistle blower policies and procedures. |
Compensation Committee. The Compensation Committee considers and recommends to the Board the
compensation of the full time directors and executives above Vice-President level, and also reviews
the remuneration package that we offer to different grades/levels of our employees. The
Compensation Committee also administers our Employee Stock Option Scheme.
The Compensation Committee consists of the following five non-full time, independent
directors:
|
|
|
Mr. Ravi Bhoothalingam (Chairman) |
|
|
|
|
Mr. Anupam Puri |
|
|
|
|
Prof. Krishna G. Palepu |
|
|
|
|
Dr. Omkar Goswami |
|
|
|
|
Mr. P. N. Devarajan |
The Chief of Human Resources is the Secretary of the Committee. The Compensation Committee
met three times during fiscal 2007.
72
Nomination Committee. The primary function of the Nomination Committee is to assist the
Board of Directors in fulfilling its responsibilities by reviewing and making recommendations to
the Board regarding the Boards composition and structure, establishing criteria for Board
membership and evaluating corporate policies relating to the recruitment of Board members and
establishing, implementing and monitoring policies and processes regarding principles of
corporate governance in order to ensure the Boards compliance with its fiduciary duties.
The Nomination Committee consists of the following five non-full time, independent directors:
|
|
|
Mr. Anupam Puri (Chairman) |
|
|
|
|
Prof. Krishna G. Palepu |
|
|
|
|
Dr. Omkar Goswami |
|
|
|
|
Mr. P. N. Devarajan |
|
|
|
|
Mr. Ravi Bhoothalingam |
Our Company Secretary is the Secretary of the Committee. The Nomination Committee met once
during fiscal 2007.
Corporate Governance
Companies listed on the New York Stock Exchange (NYSE) must comply with certain standards
regarding corporate governance as codified in Section 303A of the NYSEs Listed Company Manual.
Listed companies that are foreign private issuers (as such term is defined in Rule 3b-4 under the
Securities Exchange Act of 1934, as amended (the Exchange Act)) are permitted to follow home
country practice in lieu of the provisions of this Section 303A, except that such companies are
required to comply with the requirements of Sections 303A.06, 303A.11 and 303A.12(b) and (c), which
are as follows:
|
(i) |
|
establish an independent audit committee that has specified responsibilities; |
|
|
(ii) |
|
provide prompt certification by its chief executive officer of any material
non-compliance with any corporate governance rules; |
|
|
(iii) |
|
provide periodic written affirmations to the NYSE with respect to its corporate
governance practices; and |
|
|
(iv) |
|
provide a brief description of significant differences between its corporate governance
practices and those followed by U.S. companies. |
The following table compares our principal corporate governance practices to those required of
U.S. NYSE listed companies.
|
|
|
Standard for U.S. NYSE Listed Companies |
|
Our practice |
Listed companies must have a majority of independent
directors, as defined by the NYSE.
|
|
We comply with this
standard. Seven of our ten
directors are independent
directors, as defined by
the NYSE. |
|
|
|
The non-management directors of each listed company must
meet at regularly scheduled executive sessions without
management.
|
|
We comply with this
standard. Our
non-management directors
meet periodically without
management directors in
scheduled executive
sessions. |
|
|
|
Listed companies must have a nominating/corporate
governance committee composed entirely of independent
directors. The nominating/corporate governance committee
must have a written charter that addresses the
committees purpose and responsibilities, subject to the
minimum purpose and responsibilities established by the
NYSE, and an annual evaluation of the committee.
|
|
We have a Nomination
Committee composed entirely
of independent directors
which meets these
requirements. The committee
has a written charter that
meets these requirements.
We do not have a practice
of evaluating the
performance of the
Nomination Committee. |
|
|
|
Listed companies must have a compensation committee
composed entirely of independent directors. The
compensation committee must have a written charter that
addresses the committees purpose and responsibilities,
subject to the minimum purpose and responsibilities
established by the NYSE, and an annual evaluation of the
committee.
|
|
We have a Compensation
Committee composed entirely
of independent directors
which meets these
requirements. The committee
has a written charter that
meets these requirements.
We do not have a practice
of evaluating the
performance of our
Compensation Committee. |
73
|
|
|
Standard for U.S. NYSE Listed Companies |
|
Our practice |
Listed companies must have an audit committee that
satisfies the requirements of Rule 10A-3 under the
Exchange Act.
|
|
Our Audit Committee
satisfies the requirements
of Rule 10A-3 under the
Exchange Act. |
|
|
|
The audit committee must have a minimum of three members
all being independent directors.
The audit committee must have a written charter that
addresses the committees purpose and responsibilities,
subject to the minimum purpose and responsibilities
established by the NYSE, and an annual evaluation of the
committee.
|
|
We have an Audit Committee
composed of five members,
all being independent
directors. The committee
has a written charter that
meets these requirements.
We also have an internal
audit function. We do not
have a practice of
evaluating the performance of our Audit Committee. |
|
|
|
Each listed company must have an internal audit function. |
|
|
|
|
|
Shareholders must be given the opportunity to vote on
all equity-compensation plans and material revisions
thereto, with limited exceptions.
|
|
We comply with this
standard. Our Employee
Stock Option Plan was
approved by our
shareholders. |
|
|
|
Listed companies must adopt and disclose corporate
governance guidelines.
|
|
We have not adopted
corporate governance
guidelines. |
|
|
|
All listed companies, U.S. and foreign, must adopt and
disclose a code of business conduct and ethics for
directors, officers and employees, and promptly disclose
any waivers of the code for directors or executive
officers.
|
|
We comply with this
standard. More details on
our Code of Business
Conduct and Ethics are
given under Item 16.B. |
|
|
|
Listed foreign private issuers must disclose any
significant ways in which their corporate governance
practices differ from those followed by domestic
companies under NYSE listing standards.
|
|
This requirement is being
addressed by way of this
table. |
|
|
|
Each listed company CEO must certify to the NYSE each
year that he or she is not aware of any violation by the
company of NYSE corporate governance listing standards,
qualifying the certification to the extent necessary.
|
|
We filed our most recent
written certification on
October 11, 2006. |
|
|
|
Each listed company CEO must promptly notify the NYSE in
writing after any executive officer of the listed
company becomes aware of any material non-compliance
with any applicable provisions of this Section 303A.
|
|
There are no such instances. |
|
|
|
Each listed company must submit an executed Written
Affirmation annually to the NYSE. In addition, each
listed company must submit an interim Written
Affirmation each time a change occurs to the board or
any of the committees subject to Section 303A. The
annual and interim Written Affirmations must be in the
form specified by the NYSE.
|
|
We filed our most recent
written affirmation on
October 11, 2006. |
6.D. Employees
The following table sets forth the number of our employees during fiscal 2005, 2006 and 2007.
For the Fiscal Year Ended March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
Europe |
|
|
Rest of the World |
|
|
Total |
|
Manufacturing(1) |
|
|
|
|
|
|
29 |
|
|
|
3,566 |
|
|
|
3,595 |
|
Sales and Marketing(2) |
|
|
21 |
|
|
|
299 |
|
|
|
2,546 |
|
|
|
2,866 |
|
Research and Development |
|
|
18 |
|
|
|
158 |
|
|
|
1,381 |
|
|
|
1,557 |
|
Others(3) |
|
|
58 |
|
|
|
24 |
|
|
|
920 |
|
|
|
1,002 |
|
|
Total |
|
|
97 |
|
|
|
510 |
|
|
|
8,413 |
|
|
|
9,020 |
|
|
For the Fiscal Year Ended March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
Europe |
|
|
Rest of the World |
|
|
Total |
|
Manufacturing(1) |
|
|
|
|
|
|
56 |
|
|
|
2,841 |
|
|
|
2,897 |
|
Sales and Marketing(2) |
|
|
27 |
|
|
|
291 |
|
|
|
2,268 |
|
|
|
2,586 |
|
Research and Development |
|
|
19 |
|
|
|
|
|
|
|
1,167 |
|
|
|
1,186 |
|
Others(3) |
|
|
32 |
|
|
|
129 |
|
|
|
695 |
|
|
|
856 |
|
|
Total |
|
|
78 |
|
|
|
476 |
|
|
|
6,971 |
|
|
|
7,525 |
|
|
74
For the Fiscal Year Ended March 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
Europe |
|
|
Rest of the World |
|
|
Total |
|
Manufacturing(1) |
|
|
|
|
|
|
45 |
|
|
|
2,517 |
|
|
|
2,562 |
|
Sales and Marketing(2) |
|
|
21 |
|
|
|
4 |
|
|
|
1,833 |
|
|
|
1,858 |
|
Research and Development |
|
|
15 |
|
|
|
2 |
|
|
|
1,106 |
|
|
|
1,123 |
|
Others(3) |
|
|
45 |
|
|
|
13 |
|
|
|
534 |
|
|
|
592 |
|
|
Total |
|
|
81 |
|
|
|
64 |
|
|
|
5,990 |
|
|
|
6,135 |
|
|
|
|
|
(1) |
|
Includes quality, technical services and warehouse. |
|
(2) |
|
Includes business development. |
|
(3) |
|
Includes shared services, corporate business development and the intellectual property management team. |
We have not experienced any material work stoppages in the last three fiscal years and we
consider our relationship with our employees and labor unions to be good. Approximately 10% of our
employees belong to labor unions. We did not experience any strikes at our manufacturing facilities
in fiscal 2007.
6.E. Share ownership
The following table sets forth, as of March 31, 2007 for each of our directors and executive
officers, the total number of our equity shares and options owned by them:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No. of shares |
|
|
outstanding |
|
|
No. of |
|
|
Fiscal Year |
|
|
|
|
|
|
|
Name |
|
held(1),(3) |
|
|
capital |
|
|
options held |
|
|
of the Grant |
|
|
Exercise price |
|
|
Expiration date |
|
|
Dr. K. Anji Reddy(2),(4) |
|
|
800,956 |
|
|
|
0.48 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. G.V. Prasad(4) |
|
|
1,365,940 |
|
|
|
0.81 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Satish Reddy(4) |
|
|
1,205,832 |
|
|
|
0.72 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Anupam Puri |
|
|
5,500 |
|
|
|
|
|
|
|
4,500 |
|
|
|
2006 |
|
|
Rs. |
5.00 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
3,000 |
|
|
|
2007 |
|
|
|
5.00 |
|
|
|
(6 |
) |
Prof. Krishna G Palepu |
|
|
2,500 |
|
|
|
|
|
|
|
4,500 |
|
|
|
2006 |
|
|
|
5.00 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
3,000 |
|
|
|
2007 |
|
|
|
5.00 |
|
|
|
(6 |
) |
Dr. Omkar Goswami |
|
|
1,500 |
|
|
|
|
|
|
|
4,500 |
|
|
|
2006 |
|
|
|
5.00 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
3,000 |
|
|
|
2007 |
|
|
|
5.00 |
|
|
|
(6 |
) |
Mr. P.N. Devarajan |
|
|
1,700 |
|
|
|
|
|
|
|
4,500 |
|
|
|
2006 |
|
|
|
5.00 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
3,000 |
|
|
|
2007 |
|
|
|
5.00 |
|
|
|
(6 |
) |
Mr. Ravi Bhoothalingam |
|
|
1,500 |
|
|
|
|
|
|
|
4,500 |
|
|
|
2006 |
|
|
|
5.00 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
3,000 |
|
|
|
2007 |
|
|
|
5.00 |
|
|
|
(6 |
) |
Mr. Abhijit Mukherjee |
|
|
5,700 |
|
|
|
|
|
|
|
3,200 |
|
|
|
2005 |
|
|
|
5.00 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
7,500 |
|
|
|
2006 |
|
|
|
5.00 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
8,000 |
|
|
|
2007 |
|
|
|
5.00 |
|
|
|
(5 |
) |
Mr. Arun Sawhney |
|
|
16,620 |
|
|
|
0.01 |
% |
|
|
9,140 |
|
|
|
2005 |
|
|
|
5.00 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
6,000 |
|
|
|
2006 |
|
|
|
5.00 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
6,400 |
|
|
|
2007 |
|
|
|
5.00 |
|
|
|
(5 |
) |
Mr. Ashwani Kumar Malhotra |
|
|
10,562 |
|
|
|
|
|
|
|
6,004 |
|
|
|
2005 |
|
|
|
5.00 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
5,250 |
|
|
|
2006 |
|
|
|
5.00 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
2007 |
|
|
|
5.00 |
|
|
|
(5 |
) |
Mr. Jaspal Singh Bajwa |
|
|
11,500 |
|
|
|
0.01 |
% |
|
|
7,000 |
|
|
|
2005 |
|
|
|
5.00 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
7,500 |
|
|
|
2006 |
|
|
|
5.00 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
8,000 |
|
|
|
2007 |
|
|
|
5.00 |
|
|
|
(5 |
) |
Mr. Jeffrey Wasserstein |
|
|
|
|
|
|
|
|
|
|
15,000 |
|
|
|
2005 |
|
|
|
5.00 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
8,000 |
|
|
|
2007 |
|
|
|
5.00 |
|
|
|
(5 |
) |
Mr. K.B. Sankara Rao |
|
|
42,324 |
|
|
|
0.03 |
% |
|
|
6,160 |
|
|
|
2005 |
|
|
|
5.00 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
6,000 |
|
|
|
2006 |
|
|
|
5.00 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
6,400 |
|
|
|
2007 |
|
|
|
5.00 |
|
|
|
(5 |
) |
Mr. Mark Hartman |
|
|
|
|
|
|
|
|
|
|
20,000 |
|
|
|
2004 |
|
|
|
441.50 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
12,000 |
|
|
|
2005 |
|
|
|
442.50 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
12,000 |
|
|
|
2006 |
|
|
|
5.00 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
8,000 |
|
|
|
2007 |
|
|
|
5.00 |
|
|
|
(5 |
) |
Dr. R. Rajagopalan |
|
|
13,620 |
|
|
|
|
|
|
|
7,240 |
|
|
|
2005 |
|
|
|
5.00 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
4,500 |
|
|
|
2006 |
|
|
|
5.00 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
2007 |
|
|
|
5.00 |
|
|
|
(5 |
) |
Mr. Raghu Cidambi |
|
|
11,500 |
|
|
|
0.01 |
% |
|
|
7,000 |
|
|
|
2005 |
|
|
|
5.00 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
7,500 |
|
|
|
2006 |
|
|
|
5.00 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
2007 |
|
|
|
5.00 |
|
|
|
(5 |
) |
Mr. Saumen Chakraborty |
|
|
21,800 |
|
|
|
0.01 |
% |
|
|
5,000 |
|
|
|
2004 |
|
|
|
441.50 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
5,100 |
|
|
|
2005 |
|
|
|
5.00 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
7,500 |
|
|
|
2006 |
|
|
|
5.00 |
|
|
|
(5 |
) |
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No. of shares |
|
|
outstanding |
|
|
No. of |
|
|
Fiscal Year |
|
|
|
|
|
|
|
Name |
|
held(1),(3) |
|
|
capital |
|
|
options held |
|
|
of the Grant |
|
|
Exercise price |
|
|
Expiration date |
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000 |
|
|
|
2007 |
|
|
|
5.00 |
|
|
|
(5 |
) |
Dr. Uday Saxena |
|
|
40,000 |
|
|
|
0.02 |
% |
|
|
7,000 |
|
|
|
2005 |
|
|
|
5.00 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
6,000 |
|
|
|
2006 |
|
|
|
5.00 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
6,400 |
|
|
|
2007 |
|
|
|
5.00 |
|
|
|
(5 |
) |
Mr. V.S. Vasudevan |
|
|
|
|
|
|
|
|
|
|
11,480 |
|
|
|
2003 |
|
|
|
531.51 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
20,000 |
|
|
|
2004 |
|
|
|
441.50 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
20,000 |
|
|
|
2005 |
|
|
|
442.50 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
|
|
2006 |
|
|
|
362.50 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
8,000 |
|
|
|
2007 |
|
|
|
5.00 |
|
|
|
(5 |
) |
|
|
|
(1) |
|
Shares held in their individual name only. |
|
(2) |
|
Does not include shares held beneficially. See Item 7.A. for beneficial ownership of shares
by this individual. |
|
(3) |
|
All shares have voting rights. |
|
(4) |
|
Not eligible for grant of Stock Options. |
|
(5) |
|
The expiration date is five years from the date of vesting. The options vest in annual
increments over a period of four years. |
|
(6) |
|
The expiration date is five years from the date of vesting. The options vest in one
year. |
Employee Stock Incentive Plans
Dr. Reddys Employees Stock Option Plan-2002 (the DRL 2002 Plan)
We instituted the DRL 2002 Plan for all eligible employees in pursuance of the special
resolution approved by the shareholders in the Annual General Meeting held on September 24, 2001.
The DRL 2002 Plan covers all employees of us and each of our subsidiaries. Under the DRL 2002 Plan,
the Compensation Committee of the Board (the Compensation Committee) administers the DRL 2002
Plan and grants stock options to eligible employees of us and our subsidiaries. The Compensation
Committee determines the employees eligible for receiving the options, the number of options to be
granted, the exercise price, the vesting period and the exercise period. The vesting period is
determined for all options issued on the date of the grant.
The DRL 2002 Plan was amended on July 28, 2004 at the annual general meeting of shareholders
to provide for stock option grants in two categories:
Category A: 1,721,700 stock options out of the total of 2,295,478 reserved for grant of
options having an exercise price equal to the fair market value of the underlying equity shares on the date of grant; and
Category B: 573,778 stock options out of the total of 2,295,478 reserved for grant of options
having an exercise price equal to the par value of the underlying equity shares (i.e., Rs.5
per option).
The DRL 2002 Plan was further amended on July 27, 2005 at the annual general meeting of
shareholders to provide for stock option grants in two categories:
Category A: 300,000 stock options out of the total of 2,295,478 reserved for grant of options
having an exercise price equal to the fair market value of the underlying equity shares on
the date of grant; and
Category B: 1,995,478 stock options out of the total of 2,295,478 reserved for grant of
options having an exercise price equal to the par value of the underlying equity shares
(i.e., Rs.5 per option).
The fair market value of a share on each grant date falling under Category A above is defined
as the average closing price for 30 days prior to the grant in the stock exchange where there is
highest trading volume during that period. Notwithstanding the foregoing, the Compensation
Committee may, after obtaining the approval of the shareholders in the annual general meeting,
grant options with a per share exercise price other than fair market value and par value of the
equity shares.
After the stock dividend on August 30, 2006 (in which we distributed one equity share for each
equity share and ADS issued and outstanding as of August 29, 2006), the options authorized and
outstanding under the DRL 2002 Plan were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of options |
|
Number of options |
|
|
|
|
granted under |
|
granted under |
|
|
Particulars |
|
Category A |
|
Category B |
|
Total |
|
Options authorized for issuance under original Plan |
|
|
300,000 |
|
|
|
1,995,478 |
|
|
|
2,295,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised prior to stock dividend date of August
30, 2006 (A) |
|
|
94,061 |
|
|
|
147,793 |
|
|
|
241,854 |
|
Balance of shares that can be issued upon the exercise of
outstanding options (B) |
|
|
205,939 |
|
|
|
1,847,685 |
|
|
|
2,053,624 |
|
Options arising from stock dividend (C) |
|
|
205,939 |
|
|
|
1,847,685 |
|
|
|
2,053,624 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options authorized for issuance after stock dividend (A+B+C) |
|
|
505,939 |
|
|
|
3,843,163 |
|
|
|
4,349,102 |
|
Stock option activity under the DRL 2002 Plan in the two categories of options (i.e.,
fair market value and par value options) was as follows:
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Category
A - Fair Market Value Options |
|
Fiscal Year Ended March 31, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
average |
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
remaining |
|
|
Shares arising |
|
Range of exercise |
|
average |
|
contractual life |
|
|
out of options |
|
prices |
|
exercise price |
|
(months) |
Outstanding at the beginning of the year |
|
|
1,822,076 |
|
|
Rs. |
441.5-698 |
|
|
Rs. |
484.48 |
|
|
|
66 |
|
Granted during the year |
|
|
933,000 |
|
|
|
373.5-442.5 |
|
|
|
436.41 |
|
|
|
82 |
|
Expired / forfeited during the year |
|
|
(705,314 |
) |
|
|
382.5-531.51 |
|
|
|
459.42 |
|
|
|
|
|
Surrendered by employees during the year
in exchange of category B options |
|
|
(1,451,862 |
) |
|
|
373.5-698 |
|
|
|
464.04 |
|
|
|
|
|
Exercised during the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at the end of the year |
|
|
597,900 |
|
|
|
373.5-574.5 |
|
|
|
488.66 |
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at the end of the year |
|
|
377,076 |
|
|
Rs. |
441.5-574.5 |
|
|
Rs. |
498.27 |
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Category
A - Fair Market Value Options |
|
Fiscal Year Ended March 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
average |
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
remaining |
|
|
Shares arising |
|
Range of exercise |
|
average |
|
contractual life |
|
|
out of options |
|
prices |
|
exercise price |
|
(months) |
Outstanding at the beginning of the year |
|
|
597,900 |
|
|
Rs. |
373.5-574.50 |
|
|
Rs. |
488.66 |
|
|
|
50 |
|
Granted during the year |
|
|
65,000 |
|
|
|
362.50 |
|
|
|
362.50 |
|
|
|
81 |
|
Expired / forfeited during the year |
|
|
(93,400 |
) |
|
|
362.5-574.50 |
|
|
|
472.18 |
|
|
|
|
|
Surrendered by employees during the year |
|
|
(180,000 |
) |
|
|
488.65-531.51 |
|
|
|
517.23 |
|
|
|
|
|
Exercised during the year |
|
|
(155,000 |
) |
|
|
441.5-488.65 |
|
|
|
471.92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at the end of the year |
|
|
234,500 |
|
|
|
362.5-531.51 |
|
|
|
439.43 |
|
|
|
64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at the end of the year |
|
|
75,764 |
|
|
Rs. |
362.5-531.51 |
|
|
Rs. |
471.93 |
|
|
|
45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Category
A - Fair Market Value Options |
|
Fiscal Year Ended March 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
average |
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
remaining |
|
|
Shares arising |
|
Range of exercise |
|
average |
|
contractual life |
|
|
out of options |
|
prices |
|
exercise price |
|
(months) |
Outstanding at the beginning of the year |
|
|
234,500 |
|
|
|
362.5-531.51 |
|
|
|
439.43 |
|
|
|
64 |
|
Granted during the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired / forfeited during the year |
|
|
(11,600 |
) |
|
|
441.5-574.5 |
|
|
|
527.8 |
|
|
|
|
|
Exercised during the year |
|
|
(31,320 |
) |
|
|
441.5-531.51 |
|
|
|
477.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at the end of the year |
|
|
191,580 |
|
|
|
362.5-531.51 |
|
|
|
427.9 |
|
|
|
54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at the end of the year |
|
|
103,680 |
|
|
Rs. |
362.5-531.51 |
|
|
Rs. |
447.58 |
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Category
B - Par Value Options |
|
Fiscal Year Ended March 31, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- average |
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
remaining |
|
|
Shares arising |
|
Range of exercise |
|
average |
|
contractual life |
|
|
out of options |
|
prices |
|
exercise price |
|
(months) |
Outstanding at the beginning of the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted during the year
In exchange for category A surrendered options |
|
|
561,746 |
|
|
Rs. |
5 |
|
|
Rs. |
5 |
|
|
|
84 |
|
New options |
|
|
205,300 |
|
|
|
5 |
|
|
|
5 |
|
|
|
84 |
|
Forfeited during the year |
|
|
(7,948 |
) |
|
|
5 |
|
|
|
5 |
|
|
|
|
|
Exercised during the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at the end of the year |
|
|
759,098 |
|
|
Rs. |
5 |
|
|
Rs. |
5 |
|
|
|
84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at the end of the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Category
B - Par Value Options |
|
Fiscal Year Ended March 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- average |
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
remaining |
|
|
Shares arising |
|
Range of exercise |
|
average |
|
contractual life |
|
|
out of options |
|
prices |
|
exercise price |
|
(months) |
Outstanding at the beginning of the year |
|
|
759,098 |
|
|
Rs. |
5 |
|
|
Rs. |
5 |
|
|
|
84 |
|
Granted during the year |
|
|
433,720 |
|
|
|
5 |
|
|
|
5 |
|
|
|
81 |
|
Forfeited during the year |
|
|
(266,608 |
) |
|
|
5 |
|
|
|
5 |
|
|
|
|
|
Exercised during the year |
|
|
(196,242 |
) |
|
|
5 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at the end of the year |
|
|
729,968 |
|
|
|
5 |
|
|
|
5 |
|
|
|
81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at the end of the year |
|
|
36,272 |
|
|
Rs. |
5 |
|
|
Rs. |
5 |
|
|
|
59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Category B - Par Value Options |
|
Fiscal Year Ended March 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- average |
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
remaining |
|
|
Shares arising |
|
Range of exercise |
|
average |
|
contractual life |
|
|
out of options |
|
prices |
|
exercise price |
|
(months) |
Outstanding at the beginning of the year |
|
|
729,968 |
|
|
Rs. |
5 |
|
|
Rs. |
5 |
|
|
|
81 |
|
Granted during the year |
|
|
427,060 |
|
|
|
5 |
|
|
|
5 |
|
|
|
81 |
|
Forfeited during the year |
|
|
(76,056 |
) |
|
|
5 |
|
|
|
5 |
|
|
|
|
|
Exercised during the year |
|
|
(191,720 |
) |
|
|
5 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at the end of the year |
|
|
889,252 |
|
|
|
5 |
|
|
|
5 |
|
|
|
77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at the end of the year |
|
|
43,256 |
|
|
Rs. |
5 |
|
|
Rs. |
5 |
|
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average grant date fair value of options granted under the DRL 2002 Plan at
fair market value during the years ended March 31, 2005 and 2006 was Rs. 377.60 and Rs.293.42,
respectively. The weighted average grant date fair value for options granted under the DRL 2002
Plan at par value during the years ended March 31, 2005, 2006 and March 31, 2007 was Rs.707.40,
Rs.705.88 and Rs.575.36, respectively.
Dr. Reddys Employees ADR Stock Option Plan-2007 (the DRL 2007 Plan).
We instituted the DRL 2007 Plan for all eligible employees in pursuance of the special
resolution approved by the shareholders in the Annual General Meeting held on July 27, 2005. The
DRL 2007 Plan became effective upon its approval by the Board of Directors on January 22, 2007. The
DRL 2007 Plan covers all of our employees and all employees and directors of our subsidiaries.
Under the DRL 2007 Plan, the Compensation Committee of the Board (the Compensation Committee)
administers the DRL 2007 Plan and grants stock options to eligible employees of us and eligible
employees and directors of our subsidiaries. The Compensation Committee determines the employees
eligible to receive options, the number of options to be granted, the exercise price, the vesting
period and the exercise period. The vesting period is determined for all options issued on the date
of the grant. No options were granted under this plan in fisca