FORM 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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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended March 31, 2009
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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
For the transition period from to
Commission File Number: 1-15182
DR. REDDYS LABORATORIES LIMITED
(Exact name of Registrant as specified in its charter)
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Not Applicable |
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ANDHRA PRADESH, INDIA |
(Translation of Registrants name |
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(Jurisdiction of incorporation or |
into English) |
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organization) |
7-1-27, Ameerpet
Hyderabad, Andhra Pradesh 500 016, India
+91-40-23731946
(Address of principal executive offices)
Umang Vohra, Chief Financial Officer, +91-40-2373 1946, umangvohra@drreddys.com
7-1-27, Ameerpet, Hyderabad, Andhra Pradesh, India
(Name, telephone, e-mail and/or facsimile number and address of company contact person)
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 |
American depositary shares, each representing one equity share |
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New York Stock Exchange |
Equity Shares* |
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New York Stock Exchange |
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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.
168,468,777 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.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes o No þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company.
See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer þ |
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Accelerated filer o |
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Non-accelerated filer o
(Do not check if a smaller reporting company) |
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Smaller reporting company o |
Indicate by check mark which basis of accounting the registrant has used to prepare the financial
statements included in this filing:
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U.S. GAAP o |
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International Financial Reporting Standards as issued þ |
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Other o |
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by the International Accounting Standards Board |
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If Other has been checked in response to the previous question, indicate by check mark which
financial statement item the registrant has elected to follow.
Item 17 o Item 18 o
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 International
Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards
Board, or IASB. References to Indian GAAP are to Indian Generally Accepted Accounting
Principles and references to U.S. GAAP are to United States 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 31, 2009 for cable transfers in
Indian rupees as certified for customs purposes by the Federal Reserve Bank of New York, which was
Rs.50.87 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 June 26,
2009, that rate was Rs.48.00 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
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
3.A. Selected financial data
You should read the selected consolidated financial data below in conjunction with our
consolidated financial statements and the related notes, as well as the section titled
Operating and Financial Review and Prospects, all of which are included elsewhere in this
Annual Report on Form 20-F. The selected consolidated statements of income for the two
years ended March 31, 2009, and the selected consolidated balance sheet data as of March
31, 2009 and 2008, have been prepared and presented in accordance with IFRS and have been
derived from our audited consolidated financial statements and related notes. The selected
consolidated financial data below has been presented for the two most recent fiscal years
in compliance with General Instruction G of Form 20-F. Historical results are not
necessarily indicative of future results.
Income Statement Data
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For the year ended March 31, |
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2009 |
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2009 |
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2008 |
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(Rs. in millions, U.S.$ in millions except share and per share data) |
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U.S.$ Convenience |
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Translation |
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(Unaudited) |
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Revenues |
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U.S.$ |
1,365 |
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Rs. |
69,441 |
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Rs. |
50,006 |
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Cost of revenues |
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648 |
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32,941 |
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24,598 |
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Gross profit |
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718 |
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36,500 |
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25,408 |
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Selling, general and administrative expenses |
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413 |
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21,020 |
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16,835 |
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Research and development expenses |
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79 |
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4,037 |
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3,533 |
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Impairment loss on other intangible assets |
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62 |
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3,167 |
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3,011 |
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Impairment loss on goodwill |
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213 |
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10,856 |
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90 |
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Other expense/(income), net |
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5 |
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254 |
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(402 |
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Finance expense/(income), net |
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23 |
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1,186 |
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(521 |
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Share of profit of equity accounted
investees, net of income tax |
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24 |
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2 |
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Profit/(loss) before income tax |
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(79 |
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(3,996 |
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2,864 |
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Income tax (expense)/benefit |
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(23 |
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(1,172 |
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972 |
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Profit/(loss) for the period |
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(102 |
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(5,168 |
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3,836 |
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Earnings/(loss) per share |
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Basic |
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U.S.$ |
(0.60 |
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Rs. |
(30.69 |
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Rs. |
22.88 |
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Diluted |
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U.S.$ |
(0.60 |
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(30.69 |
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Rs. |
22.80 |
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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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168,349,139 |
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168,349,139 |
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168,075,840 |
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Diluted |
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168,349,139 |
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168,349,139 |
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168,690,774 |
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Each ADR represents one equity share. |
4
Balance Sheet Data
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For the year ended March 31, |
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2009 |
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2009 |
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2008 |
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(Rs. in millions, U.S.$ in millions) |
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Convenience |
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Translation in U.S.$ |
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(Unaudited) |
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Cash and cash equivalents |
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110 |
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5,596 |
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7,421 |
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Total assets |
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1,647 |
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83,792 |
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85,634 |
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Total long term debt, excluding current portion |
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199 |
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10,132 |
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12,698 |
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Total equity |
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827 |
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Rs. |
42,045 |
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47,350 |
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Convenience translation (unaudited)
For the convenience of the reader, our consolidated financial statements as of March 31, 2009 have
been translated into U.S. dollars at the noon buying rate in New York City on March 31, 2009 for
cable transfers in Indian rupees, as certified for customs purposes by the Federal Reserve Bank of
New York, of U.S.$1.00 = Rs.50.87. 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.
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 noon buying rate
in the City of New York on business days 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.
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Year Ended |
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March 31, |
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Period End |
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Average |
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High |
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Low |
2008 |
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40.02 |
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40.00 |
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43.05 |
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38.48 |
2009 |
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50.87 |
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46.32 |
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51.96 |
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39.73 |
The following table sets forth the high and low exchange rates for the previous six months and
is based on the noon buying rates in the City of New York on business days of each month during
such period for cable transfers in Indian rupees as certified for customs purposes by the Federal
Reserve Bank of New York:
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Month |
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High |
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Low |
October 2008 |
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49.96 |
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46.47 |
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November 2008 |
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50.12 |
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47.25 |
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December 2008 |
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50.05 |
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46.74 |
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January 2009 |
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49.07 |
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48.25 |
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February 2009 |
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50.88 |
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48.37 |
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March 2009 |
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51.96 |
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50.21 |
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On June 26, 2009 the noon buying rate in the city of New York was Rs.48.00 per U.S. dollar.
3.B. Capitalization and indebtedness
Not applicable.
3.C. Reasons for the offer and use of proceeds
Not applicable.
5
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 Pharmaceutical Services and Active
Ingredients, Global Generics and Proprietary Products segments. We must develop, test and
manufacture generic products as well as prove that our generic products are bio-equivalent or
bio-similar to 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 proprietary 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. Our approved products may not achieve
expected levels of market acceptance.
To develop our product 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, and to introduce them on a timely basis in relation to competitor product introductions.
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 fail to comply fully with government regulations or to maintain continuing regulatory
oversight 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 our production
facilities, which in turn could lead to product shortages. Failure to comply fully with such
regulations could also lead to a delay in the approval of our new products.
The regulatory requirements are still evolving in many developing markets where we sell or
manufacture products, including our bio-similar products. In these markets, the regulatory
requirements and the policies and opinions of regulators may at times be unclear, inconsistent or
arbitrary. As a result, there is increased risk of our inadvertent non-compliance with such
regulations, which
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could lead to government-enforced shutdowns and other sanctions, as well as the withholding or
delay of regulatory approvals for new products.
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 at
an acceptable price. 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 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 in the United
States 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
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.
We are constantly striving to build efficiency in our internal processes and cost structures
and to build decisive competitive advantages to face increasing competition on product price and
market share. However, these advantages and the long term beneficial impact from such initiatives
may not sustain in future.
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
7
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.
In India and our key rest of the world markets (which are product detailing driven, as opposed to
generics regulated markets which are distribution driven), we follow a business model that is
largely dependent upon our products being prescribed by medical practitioners. Our competitors may
engage in business practices or models that are competitive and/or contrary to our model that can
impact our market share.
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.
Our success will depend in part on the extent to which government and health administration
authorities, private health insurers and other third-party payors will pay for our products.
Increasing expenditures for health care has 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 by limiting both coverage and the level of
reimbursement for new therapeutic products. 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 affect 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. The Obama administration has
also indicated that it intends to propose legislation aimed at changing the U.S. healthcare system.
While we cannot predict whether legislative or regulatory proposals will be adopted or what effect
those proposals might have on our business, the announcement and/or adoption of such proposals
could increase our costs and reduce our profit margins.
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, impacting our
revenues, and may further decline in the future. Furthermore, the shift to a tender (i.e.,
competitive bidding) based supply model in Germany may further reduce prices for our products and
may impact our market opportunities in that country. 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.
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. In our bio-generics
business, due to the intrinsic nature of biologics, our bio-similarity claims can always be
contested by our competitors, the innovator company and/or the applicable regulators.
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 proprietary 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 proprietary 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
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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 (the Medicare
Prescription Drug Act) amended the Hatch-Waxman Act and provides that the 180-day market
exclusivity period is triggered by the commercial marketing of the product, as opposed to the old
rule under which 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 with respect to 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 affect 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 litigation, 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
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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 fexofenadine, the generic version of
Allegra®, despite the fact that litigation with the company that holds the patents for and sells
this branded product is still ongoing. This is the only product that we have launched in the United
States prior to the resolution of outstanding patent litigation. In the European Union, we also
have generic launches that involve ongoing patent litigation, the outcome of which could adversely
affect our business or profitability. During the year ended March 31, 2009, we incurred damages of
approximately Rs.916 million as a result of the German Federal Court of Justice upholding the
validity of an olanzapine patent held by Eli Lilly.
Furthermore, there may be risks involved in entering into in-licensing arrangements for
products, which are often conditioned upon the licensees sharing in the patent-related risks. For
example, in the case of our brand Oxycodon beta in Germany, our supplier, Cimex Pharma AG,
required us to enter into a cost sharing agreement under which we will pay up to 20% of the losses
resulting from any innovator damage claims.
For business reasons, we continue to examine such product opportunities (i.e., involving
non-expired patents) going forward and this could result in patent litigation, the outcomes of
which may impact our profitability.
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, 2009, our products are marketed in more than 100 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 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:
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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, Indias commercial capital, was the target of serial
railway bombings in July 2006 as well as the recent 26/11 attacks on November 26, 2008.
Hyderabad, the city in which we are headquartered, was also subjected to terrorist acts in May and
August 2007. In May 2008, the city of Jaipur in the state of Rajasthan, India was subjected to a
series of coordinated bombings. 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. Very recently, a rising death toll in Mexico from a new strain of
Swine Flu has led the World Health Organization to declare a public health emergency of
international concern. 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:
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We may fail to successfully integrate our acquisitions in accordance with our business
strategy. |
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The initial rationale for the acquisition may not remain viable due to a variety of
factors, including unforeseen regulatory changes and market dynamics after the acquisition,
and this may result in a significant delay and/or reduction in the profitability of the
acquisition. |
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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. |
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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. |
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We may purchase a company that has contingent liabilities that include, among others,
known or unknown patent or product liability claims. |
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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. |
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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 equity shares or other securities, equity interests in us held by holders of the equity
shares may be significantly diluted and may result in a dilution of earnings per equity share. 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 decrease in
our net income and a consequential reduction in our earnings per equity share.
Our principal shareholders have significant control over 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 and members of their immediate families, in the aggregate,
beneficially owned 26.4% of our issued shares as at March 31, 2009. 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 significant 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 or failure of finished goods from our key manufacturing sites, 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, and in some cases there could be a single source of supply. For
instance, we rely on third party manufacturers for a part of the 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, 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 Global Generics segment, which could result in a loss of
production capacity for this segment. In addition, this could result in a conflict between the API
needs of our Global Generics segment and the needs of customers of our Pharmaceutical Services and
Active Ingredients segment, some of whom are also our competitors in the Global Generics segment.
In either case, we could potentially lose business from adversely affected customers and we could
be subjected to lawsuits.
Our key generics manufacturing sites also may have capacity constraints and, at times, we may
not be able to generate sufficient supplies of finished goods, which may adversely affect our
business or results of operations.
If, as we expand into new international markets, we may 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 in certain countries through subsidiaries and equity
investees or through supply and marketing arrangements with our alliance partners. In those
countries where we have limited experience in operating subsidiaries 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 certain 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
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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, or if we fail to manage
our alliances, 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,
Switzerland, Mexico and Russia and each has significant local operations. A significant portion of
our revenues are in currencies other than the Indian rupee, 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 into 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 of any executive officers or
key employees departure which has had, or planned departure which is expected to have, any
material impact on our operations. 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 acquires any of our customers or suppliers, we may lose
business from the customer or lose a supplier of a critical raw material.
We have grown at a very rapid pace. Our inability to properly manage or support this growth may
have a material adverse effect on our business
We have grown very rapidly over the past few years through our acquisitions of companies and
brands. This growth has significantly increased demands on our processes, systems and people. We
expect to make additional investments in personnel, systems and internal control processes to help
manage our growth. Attracting, retaining and motivating key employees in various departments and
locations to support our growth are critical to our business, and competition for these people can
be intense. Furthermore, to facilitate our growth, we are carrying out reorganizations to improve
our focus on delivery, to build decisive competitive advantages or/and to build sustainable cost
structures. If we are unable to hire and retain qualified employees, or if we do not invest in
systems and processes to manage and support our rapid growth, the failure to do so may have a
material adverse effect on our business, financial condition and results of operations.
Fluctuations in our quarterly revenues, operating results and cash flows may adversely affect the
trading price of our shares and ADSs.
Our quarterly revenues, operating results and cash flows have fluctuated significantly in the
past and may fluctuate substantially from quarter to quarter in the future. Such fluctuations may
result in volatility in the price of our equity shares and our ADSs. Our quarterly revenues,
operating results and cash flows may fluctuate as a result of a variety of factors, including but
not limited to:
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the timing of regulatory approvals and of launches of new products by us and our
competitors, particularly where we obtain the 180-day period of market exclusivity in the
United States provided under the Hatch-Waxman Act of 1984; |
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changes in our pricing policies or those of our competitors; |
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the magnitude and timing of our research and development investments; |
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changes in the level of inventories maintained by our customers; |
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the geographical mix of our sales and currency exchange rate fluctuations; |
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timing of our retailers promotional programs. |
Due to all of the foregoing factors, our revenues, operating results and cash flows are difficult
to predict and may not meet the expectations of market analysts and investors. In such an event,
the trading price of our shares and ADSs may be materially adversely affected.
Significant disruptions of information technology systems could adversely affect our business.
Our business is dependent upon increasingly complex and interdependent information technology
systems, including Internet-based systems, to support business processes as well as internal and
external communications. Any significant breakdown or interruption of these systems, whether due to
computer viruses or other causes, may result in the loss of key information and/or disruption of
production and business processes, which could materially and adversely affect our business.
A relatively small group of products may represent a significant portion of our net revenues, gross
profit or net earnings from time to time.
Sales of a limited number of products may represent a significant portion of our net revenues,
gross profit and net earnings. If the volume or pricing of our largest selling products declines in
the future, our business, financial position and results of operations could be materially
adversely affected.
We enter into various agreements in the normal course of business which periodically incorporate
provisions whereby we indemnify the other party to the agreement.
In the normal course of business, we periodically enter into agreements with vendors,
customers, alliance partners, innovators and others which incorporate indemnification provisions.
Our indemnification obligations under such agreements may be unlimited in duration and amount. We
maintain insurance coverage which we believe will effectively mitigate our obligations under
certain of these indemnification provisions. However, should our obligations under an
indemnification provision exceed our coverage or should coverage be denied, it could have a
material adverse impact on our business, financial position and results of operations.
Current economic conditions may adversely affect our industry, financial position and results of
operations.
The global economy is currently undergoing a period of unprecedented volatility, and the
future economic environment may continue to be less favorable than that of recent years. Reduced
consumer spending may force our competitors and us to reduce prices. We have exposure to many
different industries and counterparties, including our partners under our alliance, research and
promotional services agreements, suppliers of raw materials, drug wholesalers and other customers,
who may be unstable or may become unstable in the current economic environment.
Significant changes and volatility in the consumer environment and in the competitive
landscape may make it increasingly difficult for us to predict our future revenues and earnings.
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We are subject to the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery
laws, which impose restrictions and may carry substantial penalties.
The U.S. Foreign Corrupt practices Act and similar anti-bribery laws in other jurisdictions
generally prohibit companies and their intermediaries from making improper payments to officials
for the purpose of obtaining or retaining business. These laws may require not only accurate books
and records, but also sufficient controls, policies and processes to ensure business is conducted
without the influence of bribery and corruption. Our policies mandate compliance with these
anti-bribery laws, which often carry substantial penalties. Given the high level of complexity of
these laws, however, there is a risk that some provisions may be inadvertently breached, for
example through fraudulent or negligent behavior of individual employees, our failure to comply
with certain formal documentation requirements or otherwise. Any violation of these laws or
allegations of such violations, whether or not merited, could have a material adverse effect on our
reputation and could cause the trading price of our ordinary shares and ADSs to decline.
Finally, we operate in certain jurisdictions that have experienced governmental corruption to
some degree and, in some circumstances, anti-bribery laws may conflict with some local customs and
practices. As a result of our policy to comply with the U.S. Foreign Corrupt Practices Act and
similar anti-bribery laws, we may be at a competitive disadvantage to competitors that are not
subject to, or do not comply with, such laws.
RISKS RELATING TO INVESTMENTS IN INDIAN COMPANIES
We are an Indian company. Our headquarters are located in India, a substantial part of our
operations are conducted in India and a significant part of our infrastructure and other assets are
located in India. In addition, a significant part of our total revenues for the year ended March
31, 2009 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.
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.
For example, Mumbai, Indias commercial capital, was the target of serial railway bombings in July
2006 as well as the recent 26/11 attacks on November 26, 2008. Hyderabad, the city in which we
are headquartered, was also subjected to terrorist acts in May and August 2007. In May 2008, the
city of Jaipur in the state of Rajasthan, India was subjected to a series of co-ordinated bombings.
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.
Due to various macro-economic factors, the inflation level in the recent period has
significantly decreased in India. According to the economic report 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 0.26% for the week ended March 28, 2009
(as compared to 7.75% for the week ended March 29, 2008), which is one of the lowest in recent
years. This trend may not continue and
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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.
Stringent labor laws may adversely affect our ability to have flexible human resource policies;
labor union problems could negatively affect our production capacity and overall profitability.
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. Approximately 7% 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.
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.
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.
16
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.
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, research
and development spending and transfer pricing, may increase our tax liability and thus adversely
affect our financial results.
ITEM 4. INFORMATION ON THE COMPANY
4.A. History and development of the 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.
17
Key business developments:
In April 2008, we acquired BASFs pharmaceutical contract manufacturing business and related
facility in Shreveport, Louisiana, U.S.A. for a total consideration of Rs.1,639 million (U.S.$40
million). This business involves the contract manufacturing of generic prescription and
over-the-counter products for branded and generic companies in the United States. The acquisition
included the relevant business, customer contracts, certain supplier contracts, related Abbreviated
New Drug Applications (ANDAs) and New Drug Applications (NDAs), trademarks, as well as the
manufacturing facility and assets owned by BASF in Shreveport, Louisiana. The facility is designed
to manufacture solid, semi-solid and liquid dosage forms. This business employs approximately 150
people and has a proven track record of compliance with regulatory authorities, including the U.S.
Food and Drug Administration (U.S. FDA).
In April 2008, we acquired from The Dow Chemical Company a portion of the Dowpharma Small
Molecules business associated with its sites in Mirfield and Cambridge, United Kingdom, for a total
cash consideration of Rs.1,302 million (U.S.$32 million). The acquisition included the relevant
business, customer contracts, associated products, process technology and know-how, technology
licensing rights, trademarks and other intellectual property, as well as the transfer of the
facilities at Mirfield and Cambridge in the United Kingdom. We also took over the existing work
force as a part of the acquisition. The two sites and the acquired business employ approximately
80 people. We also acquired a non-exclusive license to Dows Pfēnex Expression Technology for
biocatalysis development.
In April 2008, we acquired Jet Generici Srl, a company engaged in the sale of generic finished
dosages in Italy, for a total cash consideration of Rs.148 million (Euro 2.3 million). The
acquisition was completed through our Italian subsidiary, Reddy Pharma Italia SpA, which has been
engaged in building a pipeline of registrations since its incorporation. The acquisition provided
us with access to an essential product portfolio, and a
sales and marketing organization.
In July 2008, we purchased the equity holding of Citigroup Venture Capital International
Mauritius Limited (Citigroup Venture), its nominees and ICICI Venture Funds Management Company
Limited (ICICI Venture) in Perlecan Pharma Private Limited (Perlecan Pharma) for a total
purchase price of Rs.758 million. As a result of this transaction, Perlecan Pharma became our
wholly owned subsidiary. Perlecan Pharma was formed in September 2005 as a joint venture among us,
Citigroup Venture and ICICI Venture. We, as a part of this joint venture, had out-licensed four NCE
assets to Perlecan Pharma. Perlecan Pharma had been engaged in the clinical development and
out-licensing of these four NCE assets.
In September 2008, as part of our Proprietary Products segment, we launched our U.S. Specialty
Business through Promius Pharma, LLC, our wholly-owned subsidiary located in Bridgewater, New
Jersey. Promius Pharma will initially focus on the branded dermatology market and is based on a
platform of strategic licensing initiatives and internal product development activities undertaken
over the last several years. Promius Pharmas product portfolio currently consists of three
in-licensed dermatological products, of which two were launched during the year
ended March 31, 2009 and a pipeline of topical products is being developed at our Integrated
Product Development Facility in Hyderabad, India. Promius Pharmas current portfolio contains
innovative topical products for the treatment of psoriasis, atopic dermatitis and seborrheic
dermatitis.
In November 2008, we launched the authorized generic version of GlaxoSmithKlines Imitrex®
(sumatriptan succinate) tablets 25 mg, 50 mg, and 100 mg in the United States. We are the first
company to launch an authorized generic version of Imitrex® tablets in the U.S. market. In October
2006, we settled patent litigation with GlaxoSmithKline relating to sumatriptan succinate tablets.
GlaxoSmithKlines Imitrex® tablets, which are indicated for the acute treatment of migraine attacks
in adults, had U.S. sales of approximately $1 billion for the 12 month period ended December, 2008
according to IMS Health, a company which provides information on the pharmaceutical industry, in
its Moving Annual Total (MAT) report for the year ended December 2008.
In December 2008, we entered into agreements with Schering Plough Inc. and Sepracor Inc. which
will allow us to manufacture and market generic versions of the CLARINEX-D®-12 hour and
CLARINEX-D®-24 hour products, with six months marketing exclusivity, and the CLARINEX® REDITABS®
product, with six months marketing co-exclusivity, starting in 2012. We will also market a generic
version of the CLARINEX® 5 milligram tablet six months after the launch of the first generic
version of that product. The agreements resolve all pending patent infringement actions filed by
Schering Plough Inc. and Sepracor Inc. against Dr. Reddys in the U.S. District Court for the
District of New Jersey.
In December 2008, we announced that our German subsidiary, betapharm, had received information
on the preliminary results of the competitive bidding (or tender) process by the Allgemeine
Ortskrankenkassen (AOK), a large public health insurance company in Germany, for discount
agreements pertaining to 64 pharmaceutical products for 2009 and 2010. betapharm was awarded 8
18
products (with 33 contracts) in different regions of Germany covering the AOK-insured persons,
which represented 17% of the overall volume of the products covered by the AOK tender. betapharm
was among the top 3 companies in terms of number of contracts awarded. The tender procedure was
delayed pending resolution of a number of lawsuits filed by generic drug manufacturers. However,
such suits were resolved and, starting in June 2009, the sales under this tender began.
In March 2009, the U.S. District Court in the Southern District of New York granted a summary
judgment in our favor, finding that the Omeprazole Mg OTC ANDA filed by us does not infringe the
patents related to Astra Zenecas Prilosec OTC®. We received approval from the U.S. FDA for our
ANDA for Omeprazole Mg OTC on June 5, 2009. Omeprazole Mg is indicated for the treatment of
heartburn and our formulation contains 20.6 mg of omeprazole magnesium salt. The Prilosec OTC®
brand product had annual sales of approximately $362 million in the United States for the 52 weeks
ended July 13, 2008, based on sales data from Information Resources, Inc., a market research firm.
Preparations for the launch of our product are under way.
In March 2009, we announced a realignment of our Global Generics segments strategy for
finished dosages to focus on certain key geographies, and that we would gradually exit from some of
our very small, distributor driven markets. The markets being exited account for less than 1% of
our total company revenues. In addition to the markets where our operations are already very large
and account for a major share of our Global Generics segments revenues (i.e., United States,
India, Russia and other countries of the former Soviet Union, and Germany), we will continue
operations in 10-15 other markets in which our finished dosages sales are growing significantly.
This realignment represents an important new focus in our Global Generics segment. Not only will
this realignment result in consolidation and reduction in complexity of our operations, we believe
that it will enable us to significantly enhance our customer service and to increase our market
share in the key geographies where we already have a considerable presence.
In order to build a robust generics and active pharmaceutical ingredients (API) pipeline, in
the year ended March 31, 2009, we filed 20 ANDAs in the United States including seven Paragraph IV
filings. In the year ended March 31, 2009, the U.S. FDA granted us 23 final ANDA approvals and
four tentative ANDA approvals. As of March 31, 2009, cumulatively, we have filed 138 ANDAs out of
which 68 ANDAs were pending approval at the U.S. FDA, including nine tentative approvals. With
respect to APIs, we filed 55 Drug Master Files (DMF) in the year ended March 31, 2009 worldwide,
21 of which were filed in the United States, 5 in Canada, 19 in Europe and 10 in other countries.
With these filings, we have a total of 148 U.S. DMFs filed as of March 31, 2009. Including the
United States filings, as of March 31, 2009, we have made a total of 351 DMF filings worldwide.
During the year ended March 31, 2009, we invested Rs.4,426 million (net of sales of capital
assets) on capital expenditures for manufacturing, research and development facilities and other
assets. These investments will create the capacity to support our strategic growth agenda.
During the years ended March 31, 2007, 2008 and 2009, 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 biologics
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 mainly in the areas of metabolic disorders,
cardiovascular diseases and bacterial infection.
Our total revenues for the year ended March 31, 2009 were Rs.69,441 million (U.S.$1,365
million). We derived 17% of these revenues from sales in India, 35% from the United States and
Canada (North America), 11% from Russia and other countries of the former Soviet Union, 26% from
Europe and 11% from other countries. Our net result for the year ended March 31, 2009 was a loss of
Rs.5,168 million (U.S.$102 million).
OUR STRATEGY
The high cost of many medicines puts them out of the reach of millions of people who
desperately need them. Our core purpose is to provide affordable and innovative medicines to enable
people to lead healthier lives. As a global pharmaceutical company, we take very seriously our
responsibility to help alleviate the burden of disease on individuals and on the world. The
strategy through which we intend to achieve this goal is as follows:
19
|
|
|
Through our Global Generics segment, we offer lower-cost
alternatives to highly-priced innovator brands, both directly and through key partnerships.
Generic drugs hold great promise for the future. The growing acceptance of generics and
favorable legislation in many countries, combined with the large volume of branded products
losing patent protection over the coming years, is expanding the generic pharmaceuticals
market. Today, we have a strong presence both in highly regulated markets, such as the
United States, United Kingdom and Germany, and in emerging markets, including India, Russia,
Venezuela, Romania, and certain countries of the former Soviet Union (Belarus, Ukraine and
Kazakhstan). Moreover, we are steadily building our presence in other key markets. Our
capabilities span the entire value chain from process development of the API to
submission of the finished dosage dossier to the regulatory agencies giving us control
over the supply chain and the ability to offer high quality products at the right time and
at competitive prices. Our generics business is supported by our integrated product
development infrastructure which is dedicated to bringing new medicines to the market. We
will continue to leverage our existing global platforms of product development,
manufacturing and supply chain management to add to our product pipeline and address the
growing needs of our customers in each of these markets. |
|
|
|
|
Through our Pharmaceutical Services and Active Ingredients
(PSAI) segment, which
consists of our API business and our Custom Pharmaceutical Services (CPS) business, we
offer intellectual property advantaged, rapid product development and cost-effective
manufacturing services to our customers both generic companies and innovators. This
allows us to help make medicines available to more people around the world. For our API
business, our goal is to always enable our customers to be the first to launch a generic
product and to provide value added services to help them remain competitive and profitable
for the entire life-cycle of the product. Our CPS business serves several innovators, both
big pharmaceutical and emerging biotechnology companies, and a large number of emerging
pharmaceutical companies. Our CPS business aims to be the preferred partner for innovator
companies by providing a complete range of services, such as process development and
manufacturing services, that are necessary to take their innovations to the market with
greater speed and efficiency and lower capital expenditures. |
|
|
|
|
Our Proprietary Products segment consists of new chemical entity (NCE) research and
our Differentiated Formulations business. In each of these areas, we are building
world-class capabilities and partnerships to accelerate the discovery and development of new
and improved therapies. NCE research is focused on building a robust NCE pipeline in the
areas of metabolic diseases, cardiovascular diseases, and antibacterials. Our Differentiated
Formulations efforts involve applying novel formulation and drug delivery technologies to
improve or repurpose products that have a sizable track record of human clinical use. Our
most advanced Differentiated Formulations efforts are in dermatology, where we have launched
several effective and innovative products through our wholly-owned subsidiary, Promius
Pharma. |
|
|
|
|
To supplement our internal growth initiatives for each of these businesses, we are
continuously exploring external business development opportunities, including acquisitions
and alliances. |
OUR PRINCIPAL AREAS OF OPERATIONS
The following table shows our revenues and percentage of total revenues of our segments for
the years ended March 31, 2008 and 2009, respectively:
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
Segment |
|
2008 |
|
|
2009 |
|
|
|
(Rs. in millions, U.S.$ in millions) |
|
Pharmaceutical Services and
Active Ingredients |
|
Rs. |
16,623 |
|
|
|
33 |
% |
|
Rs. |
18,758 |
|
|
|
27 |
% |
|
U.S.$ |
369 |
|
Global Generics |
|
|
32,872 |
|
|
|
66 |
% |
|
|
49,790 |
|
|
|
72 |
% |
|
|
979 |
|
Proprietary Products |
|
|
190 |
|
|
|
|
% |
|
|
294 |
|
|
|
|
% |
|
|
6 |
|
Others |
|
|
321 |
|
|
|
1 |
% |
|
|
599 |
|
|
|
1 |
% |
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
Rs. |
50,006 |
|
|
|
100 |
% |
|
Rs. |
69,441 |
|
|
|
100 |
% |
|
U.S.$ |
1,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pharmaceutical Services and Active Ingredients Segment (PSAI)
Our PSAI segment accounted for 27% of our total revenues for the year ended March 31, 2009.
This segment includes active pharmaceutical ingredients, also known as active pharmaceutical
products or bulk drugs, which are the principal ingredients for finished pharmaceutical products.
Intermediates are the compounds from which active pharmaceutical ingredients are prepared.
20
Active pharmaceutical ingredients and intermediates (API) become finished pharmaceutical
products when the dosages are fixed in a form ready for human consumption such as a tablet, capsule
or liquid using additional inactive ingredients. This segment also includes contract research
services and the manufacture and sale of API and steroids in accordance with the specific customer
requirements. This segment has been formed by aggregating our former two segments of Active
Pharmaceutical Ingredients and Intermediates and Custom Pharmaceutical Services. This aggregation
is expected to help us improve synergies and provide focus to our chemicals business, which has
significant market potential. There is a common manufacturing infrastructure and supply chain
organization for this segment with the integration being done under our chemical technical
operations team.
We produce and market more than 100 different APIs in several markets. We export API to
emerging as well as developed markets covering more than 100 countries. Our principal markets in
this business segment include North America (the United States and Canada) and Europe. Our API
business is operated independently from our Global Generics segment and, in addition to supplying
API to our Global Generics segment, we sell API to third parties for use in creating generic
products, subject to any patent rights of other third parties. Our API business also manufactures
and supplies all of the API required in our custom pharmaceutical services business. The research
and development group within our API business 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 custom pharmaceutical (contract research and manufacturing) arm of our PSAI segment was
established in 2001 to leverage our strength in process chemistry to serve the niche segment of the
pharmaceutical and fine chemicals industry. Over the years, our business strategy in this area has
evolved to focus on the marketing of process development and manufacturing services. Our objective
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 Current Good Manufacturing Practice (cGMP) manufacturing to serve
various needs of innovator pharmaceutical companies. We have positioned our CPS business 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
Emerging Markets. India is an important emerging market, accounting for 13% of the segments
revenues in the year ended March 31, 2009. In India, we market our API products to Indian and
multinational companies who are also our competitors in our Global Generics segment. In India, our
top six products are ciprofloxacin, ranitidine, clopidogrel, ramipril, losartan potassium and
naproxen. 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.6,340 million for the year ended March 31, 2009.
Our other key emerging markets include Israel, Turkey, South Korea, Mexico, Brazil, Bangladesh,
Indonesia, Jordan, Argentina, China, Peru, Syria, Saudi Arabia, Chile, Egypt, Thailand, Malaysia,
Colombia, Pakistan and Taiwan. 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 (the United States and Canada) and
Europe. In the United States and Europe, over the next three to four years, a large number of
products are expected to lose patent protection, providing growth opportunities for our API
business. We have been marketing API 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.
With respect to API, we filed 55 DMFs worldwide in the year ended March 31, 2009, 21 of which
were filed in the United States, 5 in Canada, 19 in Europe and 10 in other countries. With these
filings, we have a total of 148 U.S. DMFs filed as of March 31, 2009. Also, as of March 31, 2009,
we had filed 83 DMFs in Europe and had 22 certificates of suitability granted by European
authorities.
21
Including the United States and Europe filings, as of March 31, 2009, we have made a total of
351 DMF filings worldwide. For most of these, we are either already supplying commercial
quantities or development quantities of API to various generic formulators.
For our custom pharmaceutical services line of business, we have focused business development
teams dedicated to our key geographies of North America (the United States and Canada), the
European Union and Asia Pacific. These teams target large and emerging innovator companies to
build long-term business relationships focused on catering to their outsourcing needs.
Manufacturing and Raw Materials
The infrastructure for our PSAI segment consists of six U.S. FDA-inspected plants in India, a
U.S. FDA-inspected plant in Mexico, a U.S. FDA-inspected plant in Mirfield, United Kingdom and
three technology development centers, two of which are in Hyderabad, India and one of which is in
Cambridge, United Kingdom.
India. All of the facilities in India are located in the state of Andhra Pradesh. Six of these
facilities have ISO 9001 certification, which is valid until December 5, 2009, at which time we
will be reinspected. With over 740 reactors of different sizes offering 2.9 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. Our Global Generics segment sources approximately 62% of its
API purchases from our PSAI segment. We also source several APIs from third party suppliers for the
emerging markets to optimally utilize our in-house manufacturing capacities for the developed
markets, which are more profitable relative to the emerging markets. During the year ended March
31, 2009, approximately 5% of our total revenues resulted from sales of API procured from
third-party suppliers. We maintain stringent quality controls when procuring materials from
third-party suppliers.
Our API outsourcing activities were improved during the year ended March 31, 2009 as a result
of a new initiative to strengthen our relationships with our API vendors, who we view as our
business partners, through a dedicated quality assurance team. This initiative has helped us
maintain a strong and sustaining supply chain. In line with our philosophy of ensuring that our
business partners grow with us, we have implemented a strong infrastructure to improve the
performance of our partners, both in volume and quality. This includes a dedicated team of
professionals from our technical, quality and commercial teams working with the partners, as well
as a dedicated quality laboratory and a development laboratory. This has further helped us to
mitigate risks due to a single source and quality related issues. During the quarter ended March
31, 2009, four of our manufacturing facilities in India were inspected by the U.S. FDA and no
critical observations were made by them.
Mexico. Our U.S. FDA inspected plant in Mexico was acquired from Roche during the year ended
March 31, 2006. In addition to manufacturing the active pharmaceutical ingredients naproxen and
naproxen sodium and a range of intermediates, the Mexico facility synthesizes steroids for use in
pharmaceutical and veterinary products. Key raw materials for the manufacture of naproxen are
procured from a unit that we established within an existing plant in India.
For our contract research services, we have well-resourced synthetic organic chemistry
laboratories, analytical laboratories and kilo laboratories at our technology development centers
at Miyapur and Jeedimetla in Hyderabad. We have added a new crystallization laboratory which
enhances our technical capability to study finishing stages of API manufacturing and process
safety. Our chemists and engineers understand cGMP manufacturing and regulatory requirements for
synthesis, manufacture and formulation of a NCE from the pre-clinical stage to commercialization.
To complete the full value chain in development services, we also provide formulation development
services. We now have facilities for pre-formulation and formulation development, analytical
development, clinical trial supplies, pilot scale and product regulatory support. Larger quantities
of APIs are sourced from API plants in India and Mexico.
We acquired the Dowpharma Small Molecules business, now renamed asChirotech Technology
Limited, from The Dow Chemical Company in April 2008. As a result, we now offer niche
capabilities, such as biocatalysis, chemocatalysis and hydroformulation, to provide cost effective
solutions for chiral molecules. The acquisition included the relevant business, customer contracts,
associated API products, process technology and know-how, technology licensing rights trademarks
and other intellectual property, as well as the transfer of the facilities at Mirfield and
Cambridge in the United Kingdom. We also took over the existing work force as a part of the
acquisition. The two sites and the business employ approximately 80 people. The acquired assets
include a non-exclusive license to Dows Pfēnex Expression Technology for biocatalysis
development. This technology offers us opportunities to provide technology leveraged manufacturing
services to innovators, including major global pharmaceutical companies. Our contract research and
22
manufacturing business is uniquely positioned in the market where it utilizes assets (both in
terms of physical assets and technical know-how) of a vertically integrated pharmaceutical company
and combines this with the service model which we built in the last few years.
Competition
The global API market can broadly be divided into highly regulated and less regulated markets.
The less regulated markets offer low entry barriers in terms of regulatory requirements and
intellectual property rights. The highly 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 the year ended March 31,
2009, 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, Aurobindo 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.
With respect to our custom pharmaceuticals business, we believe that contract manufacturing is
a significant opportunity for Indian pharmaceutical companies, based on their low-cost
manufacturing infrastructure. Key competitors in India include Diviss Laboratories Limited, Matrix
Laboratories Limited, Dishman Pharmaceuticals & Chemicals Limited, Syngene Limited, Jubilant
Organosys Limited and Nicholas Piramal India Limited. Key competitors from outside India include
Lonza Group, Koninklijke DSM N.V., Albany Molecular Research, Inc., Patheon, Inc. and Cardinal
Health, Inc. We distinguish ourselves from our key competitors by offering a wider range of cost
effective 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,
Novartis, Eli Lilly and GlaxoSmithKline are all executing plans to make India the regional hub for
API and supply of bulk drugs.
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 administration agencies
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, the DCGI clearance has to be obtained in accordance with the Drugs and
Cosmetics Act, 1940.
Our PSAI segment is subject to a number of government regulations with respect to pricing and
patents as discussed below in our Global Generics segment.
We submit a DMF for active pharmaceutical ingredients to be commercialized in the United
States. Any drug product for which an ANDA is being filed must have a DMF in place with respect to
a particular supplier supplying the underlying API. The manufacturing facilities are inspected by
the U.S. FDA to assess compliance with Current Good Manufacturing Practice regulations (cGMP).
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. Eight 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.
23
Global Generics Segment
At the beginning of the year ended March 31, 2009, we made a detailed organizational
announcement to integrate our worldwide finished dosages businesses, which had previously been
included within our former Formulations segment or our former Generics segment, under our new
Global Generics segment. The back-end manufacturing, development and regulatory infrastructure have
been integrated. The performance review, evaluation and management reporting has also been
integrated in order to facilitate potential product synergies across various geographies. We have
also established a Global Generics portfolio management team (in addition to our existing Global
Regulatory Affairs and Compliance team) which is responsible for the coordination of our product
identification and selection processes, as well as the development of intellectual property and
legal strategy, worldwide, in our Global Generics businesses.
Today, we are one of the top generic pharmaceutical companies in the world. With the
integration of our Global Generics business, our front-end business strategies in various markets
and our support services in India are increasingly being developed with a view to leverage our
global infrastructure. The production processes for finished dosages are similar to a certain
extent, regardless of whether the finished dosages are to be marketed to highly regulated or less
regulated markets. In many cases, the processes share common and interchangeable facilities and
employee bases, and use similar raw materials. However, differences remain between highly
regulated and less regulated markets in terms of manufacturing, packaging and labeling requirements
and the intensity of regulatory oversight, as well as the complexity of patent regimes. While the
degree of regulation in certain markets may impact product development, we are observing increasing
convergence of development needs throughout both highly regulated and less regulated markets. As a
result, when we begin the development of a product, we may not necessarily target it at a
particular market, but will instead target the product towards a cluster of markets which will
include both highly regulated and less regulated markets. Accordingly, a global manufacturing,
distribution and supply strategy will be warranted.
In March 2009, we announced a realignment of our Global Generics segments strategy for
finished dosages to focus on certain key geographies, and that we would gradually exit from some of
our very small, distributor driven markets. The markets being exited account for less than 1% of
our total company revenues. In addition to the markets where our operations are already very large
and account for a major share of our Global Generics segments revenues (i.e., United States,
India, Russia and other countries of the former Soviet Union, and Germany), we will continue
operations in 10-15 other markets in which our finished dosages sales are growing significantly.
This realignment represents an important new focus in our Global Generics segment. Not only will
this realignment result in consolidation and reduction in complexity of our operations, it will
enable us to significantly enhance our customer service and to increase our market share in the key
geographies where we already have a considerable presence.
During the year ended March 31, 2009, our Global Generics segment generated revenues of
Rs.49,790 million, accounting for 72% of our revenues, and grew by 51% on a year-on-year basis over
the year ended March 31, 2008.
The following is a discussion of the key markets in our Global Generic segment.
India
Approximately 17% of our Global Generics segments revenues in the year ended March 31, 2009
were derived from sales in the Indian market. In India, we mainly focus on the therapeutic
categories of cardiovascular, diabetes management, gastro-intestinal and pain management. As of
March 31, 2009, we had a total of 184 brands in India. Our top ten brands together accounted for
39% of our revenues in India in the year ended March 31, 2009. According to Operations Research
Group International Medical Statistics (ORG IMS) in its March Moving Annual Total (MAT) report
for the 12-month period ended March 2009, our secondary sales (i.e., sales directly to end users)
in India grew 2.6% in the year ended March 31, 2009. According to ORG IMS in its report referenced
above, as of March 2009 we had 55 brands that were ranked either first or second in terms of
(secondary) sales in India in their respective product categories. According to the Center for
Marketing and Advertising Research Consultancy report for the period from November 2008 to February
2009, which measures doctors prescriptions, we were ranked ninth in terms of the number of
prescriptions generated in India during such period.
New product launches during the year ended March 31, 2009 accounted for 3% of our Global
Generics segments revenues from sales in India. Key product launches included OMEZ Insta, our
brand of omeprazole powder; PECEF 200, our brand of cefpodoxime; Telsartan AM, our brand of
telsartan and amlodipine; Vantej, our brand of calcium sodium phospho silicate; and Xefta, our
brand of gefitinib. We have also launched Combihale, a treatment for asthma.
24
The following tables summarize the position of our top 10 brands in the Indian market for the
years ended March 31, 2008 and 2009, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
|
2008 |
|
|
2009 |
|
BRAND |
|
Revenues |
|
|
% Total(1) |
|
|
Revenues |
|
|
% Total(1) |
|
|
|
(Rs. in millions) |
|
|
|
|
|
|
|
|
|
Omez |
|
Rs. |
763 |
|
|
|
9 |
% |
|
Rs. |
776 |
|
|
|
9 |
% |
Nise |
|
|
626 |
|
|
|
8 |
% |
|
|
605 |
|
|
|
7 |
% |
Stamlo |
|
|
403 |
|
|
|
5 |
% |
|
|
422 |
|
|
|
5 |
% |
Stamlo beta |
|
|
305 |
|
|
|
4 |
% |
|
|
301 |
|
|
|
4 |
% |
Atocor |
|
|
244 |
|
|
|
3 |
% |
|
|
269 |
|
|
|
3 |
% |
Razo |
|
|
180 |
|
|
|
2 |
% |
|
|
214 |
|
|
|
3 |
% |
OMEZ-DSR |
|
|
166 |
|
|
|
2 |
% |
|
|
210 |
|
|
|
2 |
% |
Reditux |
|
|
154 |
|
|
|
2 |
% |
|
|
199 |
|
|
|
2 |
% |
Mintop |
|
|
150 |
|
|
|
2 |
% |
|
|
172 |
|
|
|
2 |
% |
Enam |
|
|
179 |
|
|
|
2 |
% |
|
|
166 |
|
|
|
2 |
% |
Others |
|
|
4,890 |
|
|
|
61 |
% |
|
|
5,144 |
|
|
|
61 |
% |
Total |
|
Rs. |
8,060 |
|
|
|
100 |
% |
|
Rs. |
8,478 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
Sales, marketing and distribution network
We generate demand for our products by detailing them to doctors who prescribe them, and
meeting with pharmacists to ensure that the pharmacists stock our brands. While we do not sell
directly to doctors or pharmacists, our approximately 2,248 sales representatives and front line
managers frequently visit doctors and pharmacists throughout the country to detail our products. In
addition, we sponsor medical conferences in different parts of the country and conduct seminars for
doctors. During the year ended March 31, 2009, we increased our total sales personnel in India by
approximately 298.
We sell our products primarily through clearing and forwarding agents to approximately 2,196
wholesalers who decide which brands to buy based on demand. The wholesalers 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 wholesalers and ensuring that the
wholesalers 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.
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 were the 13th largest pharmaceutical seller in India, with a market share of 2.17%,
according to the ORG IMS March MAT report for the 12-month period ended March 31, 2009. Of the top
twenty participants in the Indian formulations market, three are multinational corporations and the
rest are Indian corporations. We believe growth opportunities in India continue to exist.
Some of the key observations on the performance of the Indian pharmaceutical market by ORG IMS
set forth in their March MAT report for the 12-month period ended March 31, 2009 and similar
reports published by ORG IMS during the year ended March 31, 2009 are as follows:
25
|
§ |
|
The Indian pharmaceutical market, including retail and hospital sales, registered a
growth of 10.1% during the year ended March 31, 2009. |
|
|
§ |
|
The overall growth rate during the year ended March 31, 2009 was lower than the forecasted growth rate. |
|
|
§ |
|
New products accounted for 6.5% of total Indian pharmaceutical sales during the year ended March 31, 2009. |
|
|
§ |
|
The number of new products in the Indian pharmaceutical market remained steady at
approximately 3,900, while 20% of the new products account for 70% of total sales from new
products. |
|
|
§ |
|
The top 300 existing brands grew at a rate of 11%, which was higher than the Indian
pharmaceutical markets overall average, and continued to account for 33% of the markets
total sales. |
|
|
§ |
|
Approximately 800 existing brands (more than Rs.100 million in value) accounted for 50%
of the markets total sales and recorded a growth rate of more than 11% during the year
ended March 31, 2009. |
|
|
§ |
|
There is an increasing emergence of bio-similars to address the needs of patients in the
oncology therapeutic area. |
Our Global Generic segments principal competitors in the Indian market include Cipla Limited,
Glaxo SmithKline Pharmaceuticals Limited, Ranbaxy Laboratories Limited, Nicholas Piramal India
Limited, Sun Pharmaceuticals Industries Limited, Zydus-Cadila Limited, Lupin Limited, Mankind
Limited, Alkem Limited, Aristo Pharma Limited and Abbott Limited.
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 administration agencies
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, 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 India are subject to regulations issued
by its ministry of health (MoH). These regulations govern or influence the testing,
manufacturing, packaging, labeling, storing, record-keeping, safety, approval, advertising,
promotion, sale and distribution of products.
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 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, more
than 70
26
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.
The biotechnology sector in India is governed by the guidelines and 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.
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.
We are making required investments for scaling up our manufacturing infrastructure and
enhancing our development capabilities to leverage the global opportunity available in biogenerics.
Russia
Russia accounted for 12% of our Global Generics segments revenues in the year ended March 31,
2009. Pharmexpert, a market research firm, ranked us 17th in sales in Russia with a market share of
1.25% as of March 31, 2009 in its moving annual total report for first quarter 2009 (the
Pharmexpert MAT Q1 2009 Report). Pharmexpert also reported that Russias pharmaceutical market
growth during the year ended March 31, 2009 was 16%. 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 the revenues of our top 10 brands in the Russian
market for the years ended March 31, 2008 and 2009, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
|
2008 |
|
|
2009 |
|
|
|
Revenues in |
|
|
|
|
|
|
Revenues in |
|
|
|
|
Brand |
|
millions |
|
|
% Total(1) |
|
|
millions |
|
|
% Total(1) |
|
Omez |
|
Rs. |
849 |
|
|
|
21 |
% |
|
Rs. |
1,281 |
|
|
|
21 |
% |
Nise |
|
|
799 |
|
|
|
20 |
% |
|
|
1,249 |
|
|
|
21 |
% |
Ketorol |
|
|
797 |
|
|
|
20 |
% |
|
|
1,078 |
|
|
|
18 |
% |
Ciprolet |
|
|
550 |
|
|
|
13 |
% |
|
|
701 |
|
|
|
12 |
% |
Enam |
|
|
255 |
|
|
|
6 |
% |
|
|
315 |
|
|
|
5 |
% |
Cetrine |
|
|
199 |
|
|
|
5 |
% |
|
|
339 |
|
|
|
6 |
% |
Exifine |
|
|
140 |
|
|
|
3 |
% |
|
|
210 |
|
|
|
3 |
% |
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
|
2008 |
|
|
2009 |
|
|
|
Revenues in |
|
|
|
|
|
|
Revenues in |
|
|
|
|
Brand |
|
millions |
|
|
% Total(1) |
|
|
millions |
|
|
% Total(1) |
|
Mitotax |
|
|
105 |
|
|
|
3 |
% |
|
|
148 |
|
|
|
2 |
% |
Bion |
|
|
62 |
|
|
|
2 |
% |
|
|
171 |
|
|
|
3 |
% |
Mycoflucan |
|
|
51 |
|
|
|
1 |
% |
|
|
95 |
|
|
|
2 |
% |
Others |
|
|
257 |
|
|
|
6 |
% |
|
|
216 |
|
|
|
7 |
% |
Total |
|
Rs. |
4,064 |
|
|
|
100 |
% |
|
Rs. |
5,803 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Refers to the brands revenues from sales in Russia expressed as a
percentage of our total revenues from all sales in Russia. |
Our top four brands, Omez, Nise, Ketorol and Ciprolet, accounted for 72% of our generics
revenues in Russia in the year ended March 31, 2009. Omez (an anti-ulcerant product), Nise and
Ketorol (pain management products) and Ciprolet (an anti-infective product) are ranked as the 45th,
40th, 64th and 131st best selling formulation brands, respectively, in the Russian market as of
March 2009 by Pharmexpert in its MAT Q1 2009 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, Nise and Ketorol continued to be brand leaders in their
respective categories, as reported by the Pharmexpert MAT Q1 2009 Report.
Growth during the year was driven by sales and marketing initiatives to target specialists
through field sale forces focused on these specialists, increased participation in hospital
business and an over-the-counter (OTC) initiative for certain brands. During the year ended March
31, 2009, we further expanded our Russian sales force. Our Russian hospital division has 31
hospital specialists and 16 key account managers, and is focused on expanding our present network
of hospitals and institutes. Our Russian OTC division has 52 medical representatives, and is
focused on establishing a network of relationships with OTC distributors in preparation for future
OTC product launches.
Sales, marketing and distribution network
In Russia, we sell our products 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 315 marketing representatives, 25
regional managers, 4 zonal managers and 21 key account managers to detail our products to doctors
in 63 cities in Russia. During the year ended March 31, 2009, we increased our sales personnel in
Russia by approximately 65.
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. During the year ended March 31, 2009, we reviewed the credit terms
offered to our key customers and modified them to take into account the current macro-economic
scenario in Russia.
Competition
Our Global Generics segments principal competitors in the Russian market include Berlin Chemi
AG, Gedeon Richter Limited, Krka, Pliva, Lek, Ranbaxy, Nycomed and Egis Pharmaceuticals Limited.
North America (United States and Canada)
In North America (the United States and Canada), we sell generic drugs which 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. These drugs are required to meet the
U.S. FDA 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.
28
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.
Revenues from North America (the United States and Canada) generics sales increased by 152% to
Rs.19,843 million during the year ended March 31, 2009 from Rs.7,873 million in the year ended
March 31, 2008. During the year ended March 31, 2009, North America (the United States and Canada)
accounted for 40% of the total Global Generics segments sales. This significant contribution and
year-on-year increase in sales was primarily due to increases in revenues from the launch of
sumatriptan, our authorized generic version of Imitrex®, which generated revenues of Rs.7,188
million. Excluding the revenues from sumatriptan sales and excluding the revenue contributed by our
acquisition of BASFs facility in Shreveport, Lousiana, our revenues from North America (the United
States and Canada) grew by 39% compared to the year ended March 31, 2008.
Through the coordinated efforts of our teams in the United States and India, we constantly
seek to expand our pipeline of generic products. In order to build a robust generics pipeline, in
the year ended March 31, 2009, we filed 20 ANDAs in the United States, including seven Paragraph IV
filings. In the year ended March 31, 2009, the U.S. FDA granted us 23 final ANDA approvals and four
tentative ANDA approvals. As of March 31, 2009, cumulatively, we have filed 138 ANDAs in U.S. out
of which 68 ANDAs were pending approval at the U.S. FDA, including nine tentative approvals.
During the year ended March 31, 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 the project costs
(development, registration and legal costs) related to these products and the related U.S.
Abbreviated New Drug Applications (ANDA). Under this agreement, we received Rs.985 million in
March 2005 which was applied in part to our research and development costs for the years ended
March 31, 2005, 2006 and 2007. During the year ended March 31, 2007, we signed an amendment to the
agreement with I-VEN to reflect a change in the product portfolio and the royalty rate.
Sales, Marketing and Distribution Network
Dr. Reddys Laboratories, Inc., our wholly-owned subsidiary in the United States, is engaged
in the marketing of our generic products in North America (the United States and Canada). 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 the year ended March 31, 2009, we launched
sumatriptan AG, divalproex sodium, divalproex sodium sprinkles, glycopyrrolate, ramipril,
venlafaxine, nabumetone, risperidone, risperidone ODT, levetracetam, lamotrigine chewable,
lamotrigine tablets, naproxen OTC and famotidine OTC. Our 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 authorized 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. After expiration of the period of exclusivity, we
continued to distribute and sell these products and, in the year ended March 31, 2009, we earned
revenue of Rs.648 million from sales of these products. During the year ended March 31, 2008, we
received ANDA approvals for the generic versions of finasteride and simvastatin manufactured at our
facility in India and currently sell those products also in the U.S. market.
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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. As
of March 31, 2009, we marketed two generic products through Par Pharmaceuticals, Inc.
We formerly marketed generic versions of famotidine (Pepcid®) tablets, ranitidine (Zantac®)
tablets and naproxen sodium (Aleve®) tablets/caplets, through Leiner Health Products, LLC
(Leiner). In 2002, we entered into a 15-year exclusive agreement with Leiner to market these and
additional OTC products in the United States pursuant to which we launched our first new OTC
product under this agreement, ibuprofen/pseudoephedrine, during the year ended March 31, 2007.
However, we terminated our OTC product agreements with Leiner on April 18, 2007 after Leiner
suspended all of its packaging, production and distribution activities at its facilities in the
United States in response to a list of inspection observations on a Form 483 from the U.S. FDA. In
the year ended March 31, 2008, we launched our own OTC products division and successfully
introduced ranitidine 150 mg OTC in September 2007 and cetirizine 10 mg OTC in January 2008. During
the year ended March 31, 2009, two more OTC products launches were made and the sales of our OTC
business in the United States during the year ended March 31, 2009 generated revenues of Rs.992
million.
In Canada, in the year ended March 31, 2002, we entered into a profit sharing arrangement with
Cobalt Pharmaceuticals Inc. and Pharmascience Inc. to market certain of our generic products.
In April 2008, we acquired BASFs pharmaceutical contract manufacturing business and related
facility in Shreveport, Louisiana, U.S.A. This business involves contract manufacturing of generic
prescription drugs and OTC products for branded and generic companies in the United States. The
acquisition strengthened our supply chain for North America (the United States and Canada) and
provides a strong platform for pursuing additional growth opportunities. This business generated
revenues of Rs.1,684 million during the year ended March 31, 2009.
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 Teva
Pharmaceutical Industries Limited, Mylan Laboratories Inc., Andrx Corporation, Watson Laboratories
Inc., Sandoz, a division of Novartis Pharma A.G, Ranbaxy Laboratories Limited and Caraco
Pharmaceuticals.
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.
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,
30
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 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 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
31
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 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.
Canada Regulatory Environment
In Canada, we are required to file product dossiers with the countrys regulatory authority
for permission to market the generic formulation. The regulatory authorities may inspect our
manufacturing facility before approval of the dossier.
Europe
The European Union (the EU) presents significant opportunities for the sale of generic
drugs. In the EU, the manufacture and sale of pharmaceutical products is regulated in a manner
substantially similar to that in the United States. Legal requirements generally prohibit the
handling, manufacture, marketing and importation of any pharmaceutical product unless it is
properly registered in accordance with applicable law. The registration file relating to any
particular product must contain medical data related to product efficacy and safety, including
results of clinical testing and references to medical publications, as well as detailed information
regarding production methods and quality control. Health ministries are authorized to cancel the
registration of a product if it is found to be harmful or ineffective, or manufactured and marketed
other than in accordance with registration conditions.
Our sales of generic drugs in Europe for the year ended March 31, 2009 were Rs.11,886 million,
which accounted for 24% of our Global Generics segments sales, and represented an increase of 16%
as compared to sales of generic drugs in Europe for the year ended March 31, 2008. Within Europe,
significant sales are generated by beta Holding GmbH (betapharm), our German subsidiary. In March
2006, we acquired 100% of betapharm from 3i Group plc, a European private equity firm. This
acquisition allowed us to enter the German generics market.
Sales, Marketing and Distribution Network
Germany. Over last three years, the German pharmaceutical market underwent a significant
change. The new healthcare reform (the Statutory Health Insurance Competition Strengthening Act
or Wettbewerbsstärkungsgesetz (GKV WSG) (an act to strengthen the competition in public health
insurance) which was effective as of April 1, 2007, has significantly increased the power of
insurance companies and statutory health insurance funds (SHI funds) to influence dispensing of
medicines. Pursuant to the new law, pharmaceutical products covered by rebate contracts with
insurance companies have to be prescribed by physicians and dispensed by pharmacies. This has
increased the power of insurance funds. As a result, several SHI funds have entered into rebate
contracts with pharmaceutical companies, causing pressure on margins.
During fiscal 2009, Allgemeinen Ortsrankenkassen (AOK), one of the largest SHI funds (with
18.2 million members and 7 million dependents, covering approximately 40% of the German insurance
market), announced a competitive bidding (or tender) process from pharmaceutical companies for 64
pharmaceutical products for 2009 and 2010. betapharm was awarded 8 products and 33 contracts
covering AOK-insured persons in various regions of Germany, which represented 17% of the overall
volume of the products covered by the AOK tender. betapharm was among the top 3 companies in terms
of number of contracts awarded. The tender procedure was delayed pending resolution of a number of
lawsuits filed by generic drug manufacturers. However, these lawsuits were
32
settled in favor of AOK and, starting in June 2009, the sales under this tender began. After
AOKs tender, two other SHIs also announced their own tender processes, and this process appears to
be emerging as a significant trend in the German generics market.
In addition to AOK, betapharm continues to have contracts with other major SHI funds.
Traditionally, the SHI fund contracts had the elements of basic rebate and incremental rebates on
additional prescriptions generated through persons insured by these SHI funds. Since the new
healthcare reforms, the SHI funds have been aggressive in negotiating rebates for their contracts.
Consequently, in recent months they have negotiated higher discounts.
We sell a broad and diversified range of generic pharmaceutical products, under the
betapharm brand. Our sales force targets primary care physicians and pharmacists and our key
account management team targets insurance companies, various doctors and pharmacist associations.
These efforts are supported by a direct marketing team and a public relations program. Value-added
services provided by the beta institut gemeinnützige 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 that promote the psychological welfare of patients.
With the above-mentioned discount contracts being effective, long term changes in the German
structural framework conditions are ongoing. betapharm is in the process of a comprehensive
restructuring of its sales force. The German generics market has seen a visible shift to a tender
based supply model from that of a prescription based market, where the key driver for generating
sales was doctors equity and influence enjoyed by generic companies with the pharmacists. Since
the business model is changing, we intend to realign our sales force to evolve into a sustainable
structure which adapts to the current market situation. Negotiations with the Works Council of
betapharm, a local organization representing its workers, have been recently concluded to
facilitate a suitable restructuring of the sales force.
During the year ended March 31, 2008, Eli Lillys German patent covering olanzapine was
invalidated by the German Patent Court. Eli Lilly, the innovator, appealed this decision before the
German Federal Court of Justice. betapharm and certain other competitors had launched olanzapine
products in Germany pending the decision from the German Federal Court of Justice. Eli Lilly filed
an application for an interim order against betapharm claiming patent infringement at the court in
Düsseldorf, Germany. However, in August 2008 the court decided not to grant the interim order due
to lack of urgency. In December 2008, the Federal Court of Justice overruled the German Patent
Court and decided to maintain the olanzapine patent in favor of Eli Lilly, the innovator. We
subsequently stopped marketing this product in the German market. As part of the litigation, Eli
Lilly claimed damages resulting from the sales of our olanzapine product. In settlement of such
claims, we agreed to pay compensation to Eli Lilly in the amount of Euros 13.95 million (Rs.916
million).
United Kingdom and Other countries within Europe. We market our generic products in the United
Kingdom and other EU countries through our U.K. subsidiary, Reddys Laboratories (U.K.) Limited.
This subsidiary was formed in the year ended March 31, 2003 after our acquisition of Meridian
Healthcare Limited, a United Kingdom based generic pharmaceutical company. We currently market
approximately 23 generic products in such countries, representing over 89 dosage strengths. New
product launches in the year ended March 31, 2009 included fexofenadine, the generic version of
Allegra®.
We also seek to expand our presence to other European countries, either directly or through
strategic alliances. Other European countries where we have physical presence and have been able
to build our franchise include Romania, Spain and Italy. We have a representative office in
Romania, and our sales in Romania during the year ended March 31, 2009 were Rs.465 million.
We entered the Spain market through our acquisition of 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) in the year ended March 31, 2007. 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. We have also filed marketing authorization applications in Spain to permit us to
shift manufacturing of these acquired products from the current provider to our facilities in
India.
We incorporated a subsidiary in Italy, Reddy Pharma Italia SpA, in the year ended March 31,
2007, to build a pipeline of registrations and initiate marketing activities within the Italian
generics market. In April 2008, we acquired Jet Generici Srl, a company engaged in the sale of
generic finished dosages in Italy. The acquisition provided us with access to an essential product
portfolio, and a sales and marketing organization.
33
Competition
In Germany, the companies with the largest generics market shares are losing their generics
market shares to companies having rebate contracts with SHI funds. The top four generics companies
(including their subsidiaries) in Germany hold an aggregate market share of approximately 44%,
according to Insight Healths NPI-Gx (Sales March 2009) report. Our key competitors within the
German generics market include Sandoz group (including its Hexal, Sandoz and 1A Pharma
subsidiaries), Ratiopharm group (including its Ratiopharm and CT Arzneimittel subsidiaries) and
Stada group (including its Stada and Aliud subsidiaries). With the discount contracts with SHI
funds becoming effective, long term structural changes are ongoing in the German market. Many
companies have decided to cut their sales force to reduce fixed costs; others still believe that
sales representatives remain a useful differentiating factor in this highly competitive
environment.
Government regulations
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. Medicines and Health Care Products Regulatory Agencies (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. All the licensed facilities of
pharmaceutical companies in Germany are 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, 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 data exclusivity given to the innovator of a
branded product expires before their patent expires, the launch of our product would then be
delayed until patent expiration.
In Germany, the government is currently focused on reducing health care spending. During the
year ended March 31, 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 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; and empowering the statutory health insurance funds to
waive copayments by patients.
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Due to the AVWG, insurance companies operating in Germany have the power to influence prices,
and they have done so by releasing several products from co-payment.
Further, the 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; |
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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 preference 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 |
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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. |
Impairment
During the year ended March 31, 2009, there were significant changes in the generics market
related to our German subsidiary betapharm. These changes included the announcement of a large
competitive bidding (or tender) process from AOK (the largest German SHI fund), a continuing
decrease in the reference prices of pharmaceutical products and an increased quantity of discount
contracts being negotiated with SHI funds. AOKs tender process represents a visible shift to a
tender based supply model within the German generics market. We were awarded 8 products
representing 33 contracts covering the AOK-insured persons in various regions within Germany, which
represented 17% of the overall volume of the products covered by the AOK tender. betapharm was
among the top three companies in terms of number of contracts awarded. While our future sales
volumes are expected to increase for the products awarded to us under the tender, the expected
overall percentage margin under the tender arrangement will be significantly lower due to decreased
prices per unit of product. Also, the products awarded did not include our key products.
Due to these developments, as at March 31, 2009, we tested the carrying value of our product
related intangibles and goodwill for impairment. The impairment testing indicated that the
carrying values of certain product-related intangibles were higher than their recoverable value,
resulting in us recording an impairment loss on certain product related intangibles amounting to
Rs.3,167 million during the year ended March 31, 2009.
As at March 31, 2009, we also performed our annual impairment analysis related to the
betapharm cash generating unit, comprised of the above product related intangibles, the indefinite
life trademark brand beta and acquired goodwill. The recoverable value of our betapharm cash
generating unit was based on its fair value less costs to sell, which was higher than its value in
use. The impairment testing indicated that the carrying value of the betapharm cash generating unit
was higher than its recoverable value, resulting in us recording an impairment loss of goodwill
amounting to Rs.10,856 million during the year ended March 31, 2009.
Furthermore, due to the above adverse market developments and consequential impairment losses
recorded by us in our betapharm cash generating unit, we also reviewed the useful life of our
indefinite life intangible asset trademark/brand beta. We believe that the significant decline
in reference prices, together with the increased use by SHIs of discount contracts and tender
bidding processes, is resulting in the German market moving towards a non-branded price competition
market model, and therefore diminishing the importance of the Companys trademark/ brand beta.
Accordingly, as at March 31, 2009, we re-assessed our trademark/brand beta to be a finite life
intangible asset, and determined its useful life to be 12 years.
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Other markets of our Global Generics segment
In March 2009, we announced a realignment of our Global Generics segments strategy for
finished dosages to focus on certain key geographies, and that we would gradually exit from some of
our very small, distributor driven markets. The markets being exited would account for less than 1%
of our total company revenues. In addition to the markets where our operations are already very
large and account for a major share of our Global Generics segments revenues (i.e., United States,
India, Russia and other countries of the former Soviet Union, and Germany), we will continue
operations in 10-15 other markets in which our finished dosages sales are growing significantly. In
Venezuela, one of our key markets in this segment, during the year ended March 31, 2009 we
re-acquired distribution rights for our products from our existing distributor and established our
own distribution operations.
The realignment resulting from the exit from small distribution driven markets represents an
important new focus in our Global Generics segment. Not only will this realignment result in
consolidation and reduction in complexity of our operations, it will enable us to significantly
enhance our customer service and to increase our market share in the key geographies where we
already have a considerable presence.
Global Generics Manufacturing and Raw Materials
Manufacturing for our Global Generics segment entails converting APIs into finished dosages
and packaging in individual doses for consumption by the patients. We have seven facilities for the
manufacturing of formulation products, six of which are in India and one of which is in the United
States. One of the Indian facilities in Hyderabad is U.S. FDA compliant and is utilized to
manufacture products for the highly regulated markets of the United States, United Kingdom, Germany
and South Africa in accordance with the approvals obtained from respective authorities. This
facility is designed for the manufacture of tablets and hard gelatin capsules for sale in highly
regulated markets.
We manufacture most of our finished products at these facilities and also use third-party
manufacturing facilities as we determine necessary. We also purchase some products from approved
third parties based on the necessity and requirement of our markets. 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 finished
dosages is the form in which they are produced and the way they are packaged. Active pharmaceutical
ingredients are manufactured and distributed in bulk. In 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 the year ended March 31, 2009,
our PSAI segment provided approximately 62% of the active pharmaceutical ingredients and
intermediates requirements of our Global Generics business, with the balance coming from various
other suppliers.
For the manufacturing of products intended to be sold in the United States, 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 became 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 at Beverley in the United Kingdom 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 the year
ended March 31, 2007. We transferred the manufacturing of most of the products manufactured at the
Battersea facility to our facilities in India. In Germany, manufacturing of betapharms products is
now partly through our facilities in Bachupally, India and also outsourced to third party
manufacturers. As of March 31, 2009, we shifted manufacturing of sixteen key product groups to
India. In the year ended March 31, 2010, we intend to continue shifting the manufacturing of
betapharm products to our facilities in India. The logistics services for storage and distribution
in Germany is outsourced to a third party service provider.
Our manufacture of finished dosages for less regulated markets is subject to strict quality
and contamination controls throughout the manufacturing process. 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, Ukraine, Gulf Co-operation Council group, Kirgystan and World
Health Organization have visited
36
during the year ended march 31, 2009 and approved our facilities. We manufacture our key
brands for our Indian markets at our facilities in Baddi and Yanam to take advantage of certain
fiscal benefits offered by the Government of India, which include exemption from income tax and
excise duty, in the case of Baddi, and exemption from income tax, in the case of Yanam, for a
specified period.
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.S. FDA, 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.
Proprietary Products Segment
Our Proprietary Products segment involves the discovery of new chemical entities for
subsequent commercialization and out-licensing. It also involves our specialty pharmaceuticals
business which launched sales and marketing operations for in-licensed dermatology products in the
year ended March 31, 2009.
Discovery Research business
In the discovery research part of the Proprietary Products 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 |
Our principle research laboratory is based in Hyderabad, India. As of March 31, 2009, we
employed a total of 185 scientists, including approximately 40 scientists who held Ph.D. degrees.
We pursue an integrated research strategy at our laboratories, 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.
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. In the year ended March
31, 2009, we agreed with Rheoscience to amend the terms of this agreement. Under the terms of the
amended agreement, we and Rheoscience will share costs for phase III development according to
certain pre-determined formulas. The parties will also share eventual revenues, whether from direct
sales of products by either party or from third parties who may be responsible for marketing the
product in certain countries. The agreement is valid for a period of ten years from the date of
commercialization. We retain the right to supply clinical development and commercial quantities of
the requisite active pharmaceutical ingredients on an arms-length basis to all parties that
commercialize DRF 2593. DRF 2593 commenced the first phase III clinical trials in August 2007. In
order to obtain approval from either the U.S. FDA or its European counterpart, the European
Medicines Agency, many phase III clinical trials will be required to be conducted over several
years (the precise duration of which will be decided by the applicable regulatory authorities,
after reviewing some of our phase III clinical trials data).
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
37
(Citigroup Venture) and ICICI Venture Funds Management Company (ICICI Venture). The terms
of the joint venture were amended in March 2006. The joint venture agreement granted 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 directors of Perlecan Pharma. During
the year ended March 31, 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
discovered and we have certain commercialization rights with respect to products that Perlecan
Pharma developed. 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. On
July 30, 2008, we acquired the entire equity holding of Citigroup Venture and ICICI Venture in
Perlecan Pharma for a total consideration of Rs.758 million. As a result of this transaction,
Perlecan Pharma became our wholly owned subsidiary.
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. Phase I studies in India
have been completed, although additional long-term toxicology studies are required in order to
support Phase II clinical studies. Phase II studies are anticipated to commence once these
additional toxicology studies are completed. The agreement is structured such that territories are
split between us and ClinTec International, with milestones and royalties flowing between the
parties based on successes achieved in their respective territories. In the quarter ended March 31,
2009, this agreement was restructured such that we ceased to be a joint development partner and
Clintec International and its affiliates were given an option to in-license the product by a
specific date. In order to exercise this option, ClinTec International must pay us an agreed
initial amount plus certain milestone payments which are subject to achievement of specified
development, launch and sales thresholds in the future.
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. A molecule candidate
was identified that could be developed for COPD, and Good Laboratory Practices toxicity studies are
ongoing for this molecule. We commenced Phase I studies for this candidate in March 2009.
In March 2008, we entered into an agreement with 7TM Pharma for drug discovery collaboration
on selected drug targets. We will collaborate with 7TM Pharma to identify clinical candidates for
pre-selected targets and will jointly develop these 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. 7TM
Pharma is a Denmark based biotechnology company focusing on discovery and development of new drugs
targeting 7TM receptors. 7TM Pharmas primary therapeutic area is metabolic diseases, including
obesity, Type 2 diabetes and cardiovascular diseases.
Our investments into research and development of NCEs have been consistently focused towards
developing promising therapeutics. The compounds currently under active development in our
pipeline include:
|
|
|
|
|
|
|
|
|
Compound |
|
Therapeutic Area |
|
Status |
|
Development partner |
|
Remarks |
|
DRF 2593
|
|
Metabolic disorders
|
|
Phase III
|
|
Rheoscience
|
|
In Phase III clinical testing for type 2 diabetes |
|
|
|
|
|
|
|
|
|
Several compounds
|
|
Respiratory disorders
|
|
Phase I
|
|
Argenta
|
|
Targeted for Chronic Obstructive Pulmonary Disease |
|
|
|
|
|
|
|
|
|
DRL 17822
|
|
Metabolic disorders/Cardiovascular
disorders
|
|
Phase I
|
|
N/A
|
|
Targeting dyslipidemia and atherosclerosis |
38
Patents. The status of our patents filed and issued as of March 31, 2009 is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USPTO(1) |
|
USPTO(1) |
|
PCT(2) |
|
India |
|
India |
Category |
|
(Filed) |
|
(Granted) |
|
(Filed) |
|
(Filed) |
|
(Granted) |
|
Anti-diabetic |
|
|
83 |
|
|
|
53 |
|
|
|
61 |
|
|
|
116 |
|
|
|
44 |
|
Anti-cancer |
|
|
17 |
|
|
|
8 |
|
|
|
14 |
|
|
|
45 |
|
|
|
15 |
|
Anti-bacterial |
|
|
8 |
|
|
|
5 |
|
|
|
10 |
|
|
|
21 |
|
|
|
4 |
|
Anti-inflammation/Cardiovascular |
|
|
38 |
|
|
|
18 |
|
|
|
26 |
|
|
|
20 |
|
|
|
1 |
|
Anti-ulcerant |
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
Miscellaneous |
|
|
4 |
|
|
|
1 |
|
|
|
3 |
|
|
|
23 |
|
|
|
8 |
|
TOTAL |
|
|
151 |
|
|
|
86 |
|
|
|
114 |
|
|
|
226 |
|
|
|
72 |
|
|
|
|
(1) |
|
USPTO means the United States Patent and Trademark Office. |
|
(2) |
|
PCT 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.
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.
39
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 biologics 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.
40
Recent announcements
In May 2009, we announced the acceptance of our three Investigational New Drug (IND) filings
by the U.S. FDA. The first human subjects were successfully treated in a phase I study with DRL
17822, a selective inhibitor of cholesterylester transfer protein (or CETP), for the treatment of
dyslipidemia, atherosclerosis and associated cardiovascular diseases. The compound shows potent
elevation in high-density lipoprotein (or HDL) cholesterol and reduction of atherosclerotic
plaques in animals, and has a clean safety profile in preclinical studies. The two other INDs are
for the treatment of chronic obstructive pulmonary disease (or COPD) and dyslipidemia.
We also announced that effective July 1, 2009 our drug discovery operations at Hyderabad will
be absorbed into Aurigene Discovery Technologies Limited (Aurigene), another of our wholly-owned
subsidiaries. Aurigene is a partnership based drug discovery biotechnology company headquartered in
Bangalore. Our Discovery Research business resources (i.e., employees, facility and infrastructure)
will be suitably transferred and leased to Aurigene, which will now operate out of two sites -
Bangalore and Hyderabad.
In addition, we will be creating a new group to focus on proprietary products development,
which will be responsible for building our proprietary, branded research and development portfolio
in collaboration with various partners and service providers. This organization will work with
Aurigene and other discovery biotechnology companies to ensure effective management of our ongoing
and future drug discovery programs. All the existing intellectual property of our drug discovery
operations will be owned and managed by this new group. This group will also have responsibility
for our research and development portfolio and our differentiated formulations efforts. As part of
the reorganization, we will close our research facility in Atlanta, Georgia, U.S.A.
Promius Pharma
Promius Pharma is our subsidiary in Bridgewater, New Jersey, U.S.A. focusing on our U.S.
Specialty Business i.e., development and sales of branded specialty products. It has a portfolio
of in-licensed patented dermatology products and off-patent cardiovascular products. It also has
an internal pipeline of dermatology products that are in different stages of development. Promius
Pharmas current portfolio contains innovative products for the treatment of seborrheic dermatitis,
onychomycosis, acne, psoriasis and androgenic alopecia. It has commercialized two products, namely
EpiCeram, which is a skin barrier emulsion for the treatment of atopic dermatitis, and Scytera,
which is a foam for the treatment of psoriasis. Over the last year, since the business has been
launched, Promius Pharma has been able to enter into successful partnerships with companies such as
Ceragenix, Foamix, Sinclair and Antares for in-licensing of products. It also leverages on the
research, development and manufacturing facilities at Hyderabad, India. Promius Pharma also works
with various third party research organizations in conducting product development, pre-clinical and
clinical studies. Promius Pharma has approximately 50 sales representatives in the field. Its
sales force targets physicians in the field of dermatology and is supported by a direct marketing
team and a public relations program. In addition to its sales force, Promius Pharmas account
managers also call on purchasing agents for drug wholesalers and chain drug stores.
The manufacturing of Promius Pharmas products has been outsourced to third party
manufacturers based in the United States. The third party manufacturers are responsible for
sourcing the raw materials required for manufacturing the products. However, in some cases we
source the active pharmaceutical ingredients and supply it to the third party manufacturer. The
logistics services for storage and distribution have also been outsourced to a third party service
provider.
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.123 million. PDL was 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. PDLs operations were
subsequently integrated with those of Promius Pharma.
The revenues generated by Promius Pharma as well as from the sale of PDL products during the
year ended March 31, 2009 of Rs.294 million have been accounted under our Proprietary Products
segment.
41
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, 2009:
|
|
|
|
|
|
|
|
|
|
|
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 |
% |
Promius Pharma LLC (formerly Reddy Pharmaceuticals, LLC) |
|
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 |
% |
Dr. Reddys Laboratories SA |
|
Switzerland |
|
|
100 |
% |
Eurobridge Consulting B.V. |
|
Netherlands |
|
|
100 |
%(1) |
OOO DRS LLC |
|
Russia |
|
|
100 |
%(9) |
Aurigene Discovery Technologies(Malaysia) Sdn, Bhd |
|
Malaysia |
|
|
100 |
%(3) |
Dr. Reddys New Zealand Limited (formerly Affordable Healthcare Limited)(12) |
|
New Zealand |
|
|
100 |
%(10) |
Macred India Private Limited |
|
India |
|
|
100 |
% |
Dr. Reddys Laboratories Ilac Ticaret Limited |
|
Turkey |
|
|
100 |
% |
Perlecan Pharma Private Limited |
|
India |
|
|
99.99 |
% |
Dr.
Reddys SRL (formerly Jet Generici SRL) |
|
Italy |
|
|
100 |
%(11) |
Chirotech Technology Limited |
|
United Kingdom |
|
|
100 |
%(5) |
Dr. Reddys Laboratories Louisiana LLC |
|
U.S.A. |
|
|
100 |
%(6) |
|
|
|
(1) |
|
Indirectly owned through Reddy Antilles N.V. |
|
(2) |
|
Subsidiary under liquidation. |
|
(3) |
|
Indirectly owned through Aurigene Discovery Technologies Limited. |
|
(4) |
|
Kunshan Rotam Reddy Pharmaceutical Co. Limited is a subsidiary as we
hold a 51.33% stake; 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. |
42
|
|
|
(6) |
|
Indirectly owned through Dr. Reddys Laboratories, Inc. |
|
(7) |
|
Indirectly owned through Lacock Holdings Limited. |
|
(8) |
|
Indirectly owned through Reddy Holding GmbH. |
|
(9) |
|
Indirectly owned through Eurobridge Consulting B.V. |
|
(10) |
|
Indirectly owned through Dr. Reddys Laboratories SA. |
|
(11) |
|
Indirectly owned through Reddy Pharma Italia SPA |
|
(12) |
|
Effective as of May 19, 2009 |
4.D. Property, plants and equipment
The following table sets forth current information relating to our principal facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate |
|
Built up |
|
|
|
Installed |
|
Actual |
Location |
|
Area |
|
Area |
|
Certifications |
|
Capacity |
|
Production |
|
|
(Square feet) |
|
(Square feet) |
|
|
|
|
|
|
|
|
|
|
Pharmaceutical Services and Active Ingredients |
|
|
|
|
|
|
|
|
|
|
|
|
3,912(9)(12) |
|
|
3,327(9)(12) |
Bollaram, Andhra Pradesh, India |
|
|
734,013 |
|
|
|
191,558 |
|
|
U.S. FDA and EuGMP |
|
See above (12) |
|
See above (12) |
Bollaram, Andhra Pradesh, India |
|
|
648,173 |
|
|
|
346,622 |
|
|
U.S. FDA and EuGMP |
|
See above (12) |
|
See above (12) |
Bollaram, Andhra Pradesh, India |
|
|
285,235 |
|
|
|
204,556 |
|
|
U.S. FDA and EuGMP |
|
See above (12) |
|
See above (12) |
Jeedimetla, Andhra Pradesh, India |
|
|
228,033 |
|
|
|
102,464 |
|
|
U.S. FDA and EuGMP |
|
See above (12) |
|
See above (12) |
Miryalaguda, Andhra Pradesh, India |
|
|
3,402,907 |
|
|
|
414,553 |
|
|
U.S. FDA and EuGMP |
|
See above (12) |
|
See above (12) |
Pydibheemavaram, Andhra Pradesh, India |
|
|
8,523,466 |
|
|
|
972,490 |
|
|
U.S. FDA and EuGMP |
|
See above (12) |
|
See above (12) |
Pydibheemavaram, Andhra Pradesh, India (5) |
|
|
737,134 |
|
|
|
53,918 |
|
|
|
|
See above (12) |
|
See above (12) |
Miyapur, Andhra Pradesh, India |
|
|
113,256 |
|
|
|
85,736 |
|
|
ISO 27001: 2005 Information Security Management System |
|
|
N/A |
|
|
N/A |
Jeedimetla, Andhra Pradesh, India |
|
|
68,825 |
|
|
|
23,538 |
|
|
ISO 27001: 2005 Information Security Management System |
|
|
N/A |
|
|
N/A |
Cuernavaca, Mexico |
|
|
2,774,378 |
|
|
|
1,345,488 |
|
|
(1) |
|
|
3,500(9) |
|
|
2,000(9) |
Mirfield, United Kingdom |
|
|
1,785,960 |
|
|
|
653,400 |
|
|
ISO 9001:2008, MHRA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(UK) and U.S. FDA |
|
|
(13) |
|
|
(13) |
Cambridge, United Kingdom (6) |
|
|
9,383 |
|
|
|
9,383 |
|
|
|
|
|
N/A |
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Generics |
|
|
|
|
|
|
|
|
|
|
|
|
3,440(7)(8)(14) |
|
|
4,298(7)(14) |
Bollaram, Andhra Pradesh, India |
|
|
217,729 |
|
|
|
103,894 |
|
|
(2) |
|
See above (14) |
|
See above (14) |
Bachupally, Andhra Pradesh, India |
|
|
1,306,372 |
|
|
|
387,030 |
|
|
(3) |
|
See above (14) |
|
See above (14) |
Yanam, Pondicherry, India |
|
|
457,000 |
|
|
|
26,226 |
|
|
|
|
See above (14) |
|
See above (14) |
Baddi, Himachal Pradesh, India |
|
|
765,542 |
|
|
|
148,711 |
|
|
|
|
See above (14) |
|
See above (14) |
Bachupally, Andhra Pradesh, India |
|
|
798,982 |
|
|
|
41,891 |
|
|
(2) |
|
|
13,852(10) |
|
|
4,309(10) |
Bachupally, Andhra Pradesh, India (5) |
|
|
783,823 |
|
|
|
336,308 |
|
|
(4) |
|
|
9,200(7)(11) |
|
|
4,770(7) |
Beverley, East Yorkshire, United Kingdom |
|
|
81,000 |
|
|
|
32,500 |
|
|
U.K. Medicine |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control Agency, British |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail Consortium |
|
|
N/A |
|
|
N/A |
Shreveport, Lousiana, United States |
|
|
1,817,123 |
|
|
|
258,709 |
|
|
U.S. FDA |
|
|
5,875(7)(11) |
|
|
1,825(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary Products (11) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miyapur, Andhra Pradesh, India |
|
|
445,401 |
|
|
|
153,577 |
|
|
|
|
|
N/A |
|
|
N/A |
Georgia, United States (6) |
|
|
24,733 |
|
|
|
24,733 |
|
|
|
|
|
N/A |
|
|
N/A |
|
|
|
(1) |
|
U.S. FDA; Therapeutic Goods Administration, Australia; Danish Medicines Agency, Denmark; U.S. Prescription Drug Marketing
Act; Ministry of Health, Labour and Welfare, Japan; Secretaría de Salud y Asistencia, Mexico. |
|
(2) |
|
Ministry of Health, Sudan; Ministry of Health, Uganda; Brazilian National Agency of Sanitary Surveillance (ANVISA),
Brazil; National Medicines Agency, Romania; Ministry of Health, Ukraine; GCC group of countries. |
|
(3) |
|
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. |
43
|
|
|
|
|
National Medicines Agency, Romania; Ministry of Health, Ukraine;
Ministry of Health, Indonesia; Health Authorities, Nigeria; Ministry of Health, Kirgystan; World Health Organization,
cGMP; ANVISA, Brazil; Medicines and Health Care Products Regulatory Agencies (MHRA), U.K., British Retail Consortium; Danish Medicines Agency. |
|
(4) |
|
U.S. FDA; Medicines and Healthcare Products Regulatory Agency, U.K.; Ministry of Health, UAE; Medicines Control Council,
South Africa; ANVISA, Brazil; National Medicines Agency, Romania; Danish Medicines Agency, Environmental Management
System ISO 14001; Occupational Health and Safety Management System OHSAS 18001; Quality Management System-ISO
9001:2000. |
|
(5) |
|
100% Export Oriented Units. However the income tax benefits under the Indian Income tax Act were exhausted as of the end
of the year ended March 31, 2008 for our Generics facility at Bachupally. |
|
(6) |
|
Leased facilities. |
|
(7) |
|
Million units. |
|
(8) |
|
On a single shift basis. |
|
(9) |
|
Tons. |
|
(10) |
|
Grams. |
|
(11) |
|
Three shift basis |
|
(12) |
|
Represents the aggregate capacity and production for the first seven facilities listed in this table under PSAI. |
|
(13) |
|
Capacity and production at this facility is not separately tracked. |
|
(14) |
|
Represents the aggregate capacity and production for the first four facilities listed in this table under Global Generics. |
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, we have sales,
marketing and administrative offices, which are leased properties. We believe that our facilities
are optimally utilized.
Global Generics
In the year ended March 31, 2009, we commissioned the construction of a facility at our plant
in Baddi, Himachal Pradesh for the manufacture of injectable and ointment finished doseages for our
Global Generics segment. This project is eligible for certain financial benefits, including
exemption from income tax and excise duty for a specific period, offered by the Government of India
to encourage industrial growth in the state of Himachal Pradesh, India.
We have completed construction of a facility at a Special Economic Zone located in
Visakhapatnam, Andhra Pradesh, India for the manufacture of oral and injectable cytotoxic finished
dosages for our Global Generics segment. We are in the process of obtaining certification for this
facility from the U.S. FDA. During the initial visit to our facility in February 2008, the U.S. FDA
inspectors gave us a Notice on Form 483 of certain deficiencies. This was a part of the regular
pre-ANDA approval inspection that the U.S. FDA conducts for all potential U.S. ANDA filers and
pursuant to which the entire manufacturing site is audited. We promptly responded to this Notice.
Subsequently, the U.S. FDA had certain follow-on inquiries and asked for the facility to be
reinspected. We filed a reply to these follow-on inquiries in January 2009 and informed the U.S.
FDA that a facility upgrade will be undertaken to support our business plan and expanded scope for
other products to be manufactured at this facility. We are working with the U.S. FDA on these
matters and anticipate that we will receive approval for the facility upon completion of the
reinspection.
We are in the process of setting up a manufacturing facility in Medak District, Andhra
Pradesh, India, where our property has been designated as a Special Economic Zone under the
applicable laws of the Government of India.
PSAI
We are in the process of establishing a plant in a Special Economic Zone in Andhra Pradesh,
India for the manufacture of APIs. The plant will be adjacent to an existing plant, in a newly
acquired area of approximately 250 acres under a Pharmaceutical-Sector specific Special Economic
Zone for fiscal benefits. The formal governmental approval for designating the property as a
Special Economic Zone has been obtained. The project is envisaged to be developed in a phased
manner, subject to all statutory clearances.
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.
44
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
45
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, development and manufacturing services provided to innovator pharmaceutical and
biotechnology companies, and license fees from our drug discovery operations.
The Chief Operating Decision Maker (CODM) evaluates our performance and allocates resources
based on an analysis of various performance indicators by reportable segments. Our reportable
segments are as follows:
|
|
|
Pharmaceutical Services and Active Ingredients (PSAI); |
|
|
|
|
Global Generics; and |
|
|
|
|
Proprietary Products. |
During the year ended March 31, 2009, we transitioned into a new organization structure, which
has resulted in changes in our composition of reportable segments as well as the financial
information reviewed by the CODM. Accordingly, the segment information for the current year ended
March 31, 2009 and the previous year ended March 31, 2008 has been presented based on the new
reportable segments as mentioned above.
Pharmaceutical Services and Active Ingredients (PSAI): This segment includes active
pharmaceutical ingredients and intermediaries, also known as active pharmaceutical products or bulk
drugs, which are the principal ingredients for finished pharmaceutical products. Active
pharmaceutical ingredients and intermediaries become finished pharmaceutical products when the
dosages are fixed in a form ready for human consumption such as a tablet, capsule or liquid using
additional inactive ingredients. This segment also includes contract research services and the
manufacture and sale of active pharmaceutical ingredients and steroids in accordance with the
specific customer requirements. This segment has been formed by aggregating our former Active
Pharmaceutical Ingredients and Intermediates segment and Custom Pharmaceutical Services segment.
Global Generics: This segment consists of finished pharmaceutical products ready for
consumption by the patient, marketed under a brand name (branded formulations) or as generic
finished dosages with therapeutic equivalence to branded formulations (generics). This reportable
segment includes our former Formulations and Generics segments.
Proprietary Products: This segment involves the discovery of new chemical entities for
subsequent commercialization and out-licensing. It also involves our specialty pharmaceuticals
business, which launched sales and marketing operations for in-licensed dermatology products during
the year ended March 31, 2009.
Accordingly, disclosures relating to the previous period have been reclassified/regrouped to
conform to the current period presentation. The explanations below have been suitably modified in
line with such changes.
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
Notes 2 and 3 to our Consolidated Financial Statements.
Accounting estimates and judgments
While preparing financial statements in conformity with IFRS, we make judgments, estimates and
assumptions that affect the application of accounting policies and the reported amount of assets,
liabilities, disclosure of contingent liabilities at the balance sheet date and the reported amount
of income 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.
46
Revisions to accounting estimates are recognized in the period in which the estimates are revised
and in any future periods affected. In particular, information about significant areas of
estimation uncertainty and critical judgments in applying accounting policies that have the most
significant effect on the amounts recognized in the financial statements are as below:
|
|
|
Assessment of functional currency for foreign operations; |
|
|
|
|
Financial instruments; |
|
|
|
|
Measurement of recoverable amounts of cash-generating units; |
|
|
|
|
Provisions; |
|
|
|
|
Sales returns, rebates and charge back provisions; |
|
|
|
|
Evaluation of recoverability of deferred tax assets; |
|
|
|
|
Business combinations; and |
|
|
|
|
Contingencies. |
Revenue
Sale of goods
Revenue is recognized when the significant risks and rewards of ownership have been
transferred to the buyer, recovery of the consideration is probable, the associated costs and
possible return of goods can be estimated reliably, there is no continuing management involvement
with the goods and the amount of revenue can be measured reliably. Revenue from the sale of goods
includes excise duty and is measured at the fair value of the consideration received or receivable,
net of returns, sales tax and applicable trade discounts and allowances. Revenue includes shipping
and handling costs billed to the customer.
Revenue from domestic sales of generic products is recognized upon delivery of products to
distributors by our clearing and forwarding agents. Revenue from domestic sales of active
pharmaceutical ingredients and intermediates is recognized on delivery of products to customers,
from our factories. Revenue from export sales is recognized when the significant risks and rewards
of ownership of products are transferred to the customers, which is based upon the terms of the
applicable contract.
Sales of generic products in India are made through clearing and forwarding agents to
distributors. Significant risks and rewards in respect of ownership of generic products are
transferred by us when the goods are delivered to distributors 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 our factories. Significant risks and
rewards in respect of ownership of active pharmaceuticals ingredients are transferred by us on
delivery of the products to the customers. Sales of active pharmaceutical ingredients and
intermediates outside India are made directly to the end customers (generally distributors or
formulations manufacturers) from our parent company or our consolidated subsidiaries.
We have entered into marketing arrangements with certain marketing partners for sale of goods
in certain overseas territories. Under such arrangements, we sell generic products to the marketing
partners at a price agreed upon in the arrangement and is also entitled to a profit share which is
over and above the agreed price, on the basis of the marketing partners ultimate net sale
proceeds. Revenue in an amount equal to the agreed price is recognized on these transactions upon
delivery of products to the marketing partners. An additional amount representing the profit share
is recognized as revenue only when realization is certain.
Provision for chargeback, rebates, discounts and medicaid payments are estimated and provided
for in the period of sales and recorded as 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 estimated based on historical average chargeback
rate actually claimed over a period of time, current contract prices with wholesalers/other
customers and estimated inventory holding by the wholesaler. Such provisions are presented as a
reduction of trade receivable.
47
We account for sales returns by recording a provision based on our estimate of expected sales
returns. We deal in various products and operate in various markets. Accordingly, our estimate of
sales returns is determined primarily by our experience in these markets. In respect of established
products, we determine an estimate of sales returns provision primarily based on historical
experience of such sales returns. Additionally, other factors that we consider in determining the
estimate include levels of inventory in the distribution channel, estimated shelf life, product
discontinuances, price changes of competitive products, and introduction of competitive new
products, to the extent each of these factors impact our business and markets. We consider all
these factors and adjust the sales return provision to reflect our actual experience. With respect
to new products introduced by us, those have historically been either extensions of an existing
product line where we have historical experience or in a general therapeutic category where
established products exist and are sold either by us or our competitors.
We have not yet introduced products in a new therapeutic category where the sales returns
experience of such products by us or our competitors (as we understand based on industry
publications) is not known. The amount of sales returns for our newly launched products have not
historically differed significantly from sales returns experience of the then current products
marketed by us or our competitors (as we understand based on industry publications). Accordingly,
we do not expect sales returns for new products to be significantly different from expected sales
returns of current products. We evaluate sales returns of all our products at the end of each
reporting period and record necessary adjustments, if any.
Services
Revenue from services rendered, which primarily relate to contract research, is recognized in
profit or loss as the underlying services are performed. Upfront non-refundable payments received
under these arrangements are deferred and recognized as revenue over the expected period over which
the related services are expected to be performed.
Export entitlements
Export entitlements from government authorities are recognized in profit or loss when the
right to receive credit as per the terms of the government entitlement is established in respect of
the exports made by us, and where there is no significant uncertainty regarding the ultimate
collection of the relevant export proceeds.
Financial instruments
Non-derivative financial instruments
Non-derivative financial instruments consists of investments in equity and debt securities,
trade receivables, certain other assets, cash and cash equivalents, loans and borrowings, and trade
payables and certain other liabilities.
Non-derivative financial instruments are recognized initially at fair value plus, for
instruments not at fair value through profit or loss, any directly attributable transaction costs.
Subsequent to initial recognition non-derivative financial instruments are measured as described
below.
Cash and cash equivalents
Cash and cash equivalents consists of current cash balances and time deposits with banks. Bank
overdrafts that are repayable on demand and form an integral part of our cash management are
included as a component of cash and cash equivalents for the purpose of the statement of cash
flows.
Held-to-maturity investments
If we have the positive intent and ability to hold debt securities to maturity, then they are
classified as held-to-maturity. Held-to-maturity investments are measured at amortized cost using
the effective interest method, less any impairment losses. At March 31, 2009, we did not have any
held-to-maturity investments.
Available-for-sale financial assets
48
Our investments in equity securities and certain debt securities are classified as
available-for-sale financial assets. Subsequent to initial recognition, they are measured at fair
value and changes therein, other than impairment losses, are recognized directly in equity. When an
investment is derecognized, the cumulative gain or loss in equity is transferred to profit or loss.
Financial assets at fair value through profit or loss
An instrument is classified at fair value through profit or loss if it is held for trading or
is designated as such upon initial recognition. Financial instruments are designated at fair value
through profit or loss if we manage such investments and make purchase and sale decisions based on
their fair value in accordance with our documented risk management or investment strategy. Upon
initial recognition, attributable transaction costs are recognized in profit or loss when incurred.
Financial instruments at fair value through profit or loss are measured at fair value, and changes
therein are recognized in profit or loss.
Others
Other non-derivative financial instruments are measured at amortized cost using the effective
interest method, less any impairment losses.
Derivative financial instruments
We hold derivative financial instruments to hedge our foreign currency exposure. Derivatives
are recognized initially at fair value; attributable transaction costs are recognized in profit or
loss when incurred. Subsequent to initial recognition, derivatives are measured at fair value, and
changes therein are accounted for as described below.
Cash flow hedges
Changes in the fair value of a derivative hedging instrument designated as a cash flow hedge
are recognized directly in equity to the extent that the hedge is effective. To the extent that the
hedge is ineffective, changes in fair value are recognized in profit or loss. If the hedging
instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or
exercised, then hedge accounting is discontinued prospectively. The cumulative gain or loss
previously recognized in equity remains there until the forecast transaction occurs. When the
hedged item is a non-financial asset, the amount recognized in equity is transferred to the
carrying amount of the asset when it is recognized. In other cases the amount recognized in equity
is transferred to profit or loss in the same period that the hedged item affects profit or loss.
Economic hedges
We do not apply hedge accounting to certain derivative instruments that economically hedge
monetary assets and liabilities denominated in foreign currencies. Changes in the fair value of
such derivatives are recognized in profit or loss as part of foreign currency gains and losses
Foreign currency
Functional currency
The consolidated financial statements are presented in Indian rupees, which is the functional
currency of our parent company, DRL. Functional currency of an entity is the currency of the
primary economic environment in which the entity operates.
In respect of all non-Indian subsidiaries that operate as marketing arms of our parent company
in their respective countries/regions, the functional currency has been determined to be the
functional currency of our parent company (i.e., the Indian rupee). Accordingly, the operations of
these subsidiaries are largely restricted to import of finished goods from our parent company in
India, sale of these products in the foreign country and remittance of the sale proceeds to our
parent company. The cash flows realized from sale of goods are readily available for remittance to
our parent company and cash is remitted to our parent company on a regular basis. The costs
incurred by these subsidiaries are primarily the cost of goods imported from our parent company.
The financing of these subsidiaries is done directly or indirectly by our parent company.
In respect of subsidiaries whose operations are self contained and integrated within their
respective countries/regions, the functional currency has been determined to be the local currency
of those countries/regions.
49
Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of
entities within our company group at exchange rates at the dates of the transactions. Monetary
assets and liabilities denominated in foreign currencies at the reporting date are retranslated to
the functional currency at the exchange rate at that date. The foreign currency gain or loss on
monetary items is the difference between amortized cost in the functional currency at the beginning
of the period, adjusted for payments during the period, and the amortized cost in foreign currency
translated at the exchange rate at the end of the period. Non-monetary assets and liabilities
denominated in foreign currencies that are measured at fair value are retranslated to the
functional currency at the exchange rate at the date that the fair value was determined. Foreign
currency differences arising upon retranslation are recognized in profit or loss, except for
differences arising upon qualifying cash flow hedges, which are recognized directly in equity.
Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value
adjustments arising upon acquisition, are translated to reporting currency at exchange rates at the
reporting date. The income and expenses of foreign operations are translated to Indian rupee at the
monthly average exchange rates prevailing during the year.
Foreign currency differences are recognized directly in equity. Such differences have been
recognized in the foreign currency translation reserve (FCTR). When a foreign operation is
disposed of, in part or in full, the relevant amount in the FCTR is transferred to profit or loss.
Foreign exchange gains and losses arising from a monetary item receivable from or payable to a
foreign operation, the settlement of which is neither planned nor likely in the foreseeable future,
are considered to form part of a net investment in a foreign operation and are recognized directly
in equity in the FCTR.
Intangible assets
Goodwill
Goodwill (negative goodwill) arises upon the acquisition of subsidiaries, associates and joint
ventures.
Acquisitions prior to April 1, 2007
As part of our transition to IFRS, we elected to restate only those business combinations that
occurred on or after April 1, 2007. In respect of acquisitions prior to April 1, 2007, goodwill
represents the amount recognized under U.S. GAAP, which is considered our previous GAAP under
IFRS.
Acquisitions on or after April 1, 2007
For acquisitions on or after April 1, 2007, goodwill represents the excess of the cost of the
acquisition over our interest in the net fair value of the identifiable assets, liabilities and
contingent liabilities of the acquiree. When the excess is negative (negative goodwill), it is
recognized immediately in profit or loss.
Acquisitions of minority interests
Goodwill arising upon the acquisition of a minority interest in a subsidiary represents the
excess of the cost of the additional investment over the carrying amount of the net assets acquired
at the date of exchange.
Subsequent measurement
Goodwill is measured at cost less accumulated impairment losses. In respect of equity
accounted investees, the carrying amount of goodwill is included in the carrying amount of the
investment.
50
Research and development
Expenditures on research activities, undertaken with the prospect of gaining new scientific or
technical knowledge and understanding, are recognized in profit or loss when incurred. Development
activities involve a plan or design for the production of new or substantially improved products
and processes. Development expenditures are capitalized only if development costs can be measured
reliably, the product or process is technically and commercially feasible, future economic benefits
are probable, and we intend to and have sufficient resources to complete development and to use or
sell the asset. The expenditures capitalized include the cost of materials and other costs directly
attributable to preparing the asset for its intended use. Other development expenditures are
recognized in profit or loss as incurred.
Our internal drug development expenditures are capitalized only if they meet the
capitalization criteria as mentioned above. Where regulatory and other uncertainties are such that
the criteria are not met, the expenditures are recognized in profit or loss as incurred. This is
almost invariably the case prior to approval of the drug by the relevant regulatory authority.
Where, however, the capitalization criteria are met, intangible assets are capitalized and
amortized on a straight-line basis over their useful economic lives from product launch. As of
March 31, 2009, no internal drug development expenditure amounts have met the capitalization
criteria.
Payments to in-license products and compounds from third parties generally taking the form of
up-front payments and milestones are capitalized and amortized, generally on a straight-line basis,
over their useful economic lives from product launch.
Intangible assets relating to products in development, other intangible assets not available
for use and intangible assets having indefinite useful life are subject to impairment testing at
each balance sheet date. All other intangible assets are tested for impairment when there are
indications that the carrying value may not be recoverable. Any impairment losses are recognized
immediately in the income statement.
Other intangible assets
Other intangible assets that are acquired by us, which have finite useful lives, are measured
at cost less accumulated amortization and accumulated impairment losses. Subsequent expenditures
are capitalized only when they increase the future economic benefits embodied in the specific asset
to which they relate.
Amortization
Amortization is recognized in profit or loss on a straight-line basis over the estimated
useful lives of intangible assets, other than for goodwill, intangible assets not available for use
and intangible assets having indefinite life, from the date that they are available for use.
Impairment
Financial assets
A financial asset is assessed at each reporting date to determine whether there is any
objective evidence that it is impaired. A financial asset is considered to be impaired if objective
evidence indicates that one or more events have had a negative effect on the estimated future cash
flows of that asset.
An impairment loss in respect of a financial asset measured at amortized cost is calculated as
the difference between its carrying amount, and the present value of the estimated future cash
flows discounted at the original effective interest rate. An impairment loss in respect of an
available-for-sale financial asset is calculated by reference to its fair value.
Individually significant financial assets are tested for impairment on an individual basis.
All impairment losses are recognized in profit or loss. Any cumulative loss in respect of an
available-for-sale financial asset recognized previously in equity is transferred to profit or
loss. An impairment loss is reversed if the reversal can be related objectively to an event
occurring after the impairment loss was recognized. For financial assets measured at amortized cost
and available-for-sale financial assets that are debt securities, the reversal is recognized in
profit or loss. For available-for-sale financial assets that are equity securities, the reversal is
recognized directly in equity.
51
Non-financial assets
The carrying amounts of our non-financial assets, other than inventories and deferred tax
assets, are reviewed at each reporting date to determine whether there is any indication of
impairment. If any such indication exists, then the assets recoverable amount is estimated. For
goodwill and intangible assets that have indefinite lives or that are not yet available for use,
the recoverable amount is estimated each year at the same time.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use
and its fair value less costs to sell. In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset. For the purpose of
impairment testing, assets are grouped together into the smallest group of assets that generates
cash inflows from continuing use that are largely independent of the cash inflows of other assets
or groups of assets (the cash-generating unit). The goodwill acquired in a business combination,
for the purpose of impairment testing, is allocated to cash-generating units that are expected to
benefit from the synergies of the combination.
An impairment loss is recognized if the carrying amount of an asset or its cash-generating
unit exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss.
Impairment losses recognized in respect of cash-generating units are allocated first to reduce the
carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of
the other assets in the unit on a pro-rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets,
impairment losses recognized in prior periods are assessed at each reporting date for any
indications that the loss has decreased or no longer exists. An impairment loss is reversed if
there has been a change in the estimates used to determine the recoverable amount. An impairment
loss is reversed only to the extent that the assets carrying amount does not exceed the carrying
amount that would have been determined, net of depreciation or amortization, if no impairment loss
had been recognized.
Income tax
Income tax expense consists of current and deferred tax. Income tax expense is recognized in
profit or loss except to the extent that it relates to items recognized directly in equity, in
which case it is recognized in equity. Current tax is the expected tax payable on the taxable
income for the year, using tax rates enacted or substantively enacted at the reporting date, and
any adjustment to tax payable in respect of previous years.
Deferred tax is recognized using the balance sheet method, providing for temporary differences
between the carrying amounts of assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes. Deferred tax is not recognized for the following temporary
differences: the initial recognition of assets or liabilities in a transaction that is not a
business combination and that affects neither accounting nor taxable profit, and differences
relating to investments in subsidiaries and jointly controlled entities to the extent that it is
probable that they will not reverse in the foreseeable future. In addition, deferred tax is not
recognized for taxable temporary differences arising upon the initial recognition of goodwill.
Deferred tax is measured at the tax rates that are expected to be applied to the temporary
differences when they reverse, based on the laws that have been enacted or substantively enacted by
the reporting date. Deferred tax assets and liabilities are offset if there is a legally
enforceable right to offset current tax liabilities and assets, and they relate to income taxes
levied by the same tax authority on the same taxable entity, or on different tax entities, but they
intend to settle current tax liabilities and assets on a net basis or their tax assets and
liabilities will be realized simultaneously.
A deferred tax asset is recognized to the extent that it is probable that future taxable
profits will be available against which the temporary difference can be utilized. Deferred tax
assets are reviewed at each reporting date and are reduced to the extent that it is no longer
probable that the related tax benefit will be realized.
Litigation
We are involved in disputes, lawsuits, claims, governmental and/or regulatory inspections,
inquiries, investigations and proceedings, including patent and commercial matters that arise from
time to time in the ordinary course of business. Most of the claims involve complex issues. We
assess, in consultation with our counsel, the need to make a provision for a liability for such
claims and record a provision when we determine that a loss related to a matter is both probable
and reasonably estimable.
52
Because litigation and other contingencies are inherently unpredictable, our assessment can
involve judgments about future events. Often, these issues are subject to uncertainties and
therefore the probability of a loss, if any, being sustained and an estimate of the amount of any
loss are difficult to ascertain. We also believe that disclosure of the amount of damages sought by
plaintiffs, if that is known, would not be meaningful with respect to those legal proceedings.
This is due to a number of factors, including: the stage of the proceedings (in many cases trial
dates have not been set) and the overall length and extent of pre-trial discovery; the entitlement
of the parties to an action to appeal a decision; clarity as to theories of liability; damages and
governing law; uncertainties in timing of litigation; and the possible need for further legal
proceedings to establish the appropriate amount of damages, if any.
Consequently, for a majority of these claims, it is not possible to make a reasonable estimate
of the expected financial effect, if any, that will result from ultimate resolution of the
proceedings. In these cases, we disclose information with respect to the nature and facts of the
case.
Other provisions
We recognize a provision if, as a result of a past event, we have a present legal or
constructive obligation that can be estimated reliably, and it is probable (i.e., more likely than
not) that an outflow of economic benefits will be required to settle the obligation. If the effect
of the time value of money is material, provisions are determined by discounting the expected
future cash flows at a pre-tax rate that reflects current market assessments of the time value of
money and the risks specific to the liability. Where discounting is used, the increase in the
provision due to the passage of time is recognized as a finance cost.
Restructuring
A provision for restructuring is recognized when we have approved a detailed and formal
restructuring plan, and the restructuring either has commenced or has been announced publicly.
Future operating costs are not provided for.
Onerous contracts
A provision for onerous contracts is recognized when the expected benefits to be derived by us
from a contract are lower than the unavoidable cost of meeting our obligations under the contract.
The provision is measured at the present value of the lower of the expected cost of terminating the
contract and the expected net cost of continuing with the contract. Before a provision is
established, we recognize any impairment loss on the assets associated with that contract.
Business Combination
Business combinations have been accounted using the purchase method under the provisions of
IFRS 3, Business Combinations. Cash and amounts of consideration that are determinable at the
date of acquisition are included in determining the cost of the acquired business. The cost of an
acquisition is measured at the fair value of the assets given, equity instruments issued or
liabilities incurred or assumed at the dates of exchange, plus costs directly attributable to the
acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a
business combination are measured initially at their fair value on the date of acquisition.
Goodwill represents the cost of business acquisition in excess of our interest in the net fair
value of identifiable assets, liabilities and contingent liabilities of the acquiree. When the
excess is negative, we recognize the same immediately in the income statement.
53
5.A. Operating results
The following table sets forth, for the periods indicated, our consolidated revenues and gross
profits by segment:
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Rs. in millions) |
|
|
(Rs. in millions) |
|
|
|
For the year ended March 31, 2009 |
|
|
For the year ended March 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
profit % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
% to |
|
|
|
|
|
|
to |
|
|
|
|
|
|
Revenues |
|
|
Gross |
|
|
profit % to |
|
|
|
Revenues |
|
|
total |
|
|
Gross profit |
|
|
revenues |
|
|
Revenues |
|
|
% to total |
|
|
profit |
|
|
revenues |
|
|
|
|
Pharmaceutical
Services and Active
Ingredients |
|
Rs. |
18,758 |
|
|
|
27 |
% |
|
Rs. |
5,595 |
|
|
|
30 |
% |
|
Rs. |
16,623 |
|
|
|
33 |
% |
|
Rs. |
5,645 |
|
|
|
34 |
% |
Global Generics |
|
|
49,790 |
|
|
|
72 |
% |
|
|
30,448 |
|
|
|
61 |
% |
|
|
32,872 |
|
|
|
66 |
% |
|
|
19,567 |
|
|
|
60 |
% |
Proprietary Products |
|
|
294 |
|
|
|
0 |
% |
|
|
196 |
|
|
|
67 |
% |
|
|
190 |
|
|
|
0 |
% |
|
|
109 |
|
|
|
57 |
% |
Others |
|
|
599 |
|
|
|
1 |
% |
|
|
261 |
|
|
|
44 |
% |
|
|
321 |
|
|
|
1 |
% |
|
|
87 |
|
|
|
27 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
Rs. |
69,441 |
|
|
|
100 |
% |
|
Rs. |
36,500 |
|
|
|
53 |
% |
|
Rs. |
50,006 |
|
|
|
100 |
% |
|
Rs. |
25,408 |
|
|
|
51 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
comparable period in the previous year.
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|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Sales |
|
Percentage |
|
|
For the year ended March 31, |
|
Increase/(Decrease) |
|
|
2009 |
|
2008 |
|
|
|
|
Revenues |
|
|
100 |
|
|
|
100 |
|
|
|
39 |
|
Gross profit |
|
|
53 |
|
|
|
51 |
|
|
|
44 |
|
Selling, general and administrative expenses |
|
|
30 |
|
|
|
34 |
|
|
|
25 |
|
Research and development expenses |
|
|
6 |
|
|
|
7 |
|
|
|
14 |
|
Impairment loss on other intangible assets |
|
|
5 |
|
|
|
6 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment loss on goodwill |
|
|
16 |
|
|
|
|
|
|
NC |
Other (income)/expense, net |
|
|
|
|
|
|
(1 |
) |
|
NC |
Results from operating activities |
|
|
(4 |
) |
|
|
5 |
|
|
NC |
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance (income)/expense, net |
|
|
2 |
|
|
|
(1 |
) |
|
NC |
Profit/(loss) before income taxes |
|
|
(6 |
) |
|
|
6 |
|
|
NC |
Income tax (expense)/benefit, net |
|
|
(2 |
) |
|
|
2 |
|
|
NC |
Profit/(loss) for the period |
|
|
(7 |
) |
|
|
8 |
|
|
NC |
Revenues
|
|
Our overall revenues increased by 39% to Rs.69,441 million in the year ended March 31,
2009, from Rs.50,006 million in the year ended March 31, 2008. Excluding revenues from a unit
of the Dow Chemical Company associated with its United Kingdom sites in Mirfield and Cambridge
(hereinafter referred to as the Dow Pharma Unit), BASFs manufacturing facility in
Shreveport, Louisiana, U.S.A. and related pharmaceutical contract manufacturing business
(hereinafter referred to as the Shreveport facility) and Jet Generici SRL (hereinafter
referred to as Jet Generici), each of which was acquired in April 2008, revenues grew by 33%
to Rs.66,644 million during the year ended March 31, 2009. During the year ended March 31, 2009, we
launched sumatriptan (an authorized generic version of Imitrex®) in the United States, which
accounted for Rs.7,188 million of our consolidated revenues. Excluding the revenues from
sumatriptan and revenues from the Dow Pharma Unit, the Shreveport facility and Jet Generici,
our revenues increased by 19% to Rs.59,456 million during the year ended March 31, 2009. |
54
|
|
Revenues from our Pharmaceutical Services and Active Ingredients segment increased by 13%
to Rs.18,758 million during the year ended March 31, 2009, from Rs.16,623 million during the
year ended March 31, 2008. Excluding revenues from the Dow Pharma Unit acquired in April 2008
of Rs.1,021 million, revenues from this segment increased by 7% compared to the year ended
March 31, 2008. The increase primarily resulted from growth in revenues from our rest of the
world markets (i.e., all markets other than North America, Europe, Russia and other countries
of the former Soviet Union and India) by 20% and from North America (the United States and
Canada) by 16%. |
|
|
Revenues from our Global Generics segment increased by 51% to Rs.49,790 million during the
year ended March 31, 2009, from Rs.32,872 million in the year ended March 31, 2008. The
increase primarily resulted from an increase in revenues from North America (the United States
and Canada), Russia and our rest of the world markets. Excluding revenues of
Rs.1,684 million from the Shreveport facility and Rs.92 million from Jet Generici, each of
which was acquired in April 2008, revenues from our Global Generics segment increased by 46%
to Rs.48,014 million during the year ended March 31, 2009. During the year ended March 31,
2009, we launched sumatriptan (an authorized generic version of Imitrex®) in the United
States, which accounted for Rs.7,188 million of our consolidated revenues. Excluding the
revenues from sumatriptan sales and revenues from the Shreveport facility and Jet Generici,
our Global Generics revenues grew by 24% to Rs.40,826 million during the year ended March 31,
2009. |
|
|
For the year ended March 31, 2009, we received 35% of our total revenues from North America
(the United States and Canada), 26% of our revenues from Europe, 17% of our revenues from
India, 11% of our revenues from Russia and other countries of the former Soviet Union and 11%
of our revenues from other countries. |
|
|
The provision for sales returns created during the year ended March 31, 2009 was Rs.663
million, as compared to Rs.164 million during the year ended March 31, 2008. Consistent with
our accounting policy for creating allowances for sales returns (referred to in Note 3.k. of
our consolidated financial statements), we assess the provision for sales returns at every
reporting period based on the historical trend of returns. Please refer to Note 23 of our
consolidated financial statements for the changes to our sales returns provisions during the
years ended March 31, 2008 and 2009. The increase in our sales return provision for the year
ended March 31, 2009 as compared to the year ended March 31, 2008 was mainly attributable to:
|
|
- |
|
A 39% increase in our total sales in the year ended March 31, 2009 over the year ended
March 31, 2008. Please refer to the discussion on revenues in this section for a more
detailed analysis. Our increase in the provision for sales returns during the year ended
March 31, 2009 was, in part, linked to this increase in our total sales. |
|
|
- |
|
Furthermore, our estimates of expected future sales returns allowances varies in
different geographic markets, based on their historical trends. Generally, our sales
returns in our North America (the United States and Canada) generics business are higher than our sales returns in other
businesses and geographies. Revenues from North America (the United States and Canada)
within our Global Generics segment increased by 152% to Rs.19,843 million for the year
ended March 31, 2009, from Rs.7,873 million in the year ended March 31, 2008. Please refer
to the discussion on revenues in this section for a more detailed analysis. |
|
|
- |
|
As mentioned above, in addition to assessing the adequacy of our allowance for sales
returns based on sales returns percentages during historical periods, our assessment is
also based upon sales returns processed at every reporting period. As we progressed
through the year ended March 31, 2008, we noted a decline in our trend of returns and,
accordingly, reevaluated our estimate. This assessment during the year ended March 31,
2008 resulted in a reversal of Rs.166 million from our opening allowance for sales returns.
This change in the estimate for allowance for sales returns was primarily due to smaller
than expected returns processed by us during the year ended March 31, 2008, as compared to
our opening estimate based on historical trends. This reversal reduced our net provision
for the year ended March 31, 2008 to Rs.164 million, which was significantly lower than our actual
sales returns of Rs.284 million in the year ended March 31,
2008. Accordingly, our initial provision for sales returns in the year ended March 31, 2009 reflected our increased
estimate for sales returns based upon actual returns in the prior fiscal year. In addition, as we progressed through the year ended
March 31, 2009, there was a further increase in our trend of sales
returns (from Rs.284 million in the year ended March 31, 2008 to Rs.475 million in
the year ended March 31, 2009) which was also reflected in our estimate for sales return provision. |
|
|
For further information regarding our sales return
provisions, see Note 23 to our consolidated financial statements. |
|
|
For the year ended March 31, 2009, on an average basis, the Indian rupee depreciated by
approximately 14% against the U.S. dollar compared to the average exchange rate for the year
ended March 31, 2008. This depreciation had a positive impact on our sales because of the
increase in rupee realization from sales denominated in U.S. dollars. However, this positive
impact was partially offset due to mark to market losses upon maturity of foreign currency
derivative contracts, which were acquired to mitigate the risks of foreign currency
volatility. The foregoing mark to market losses on foreign currency derivative contracts
resulted in a net decrease in our revenues by Rs.1,455 million during the year ended March 31,
2009. Excluding the impact of such mark to market losses, our total revenues grew by 42% to
Rs.70,896 for the year ended March 31, 2009 from Rs.50,006 million for the year ended March
31, 2008. |
55
Revenues Segment analysis
Pharmaceutical Services and Active Ingredients (PSAI)
For the year ended March 31, 2009, this segment accounted for 27% of our total revenues, as
compared to 33% for the year ended March 31, 2008. Revenues in this segment increased by 13% to
Rs.18,758 million for the year ended March 31, 2009, as compared to Rs.16,623 million for the year
ended March 31, 2008. Excluding revenues from the Dow Pharma Unit acquired in April 2008, revenues
from this segment increased to Rs.17,737 million for the year ended March 31, 2009 from Rs.16,623
million for the year ended March 31, 2008. This increase was primarily due to increases in revenues
from sales of gemcitabine, naproxen, clopidogrel, montelukast, rabeprazole sodium, ropinirole
hydrochloride, and sumatriptan succinate, which increases were partially offset by decreases in
sales of escitalopram oxalate, amlodipine besilate and olanzapine
For the year ended March 31, 2009, revenues in this segment from India accounted for 13% of
our revenues from this segment, as compared to 14% for the year ended March 31, 2008. Revenues in
this segment from India increased by 1% to Rs.2,383 million for the year ended March 31, 2009, as
compared to Rs.2,352 million for the year ended March 31, 2008.
Revenues in this segment from outside India constituted 87% of our total revenues in this
segment for the year ended March 31, 2009, as compared to 86% for the year ended March 31, 2008.
Revenues in this segment from outside India increased by 15% to Rs.16,375 million for the year
ended March 31, 2009 from Rs.14,271 million for the year ended March 31, 2008.
Revenues in this segment from North America (the United States and Canada) increased by 16% to
Rs.3,875 million for the year ended March 31, 2009 from Rs.3,350 million for the year ended March
31, 2008. The increase was primarily due to increased sales of montelukast, rabeprazole sodium and
naproxen, which were partially offset by a decrease in sales of ranitidine hydrochloride and
ibuprofen.
Revenues in this segment from Europe increased by 9% to Rs.6,160 million for the year ended
March 31, 2009 from Rs.5,647 million for the year ended March 31, 2008. The increase was primarily
due to increased sales of gemcitabine and sumatriptan, which were partially offset by a decrease in
the sales of olanzapine and ramipril.
Revenues in this segment from our Rest of the world markets (i.e., all markets other than
North America, Europe, Russia and other countries of the former Soviet Union and India) increased
by 20% to Rs.6,340 million for the year ended March 31, 2009 from Rs.5,274 million for the year
ended March 31, 2008. This increase was primarily due to an increase in sales of naproxen and
ciprofloxacin and the launch of the new product clopidogrel during the year ended March 31, 2009.
We entered into derivative contracts to hedge certain foreign currency risks on forecasted
sales transactions. We followed hedge accounting principles in the accounting for these derivative
contracts, which require the gain/loss on maturity of derivative contracts designated as hedges to
be recognized in the same fiscal period as the underlying transaction is recorded. In accordance
with these principles, we have recorded a loss in this segment of Rs.655 million for the year ended
March 31, 2009. Excluding the impact of hedging, this segments revenue increased by 17% to
Rs.19,413 for the year ended March 31, 2009 from Rs.16,623 million for the year ended March 31,
2008.
Global Generics
For the year ended March 31, 2009, this segment accounted for 72% of our total revenues, as
compared to 66% for the year ended March 31, 2008. Revenues in this segment increased by 51% to
Rs.49,790 million for the year ended March 31, 2009 from Rs.32,872 million for the year ended March
31, 2008. Excluding revenues from the Shreveport facility and Jet Generici, each of which was
acquired in April 2008, revenues in this segment increased by
46% to Rs.48,014 million for the year ended
March 31, 2009 from Rs.32,872 million for the year ended March 31, 2008.
Revenues from India constituted 17% of this segments total revenues for the year ended March
31, 2009, as compared to 25% for the year ended March 31, 2008. Revenues in this segment from India
increased by 5% to Rs.8,478 million for the year ended March 31, 2009 from Rs.8,060 million for the
year ended March 31, 2008. The increase in revenues was due to increases in sales volumes of key
brands such as Stamlo, our brand of amlodipine, Omez and Omez DR, our brands of omeprazole,
Reditux, our brand of rituximab, and Razo, our brand of rabeprazole, which increases were partially
offset by decreases in sales volumes of Nise, our brand of
56
nimesulide. New products launched in India during the year ended March 31, 2009 generated
revenues of Rs.232 million in this segment for such period.
Revenues from outside India constituted 83% of this segments total revenues for the year
ended March 31, 2009, as compared to 75% for the year ended March 31, 2008. Revenues in this
segment from outside India increased by 67% to Rs.41,312 million for the year ended March 31, 2009
from Rs.24,812 million for the year ended March 31, 2008.
Revenues from North America (the United States and Canada) in this segment increased by 152%
to Rs.19,843 million for the year ended March 31, 2009, from Rs.7,873 million in the year ended
March 31, 2008. This increase was primarily due to increases in revenues from the launch of
sumatriptan, our authorized generic version of Imitrex®, in the year ended March 31, 2009, which
generated revenues of Rs.7,188 million for such period. Excluding the revenues from sumatriptan
sales, our revenues in this segment from North America (the United States and Canada) grew by 61%
to Rs.12,655 million for the year ended March 31, 2009. The increase was mainly due to
strengthening of the U.S. dollar as compared to the Indian rupee and higher volumes for our key
products such as fexofenadine, simvastatin, omeprazole, pravastatin, and citalopram.
Revenues from Europe in this segment increased by 16% to Rs.11,886 million for the year ended
March 31, 2009, as compared to Rs.10,216 million for the year ended March 31, 2008. Revenues of
betapharm increased to Rs.9,854 million for the year ended March 31, 2009 from Rs.8,189 million for
the year ended March 31, 2008. This increase was primarily due to favorable exchange rates, higher
volumes for key products and seasonal sales of Grippeimpfstoff beta (vaccine).
Revenues from Russia in this segment increased by 43% to Rs.5,803 million for the year ended
March 31, 2009, from Rs.4,064 million for the year ended March 31, 2008. This increase was due to
higher sales volumes as well as higher prices of our key brands Nise, our brand of nimesulide,
Omez, our brand of omeprazole, Cetrine, our brand of cetrizine, and Ketorol, our brand of
ketorolac.
Revenues from other countries of the former Soviet Union in this segment increased by 25% to
Rs.1,821 million for the year ended March 31, 2009, as compared to Rs.1,461 million for the year
ended March 31, 2008. This increase was primarily due to an increase in revenues from Ukraine,
Kazakhstan and Uzbekistan.
Revenues from other markets in this segment increased by 64% to Rs.1,959 million for the year
ended March 31, 2009, as compared to Rs.1,197 million for the year ended March 31, 2008. This
increase was due to increases in revenues from Venezuela and South Africa as a result of the launch
of clopidogrel and higher sales of Ciproc and Omez.
We entered into derivative contracts to hedge certain foreign currency risks on forecasted
sales transactions. We followed hedge accounting principles in the accounting for these derivative
contracts, which require the gain/loss on maturity of derivative contracts designated as hedges to
be recognized in the same fiscal period as the underlying transaction is recorded. In accordance
with these principles, we have recorded a loss of Rs.800 million in this segment for the year ended
March 31, 2009. Excluding the impact of hedging, this segments revenue increased by 54% to
Rs.50,590 million for the year ended March 31, 2009, from Rs.32,872 million for the year ended March 31,
2008.
Gross Margin
Total gross margin as a percentage of total revenues was 53% for the year ended March 31,
2009, as compared to 51% for the year ended March 31, 2008. Total gross margin increased to
Rs.36,500 million for the year ended March 31, 2009, from Rs.25,408 million for the year ended
March 31, 2008.
Pharmaceutical Services and Active Ingredients
Gross margin of this segment decreased to 30% of this segments revenues for the year ended
March 31, 2009, as compared to 34% of this segments revenues for the year ended March 31, 2008.
The decrease in gross margin was mainly due to hedging losses (i.e., losses on foreign currency
derivatives) of Rs.655 million. Excluding the impact of hedging losses, the gross margin of this
segment was 33% of this segments revenues for the year ended March 31, 2009, as compared to 34% of
this segments revenues for the year ended March 31, 2008. The decrease in gross margin was due to
a change in product mix (i.e., an increase in the proportion of sales of lower gross margin
products, such as Naproxen and Naproxen sodium, and a decrease in the proportion of sales of higher
gross margin products, such as olanzapine and finasteride) for the year ended March 31, 2009.
Global Generics
57
Gross margin of this segment increased to 61% of this segments revenues for the year ended
March 31, 2009, as compared to 60% of this segments revenues for the year ended March 31, 2008.
The increase was primarily due to the launch of sumatriptan, our authorized generic version of
Imitrex®, which increase was partially offset by the decrease due to hedging losses (i.e., losses
on foreign currency derivatives) of Rs.800 million.
Selling, general and administrative expenses
Selling, general and administrative expenses as a percentage of total revenues were 30% for
the year ended March 31, 2009, as compared to 34% for the year ended March 31, 2008. Selling,
general and administrative expenses increased by 25% to Rs.21,020 million for the year ended March
31, 2009, from Rs.16,835 million for the year ended March 31, 2008. The increase was in part
attributable to an increase in employee costs by 19% due to annual raises and increases in head
count arising both out of our three acquisitions and normal additions, as well as an increase in
legal and professional expenses due to product related regulatory activities undertaken during the
year ended March 31, 2009. The increase was also partly attributable to an increase in marketing
expenses by 30% as a result of higher marketing expenses of our Proprietary Products business,
growth in shipping costs, higher commission on sales (due to increased revenues), and higher
advertisement expenses for campaigns undertaken in Russia, Belarus and Ukraine and Germany.
Furthermore, amortization expenses decreased by 6% to Rs.1,503 million for the year ended
March 31, 2009, from Rs.1,588 million for the year ended March 31, 2008. The reduction was
primarily due to reduced amortization at betapharm for certain product related intangibles due to
write-downs recorded in March 31, 2008, and was partially offset by an increase in amortization
expenses of Rs.165 million for the year ended March 31, 2009 due to our acquisition of the Dow
Pharma Unit, the Shreveport facility and Jet Generici.
Research and development expenses
Research and development costs increased by 14% to Rs.4,037 million for the year ended March
31, 2009, from Rs.3,533 million for the year ended March 31, 2008. As a percentage of revenues,
research and development expenditures accounted for 6% of our total revenue in the year ended March
31, 2009, as compared to 7% for the year ended March 31, 2008. This increase in costs was primarily
due to an increase in development activities in our Global Generics and Proprietary Products
segments during the year ended March 31, 2009.
Impairment loss on other Intangible Assets and Goodwill
During the year ended March 31, 2009, there were significant changes in the generics market
related to our German subsidiary betapharm. These changes included the announcement of a large
competitive bidding (or tender) process from AOK (the largest German State Healthcare (SHI)
fund), a continuing decrease in the reference prices of pharmaceutical products and increased
quantity of discount contracts being negotiated with SHI funds. AOKs tender process represents a
visible shift to a tender based supply model within the German generics market. We were awarded 8
products representing 33 contracts covering the AOK-insured persons in various regions within
Germany, which represented 17% of the overall volume of the products covered by the AOK tender.
While our future sales volumes are expected to increase for the products awarded to us under the
tender, the expected overall price realization under the tender arrangement will be significantly
lower due to decreased price per unit of product. Also, the products awarded did not include our
key products.
Due to these developments, as at March 31, 2009, we tested the carrying value of our product
related intangibles for impairment. The impairment testing indicated that the carrying values of
certain product-related intangibles were higher than their recoverable value, resulting in us
recording an impairment loss on certain product related intangibles amounting to Rs.3,167 million during
the year ended March 31, 2009.
As at March 31, 2009, we also performed our annual impairment analysis related to the
betapharm cash generating unit, comprised of the above product related intangibles, the indefinite
life trademark brand beta and acquired goodwill. The recoverable value of our betapharm cash
generating unit was based on its fair value less costs to sell, which was higher than its value in
use. The impairment testing indicated that the carrying value of the betapharm cash generating unit
was higher than its recoverable value, resulting in us recording an impairment loss of goodwill
amounting to Rs.10,856 million during the year ended March 31, 2009.
Other (income)/expense, net
58
Other expense was Rs.254 million for the year ended March 31, 2009, as compared to income of
Rs.402 million for the year ended March 31, 2008. This was primarily due to the Rs.916 million
provided as payable to Eli Lilly to settle its patent infringement claims arising from our sales of
olanzapine in Germany. This was partially offset by income of Rs.150 million on account of negative
goodwill resulting from the acquisition of the Dowpharma Small Molecule business and Mirfield
plant, as well as an increase in other income by Rs.512 million primarily due to an increase in
sales of spent chemicals, royalty income and other miscellaneous income.
Results from operating activities
As a result of the foregoing, our results from operating activities decreased to a loss of
Rs.2,834 million for the year ended March 31, 2009, as compared to a profit of Rs.2,341 million for
the year ended March 31, 2008.
Finance income/(expense), net
For the year ended March 31, 2009, our net finance expense was Rs.1,186 million, as compared
to net finance income of Rs.521 million for the year ended March 31, 2008.
For the year ended March 31, 2009, our finance income, excluding foreign exchange gain/loss,
decreased by 44% to Rs.482 million from Rs.862 million for the year ended March 31, 2008. The
decrease was attributable to a decrease in our interest income from fixed deposits resulting from a
decrease in our fixed deposits base, which was partially offset by an increase in gains on sales of
investments. For the year ended March 31, 2009, our interest expense decreased by 4% to Rs.1,034
million, from Rs.1,080 million for the year ended March 31, 2008.
Foreign exchange loss was Rs.634 million for the year ended March 31, 2009 as compared to a
foreign exchange gain of Rs.738 million for the year ended March 31, 2008, primarily due to
depreciation of the Indian rupee/U.S. dollar exchange rate by 14% during the year ended March 31,
2009. Such depreciation resulted in losses on short U.S.$/INR derivative contracts and translation
losses on outstanding packing credit loans in foreign currencies.
Inflation
Due to various macro-economic factors, the inflation level in the recent period has
significantly decreased in India. According to the economic report 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 0.26% for the week ended March 28, 2009
(as compared to 7.75% for the week ended March 29, 2008), which is one of the lowest in recent
years. This trend may not continue and the rate of inflation may further rise.
Profit/(loss) before income taxes
The
foregoing resulted in a loss (before income tax) of Rs.3,996
million for the year ended March 31, 2009, as compared to profit of Rs.2,864 million for the year
ended March 31, 2008.
Income tax expense
Income tax expense was Rs.1,172 million for the year ended March 31, 2009, as compared to an
income tax benefit of Rs.972 million for the year ended March 31, 2008. The increase in the tax
expense for the year ended March 31, 2009 was largely due to higher taxable profits in our North
America (United States and Canada) and India businesses, which were partially offset by certain tax
benefits. These tax benefits included a benefit attributable to losses in our German operations
(primarily due to Rs.916 million paid to Eli Lilly to settle its patent infringement claims arising
from our sales of olanzapine in Germany) and a benefit due to reversal of deferred tax liability of
Rs.983 million as a result of an impairment charge of betapharm intangibles of Rs.3,167 million.
The tax benefit in the year ended March 31, 2008 was primarily on account of a reversal of deferred
tax liability of Rs.1,505 million, which was due to a reduction in tax rates in Germany, and a
release of a deferred tax liability of Rs.895 million, which was due to the write-down of
intangibles amounting to Rs.2,883 million.
59
Profit/(loss) for the period
As a result of the foregoing, our net result was a loss of Rs.5,168 million for the year ended
March 31, 2009, as compared to net profit of Rs.3,836 million for the year ended March 31, 2008.
Recent Accounting Pronouncements
New standards and interpretations not yet adopted
A number of new IFRS standards and interpretations, and amendments to IFRS standards and
interpretations, are not yet effective for the year ended March 31, 2009, and have not been applied
in preparing our consolidated financial statements:
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§ |
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Revised IAS 1, Presentation of Financial Statements (2007) introduces the term total
comprehensive income, which represents changes in equity during a period other than those
changes resulting from transactions with owners in their capacity as owners. Total
comprehensive income may be presented in either a single statement of comprehensive income
(effectively combining both the income statement and all non-owner changes in equity in a
single statement), or in an income statement and a separate statement of comprehensive
income. Revised IAS 1, which becomes mandatory for our March 31, 2010 consolidated
financial statements, is expected to have a significant impact on the presentation of the
consolidated financial statements. We plan to provide total comprehensive income in a
single statement of comprehensive income for our March 31, 2010 consolidated financial
statements. |
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§ |
|
Revised IAS 23, Borrowing Costs removes the option to expense borrowing costs and
requires that an entity capitalize borrowing costs directly attributable to the
acquisition, construction or production of a qualifying asset as part of the cost of that
asset. The revised IAS 23 will become mandatory for our March 31, 2010 consolidated
financial statements. As we currently follow a policy of capitalizing borrowing costs,
this new standard will not have any impact on our consolidated financial statements. |
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§ |
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Amendments to IAS 32, Financial Instruments: Presentation and IAS 1, Presentation of
Financial Statements Puttable Financial Instruments and Obligations Arising on
Liquidation require puttable instruments, and instruments that impose on the entity an
obligation to deliver to another party a pro rata share of the net assets of the entity
only on liquidation, to be classified as equity if certain conditions are met. The
amendments, which become mandatory for our March 31, 2010 consolidated financial
statements, with retrospective application required, are not expected to have any material
impact on our consolidated financial statements. |
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§ |
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Revised IFRS 3, Business Combinations (2008) incorporates the following changes that
are likely to be relevant to our operations: |
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The definition of a business has been broadened, which is likely to result in
more acquisitions being treated as business combinations. |
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Contingent consideration will be measured at fair value, with subsequent changes therein recognized in profit or loss. |
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Transaction costs, other than share and debt issue costs, will be expensed as incurred. |
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Any pre-existing interest in the acquiree will be measured at fair value with the
gain or loss recognized in profit or loss. |
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Any non-controlling (minority) interest will be measured either at fair value or
its proportionate interest in the identifiable assets and liabilities of the acquiree,
on a transaction-by-transaction basis. |
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Revised IFRS 3, which becomes mandatory for our March 31, 2011 consolidated financial
statements, will be applied prospectively for all business combinations on or after
April 1, 2010. |
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§ |
|
Amendments to IAS 27, Consolidated and Separate Financial Statements (2008) requires
accounting for changes in ownership interests by us in a subsidiary, while maintaining
control, to be recognized as an equity transaction. When we lose control of a subsidiary,
any interest retained in the former subsidiary will be measured at fair value with the gain
or loss recognized in profit or loss. The amendments to IAS 27, which become mandatory for
our March 31, 2011 consolidated financial statements, are not expected to have a
significant impact on our consolidated financial statements. |
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§ |
|
Amendments to IFRS 2, Share-based Payment Vesting Conditions and Cancellations
clarify the definition of vesting conditions, introduce the concept of non-vesting
conditions, require non-vesting conditions to be reflected in grant-date fair value and
provide the accounting treatment for non-vesting conditions and cancellations. These
amendments to IFRS 2 will become mandatory for our March 31, 2010 consolidated financial
statements, with retrospective application. We are currently |
60
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in the process of evaluating the potential impact of the revised standard on our consolidated
financial statements. |
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§ |
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Amendments to IAS 39, Financial Instruments: Recognition and Measurement: Eligible
Hedged Items deal with two situations where diversity in practice exists on the
designation of inflation as a hedged risk and the treatment of one-sided risks on hedged
items. These amendments are effective for accounting periods beginning on or after July 1,
2009 and will be applicable for our March 31, 2011 consolidated financial statements. We
are currently in the process of evaluating the potential impact of the revised standards on
our consolidated financial statements. |
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IFRIC Interpretation 18, Transfers of Assets from Customers, defines the treatment for
property, plant and equipment transferred by customers to companies or for cash received to
be invested in property, plant and equipment that must be used either to connect the
customer to a network or to provide the customer with ongoing access to a supply of goods
or services, or to do both. The item of property, plant and equipment is to be initially
recognized by the company at fair value with a corresponding credit to revenue. If an
ongoing service is identified as a part of the agreement, the period over which revenue
shall be recognized for that service would be determined by the terms of the agreement with
the customer. If the period is not clearly defined, then revenue should be recognized over
a period no longer than the useful life of the transferred asset used to provide the
ongoing service. This interpretation is to be applied prospectively to transfers of assets
from customers received on or after July 1, 2009. Earlier application is permitted provided
the valuations and other information needed to apply the information to past transfers were
obtained at the time the transfer occurred. We would prospectively adopt this
interpretation for all assets transferred after July 1, 2009. This Interpretation is not
expected to have a significant impact on our consolidated financial statements. |
Standards early adopted
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IFRS 8, Operating Segments is applicable for annual periods beginning on or after July
1, 2009. This standard was early adopted by us as at March 31, 2009 as part of our initial
transition to IFRS. IFRS 8 replaces IAS 14, Segment Reporting. IFRS 8 requires a
management approach, under which segment information is presented on the same basis as
that used for internal reporting provided to the chief operating decision maker. The
application of this standard did not result in any significant change in our segmental
disclosures as compared to our disclosures under U.S. GAAP (which is considered our
previous GAAP under IFRS), which was substantially similar. Goodwill has been allocated in
accordance with the requirements of this standard. |
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 the year ended March 31, 2006, we borrowed Euro400
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.
61
The following table summarizes our statements of cash flows for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
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|
|
2009 |
|
|
2008 |
|
|
|
Rs. in millions |
|
Net cash provided by/(used in): |
|
|
|
|
|
|
|
|
Operating activities |
|
Rs. |
4,505 |
|
|
Rs. |
6,528 |
|
Investing activities |
|
|
(3,472 |
) |
|
|
(9,367 |
) |
Financing activities |
|
|
(2,527 |
) |
|
|
(7,865 |
) |
Net increase/(decrease) in cash and cash equivalents |
|
Rs. |
(1,494 |
) |
|
Rs. |
(10,704 |
) |
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
Rs. |
(114 |
) |
|
Rs. |
(372 |
) |
|
|
|
|
|
|
|
Cash Flow from Operating Activities
Net cash provided by operating activities decreased from Rs.6,528 million in the year ended
March 31, 2008 to Rs.4,505 million in the year ended March 31, 2009. This was primarily due to a
significant increase in our working capital balance, attributable to increases in our receivables.
We had a higher operating profit in the year ended March 31, 2009 compared to the year ended March
31, 2008 (excluding the impact of impairment losses).
The higher operating profit was largely on account of high-margin sales generated by the
launch of sumatriptan, our authorized generic version of Imitrex® in the United States during the
year ended March 31, 2009. As a result of limited competition, the percentage margin for this
product was above our average company level margins. However, the benefits of a higher operating
profit for the year ended March 31, 2009 on cash flow from operating activities were offset by an
increase in our trade receivables from Rs. 6,823 million as on March 31, 2008 to Rs. 14,592 million
as on March 31, 2009.
Sumatriptan was launched in November 2008. As a result of limited competition, this product
generated significant sales during a short period, mostly occurring during the quarter ended March
31, 2009. In accordance with our average credit period for this product, a major part of the sales
generated in that quarter were not due until after the subsequent quarter, resulting in a substantial increase in our
receivables as of March 31, 2009.
Cash Flow from Investing Activities
Net cash used in investing activities during the year ended March 31, 2009 was Rs.3,472
million, as compared to Rs.9,367 million in the year ended March 31, 2008. This was primarily on
account of:
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|
|
Expenditures on property, plant and equipment of Rs.4,507 million during the year ended
March 31, 2009, as compared to Rs.6,263 million in the year ended March 31, 2008; |
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|
|
|
Net proceeds from sales of investment securities of Rs.4,377 million, as compared to a
net expenditure for purchase of investment securities of Rs.3,382 million during the year
ended March 31, 2008; and |
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|
|
|
Cash paid for acquisition of businesses and our equity accounted investee of Rs.3,461
million during the year ended March 31, 2009. There were no such acquisitions during the
year ended March 31, 2008. |
Cash outflows from investing activities were significantly lower during the year ended March
31, 2009 as compared to the year ended March 31, 2008, largely on account of cash inflows from
sales of investment securities. As a result of the need to fund our acquisitions and other working
capital needs, a large part of our investment securities portfolio was liquidated. The
expenditures on property, plant and equipment during the year ended March 31, 2009 were in line
with our need to build capacities to support our strategic growth agenda.
Cash Flows from Financing Activities
There was a net cash outflow of Rs.2,527 million as a result of financing activities during
the year ended March 31, 2009, as compared to an outflow of Rs.7,865 million during the year ended
March 31, 2008. This was primarily due to our repayment of long
62
term debt of Rs.1,925 million during the year ended March 31, 2009, as compared repayment of
long term debt of Rs.7,719 million during the year ended March 31, 2008(largely attributable to the
repayment of debt for our betapharm acquisition).
Principal obligations
The following table summarizes our principal debt obligations (excluding capital lease
obligations) outstanding as of March 31, 2009:
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Payments due by period |
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(Rs. in millions) |
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|
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More |
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|
Less than |
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than |
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|
|
Financial Contractual Obligations |
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Total |
|
|
1 year |
|
|
1-5 years |
|
|
5 years |
|
|
Annual Interest Rate |
|
Short-term borrowings from banks |
|
Rs. |
6,068 |
|
|
Rs. |
6,068 |
|
|
Rs. |
|
|
|
|
|
|
|
7.5% for rupee borrowings and LIBOR + 100 225 bps for foreign currency denominated loans |
Long term debt |
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|
|
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|
|
|
|
|
|
|
|
|
|
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|
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|
|
From Indian Renewable Energy Development Agency * |
|
|
7 |
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|
|
6 |
|
|
|
1 |
|
|
|
|
|
|
2.00% |
|
Foreign currency loan (for betapharm acquisition) |
|
|
13,326 |
|
|
|
3,477 |
|
|
|
9,849 |
|
|
|
|
|
|
EURIBOR + 70 bps LIBOR + 70 bps |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total obligations |
|
Rs. |
19,401 |
|
|
Rs. |
9,551 |
|
|
Rs. |
9,850 |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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* |
|
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.
Cash and cash equivalents are primarily held in Indian rupees, U.S. dollars, U.K. pounds
sterling, Brazilian real, Euros, Russian roubles, South African rand, Hong Kong dollars, New
Zealand dollars, Malaysian ringgits and Swiss francs.
As of March 31, 2009 and March 31, 2008, we had committed to spend approximately Rs.996
million and Rs.1,552 million, respectively, under agreements to purchase property, plant and
equipment. This amount is net of capital advances paid in respect of such purchases.
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:
|
|
Global Generics, where our research and development activities are directed at the
development of product formulations, process validation, bioequivalence 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 or whose patents and regulatory exclusivity periods have
expired or are nearing expiration in the highly regulated markets of the United States and
Europe. Global Generics also include our biologics business, where research and development
activities are directed at the development of biologics products for the emerging as well as
highly regulated markets. Our new biologics research and development facility caters to the
highest development standards, including cGMP, Good Laboratory Practices and bio-safety level
IIA. |
|
|
Pharmaceutical Services and Active Ingredients, where our research and development activities
concentrate on development of chemical processes for the synthesis of active pharmaceutical
ingredients and intermediates (API) for use in our Global Generics |
63
|
|
segment and for sales in the emerging and developed markets to third parties. Our research and
development activities also support our custom pharmaceutical line of business, where we continue
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. |
|
|
Proprietary Products, where we are actively pursuing discovery and development of NCEs. Our
research programs focus on the following therapeutic areas: |
|
o |
|
Metabolic disorders |
|
|
o |
|
Cardiovascular disorders |
|
|
o |
|
Bacterial infections |
|
|
In the years ended March 31, 2008 and 2009, we expended Rs.3,533
million and Rs.4,037 million, respectively, on research and
development activities. |
Patents, Trademarks and Licenses
We have filed and been issued numerous patents in our principal areas of operations:
Pharmaceutical Services and Active Ingredients and Proprietary Products. 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. As of March 31, 2009, we had registered more than 500 trademarks with
the Registrar of Trademarks in India. We have also filed registration applications 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
Global Generics
The United States of America, Germany, India and Russia are the four key strategic markets for
our Global Generics business, generating roughly 92% of the revenues of this segment for the year
ended March 31, 2009. In all of these markets, we continue to grow our revenues consistently year
after year as a result of our product franchise and customer and distributor relationships built
over the years.
United States. In the United States, our revenues for the year ended March 31, 2009
represented an increase of 152%, as compared to our revenues for the year ended March 31, 2008.
This increase was primarily due to growth of our existing products and the successful launch of new
products, particularly sumatriptan (our authorized generic version of Imitrex®), as well as
revenues from the Shreveport facility that we acquired in April 2008. We are also looking at new
channels of growth in the coming years, through our over-the-counter business and government
business, to further increase the scale of our generics business in the United States. The
acquisition of the Shreveport facility in the United States was a strategic move in building
manufacturing and packaging capability in the United States. In the next few years, a large number
of patents are set to expire and we have adequately positioned our pipeline and infrastructure
capabilities to address a majority of these expirations. We intend to expand our portfolio over the
next few years by adding solid dosage forms, as well as alternate dosage forms, and by
complementing our internal product development effort through business alliances. We intend to
broaden not only our customer base but also our products by focusing more on difficult-to-make and
limited competition products.
In the past several years, we have settled multiple Paragraph IV lawsuits. The settlements
will result in guaranteed product launches, and with other Paragraph IV and difficult-to-make
generics, we are working towards the goal of at least one opportunity with limited competition
every year for the next five years. We expect that these product launches will augment our growing
base revenues. As of March 31, 2009, we had filed a total of 138 ANDAs with the U.S. FDA. We had 68
ANDAs pending approval with the U.S. FDA as of March 31, 2009.
64
Germany. In Germany, the pharmaceutical industry continues to go through health care reforms
which have put pressure on prices. As of April 1, 2007, the Statutory Health Insurance -
Competition Strengthening Act (also known as the GKV-WSG Act) took effect in Germany with the
purpose of strengthening competition in public health insurance to regulate the German health care
system. The law has significantly increased the power of the insurance companies and statutory
health insurance (SHI) funds by allowing them to enter into direct rebate contracts with
suppliers of pharmaceuticals. It further incentivizes doctors to prescribe generic drugs covered by
such rebate contracts. The pharmacist is also required, when dispensing drugs, to give a preference
to such drugs as are covered by rebate contracts. Thus, successfully concluding rebate contracts
with insurance companies is a factor critical to succeeding in the competition for market share in
the German generic prescription drug market. betapharm has signed rebate contracts with a large
number of SHI funds, covering a major part of the insured population in the aggregate.
In January 2008, new reference prices became effective under the GKV-WSG Act. Subsequently,
new co-payment release prices were announced and which became effective June 1, 2008. During the
year ended March 31, 2009, we reduced our dependence upon products from our single largest supplier
in Germany by shifting the sourcing to our own internal supply network in Europe and India. During
the year ended March 31, 2009, we successfully completed the transfer of the manufacturing
processes for most of our key German products to our manufacturing facility in India. The benefits
of this transfer include reduced product manufacturing costs and supply assurance. We have begun to
realize the benefits from the easing of supply pressures, and the market share of betapharm in
Germany has recovered to 2.8% in March 2009, as compared with a low of 1.74% in April 2007,
according to Insight Health, a company which provides information on the German pharmaceutical
industry, in its NVI market report for March 2009.
In August 2008, Allgemeinen Ortskrankenkassen (AOK), one of the largest SHI funds, announced
a competitive bidding (or tender) process for pharmaceutical companies for 64 products for 2009
and 2010. In this tender, betapharm was awarded 8 products translating to 33 contracts covering
AOK-insured persons in various regions of Germany, which represented 17% of the overall volume of
the products covered by the AOK tender. betapharm was among the top 3 companies in terms of number
of contracts awarded. The tender procedure was delayed pending resolution of a number of lawsuits
filed by generic drug manufacturers. However, these lawsuits were settled in favor of AOK and,
starting in June 2009, the sales under this tender began. We believe that ongoing health care
reforms and changing market dynamics, in terms of a move to a commoditized market environment, will
continue to cause pressure on price realization for our product portfolio in Germany, leading to a
business model in Germany today of high volumes and low margins. We are in the process of
realigning our organizational structure in betapharm to remain competitive in this emerging
scenario.
India. In India, Operations Research Group International Medical Statistics (ORG IMS) in its
March 2009 MAT report has noted that the Indian pharmaceutical market continues to be highly
fragmented and dominated by Indian companies. The industry recorded retail sales of approximately
U.S.$7 billion (Rs.354 billion) for the 12 months ended March 31, 2009, representing a growth of
10.1% over the previous 12 months. According to this ORG IMS report, the Indian pharmaceutical
market is projected to grow at 12-14% per annum between 2008 and 2020, achieving a terminal market
value of U.S.$30 billion. The major growth influencers will be population dynamics, high disease
prevalence, increased health care access, changing health care models and greater capacity to
spend. According to ORG IMS in its March MAT 2009 report, the market share of the No. 1 ranked
Indian retail sales pharmaceutical company was approximately 5.3%. In this competitive scenario, we
are the 13th ranked Indian pharmaceutical company, with a market share of 2.2%.
Six brands continue to be ranked among the top 300 brands in India in terms of sales. Our
leading brand Omez, including the umbrella of all products launched under Omez brand, reached sales
of approximately Rs.1 billion for the year ended March 31, 2009. However, our growth for the year
ended March 31, 2009 was below the industry growth rate. Some of this lower growth was attributed
to ordinary sales execution issues (e.g., sales generation, servicing, etc.) with new product
launches during the year. India still continues to deliver competitive and attractive
profitability in absolute terms because of the strong brand franchise that we enjoy with our
customers. Also contributing to the profitability of sales in India is our growing and niche
presence in dermatology, dental, urology and oncology therapeutic areas, especially our biologics
products in the oncology area.
Russia. In Russia, we continue to match the industry growth rate in the retail segment.
According to Pharmexpert, a market research firm, in its April-March 2009 report, we grew by 16.4%,
as compared to a market growth rate of 16.0% in Russia for such period. We are the fastest growing
international branded generic company by sales volumes in Russia, and our total sales grew by 11.2%
as compared to the industry decrease of 0.2% for such period. In the Pharmexpert MAT report for the
quarter ended March 31, 2009, we were ranked No. 17 in sales in Russia with a market share of 1.25%
for the year ended March 31, 2009. We also consolidated our new hospitals and over the counter
product businesses, which account for slightly more than 25% of our Russian revenues and which are
supplementing the growth led by our prescription business. The sales growth in Russia was led by
our top 3 brands Omez, Nise and Ketorol, each of which currently holds a market share greater
than 50%, and also by the success of our in-
65
licensed over the counter product Bion. During the year
ended March 31, 2009, the rouble depreciated sharply against the U.S. dollar.
However, we took proactive steps to minimize this currency loss by constantly tracking the
currency movement, focusing on receivables and adjusting our prices accordingly.
Pharmaceutical Services and Active Ingredients
In this segment, we are focused on acquiring new customers and increasing our level of
engagement with existing customers in global key markets, by marketing additional products from our
product portfolio. We are also focused on identifying unique product opportunities in key markets
and protecting them through patenting strategies. In this segment, we also market process
development and manufacturing services to customers, primarily consisting of innovator
pharmaceutical and biotechnology companies, with an objective to become their preferred partner of
choice. Our focus is to leverage our skills in process development, analytical development,
formulation development and Current Good Manufacturing Practice (cGMP) manufacturing to serve the
customers needs. Changes in the business model for our services business are beginning to take
shape, and we are switching to a more product based service offering based on our rich pipeline of
APIs combined with our intellectual property expertise.
For this segment, our revenues for the year ended March 31, 2009 increased by approximately
13%. The growth was mainly led by the active pharmaceutical ingredients division, as well as the
acquisition of the Dow Pharma Unit. There were no major product patent expiries in the year ended
March 31, 2009, and the credit crisis impacted our growth later in the fiscal year. We have
experienced some loss of business from the emerging markets as a result of clients adjusting their
inventories for the active ingredients segment. Our portfolio of drug master filings (DMFs) and
intellectual property expertise provide us a platform to become a partner of choice to innovators
and large pharmaceutical companies. As of March 31, 2009, we had a pipeline of 351 DMFs, of which
148 were in the United States. With patent expirations in several markets in the next few years, we
intend to promote growth in the year ended March 31, 2010 and beyond by leveraging our strong
intellectual property expertise and DMF pipeline. The success of our 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.
Proprietary Products
Our investments in research and development of new chemical entities (NCEs) have been
consistently focused towards developing promising therapeutics. Strategically, we continue to seek
licensing and development arrangements with third parties to further develop our pipeline products.
As part of our research program, we also pursue collaborations with leading institutions and
laboratories all over the world. Currently, we have a pipeline of three NCEs in clinical
development and three NCEs in pre-clinical development. Some of these compounds are being
developed in partnership with our partners, and the others are being developed in-house. As we make
progress in advancing our pipeline through various stages of clinical development, we are also
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
pursuing strategic partnerships and alliances in our key focus areas.
Building a specialty branded business in the United States is one of the important aspects of
our innovation strategy. The specialty business has launched its own sales and marketing operations
for in-licensed products in the dermatology therapeutic area in the United States while continuing
to work on development of new in-house products. This is the result of our continued efforts over
the last few years to establish this business through a combination of in-licensing initiatives as
well as internal pipeline development programs. Consequently, through our subsidiary Promius
Pharma, we launched Epiceram, our first dermatology prescription product in the United States, in
October 2008. In January 2009, Promius Pharma launched our second dermatology prescription product
Scytera. While initially we do not anticipate this to be a very significant business, it is an
important step in our journey of building a business based on proprietary products.
5.E. Off-balance sheet arrangements
Our equity accounted investee, Kunshan Rotam Reddy Pharmaceuticals Co. Limited (Reddy
Kunshan), secured a credit facility of Rs.36 million from Agricultural Bank of China
(Agricultural Bank). As at March 31, 2009, we had issued a corporate guarantee of Rs.36 million
in favor of Agricultural Bank to enhance the credit standing of Reddy Kunshan. The guarantee is
required to be renewed every year and our liability may arise in the event of non-payment by Reddy
Kunshan of the amount withdrawn under its credit facility.
66
5.F. Tabular Disclosure of Contractual Obligations
The following summarizes our contractual obligations as of March 31, 2009 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 |
|
1-5 years |
|
5 years |
Operating lease obligations |
|
|
518 |
|
|
|
173 |
|
|
|
345 |
|
|
|
|
|
Capital lease obligations |
|
|
300 |
|
|
|
18 |
|
|
|
44 |
|
|
|
238 |
|
Purchase obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agreements to purchase property and equipment and other
capital commitments(1) |
|
|
996 |
|
|
|
996 |
|
|
|
|
|
|
|
|
|
Borrowings from banks |
|
|
6,068 |
|
|
|
6,068 |
|
|
|
|
|
|
|
|
|
Long term debt obligations |
|
|
13,333 |
|
|
|
3,483 |
|
|
|
9,850 |
|
|
|
|
|
Estimated interest payable on long-term debt (2) |
|
|
529 |
|
|
|
271 |
|
|
|
258 |
|
|
|
|
|
Post retirement benefits obligations (3) |
|
|
951 |
|
|
|
86 |
|
|
|
361 |
|
|
|
504 |
|
Total contractual obligations |
|
|
22,814 |
|
|
|
11,095 |
|
|
|
10,977 |
|
|
|
742 |
|
|
|
|
(1) |
|
These amounts are net of capital advances paid in respect of such
purchases and are expected to be funded from internally generated
funds. |
|
(2) |
|
Disclosure of estimated interest payments for future periods is only
with respect to our long term debt obligations, as the projected
interest payments with respect to our short term borrowings and other
obligations cannot be reasonably estimated because they are subject to
fluctuation in actual utilization of borrowings depending on our daily
funding requirements. The estimated interest costs are based on March
31, 2009 applicable benchmark rates and are subject to fluctuation in
the future. |
|
(3) |
|
Post retirement benefits obligations in the More than 5 years column
are estimated for a maximum of 10 years. |
5.G. Safe harbor
See page 2.
67
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, 2009 was as follows:
Directors
|
|
|
|
|
|
|
Name(1) |
|
Age (in yrs) |
|
Position |
Dr. K. Anji Reddy(2)
|
|
|
70 |
|
|
Chairman |
Mr. G.V. Prasad(2),(3)
|
|
|
49 |
|
|
Chief Executive Officer and Vice Chairman |
Mr. Satish Reddy(2),(4)
|
|
|
42 |
|
|
Chief Operating Officer and Managing Director |
Mr. Anupam Puri
|
|
|
63 |
|
|
Director |
Dr. J.P. Moreau
|
|
|
61 |
|
|
Director |
Ms. Kalpana Morparia
|
|
|
60 |
|
|
Director |
Dr. Omkar Goswami
|
|
|
52 |
|
|
Director |
Mr. Ravi Bhoothalingam
|
|
|
63 |
|
|
Director |
Dr. Bruce L. A. Carter (5)
|
|
|
66 |
|
|
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. Bruce L. A. Carter joined the Board on July 21, 2008. |
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, 2009, the Management Council consisted of:
|
|
|
|
|
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|
|
|
|
|
|
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|
|
|
|
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|
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|
|
|
Date of |
|
|
|
|
Education/ |
|
|
|
|
|
Experience in |
|
commencement of |
|
Particulars of last |
Name and Designation |
|
Degrees Held |
|
Age |
|
years |
|
employment |
|
employment |
G.V. Prasad(1)
Vice Chairman and Chief
Executive Officer
|
|
B. Sc.(Chem. Eng.),
M.S. (Indl. Admn.)
|
|
|
49 |
|
|
|
25 |
|
|
June 30, 1990
|
|
Promoter Director,
Benzex Labs Private
Limited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Satish Reddy (2)
Managing Director and Chief
Operating Officer
|
|
B. Tech., M.S.
(Medicinal
Chemistry)
|
|
|
42 |
|
|
|
17 |
|
|
January 18, 1993
|
|
Director, Globe
Organics Limited |
|
|
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|
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|
|
|
|
|
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|
|
|
|
Abhijit Mukherjee
President Pharmaceutical
Services and Active Ingredients
|
|
B. Tech. (Chem.)
|
|
|
51 |
|
|
|
29 |
|
|
January 15, 2003
|
|
President, Atul
Limited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amit Patel,
Senior Vice President North
America Generics
|
|
B.A.S, BS (Eco), MBA
|
|
|
35 |
|
|
|
11 |
|
|
August 6, 2003
|
|
V P Corporate
Development, CTIS Inc |
68
|
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|
|
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|
|
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|
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|
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|
|
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|
|
|
Date of |
|
|
|
|
Education/ |
|
|
|
|
|
Experience in |
|
commencement of |
|
Particulars of last |
Name and Designation |
|
Degrees Held |
|
Age |
|
years |
|
employment |
|
employment |
Dr. C. Cartikeya Reddy,
Senior Vice President and Head
of Biologics
|
|
B Tech, MS and PhD
|
|
|
39 |
|
|
|
18 |
|
|
July 20, 2004
|
|
Senior Engineer,
Genetech Inc. |
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|
|
Jaspal Singh Bajwa
President Branded
Formulations (Rest Of the
World)(3)
|
|
B.Sc., PGDM
|
|
|
57 |
|
|
|
32 |
|
|
April 10, 2003
|
|
Executive Director
and COO, Marico
Industries Limited |
|
|
|
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|
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|
|
|
|
|
Jeffrey Wasserstein
Executive Vice President
Specialty Operations
|
|
B.A., J.D.
|
|
|
50 |
|
|
|
26 |
|
|
January 31, 2005
|
|
EVP and Chief
Business Officer
-Avigenics, Inc. |
|
|
|
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|
|
K. B. Sankara Rao
Executive Vice President
Integrated Product Development
|
|
M. Pharma.
|
|
|
55 |
|
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|
31 |
|
|
September 29, 1986
|
|
Production Executive,
Cipla Limited |
|
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|
|
Mr. Prabir Kumar Jha
Senior Vice President and
Global Chief of Human Resources
|
|
M.A., PGDM
|
|
|
42 |
|
|
|
20 |
|
|
November 29, 2002
|
|
Regional HR
Head-Mahindra British
Telecom Ltd. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raghu Cidambi
Advisor
|
|
B.Sc., PGDBM, LLB.
|
|
|
58 |
|
|
|
39 |
|
|
October 1, 2001
|
|
Director Eenadu,
Margadarsi Group |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Rajinder Kumar
President Discovery Research,
Development and
Commercialization (4)
|
|
M.Sc., MBBS, PG Dip
in Psychiatry and
Neurology
|
|
|
54 |
|
|
|
26 |
|
|
April 30, 2007
|
|
Chief Executive
Officer and Founding
Member, MeRaD
Pharmaceuticals Ltd. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Saumen Chakraborty
President Corporate and
Global Generics Operations
|
|
B.Sc. (H), PGDM
|
|
|
48 |
|
|
|
25 |
|
|
July 2, 2001
|
|
Vice President,
Tecumseh Products
India Private Limited |
|
|
|
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|
|
|
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|
|
|
|
|
|
|
V. S. Vasudevan
President European Generics
Business
|
|
B. Com. ACA
|
|
|
58 |
|
|
|
35 |
|
|
April 1, 1986
|
|
Finance Head,
Standard Equity Fund
Limited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Umang Vohra
Chief Financial Officer
|
|
B.E., PGDM
|
|
|
38 |
|
|
|
14 |
|
|
February 18, 2002
|
|
Manager, Pepsico India |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vilas Dholye
Executive Vice President
Formulations Technical
Operations
|
|
B.Tech (Chem)
|
|
|
60 |
|
|
|
35 |
|
|
December 18, 2000
|
|
Vice President,
Pidilite Industries
Limited |
|
|
|
(1) |
|
Son-in-law of Dr. K. Anji Reddy. |
|
(2) |
|
Son of Dr. K. Anji Reddy. |
|
(3) |
|
Ceased to be an employee effective as of May 31, 2009. |
|
(4) |
|
Ceased to be an employee effective as of June 30, 2009. |
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.
69
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 a Bachelor of Science
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 manufacturing 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, 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 and Pharmaceuticals. In addition to positions held in our
subsidiaries and joint ventures, he is a Director of Diana Hotels
Limited and Infotech Enterprises
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.
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, Tech Mahindra Limited and Mumbai Mantra
Media Limited.
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
BlackRock Investment Managers Limited, Crompton Greaves Limited, IDFC Limited, Ambuja Cements
Limited, Max New York Life Insurance Company Limited, Godrej Consumer Products Limited and Cairn
India Limited.
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 on the Boards of Nicco Ventures Limited and Sona Koyo
Steering Systems Limited.
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 then. 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 Chief Executive Officer
since then. He was also responsible for establishing Kinerton Ltd. in
70
Ireland in March 1989, a wholesale manufacturer of therapeutic peptides. He is also on the
Boards of Directors of IPSEN Manufacturing Ireland Limited and Biomeasure Incorporated.
Ms. Kalpana Morparia joined our Board as a member on June 5, 2007. Ms. Morparia is Chief Executive
Officer of J.P. Morgan India. Ms. Morparia leads the Business Groups (Investment Banking, Asset
Management, Treasury Services and Principal Investment Management) and Service Groups (Global
Research, Finance, Technology and Operations) in India. Ms. Morparia is a member of J.P. Morgans
global strategy team headquartered in New York, and is one of the key drivers of J.P. Morgans
international expansion initiative. Prior to becoming Chief Executive Officer of J.P. Morgan India,
Ms. Morparia served as Vice Chair on the Board of ICICI Group. She was a Joint Managing Director of
ICICI Group from 2001 to 2007. Ms. Morparia has also served as Chief Strategy and Communications
Officer ICICI Group. Ms. Morparia has been with the ICICI Group since 1975. A graduate in law
from Bombay University, Ms. Morparia has served on several committees constituted by the Government
of India. Ms. Morparia was named one of `The 50 Most Powerful Women in International Business by
Fortune magazine in 2008 and one of the 25 most powerful women in Indian business by Business
Today, a leading Indian business journal, in the years 2004, 2005, 2006 and 2008. Ms. Morparia was
also named one of the The 100 Most Powerful Women by Forbes Magazine in 2006. She also serves on
the Board of Bennett, Coleman & Co. Limited and CMC Limited.
Dr. Bruce L.A. Carter joined our Board as a member on July 21, 2008. Dr. Carter is the Chairman of
the Board and the former Chief Executive Officer of ZymoGenetics, Inc. in Seattle, Washington,
U.S.A. Dr. Carter was appointed as Chairman of the Board of ZymoGenetics in April 2005. From
April, 1998 to January, 2009, he served as Chief Executive Officer of ZymoGenetics. Dr. Carter
first joined ZymoGenetics in 1986 as Vice President of Research and Development. In 1988, Novo
Nordisk acquired ZymoGenetics and, in 1994, Dr. Carter was promoted to Corporate Executive Vice
President and Chief Scientific Officer for Novo Nordisk A/S, the then parent company of
ZymoGenetics. Dr. Carter led the negotiations that established ZymoGenetics as an independent
company from Novo Nordisk in 2000. Dr. Carter held various positions of increasing responsibility
at G.D. Searle & Co., Ltd. from 1982 to 1986 and was a Lecturer at Trinity College, University of
Dublin from 1975 to 1982. Dr. Carter received a B.Sc. with Honors in Botany from the University of
Nottingham, England, and a Ph.D. in Microbiology from Queen Elizabeth College, University of
London. Dr. Carter is also on the Boards of Directors of QLT Inc. in Canada, TB Alliance in the
U.S.A. and ZymoGenetics in the U.S.A.
Executive Officers
Mr. Abhijit Mukherjee is the President and head of our Pharmaceutical Services and Active
Ingredients segment. 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, Atul Products Limited. He started
his career as a management trainee in Hindustan Lever Limited (HLL) and worked at that company
for 13 years, including three 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 holds a degree in Chemical Engineering from the Indian Institute of
Technology in Kharagpur, India.
Amit Patel is our Senior Vice President and Head of North America Generics business. He is
responsible for executing our companys strategic agenda in the North American generics market.
Prior to joining us in 2003, Amit was co-founder and Chief Executive Officer of a healthcare
services startup called MedOnTime that was later acquired by CTIS Inc., 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 mergers and acquisition. 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.
Cartikeya Reddy is a Senior Vice President and he heads our Biologics division, which focuses
on the development of biosimilar molecules for the Indian and global markets. Prior to joining us
in 2004, Mr. Reddy 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 and Pilot Scale
Manufacturing. Mr. Reddy 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 in Cambridge, Massachussetts, U.S.A. He also graduated with a Bachelor of
Technology degree in Chemical Engineering from the Indian Institute of Technology in Chennai,
India.
Mr. Jaspal Singh Bajwa was our President Branded Formulations (Rest of the World) until May
31, 2009. He had 30 years of diverse experience with major global companies in Consumer and
Healthcare products. Mr. Bajwa worked with Nestle India for 15 years, a tenure that included an
assignment with their corporate headquarters in Switzerland, and, among other positions of
71
responsibility, headed marketing in India. He then worked with Bausch & Lomb, where he held
several senior management positions including those of Managing Director for India/South Asian
Association for Regional Cooperation, and head of their Canadian subsidiary. Most recently, he was
the Executive Director and Chief Operating Officer of Marico Industries. Jaspal joined us in April
2003. Mr. Bajwa holds a Bachelors degree in Food Technology and an MBA from the Indian Institute
of Management in Ahmedabad.
Mr. Jeffrey Wasserstein is our Executive Vice President Specialty Operations. He leads our
North America Specialty business, and is the operational head of our North America organization.
Mr. Wasserstein joined us after a long and successful career with Schering Plough Corporation,
where he was the Senior Vice President of Corporate Consent Decree Integration. Prior to this role,
Mr. Wasserstein was the President of Schering Canada. He also held several positions of increasing
responsibility at the Vice-President level in Corporate Business Development, Strategic Planning
and Internal Consulting, and as Associate General Counsel-Commercial. Prior to joining Schering
Plough, Mr. Wasserstein was an Associate Attorney with Wachtell, Lipton, Rosen & Katz. Mr.
Wasserstein holds a Bachelor of Arts degree from Franklin & Marshall College, and a J.D. degree
from the New York University School of Law.
Mr. K.B. Sankara Rao is an Executive Vice President and head of our Integrated Product
Development business. Mr. Rao, the first head of this relatively young business unit, was appointed
to this position in February 2004. He is responsible for directing our strategies for new product
development in the areas of generics, branded generics, specialty, NCE formulations and active
pharmaceutical ingredients. Mr. Rao began his career with us in 1986. Since then, he has held a
series of leadership roles in manufacturing, research and development, quality, projects and
supply-chain management, in addition to revitalizing our new product development function using the
Six-Sigma process. Mr. Rao was also instrumental in the design and implementation of the
Self-Managed Team a concept arguably unique in the pharmaceutical industry. He is a life-member
of the Indian Pharmaceutical Association, the Controlled Release Society and the Indian Pharmacy
Graduates Association. He is also a member of the Confederation of Indian Industry (CII) Southern
Region Quality and Productivity Sub-committee, as well as the CII Sohrabji Godrej Green Business
Centre, Hyderabad, Environment and Recycling Council. Mr. Rao holds a Masters degree in Pharmacy
from Andhra University.
Prabir Jha is our Senior Vice President and Global Chief of Human Resources. He leads our
Human Resources function globally, and is also responsible for Corporate Communications. Mr. Jha
moved to the private sector after almost 10 years in the Indian Civil Services. Prior to joining us
in 2002, he worked for organizations such as Thermax Limited and Mahindra British Telecom (now
TechMahindra) Limited, where he made key contributions to many high-end human resources
interventions. He has handled all areas in human resources, and has a special interest in change
management, global human resources strategy, employer branding and leadership capability
development. Mr. Jha is an alumnus of St. Stephens College in Delhi and of the Xavier Labour
Relations Institute in Jamshedpur. During his time as a government employee, Mr. Jha handled the
entire gamut of human resources and industrial relations responsibilities while with the Indian
Ordinance Factories.
Mr. Raghu Cidambi is our Advisor. 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.
Dr. Rajinder Kumar was the President and head of our Research, Development and
Commercialization function until June 30, 2009. He is a graduate of the University of London, the
University of Birmingham and the 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 the rest of 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 being a Fellow of the Royal Society of Medicine and 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.
Mr. Saumen Chakraborty is the President and head of our Corporate and Global Generics
Operations function. In this role, he is responsible for integrating the various pieces of our
Global Generics operations including product development, global manufacturing
72
and supply chain, along with important corporate functions such as quality, regulatory,
corporate medical services and pharmacovigilance. Mr. Chakraborty also continues to lead our
information technology and business process excellence functions. Before transitioning to this
role, he was our Chief Financial Officer and President- Information Technology and Business Process
Excellence. Prior to that role, he was our Global Chief of Human Resources. He has 25 years of
experience in strategic and operational aspects of management. Prior to joining us, he held various
line manager, human resources and other positions, including Senior Manager (Finance and Accounts)
in Eicher, and Vice President (Operations) in Tecumseh. A member of various industry forums,
including the Confederation of Indian Industry and the National HRD Network, he graduated with
honors as the valedictorian of his class from VisvaBharati 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.
Mr. V.S. Vasudevan is the President and head of our 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. Mr. Vasudevan 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. Mr. Vasudevan
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. Mr.
Vasudevan is a Chartered Accountant by qualification, and a member of the Peer Review Board of the
Institute of Chartered Accountants of India.
Mr. Umang Vohra is our Chief Financial Officer and has over 13 years of experience across
various functions within finance and corporate development. He is responsible for managing our
organizations global finance. He joined us in 2002, initially working as our Deputy Chief
Financial Officer. Prior to joining us, Mr. Vohra worked with Eicher and PepsiCo India.
Mr. Vilas Dholye is an Executive Vice President and head of our Formulations Technical
Operations function. Mr. Dholye, who joined our organization in 2000, has over the last few years
been responsible for implementing business process excellence and enterprise resource planning
projects.
6.B. Compensation
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 our 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 effective as of
July 13, 2006, and Mr. G. V. Prasad as Vice Chairman and Chief Executive Officer effective as of
January 30, 2006. On July 24, 2007, our shareholders re-appointed Mr. Satish Reddy as Managing
Director and Chief Operating Officer effective as of October 1, 2007. Our Managing Director and COO
and Vice Chairman and Chief Executive Officer 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 Chief Executive Officer 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.$98.30) for every Board meeting and Board committee meeting they attend. In the year
ended March 31, 2009, we paid an aggregate of Rs.250,000 (U.S.$4,914.70) 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 each 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
Employees Stock Option Scheme, 2002 in the year ended March 31, 2009 as provided in the table
below.
73
For the year ended March 31, 2009, the directors were entitled to the following amounts as
compensation:
(Amounts
Rs. in millions, except number of stock
options)
|
|
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|
Number of |
Name of Directors |
|
Attendance fees |
|
Commission (3) |
|
Salary |
|
Perquisites |
|
Total |
|
Stock Options |
Dr. K. Anji Reddy |
|
Rs.
|
|
Rs. |
75 |
|
|
Rs. |
5 |
|
|
Rs. |
1 |
|
|
Rs. |
81 |
|
|
|
|
|
Mr. G.V. Prasad |
|
|
|
|
40 |
|
|
|
4 |
|
|
|
1 |
|
|
|
45 |
|
|
|
|
|
Mr. Satish Reddy |
|
|
|
|
40 |
|
|
|
4 |
|
|
|
1 |
|
|
|
45 |
|
|
|
|
|
Mr. Anupam Puri |
|
*
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
3,000 |
|
Dr. J.P. Moreau |
|
*
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
3,000 |
|
Ms. Kalpana Morparia |
|
*
|
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|
3 |
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3 |
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|
|
3,000 |
|
Prof. Krishna G. Palepu (1) |
|
*
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2 |
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2 |
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|
|
Dr. Omkar Goswami |
|
*
|
|
|
3 |
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|
|
|
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|
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3 |
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|
|
3,000 |
|
Mr. P.N. Devarajan |
|
*
|
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Mr. Ravi Bhoothalingam |
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*
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3 |
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3 |
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3,000 |
|
Dr. Bruce L. A. Carter (2) |
|
*
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2 |
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|
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|
|
|
|
|
|
2 |
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|
|
3,000 |
|
|
|
|
* |
|
Attendance fees were paid only to non-full time directors and ranged from Rs.10 thousand to Rs.70
thousand, depending upon their attendance in Board and committee meetings. As a result of rounding
to the nearest million, such attendance fees do not appear in the above table. |
|
(1) |
|
Professor Krishna G. Palepu provided us with a notice of his resignation as a director and
ceased to be a director effective January 20, 2009. |
|
(2) |
|
Dr. Bruce L. A. Carter joined as a member of our Board of Directors effective July 21, 2008. |
|
(3) |
|
For the year ended March 31, 2009, the Board of Directors recommended a fixed commission of
Rs.2.5 million (U.S.$50,000) per director applicable to all the independent directors, a
specific commission of Rs.0.5 million (U.S.$10,000) to the Chairman of the Audit Committee,
Rs.0.3 million (U.S.$5,000) to the Chairman of each other Committee, and Rs.0.08 million
(U.S.$1,500) to the members of each Committee. In addition, Rs.0.08 million (U.S.$1,500)
was paid towards foreign travel to the directors residing outside India. |
The options granted to directors in the year ended March 31, 2009 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, 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 Employees 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 the year ended March 31, 2009 and stock options held by all of our
other executive officers as of March 31, 2009:
74
Compensation For Executive Officers
|
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Compensation |
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|
Expiration |
|
|
(Rs. in |
|
No. of Options |
|
Fiscal Year of |
|
Exercise |
|
date |
Name |
|
millions) |
|
held |
|
Grant |
|
Price (Rs.) |
|
(See note no.) |
Abhijit Mukherjee |
|
|
14.6 |
|
|
|
2,500 |
|
|
|
2006 |
|
|
|
5 |
|
|
|
(4 |
) |
|
|
|
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|
|
|
2,000 |
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|
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2007 |
|
|
|
5 |
|
|
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(3 |
) |
|
|
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|
2,000 |
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2007 |
|
|
|
5 |
|
|
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(4 |
) |
|
|
|
|
|
|
|
2,000 |
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|
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2008 |
|
|
|
5 |
|
|
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(2 |
) |
|
|
|
|
|
|
|
2,000 |
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2008 |
|
|
|
5 |
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(3 |
) |
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|
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|
2,000 |
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2008 |
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|
5 |
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(4 |
) |
|
|
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|
|
|
2,000 |
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|
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2009 |
|
|
|
5 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
2,000 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
2,000 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
2,000 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(4 |
) |
Amit Patel |
|
|
18.0 |
|
|
|
1,000 |
|
|
|
2005 |
|
|
|
442.50 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
1,000 |
|
|
|
2005 |
|
|
|
442.50 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
1,000 |
|
|
|
2005 |
|
|
|
442.50 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
1,000 |
|
|
|
2005 |
|
|
|
442.50 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
700 |
|
|
|
2006 |
|
|
|
5 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
700 |
|
|
|
2006 |
|
|
|
5 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
1,250 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
3,325 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
3,325 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
2,625 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
1,375 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
1,250 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
1,250 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
1,250 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
1,250 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(4 |
) |
Cartikeya Reddy |
|
|
8.8 |
|
|
|
600 |
|
|
|
2006 |
|
|
|
5 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
600 |
|
|
|
2006 |
|
|
|
5 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
600 |
|
|
|
2006 |
|
|
|
5 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
600 |
|
|
|
2006 |
|
|
|
5 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
500 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
500 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
500 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
500 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
1,000 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
1,000 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
1,000 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
1,000 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
1,250 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
1,250 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
1,250 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
1,250 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(4 |
) |
Dr. Rajinder Kumar |
|
|
36.0 |
|
|
|
7,500 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
1,500 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
1,500 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(2 |
) |
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiration |
|
|
(Rs. in |
|
No. of Options |
|
Fiscal Year of |
|
Exercise |
|
date |
Name |
|
millions) |
|
held |
|
Grant |
|
Price (Rs.) |
|
(See note no.) |
|
|
|
|
|
|
|
1,500 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
1,500 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(4 |
) |
Jaspal S. Bajwa |
|
|
14.0 |
|
|
|
2,500 |
|
|
|
2006 |
|
|
|
5 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
2,000 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
2,000 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
2,000 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
2,000 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
2,000 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
2,000 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
2,000 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
2,000 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
2,000 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(4 |
) |
Jeffrey Wasserstein |
|
|
24.3 |
|
|
|
3,500 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
3,500 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
1,500 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
1,500 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
1,500 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
1,500 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
1,500 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(4 |
) |
K. B. Sankara Rao |
|
|
9.8 |
|
|
|
5,080 |
|
|
|
2006 |
|
|
|
5 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
1,600 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
1,600 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
1,500 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
1,500 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
1,500 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
1,250 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
1,250 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
1,250 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
1,250 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(4 |
) |
Prabir Kumar Jha |
|
|
8.4 |
|
|
|
750 |
|
|
|
2006 |
|
|
|
5 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
650 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
650 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
1,000 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
1,000 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
1,000 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
1,250 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
1,250 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
1,250 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
1,250 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(4 |
) |
Raghu Cidambi |
|
|
9.0 |
|
|
|
2,500 |
|
|
|
2006 |
|
|
|
5 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
1,250 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
1,250 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
1,500 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
1,500 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
1,500 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
1,250 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(1 |
) |
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiration |
|
|
(Rs. in |
|
No. of Options |
|
Fiscal Year of |
|
Exercise |
|
date |
Name |
|
millions) |
|
held |
|
Grant |
|
Price (Rs.) |
|
(See note no.) |
|
|
|
|
|
|
|
1,250 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
1,250 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
1,250 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(4 |
) |
Saumen Chakraborty |
|
|
15.0 |
|
|
|
2,500 |
|
|
|
2006 |
|
|
|
5 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
2,000 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
2,000 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
2,000 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
2,000 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
2,000 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
2,000 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
2,000 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
2,000 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
2,000 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(4 |
) |
Umang Vohra |
|
|
5.5 |
|
|
|
600 |
|
|
|
2006 |
|
|
|
5 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
750 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
750 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
750 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
750 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
750 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
875 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
875 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
875 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
875 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(4 |
) |
V.S. Vasudevan |
|
|
24.2 |
|
|
|
2,870 |
|
|
|
2003 |
|
|
|
531.51 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
2,870 |
|
|
|
2003 |
|
|
|
531.51 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
2,870 |
|
|
|
2003 |
|
|
|
531.51 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
5,000 |
|
|
|
2004 |
|
|
|
441.50 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
5,000 |
|
|
|
2004 |
|
|
|
441.50 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
5,000 |
|
|
|
2004 |
|
|
|
441.50 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
5,000 |
|
|
|
2004 |
|
|
|
441.50 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
5,000 |
|
|
|
2005 |
|
|
|
442.50 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
5,000 |
|
|
|
2005 |
|
|
|
442.50 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
5,000 |
|
|
|
2005 |
|
|
|
442.50 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
5,000 |
|
|
|
2005 |
|
|
|
442.50 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
12,500 |
|
|
|
2006 |
|
|
|
362.50 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
12,500 |
|
|
|
2006 |
|
|
|
362.50 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
12,500 |
|
|
|
2006 |
|
|
|
362.50 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
12,500 |
|
|
|
2006 |
|
|
|
362.50 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
2,000 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
2,000 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
1,750 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
1,750 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
1,750 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
1,500 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
1,500 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
1,500 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(3 |
) |
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiration |
|
|
(Rs. in |
|
No. of Options |
|
Fiscal Year of |
|
Exercise |
|
date |
Name |
|
millions) |
|
held |
|
Grant |
|
Price (Rs.) |
|
(See note no.) |
|
|
|
|
|
|
|
1,500 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(4 |
) |
Vilas M. Dholye |
|
|
7.2 |
|
|
|
2,770 |
|
|
|
2005 |
|
|
|
5 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
900 |
|
|
|
2006 |
|
|
|
5 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
600 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
600 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
700 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
700 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
700 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
400 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
400 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
400 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
400 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(4 |
) |
|
|
|
(1) |
|
The expiration date is five years from the date of vesting. The options vest in one year. |
|
(2) |
|
The expiration date is five years from the date of vesting. The options vest in two years. |
|
(3) |
|
The expiration date is five years from the date of vesting. The options vest in three years. |
|
(4) |
|
The expiration date is five years from the date of vesting. The options vest in four years. |
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, at an amount based on the respective employees last drawn salary and the years of
employment with us. Effective September 1, 1999, we established Dr. Reddys Laboratories Gratuity
Fund (the Gratuity Fund). Liability with regard to the Gratuity Plan is 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 periodic benefit costs recognized by us were Rs.40 million, and Rs.48 million during
the years ended March 31, 2008 and 2009, 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
Life Insurance Corporation of India. 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.40 million and Rs.44 million to the superannuation plan during the
years ended March 31, 2008 and 2009, 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 equal to 12% of the covered employees basic salary. We have no
further obligations under the plan beyond our monthly contributions. We contributed Rs.145 million
and Rs.160 million to the provident fund plan during the years ended March 31, 2008 and 2009,
respectively.
401(k) retirement savings plans. In the United States, we sponsor a defined contribution
401(k) retirement savings plan for all eligible employees who meet minimum age and service
requirements. We contributed Rs.54 million and Rs.44 million to this 401(k) retirement savings plan
for the years ended March 31, 2009 and 2008, respectively.
78
National Insurance contributions. In the United Kingdom, certain social security benefits
(such as pension, unemployment and disability) are funded by employers and employees through
mandatory National Insurance contributions. We sponsor a defined contribution plan for such
National Insurance contributions. The contribution amounts are determined based upon the
employees base salary. We have no further obligations under the plan beyond our monthly
contributions. We contributed Rs.51 million and Rs.10 million to the U.K. National Insurance scheme
during the years ended March 31, 2009 and 2008, respectively.
Pension plans. All employees of Falcon (Mexico) are governed by a defined benefit pension
plan. The pension plan provides a payment to vested employees at retirement or termination of
employment. This payment is based on the employees integrated salary and is paid in the form of a
monthly pension over a period of 20 years computed based on a predefined formula. Liabilities in
respect of the pension plan are determined by an actuarial valuation, based on which we make
contributions to the pension plan fund. This fund is administered by a third party who is provided
guidance by a technical committee formed by senior employees of Falcon.
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, 2009, we had nine directors on our Board, of which six were 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.
The terms of each of our directors and their expected 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 |
|
25 years |
Mr. Satish Reddy (1) |
|
September 30, 2012 |
|
5 years |
|
16 years |
Mr. G.V. Prasad (1) |
|
January 30, 2011 |
|
5 years |
|
23 years |
Mr. Anupam Puri (2)(3) |
|
Retirement by rotation |
|
Due for retirement by rotation in 2011 |
|
7 years |
Dr. J. P. Moreau(2) |
|
Retirement by rotation |
|
Due for retirement by rotation in 2010 |
|
2 years |
Ms. Kalpana Morparia(2) |
|
Retirement by rotation |
|
Due for retirement by rotation in 2010 |
|
2 years |
Dr. Omkar Goswami (2) |
|
Retirement by rotation |
|
Due for retirement by rotation in 2009 |
|
8.5 years |
Mr. Ravi Bhoothalingam (2) |
|
Retirement by rotation |
|
Due for retirement by rotation in 2009 |
|
8.5 years |
Dr. Bruce L. A. Carter (2) |
|
Retirement by rotation |
|
Due for retirement by rotation in 2011 |
|
1 year |
|
|
|
(1) |
|
Full time director. |
|
(2) |
|
Non-full time independent director. |
|
(3) |
|
Reappointed at the 24th Annual General Meeting of
Shareholders held on July 22, 2008. |
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 had six Board-level Committees as of March 31,
2009:
79
|
|
|
Audit Committee. |
|
|
|
|
Compensation Committee. |
|
|
|
|
Governance Committee. |
|
|
|
|
Shareholders Grievance Committee. |
|
|
|
|
Management Committee. |
|
|
|
|
Investment Committee. |
Audit Committee. Our management is primarily responsible for our internal controls and
financial reporting process. Our independent registered public accounting firm is responsible for
performing independent audits of our financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States) 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 three non-full time, independent directors:
|
|
|
Dr. Omkar Goswami (Chairman); |
|
|
|
|
Ms. Kalpana Morparia; and |
|
|
|
|
Mr. Ravi Bhoothalingam. |
Our Company Secretary is the Secretary of the Audit Committee. This Committee met on four
occasions during the year ended March 31, 2009. Our independent registered public accounting firm
was present at all Audit Committee meetings during the year.
The primary responsibilities of the Audit Committee are to:
|
|
|
Supervise the financial reporting process; |
|
|
|
|
Review our 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 our independent registered public accounting firm 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 our independent registered public accounting
firm and their fees; |
|
|
|
|
Review the independence of our independent registered public accounting firm; |
|
|
|
|
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. |
80
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 Schemes.
The Compensation Committee consists of the following three non-full time, independent
directors:
|
|
|
Mr. Ravi Bhoothalingam (Chairman); |
|
|
|
|
Dr. J.P. Moreau; and |
|
|
|
|
Ms. Kalpana Morparia. |
The Global Chief of Human Resources is the Secretary of the Committee. The Compensation
Committee met three times during the year ended March 31, 2009.
Governance Committee. The primary function of the Governance 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 Governance Committee consists of the following non-full time, independent directors:
|
|
|
Mr. Anupam Puri (Chairman); and |
|
|
|
|
Dr. Omkar Goswami. |
Professor Krishna G. Palepu was also a member of the Governance Committee prior to his
resignation as a director effective January 20, 2009. Our Company Secretary is the Secretary of
the Committee. The Governance Committee met three times during the year ended March 31, 2009.
81
6.D. Employees
The following table sets forth the number of our employees as at March 31, 2008 and 2009.
As at March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rest of the |
|
|
|
|
North America |
|
Europe |
|
World |
|
Total |
|
Manufacturing(1) |
|
|
105 |
|
|
|
89 |
|
|
|
3,686 |
|
|
|
3,880 |
|
Sales and Marketing(2) |
|
|
85 |
|
|
|
235 |
|
|
|
3,594 |
|
|
|
3,914 |
|
Research and Development |
|
|
18 |
|
|
|
24 |
|
|
|
1,455 |
|
|
|
1,497 |
|
Others(3) |
|
|
121 |
|
|
|
197 |
|
|
|
1,619 |
|
|
|
1,937 |
|
|
Total |
|
|
329 |
|
|
|
545 |
|
|
|
10,354 |
|
|
|
11,228 |
|
|
As at March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rest of the |
|
|
|
|
North America |
|
Europe |
|
World |
|
Total |
|
Manufacturing(1) |
|
|
|
|
|
|
50 |
|
|
|
3,276 |
|
|
|
3,326 |
|
Sales and Marketing(2) |
|
|
45 |
|
|
|
261 |
|
|
|
3,079 |
|
|
|
3,385 |
|
Research and Development |
|
|
18 |
|
|
|
|
|
|
|
1,708 |
|
|
|
1,726 |
|
Others(3) |
|
|
46 |
|
|
|
184 |
|
|
|
908 |
|
|
|
1,138 |
|
|
Total |
|
|
109 |
|
|
|
495 |
|
|
|
8,971 |
|
|
|
9,575 |
|
|
|
|
|
(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 two fiscal years and we
consider our relationship with our employees and labor unions to be good. Approximately 7% of our
employees belong to labor unions. We did not experience any strikes at our manufacturing facilities
in the year ended March 31, 2009 and 2008.
82
6.E. Share ownership
The following table sets forth, as of March 31, 2009 for each of our directors and executive
officers, the total number of our equity shares and options owned by them:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No. of Shares |
|
% of Outstanding |
|
No. of Options |
|
Year of |
|
Exercise |
|
Expiration Date |
Name |
|
Held (1), (3) |
|
Capital |
|
Held |
|
Grant |
|
Price |
|
(See note no.) |
Dr. K. Anji Reddy (2),(4) |
|
|
800,956 |
|
|
|
0.48 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. G.V. Prasad (4) |
|
|
1,365,840 |
|
|
|
0.81 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Satish Reddy (4) |
|
|
1,205,832 |
|
|
|
0.72 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Anupam Puri
(including ADRs) |
|
|
10,500 |
|
|
|
0.01 |
% |
|
|
1,500 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
3,000 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(5 |
) |
Dr. J.P.Moreau |
|
|
|
|
|
|
|
|
|
|
3,000 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(5 |
) |
Dr. Omkar Goswami |
|
|
10,500 |
|
|
|
.0.01 |
% |
|
|
1,500 |
|
|
|
2006 |
|
|
|
5 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
3,000 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(5 |
) |
Ms.Kalpana Morparia |
|
|
|
|
|
|
|
|
|
|
3,000 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(5 |
) |
Ravi Bhoothalingam |
|
|
10,500 |
|
|
|
0.01 |
% |
|
|
1,500 |
|
|
|
2006 |
|
|
|
5 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
3,000 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(5 |
) |
Dr. Bruce L.A.Carter
(ADRs) |
|
|
4,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Abhijit Mukherjee |
|
|
26,400 |
|
|
|
0.02 |
% |
|
|
2,500 |
|
|
|
2006 |
|
|
|
5 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(8 |
) |
Amit Patel |
|
|
|
|
|
|
|
|
|
|
1,000 |
|
|
|
2005 |
|
|
|
442.50 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,000 |
|
|
|
2005 |
|
|
|
442.50 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,000 |
|
|
|
2005 |
|
|
|
442.50 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,000 |
|
|
|
2005 |
|
|
|
442.50 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
700 |
|
|
|
2006 |
|
|
|
5 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
700 |
|
|
|
2006 |
|
|
|
5 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,250 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
3,325 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
3,325 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
2,625 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,375 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,250 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,250 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,250 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,250 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(8 |
) |
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No. of Shares |
|
% of Outstanding |
|
No. of Options |
|
Year of |
|
Exercise |
|
Expiration Date |
Name |
|
Held (1), (3) |
|
Capital |
|
Held |
|
Grant |
|
Price |
|
(See note no.) |
Cartikeya Reddy |
|
|
|
|
|
|
|
|
|
|
600 |
|
|
|
2006 |
|
|
|
5 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
600 |
|
|
|
2006 |
|
|
|
5 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
600 |
|
|
|
2006 |
|
|
|
5 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
600 |
|
|
|
2006 |
|
|
|
5 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
500 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
500 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
500 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
500 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,000 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,000 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,000 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,000 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,250 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,250 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,250 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,250 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(8 |
) |
Dr. Rajinder Kumar |
|
|
|
|
|
|
|
|
|
|
7,500 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,500 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,500 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,500 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,500 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(8 |
) |
Jaspal S Bajwa |
|
|
20,000 |
|
|
|
0.02 |
% |
|
|
2,500 |
|
|
|
2006 |
|
|
|
5 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(8 |
) |
Jeffrey Wasserstein |
|
|
|
|
|
|
|
|
|
|
3,500 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
3,500 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,500 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,500 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,500 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,500 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,500 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(8 |
) |
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No. of Shares |
|
% of Outstanding |
|
No. of Options |
|
Year of |
|
Exercise |
|
Expiration Date |
Name |
|
Held (1), (3) |
|
Capital |
|
Held |
|
Grant |
|
Price |
|
(See note no.) |
K. B. Sankara Rao |
|
|
55,724 |
|
|
|
0.04 |
% |
|
|
5,080 |
|
|
|
2006 |
|
|
|
5 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,600 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,600 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,500 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,500 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,500 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,250 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,250 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,250 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,250 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(8 |
) |
Prabir Kumar Jha |
|
|
7,750 |
|
|
|
0.01 |
% |
|
|
750 |
|
|
|
2006 |
|
|
|
5 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
650 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
650 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,000 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,000 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,000 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,250 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,250 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,250 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,250 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(8 |
) |
Raghu Cidambi |
|
|
27,500 |
|
|
|
0.02 |
% |
|
|
2,500 |
|
|
|
2006 |
|
|
|
5 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,250 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,250 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,500 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,500 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,500 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,250 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,250 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,250 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,250 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(8 |
) |
Saumen Chakraborty |
|
|
42,900 |
|
|
|
0.03 |
% |
|
|
2,500 |
|
|
|
2006 |
|
|
|
5 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(8 |
) |
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No. of Shares |
|
% of Outstanding |
|
No. of Options |
|
Year of |
|
Exercise |
|
Expiration Date |
Name |
|
Held (1), (3) |
|
Capital |
|
Held |
|
Grant |
|
Price |
|
(See note no.) |
Umang Vohra |
|
|
5,390 |
|
|
|
|
|
|
|
600 |
|
|
|
2006 |
|
|
|
5 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
750 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
750 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
750 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
750 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
750 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
875 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
875 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
875 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
875 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(8 |
) |
V. S. Vasudevan |
|
|
8,620 |
|
|
|
0.01 |
% |
|
|
2,870 |
|
|
|
2003 |
|
|
|
531.51 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
2,870 |
|
|
|
2003 |
|
|
|
531.51 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
2,870 |
|
|
|
2003 |
|
|
|
531.51 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
2004 |
|
|
|
441.50 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
2004 |
|
|
|
441.50 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
2004 |
|
|
|
441.50 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
2004 |
|
|
|
441.50 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
2005 |
|
|
|
442.50 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
2005 |
|
|
|
442.50 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
2005 |
|
|
|
442.50 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
2005 |
|
|
|
442.50 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
12,500 |
|
|
|
2006 |
|
|
|
362.50 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
12,500 |
|
|
|
2006 |
|
|
|
362.50 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
12,500 |
|
|
|
2006 |
|
|
|
362.50 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
12,500 |
|
|
|
2006 |
|
|
|
362.50 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,750 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,750 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,750 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,500 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,500 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,500 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
1,500 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(8 |
) |
Vilas M. Dholye |
|
|
4,970 |
|
|
|
|
|
|
|
2,770 |
|
|
|
2005 |
|
|
|
5 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
900 |
|
|
|
2006 |
|
|
|
5 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
600 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
600 |
|
|
|
2007 |
|
|
|
5 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
700 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
700 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
700 |
|
|
|
2008 |
|
|
|
5 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
400 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
400 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
400 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
400 |
|
|
|
2009 |
|
|
|
5 |
|
|
|
(8 |
) |
86
|
|
|
(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 one year. |
|
(6) |
|
The expiration date is five years from the date of vesting. The options vest in two years. |
|
(7) |
|
The expiration date is five years from the date of vesting. The options vest in three years. |
|
(8) |
|
The expiration date is five years from the date of vesting. The options vest in four years. |
Employee Stock Incentive Plans
We
have adopted a number of stock option incentive plans covering either our ordinary
shares or our ADSs, and we are currently operating under the Dr. Reddys Employees
Stock Option Plan-2002 and the Dr. Reddys Employees ADR Stock Option Plan-2007.
In the year ended March 31, 2009, options to purchase ordinary shares and
ADSs were awarded to various executive officers and directors under these two
plans as follows: an aggregate of 430,220 options were granted having an average
exercise price of Rs.5 per share or ADS and an aggregate of 20,000 options were
granted having an average exercise price of Rs.448 per share or ADS. Each option
granted had an expiration date of five years from the vesting date, and each grant
(excluding the grants to Board members, which vest in one year) provided for time-based
vesting in 25% increments over four years. As of March 31,2009, options were outstanding
under these two plans for an aggregate of approximately 935,063 shares and ADSs with an
average exercise price of Rs.5 per share or ADS and approximately 136,410 shares and ADSs with
an average exercise price of Rs.417.51 per share or ADS.
In
addition, our subsidiary Aurigene Discovery Technologies Limited (Aurigene) adopted the Aurigene
Discovery Technologies Ltd. Employee Stock Option Plan 2003 to provide for issuance of stock
options to eligible employees of Aurigene and its subsidiary, Aurigene Discovery Technologies Inc. In the year
ended March 31, 2009, no options were awarded under this plan. As of March 31, 2009,
options were outstanding under this plan for an aggregate of approximately 2,916,263
shares of Aurigene with an average exercise price of Rs. 13.99 per share.
For
the years ended March 31, 2009 and 2008, Rs.131 million and Rs.258 million, respectively,
has been recorded as employee share-based payment expense under all of our employee stock incentive
plans. As of March 31, 2009, there was approximately Rs.177 million of total unrecognized
compensation cost related to unvested stock options. This cost is expected to be recognized over a
weighted-average period of 2.67 years. The Fringe Benefit Tax expense incurred during the years
ended March 31, 2009 and 2008 was Rs.82 million and Rs.81 million, respectively.
For
further information regarding our options and
stock option incentive plans, see Note 21 to our consolidated financial statements.
87
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
7.A. Major shareholders
All of our equity shares have the same voting rights. As of March 31, 2009, a total of 26.40%
of our equity shares were held by the following parties:
|
|
|
Dr. K. Anji Reddy (Chairman), |
|
|
|
|
Mr. G .V. Prasad (Vice Chairman and Chief Executive Officer), |
|
|
|
|
Mr. Satish Reddy (Managing Director and Chief Operating Officer), |
|
|
|
|
Mrs. K. Samrajyam, wife of Dr. K. Anji Reddy, and Mrs. G. Anuradha, wife of Mr. G.V.
Prasad (hereafter collectively referred as the Family Members), and |
|
|
|
|
Dr. Reddys Holdings Private Limited (a company in which Dr. K. Anji Reddy owns 40% of
the equity and the remainder is held by Mr. G.V. Prasad, Mr. Satish Reddy and the Family
Members) |
The following table sets forth information regarding the beneficial ownership of our shares by
the foregoing persons as of March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
Equity Shares Beneficially Owned (1) |
|
|
Number |
|
Percentage |
Name |
|
of Shares |
|
of Shares |
Dr. K. Anji Reddy (2) |
|
|
40,779,284 |
|
|
|
24.21 |
% |
Mr. G.V. Prasad |
|
|
1,365,840 |
|
|
|
0.81 |
% |
Mr. Satish Reddy |
|
|
1,205,832 |
|
|
|
0.72 |
% |
Family Members |
|
|
1,116,856 |
|
|
|
0.66 |
% |
Subtotal |
|
|
44,467,812 |
|
|
|
26.40 |
% |
|
|
|
|
|
|
|
|
|
|
Others/public float |
|
|
124,000,965 |
|
|
|
73.60 |
% |
|
|
|
|
|
|
|
|
|
|
Total number of shares outstanding |
|
|
168,468,777 |
|
|
|
100.00 |
% |
|
|
|
|
(1) |
|
Beneficial ownership is determined in accordance with rules of the
U.S. Securities and Exchange Commission, which provides that shares
are beneficially owned by any person who has or shares voting or
investment power with respect to the shares. All information with
respect to the beneficial ownership of any principal shareholder has
been furnished by that shareholder and, unless otherwise indicated
below, we believe that persons named in the table have sole voting and
sole investment power with respect to all shares shown as beneficially
owned, subject to community property laws where applicable. |
|
(2) |
|
Dr. Reddys Holdings Private Limited owns 39,978,328 of our equity
shares. Dr. K. Anji Reddy owns 40% of Dr. Reddys Holdings Private
Limited. The remainder is owned by Mr. G.V. Prasad, Mr. Satish Reddy
and the Family Members. The entire amount beneficially owned by Dr.
Reddys Holdings Private Limited is included in the amount shown as
beneficially owned by Dr. K. Anji Reddy. An aggregate of 11,859,009 of
such equity shares were pledged as on March 31, 2009. |
As otherwise stated above and to the best of our knowledge, we are not owned or controlled
directly or indirectly by any government or by any other corporation or by any other natural or
legal persons. We are not aware of any arrangement, the consummation of which may at a subsequent
date result in a change in our control.
88
The following shareholders held more than 5% of our equity shares as of March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009 |
|
March 31, 2008 |
|
March 31, 2007 |
|
|
No. of equity |
|
% of equity |
|
No. of equity |
|
% of equity |
|
No. of equity |
|
% of equity |
Name |
|
shares held |
|
shares held |
|
shares held |
|
shares held |
|
shares held |
|
shares held |
Dr. Reddys
Holdings Pvt.
Limited |
|
|
39,978,328 |
|
|
|
23.74 |
|
|
|
37,798,290 |
|
|
|
22.48 |
|
|
|
37,798,290 |
|
|
|
22.51 |
|
Life Insurance
Corporation of
India |
|
|
21,723,498 |
|
|
|
12.89 |
|
|
|
20,619,743 |
|
|
|
12.26 |
|
|
|
13,323,325 |
|
|
|
7.93 |
|
As of March 31, 2009, we had 168,468,777 outstanding equity shares. As of March 31, 2009,
there were 93,924 record holders of our equity shares listed and traded on the Indian stock
exchanges. Our American Depositary Shares (ADSs) are listed on the New York Stock Exchange. One
ADS represents one equity share of Rs.5 par value per share. As of March 31, 2009, 15.74% of our
issued and outstanding equity shares were held by ADS holders. On March 31, 2009 we had
approximately 18,760 ADS holders of record in the United States.
7.B. Related party transactions
We have entered into transactions with the following related parties:
|
|
|
Diana Hotels Limited for hotel services; |
|
|
|
|
A.R. Life Sciences Private Limited for processing services of raw materials and
intermediates; |
|
|
|
|
Dr. Reddys Holdings Private Limited for the purchase and sale of active pharmaceutical
ingredients; |
|
|
|
|
Dr. Reddys Foundation for Human and Social Development towards contributions for social
development; |
|
|
|
|
Institute of Life Science towards contributions for social development; |
|
|
|
|
K.K Enterprises for packaging services for formulation products; |
|
|
|
|
SR Enterprises for transportation services; and |
|
|
|
|
Dr. Reddys Laboratories Gratuity Fund. |
These are enterprises over which key management personnel have control or significant
influence (significant interest entities). Additionally, we have also provided and taken loans
and advances from significant interest entities.
We have entered into transactions with our former equity accounted investee Perlecan Pharma
(now a subsidiary) and our joint venture Kunshan Rotam Reddy Pharmaceuticals Co. Limited (Reddy
Kunshan). These transactions are in the nature of reimbursement of research and development
expenses incurred by us on behalf of Perlecan Pharma, revenue from research services performed by
us for Perlecan Pharma and our purchase of active pharmaceutical ingredients from Reddy Kunshan.
We have also entered into cancellable operating lease transactions with our directors and
their relatives.
The following is a summary of significant related party transactions:
|
|
|
|
|
|
|
|
|
|
|
(Amounts in Rs. Millions) |
|
|
Year ended March 31, |
|
|
2009 |
|
2008 |
|
|
|
|
|
|
|
| |
Purchases from significant interest entities in the ordinary course |
|
Rs. |
290 |
|
|
Rs. |
219 |
|
Sales to significant interest entities in the ordinary course |
|
|
135 |
|
|
|
88 |
|
Contribution to a significant interest entity towards social
development and research and development |
|
|
124 |
|
|
|
114 |
|
Hotel expenses paid to significant interest entities |
|
|
13 |
|
|
|
13 |
|
Advances paid to significant interest entities for purchase of land (1) |
|
|
400 |
|
|
|
680 |
|
Short term loan taken from and repaid to significant interest entities |
|
|
60 |
|
|
|
|
|
Interest paid on loan taken from significant interest entities |
|
|
2 |
|
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31, |
|
|
2009 |
|
2008 |
Revenue from equity accounted investees |
|
|
Rs. |
|
|
|
Rs.40 |
|
Reimbursement of research and development expenses from equity
accounted investees |
|
|
|
|
|
|
90 |
|
Compensation paid to key management personnel |
|
|
460 |
|
|
|
464 |
|
Lease rental paid under cancellable operating leases to directors and
their relatives |
|
|
26 |
|
|
|
25 |
|
|
|
|
(1) |
|
This does not include amounts paid as at March 31, 2009 and 2008 of Rs.1,080 million
and Rs.680 million, respectively, as advances towards the purchase of land from significant
interest entities, which has been recorded under capital work-in-progress in our balance
sheets. |
We have the following amounts due from related parties:
|
|
|
|
|
|
|
|
|
|
|
(Amounts in Rs. millions) |
|
|
As at March 31, |
|
|
2009 |
|
2008 |
Significant interest entities |
|
Rs. |
43 |
|
|
Rs. |
26 |
|
Equity accounted investees |
|
|
|
|
|
|
27 |
|
Key management personnel |
|
|
5 |
|
|
|
5 |
|
|
We have the
following amounts due to related parties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in Rs. millions) |
|
|
As at March 31, |
|
|
2009 |
|
2008 |
Significant interest entities |
|
Rs. |
68 |
|
|
Rs. |
17 |
|
7.C. Interests of experts and counsel
Not applicable.
ITEM 8. FINANCIAL INFORMATION
8.A. Consolidated statements and other financial information
The following financial statements and auditors report appear under Item 18 of this Annual
Report on Form 20-F and are incorporated herein by reference:
|
|
|
Report of Independent Registered Public Accounting Firm |
|
|
|
|
Consolidated balance sheets as of March 31, 2009 and 2008 |
|
|
|
|
Consolidated income statements for the years ended March 31, 2009 and 2008 |
|
|
|
|
Consolidated statements of changes in equity for the years ended March 31, 2009 and 2008 |
|
|
|
|
Consolidated cash flow statements for the years ended March 31, 2009 and 2008 |
|
|
|
|
Notes to the consolidated financial statements |
Our financial statements included in this Annual Report on Form 20-F have been prepared in
accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board. Pursuant to General Instruction G of Form 20-F, the financial
statements included herein are for our two most recent fiscal years.
90
Amount of Export Sales
For the year ended March 31, 2009, our export revenues were Rs.57,981 million, and account for
83% of our total revenues.
Legal Proceedings
We are involved in disputes, lawsuits, claims, governmental and/or regulatory inspections,
inquiries, investigations and proceedings, including patent and commercial matters that arise from
time to time in the ordinary course of business. The more significant matters are discussed below.
Most of the claims involve complex issues. Often, these issues are subject to uncertainties
and therefore the probability of a loss, if any, being sustained and an estimate of the amount of
any loss are difficult to ascertain. Consequently, for a majority of these claims, it is not
possible to make a reasonable estimate of the expected financial effect, if any, that will result
from ultimate resolution of the proceedings. This is due to a number of factors including: the
stage of the proceedings (in many cases trial dates have not been set) and the overall length and
extent of pre-trial discovery; the entitlement of the parties to an action to appeal a decision;
clarity as to theories of liability; damages and governing law; uncertainties in timing of
litigation; and the possible need for further legal proceedings to establish the appropriate amount
of damages, if any.
In these cases, we disclose information with respect to the nature and facts of the case. We
also believe that disclosure of the amount sought by plaintiffs, if that is known, would not be
meaningful with respect to those legal proceedings.
However, although there can be no assurance regarding the outcome of any of the legal
proceedings or investigations referred to in this Section 8.A., we do not expect any such legal
proceedings or investigations to have a materially adverse effect on our financial position.
However, if one or more of such proceedings were to result in judgments against us, such judgments
could be material to our results of operations in a given period.
Product and patent related matters
Norfloxacin litigation
We manufacture and distribute Norfloxacin, a formulations product. Under the Drugs Prices
Control Order, 1995 (the DPCO), the Government of India has the authority to designate a
pharmaceutical product as a specified product and fix the maximum selling price for such product.
In 1995, the Government of India issued a notification and designated Norfloxacin as a specified
product and fixed the maximum selling price. In 1996, we filed a statutory Form III before the
Government of India for the upward revision of the maximum selling price and a legal suit in the
Andhra Pradesh High Court (the High Court) challenging the validity of the designation on the
grounds that the applicable rules of the DPCO were not complied with while fixing the maximum
selling price. The High Court had previously granted an interim order in our favor; however, it
subsequently dismissed the case in April 2004. We filed a review petition in the High Court in
April 2004, which was also dismissed by the High Court in October 2004. Subsequently, we appealed
to the Supreme Court of India, New Delhi (the Supreme Court) by filing a Special Leave Petition,
which is currently pending.
During the year ended March 31, 2006, we received a notice from the Government of India
demanding the recovery of the price which we charged for sales of Norfloxacin in excess of the
maximum selling price fixed by the Government of India, amounting to Rs.285 million including
interest thereon. We filed a writ petition in the High Court challenging this demand order. The
High Court admitted the writ petition and granted an interim order, directing us to deposit 50% of
the principal amount claimed by the Government of India, which amounted to Rs.77 million. We
deposited this amount with the Government of India in November 2005 and are awaiting the outcome of
our appeal with the Supreme Court. In February 2008, the High Court directed us to deposit an
additional amount of Rs.30 million, which was deposited by us in March 2008. We have fully provided
for the potential liability related to the principal amount demanded by the Government of India. In
the event that we are unsuccessful in our litigation in the Supreme Court, we will be required to
remit the sale proceeds in excess of the maximum selling price to the Government of India including
penalties or interest, if any, which amounts are not readily ascertainable.
Fexofenadine United States litigation
In April 2006, we launched our fexofenadine hydrochloride 30 mg, 60 mg and 180 mg tablet
products, which are generic versions of Sanofi-Aventis (Aventis) Allegra® tablets. We are
presently defending patent infringement actions brought by Aventis in the United States District
Court for the District of New Jersey. There are three formulation patents, three use patents, and
two active pharmaceutical ingredients (API) patents which are at issue in the litigation. We have
obtained summary judgment in respect of each of the formulation patents. Teva Pharmaceuticals
Industries Limited (Teva) and Barr Pharmaceuticals, Inc. (Barr) have been defending a similar
action in the same court.
91
In September 2005, pursuant to an agreement with Barr, Teva launched its fexofenadine
hydrochloride 30 mg, 60 mg and 180 mg tablet products, which are AB-rated (bioequivalent) to
Aventis Allegra® tablets. Aventis has brought patent infringement actions against Teva and its API
supplier in the United States District Court for the District of New Jersey. There are three
formulation patents, three use patents, and two API patents at issue in the litigation. Teva has
obtained summary judgment in respect of each of the formulation patents. On January 27, 2006, the
District Court denied Aventis motion for a preliminary injunction against Teva and its API
supplier on the three use patents, finding those patents likely to be invalid, and one of the API
patents, finding that patent likely to be not infringed. The issues presented during Tevas hearing
are likely to be substantially similar to those which will be presented with respect to our
fexofenadine hydrochloride tablet products.
Subsequent to the preliminary injunction hearing, Aventis sued Teva and Barr for infringement
of a new patent claiming polymorphic forms of fexofenadine. We utilize an internally developed
polymorph and have not been sued for infringement of the new patent. On November 18, 2008, Teva and
Barr announced settlement of their litigation with Aventis. Litigation between us and Aventis
continues. No trial has been scheduled at this time. If Aventis is ultimately successful in its
allegation of patent infringement, we could be required to pay damages related to our fexofenadine
hydrochloride tablet sales, and could also be prohibited from selling these products in the future.
Alendronate Sodium, Germany litigation
In February 2006, Merck & Co. (Merck) initiated proceedings against betapharm before the
German Civil Court of Mannheim alleging infringement of the basic patent for Fosamax (Mercks brand
name for alendronate sodium). betapharm and some other companies are selling generic versions of
this product in Germany. Mercks patent, which expired in April 2008, was nullified in June 2006 by
the German Federal Patent Court. However, Merck filed an appeal against this decision at the German
Federal Supreme Court. The German Civil Court of Mannheim decided to stay the proceedings against
betapharm until the German Federal Supreme Court has decided upon the validity of the patent. In
March 2007, the European Patent Office granted Merck another patent for Fosamax, which is relevant
to the composition of betapharms alendronate sodium product. betapharm filed protective writs to
prevent a preliminary injunction without a hearing. betapharm also filed an opposition against this
new patent at the European Patent Office, which scheduled a hearing on the matter in March 2009. In
August 2007, Merck initiated patent infringement proceedings against betapharm before a German
civil court. In the oral hearing which took place in March 2009 at the European Patent Office, the
new patent was nullified. There are other jurisdictions within Europe where the innovators patent
has already been revoked. As a result of this, we continue selling our generic version of Fosamax.
If Merck is ultimately successful in its allegations of patent infringement, the Company could be
required to pay damages related to the above product sales made by the Company, and could also be
prohibited from selling these products in the future.
Oxycodon, Germany litigation
We are aware of litigation with respect to one of our suppliers for oxycodon, which is sold by
us and other generics companies in Germany. In April 2007, a German trial court rejected an
application for an interim order by the innovator company against our supplier. The innovator has
filed an infringement suit of formulation patents against our supplier in the German Civil Court of
Mannheim as well as in Switzerland (where the product is manufactured). Our supplier and all
licensees have filed a nullity petition at the German Federal Patent Court, and have also filed a
Declaration of Intervention Against at the European Patent Office. The German court in Mannheim
decided that our suppliers product is non-infringing, but the innovator appealed the decision. The
appeal is pending. As of March 31, 2009, based on a legal evaluation, we continued to sell this
product.
Environmental matter
The Indian Council for Environmental Legal Action filed a writ in 1989 under Article 32 of the
Constitution of India against the Union of India and others in the Supreme Court of India for the
safety of people living in the Patancheru and Bollarum areas of Medak district of Andhra Pradesh.
We have been named in the list of polluting industries along with 229 others. In 1996, the Andhra Pradesh District Judge
proposed that the polluting industries compensate farmers in the Patancheru, Bollarum and
Jeedimetla areas for discharging effluents which damaged the farmers agricultural land. The
compensation was fixed at Rs.1.30 per acre for dry land and Rs.1.70 per acre for wet land.
Accordingly, we have paid total compensation of Rs.3 million. The matter is pending in the courts
and the possibility of additional liability is remote. We would not be able to recover the
compensation paid, even if the decision of the court is in our favor.
Indirect taxes related matter
During the year ended March 31, 2003, the Central Excise Authorities of India (the
Authorities) issued a demand notice to one of our vendors regarding the assessable value of
products supplied by this vendor to us. We were named as a co-defendant in this demand notice. The
Authorities demanded payment of Rs.176 million from the vendor, including penalties of Rs.90
million. Through the same notice, the Authorities issued a penalty claim of Rs.70 million against
us. During the year ended March 31, 2005, the Authorities issued an additional notice to this
vendor demanding Rs.226 million from the vendor, including penalty of Rs.51 million.
92
Through the same notice, the Authorities issued a penalty claim of Rs.7 million against us.
Furthermore, during the year ended March 31, 2006, the Authorities issued an additional notice to
this vendor demanding Rs.34 million. We have filed appeals against these notices. In August and
September 2006, we attended the hearings conducted by the Customs, Excise and Service Tax Appellate
Tribunal (the CESTAT) on this matter. In October 2006, the CESTAT passed an order in our favor
setting aside all of the above demand notices. In July 2007, the Authorities appealed against
CESTATs order in the Supreme Court.
Regulatory matters
In November 2007, the Attorneys General of the State of Florida and the Commonwealth of
Virginia each issued subpoenas to our U.S. subsidiary, Dr. Reddys Laboratories, Inc. (DRLI).
In March 2008, the Attorney General of the State of Michigan issued a Civil Investigative Demand
(CID) to DRLI. These subpoenas and the CID generally required the production of documents and
information relating to the development, sales and marketing of the products ranitidine, fluoxetine
and buspirone, all of which were sold by Par Pharmaceuticals Inc. (Par) pursuant to an agreement
between Par and DRLI. DRLI has responded to these requests, and will continue to cooperate with
the Attorneys General in these investigations if it is asked to do so.
In April 2008, we received a CID from the United States Federal Trade Commission (the FTC).
A CID is a request for information in the course of a civil investigation and does not constitute
the commencement of legal proceedings. We were informed that the focus of this civil antitrust
investigation related to the settlement arrangement entered into between us and UCB Pharma Inc.
(UCB) resolving patent litigation concerning levetiracetam. We believe that the terms of our
settlement arrangement with UCB are consistent with all applicable antitrust laws. We cooperated
fully with the FTC regarding this investigation. The request in April 2008 from the FTC sought
information to supplement the voluntary production of documents which we had completed in February
2008. We completed our response to the CID in June 2008. The FTC later requested additional
information from other parties involved in this investigation. In March 2009, the FTC advised us
that it was formally closing its investigation of our settlement arrangement with UCB.
Additionally, we and our affiliates are involved in other disputes, lawsuits, claims,
governmental and/or regulatory inspections, inquiries, investigations and proceedings, including
patent and commercial matters that arise from time to time in the ordinary course of business. We
do not believe that there are any such pending matters that will have any material adverse effect
on our financial position, results of operations or cash flows in any given accounting period.
Dividend Policy
In the years ended March 31, 2008 and 2009, we paid cash dividends of Rs.3.75 and Rs.3.75,
respectively, per equity share. Every year our Board of Directors recommends the amount of
dividends to be paid to shareholders, if any, based upon conditions then existing, including our
earnings, financial condition, capital requirements and other factors. In our Board of Directors
meeting held on May 18, 2009 the Board of Directors proposed a dividend in the aggregate amount of
Rs.1,231 million (including the aggregate amount of Rs.178 million to pay the dividend tax imposed on the
distribution of such dividends), which would amount to a total dividend per share of Rs.6.25. The
Boards dividend proposal is subject to the approval of our shareholders.
Holders of ADSs are entitled to receive dividends payable on equity shares represented by such
ADSs. Cash dividends on equity shares represented by ADSs are paid to the Depositary in Indian
rupees and are converted by the Depositary into U.S. Dollars and distributed, net of depositary
fees, taxes, if any, and expenses, to the holders of such ADSs.
8.B. Significant changes
In May 2009, we announced that effective July 1, 2009, our drug discovery operations at
Hyderabad will be consolidated with Aurigene Discovery Technologies Limited (Aurigene), one of
our wholly-owned subsidiaries. Aurigene is a partnership based drug discovery biotechnology company
headquartered in Bangalore. Our Discovery Research business resources (i.e., employees, facility
and infrastructure) will be transferred to Aurigene, which will now operate out of two sites:
Bangalore and Hyderabad. In addition, we will be creating a new group to focus on proprietary
products development, which will be responsible for building our proprietary, branded research and
development portfolio in collaboration with various partners and service providers. This
organization will work with Aurigene and other discovery biotechnology companies to ensure
effective management of our ongoing and future drug discovery programs. All of the existing
intellectual property of our drug discovery operations will be owned and managed by this new group.
This group will also have responsibility for our research and development portfolio and our
differentiated formulations efforts. As part of the reorganization, we will close our Atlanta
research facility in Atlanta, Georgia, U.S.A.
93
In June 2009, we entered into a partnership with GlaxoSmithKline plc (GSK) to develop and
market select products across emerging markets outside India. Under the terms of the agreement, GSK
has access to our diverse portfolio and future pipeline of more than 100 branded pharmaceuticals in
certain therapeutic segments. The products will be manufactured by us and will be licensed and
supplied to GSK in various emerging markets such as Africa, the Middle East, Latin America and Asia
Pacific, excluding India. Revenues will be reported by GSK and will be shared with us in accordance
with the terms of the agreement. In certain markets, products will be co-marketed by us and GSK.
In June 2009, the Allgemeinen Ortsrankenkassen (AOK), one of the largest SHI funds in
Germany, announced that it planned initiation of the next European Union wide tenders (i.e.,
competitive bidding processes) in August 2009. The tenders will be divided in 5 regional lots and
shall cover 94 drugs and drugs combinations. The supply under the tender will be for a period of
two years.
In June 2009, the management and works councils (i.e., organizations representing workers) of
our German subsidiaries, betapharm and Reddy Holding, tcompleted negotiations of a social plan
for workforce reduction and restructuring, including their physician sales force. The social plan
was believed to be necessary to achieve a more sustainable workforce structure in light of the
current economic climate in Germany.
94
ITEM 9. THE OFFER AND LISTING
9.A. Offer and listing details
Information Regarding Price History
The following tables set forth the price history for our shares on the Bombay Stock Exchange
Limited, (BSE) and for our ADSs on the New York Stock Exchange (NYSE).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BSE |
|
NYSE |
Year |
|
Price Per Equity Share(1) |
|
Price Per ADS(1) |
Ended March 31, |
|
High (Rs.) |
|
Low (Rs.) |
|
High (U.S.$) |
|
Low (U.S.$) |
2009 |
|
|
739.00 |
|
|
|
357.00 |
|
|
|
16.95 |
|
|
|
7.27 |
|
2008 |
|
|
760.00 |
|
|
|
501.00 |
|
|
|
18.66 |
|
|
|
13.07 |
|
2007 |
|
|
877.00 |
|
|
|
608.00 |
|
|
|
19.06 |
|
|
|
12.31 |
|
2006 |
|
|
756.50 |
|
|
|
306.50 |
|
|
|
16.67 |
|
|
|
7.46 |
|
2005 |
|
|
501.45 |
|
|
|
326.25 |
|
|
|
12.40 |
|
|
|
7.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BSE |
|
NYSE |
|
|
Price Per Equity Share |
|
Price Per ADS |
Quarter Ended |
|
High (Rs.) |
|
Low (Rs.) |
|
High (U.S.$) |
|
Low (U.S.$) |
June 30, 2007 |
|
|
757.00 |
|
|
|
608.90 |
|
|
|
17.49 |
|
|
|
14.97 |
|
September 30, 2007 |
|
|
694.00 |
|
|
|
603.30 |
|
|
|
17.04 |
|
|
|
14.83 |
|
December 31, 2007 |
|
|
748.00 |
|
|
|
580.00 |
|
|
|
18.52 |
|
|
|
14.76 |
|
March 31, 2008 |
|
|
760.00 |
|
|
|
501.00 |
|
|
|
18.66 |
|
|
|
13.07 |
|
June 30, 2008 |
|
|
739.00 |
|
|
|
575.10 |
|
|
|
16.95 |
|
|
|
14.35 |
|
September 30, 2008 |
|
|
695.50 |
|
|
|
464.00 |
|
|
|
16.50 |
|
|
|
10.53 |
|
December 31, 2008 |
|
|
557.00 |
|
|
|
387.05 |
|
|
|
11.55 |
|
|
|
7.45 |
|
March 31, 2009 |
|
|
506.95 |
|
|
|
357.00 |
|
|
|
10.34 |
|
|
|
7.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BSE |
|
NYSE |
|
|
Price Per Equity Share(1) |
|
Price Per ADS(1) |
Month Ended |
|
High (Rs.) |
|
Low (Rs.) |
|
High (U.S.$) |
|
Low (U.S.$) |
October 31, 2008 |
|
|
557.00 |
|
|
|
395.00 |
|
|
|
11.55 |
|
|
|
7.70 |
|
November 30, 2008 |
|
|
434.00 |
|
|
|
387.05 |
|
|
|
9.18 |
|
|
|
7.45 |
|
December 31, 2008 |
|
|
495.90 |
|
|
|
422.05 |
|
|
|
10.31 |
|
|
|
8.64 |
|
January 31, 2009 |
|
|
506.95 |
|
|
|
418.00 |
|
|
|
10.34 |
|
|
|
8.38 |
|
February 29, 2009 |
|
|
479.85 |
|
|
|
386.90 |
|
|
|
9.64 |
|
|
|
7.97 |
|
March 31, 2009 |
|
|
495.00 |
|
|
|
357.00 |
|
|
|
9.84 |
|
|
|
7.27 |
|
Source: www.bseindia.com and www.adr.com, respectively.
9.B. Plan of distribution
Not applicable.
95
9.C. Markets
Markets on Which Our Shares Trade
Our equity shares are traded on the Bombay Stock Exchange Limited (BSE) and National Stock
Exchange of India Limited (NSE), or collectively, the Indian Stock Exchanges. Our American
Depositary Shares (or ADSs), as evidenced by American Depositary Receipts (or ADRs), are traded
in the United States on the New York Stock Exchange (NYSE), under the ticker symbol RDY. Each
ADS represents one equity share. Our ADSs began trading on the NYSE on April 11, 2001. Our
shareholders approved the delisting of our shares from the Hyderabad Stock Exchange Limited, The
Stock Exchange, Ahmedabad, The Madras Stock Exchange Limited, and The Calcutta Stock Exchange
Association Limited at the general shareholders meeting held on August 25, 2003.
9.D. Selling shareholders
Not applicable.
9.E. Dilution
Not applicable.
9.F. Expenses of the issue
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
10.A. Share capital
Not applicable.
10.B. Memorandum and articles of association
Dr. Reddys Laboratories Limited was incorporated under the Indian Companies Act, 1956. We are
registered with the Registrar of Companies, Andhra Pradesh, Hyderabad, India as Company No. 4507
(Company Identification No. L85195AP1984PLC0004507). Our registered office is located at 7-1-27,
Ameerpet, Hyderabad 500 016, India and the telephone number of our registered office is
+91-40-23731946. The summary of our Articles of Association and Memorandum of Association that is
included in our registration statement on Form F-1 filed with the U.S. Securities and Exchange
Commissions (the SEC) on April 11, 2001, together with copies of the Articles of Association and
Memorandum of Association that are included in our registration statement on Form F-1, are
incorporated herein by reference.
The Memorandum and Articles of Association were amended at the 17th Annual General Meeting
held on September 24, 2001, 18th Annual General Meeting held on August 26, 2002, the 20th Annual
General Meeting held on July 28, 2004 and the 22nd Annual General Meeting held on July 28, 2006. A
full description of these amendments was given in the Form 20-F filed with the SEC on September 30,
2003, September 30, 2004 and October 2, 2006, which description is incorporated herein by
reference. The Memorandum and Articles of Association were further amended at the 22nd Annual
General Meeting held on July 28, 2006 to increase the authorized share capital in connection with
the stock split effected in the form of a stock dividend that occurred on August 30, 2006.
10.C. Material contracts
Other than the contracts entered into in the ordinary course of business, there are no
material contracts to which we or any of our direct and indirect subsidiaries is a party for the
two years immediately preceding the date of this Form 20-F.
10.D. Exchange controls
96
Foreign investment in Indian securities, whether in the form of foreign direct investment or
in the form of portfolio investment, is governed by the Foreign Exchange Management Act, 1999, as
amended (FEMA), and the rules, regulations and notifications issued thereunder. Set forth below
is a summary of the restrictions on transfers applicable to both foreign direct investments and
portfolio investments, including the requirements under Indian law applicable to the issuance and
transfer of ADSs.
Foreign Direct Investment
The Foreign Direct Investment Policy under the Reserve Bank of Indias (RBI) Automatic Route
enables Indian companies (other than those specifically excluded thereunder) to issue shares to
persons who reside outside of India without prior permission from the RBI, except in cases where
there are ceilings of investments in certain industry sectors and subject to certain conditions.
The Department of Industrial Policy and Promotion, a part of the Ministry of Commerce and
Industry, issued detailed guidelines in January 1997 for consideration of foreign direct investment
proposals by the Foreign Investment Promotion Board (the Guidelines). The basic objective of the
Guidelines is to improve the transparency and objectivity of the Foreign Investment Promotion
Boards consideration of proposals. However, since these are administrative guidelines and have not
been codified as either law or regulations, they are not legally binding with respect to any
recommendation made by the Foreign Investment Promotion Board or with respect to any decision taken
by the Government of India in cases involving foreign direct investment.
Under the Guidelines, sector specific guidelines for foreign direct investment and the levels
of permitted equity participation have been established. In February 2000, the Department of
Industrial Policy and Promotion issued a notification that foreign ownership of up to 50%, 51%, 74%
or 100%, depending on the category of industry, would be allowed without prior permission of the
Foreign Investment Promotion Board and, in certain cases, without prior permission of the RBI. Over
a period of time, the Government of India has relaxed the restrictions on foreign investment,
including the revision of the investment cap to 26% in the insurance sector and 74% subject to RBI
guidelines for setting up branches/subsidiaries of foreign banks in the private banking sector.
In May 1994, the Government of India announced that purchases by foreign investors of ADSs, as
evidenced by ADRs, and foreign currency convertible bonds of Indian companies would be treated as
foreign direct investment in the equity issued by Indian companies for such offerings. Therefore,
offerings that involve the issuance of equity that results in Foreign Direct Investors holding more
than the stipulated percentage of direct foreign investments (which depends on the category of
industry) would require approval from the Foreign Investment Promotion Board.
In addition, offerings by Indian companies of any such securities to foreign investors require
Foreign Investment Promotion Board approval, whether or not the stipulated percentage limit would
be reached if the proceeds will be used for investment in specified industries.
For investments in the pharmaceutical sector, the Foreign Direct Investment limit is 100%.
Thus, foreign ownership of up to 100% of our equity shares would be allowed without prior
permission of the Foreign Investment Promotion Board and, in certain cases, with prior permission
of the RBI.
Portfolio Investment Scheme
Investments by persons of Indian nationality or origin residing outside of India (also known
as Non-Resident Indians or NRIs) or registered Foreign Institutional Investors (FIIs) made
through a stock exchange are known as portfolio investments (Portfolio Investments).
Portfolio Investments by NRIs
A variety of methods for investing in shares of Indian companies are available to NRIs. These
methods allow Non-Resident Indians to make portfolio investments in existing shares and other
securities of Indian companies on a basis not generally available to other foreign investors.
The RBI no longer recognizes overseas corporate bodies (OCBs) as an eligible class of
investment vehicle under various circumstances under the RBIs foreign exchange regulations.
97
Portfolio Investments by FIIs
In September 1992, the Government of India issued guidelines that enable FIIs, including
institutions such as pension funds, investment trusts, asset management companies, nominee
companies and incorporated/institutional portfolio managers, to invest in all of the securities
traded on the primary and secondary markets in India. Under the guidelines, FIIs are required to
obtain an initial registration from the Securities and Exchange Board of India (SEBI), and a
general permission from the RBI to engage in transactions regulated under the Foreign Exchange
Management Act. FIIs must also comply with the provisions of the SEBI (Foreign Institutional
Investors Regulations) 1995. When it receives the initial registration, the FII also obtains
general permission from the RBI to engage in transactions regulated under the Foreign Exchange
Management Act. Together, the initial registration and the RBIs general permission enable the
registered FII to: (i) buy (subject to the ownership restrictions discussed below) and sell
unrestricted securities issued by Indian companies; (ii) realize capital gains on investments made
through the initial amount invested in India; (iii) participate in rights offerings for shares;
(iv) appoint a domestic custodian for custody of investments held; and (v) repatriate the capital,
capital gains, dividends, interest income and any other compensation received pursuant to rights
offerings of shares. The current policy with respect to purchase or sale of securities of an Indian
company by an FII is in Schedule 2 and Regulation 5(2) of the Foreign Exchange Management (Transfer
or Issue of Securities by a Person Resident Outside India) Regulations, 2000.
Ownership restrictions
The SEBI and the RBI regulations restrict portfolio investments in Indian companies by foreign
institutional investors, Non-Resident Indians and overseas corporate bodies, all of which we refer
to as foreign portfolio investors. Under current Indian law, foreign institutional investors in
the aggregate may hold not more than 24.0% of the equity shares of an Indian company, and
Non-Resident Indians in the aggregate may hold not more than 10.0% of the shares of an Indian
company through portfolio investments. The 24.0% limit referred to above can be increased to
sectoral cap/statutory limits as applicable if a resolution is passed by the board of directors of
the company followed by a special resolution passed by the shareholders of the company to that
effect. The 10.0% limit referred to above may be increased to 24.0% if the shareholders of the
company pass a special resolution to that effect. No single foreign institutional investor may hold
more than 10.0% of the shares of an Indian company and no single Non-resident Indian may hold more
than 5.0% of the shares of an Indian company.
In our case, our shareholders have passed a resolution enhancing the limits of portfolio investment
by foreign institutional investors in the aggregate to 49%. Non-Resident Indians in the aggregate
may hold not more than 10.0% of our equity shares through portfolio investments. Holders of ADSs
are not subject to the rules governing FIIs unless they convert their ADSs into equity shares.
As of March 31, 2009, FIIs are holding 22.16% and NRIs 1.86% of our equity shares.
Under the Securities and Exchange Board of India (Substantial Acquisition of Shares and
Takeovers) Regulations, 1997 (the Takeover Code), upon the acquisition of more than 5%, 10%, 14%,
54% or 74% of the outstanding shares or voting rights of a publicly-listed Indian company, the
acquirer is required to disclose the aggregate of his shareholding or voting rights in that target
company to such company. The target company and the acquirer are required to notify all of the
stock exchanges on which the shares of such company are listed. For these purposes, an acquirer
means any person or entity who, directly or indirectly, either alone or acting in concert with any
other person or entity, acquires or agrees to acquire shares or voting rights in, or control over,
a target company.
A person or entity who holds more than 15% of the shares or voting rights in any company is
required to make an annual disclosure of his, her or its holdings to that company, which in turn is
required to disclose the same to each of the stock exchanges on which the companys shares are
listed. A holder of our ADSs would be subject to these notification requirements.
Upon the acquisition of 15% or more of such shares or voting rights, or upon acquiring control
of the company, the acquirer is required to make a public announcement offering to purchase from
the other shareholders at least a further 20% of all the outstanding shares of the company at a
minimum offer price determined pursuant to the Takeover Code. If an acquirer holding more than 15%
but less than 55% of shares acquires 5% or more shares during a fiscal year, the acquirer is
required to make a public announcement offering to purchase from the other shareholders at least
20% of all the outstanding shares of the company at a minimum offer price determined pursuant to
the Takeover Code. Any further acquisition of outstanding shares or voting rights of a publicly
listed company by an acquirer who holds more than 55% but less than 75% of shares or voting rights
(or where the company concerned has obtained the initial listing of shares by making an offer of at
least 10% of the issue size to the public pursuant to Rule 19(2)(b) of the Securities Contracts
(Regulations) Rules 1957, less than 90% of the shares or voting right of the company)also requires
the making of an open offer to acquire such number of shares as would not result in the public
shareholding being reduced to below the minimum specified in the listing agreement. Where the
public shareholding in the target company may be reduced to a level below the limit specified in
the listing agreement the acquirer may acquire such shares or voting rights only in accordance with
guidelines or regulations regarding delisting of securities specified by SEBI.
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Since we are a listed company in India, the provisions of the Takeover Code will apply to us
and to any person acquiring our equity shares or voting rights in our company. However, the
Takeover Code provides for a specific exemption to holders of ADSs from the requirements of making
a public announcement for a tender offer. This exemption will apply to a holder of ADSs so long as
he or she does not convert the ADSs into the underlying equity shares. We have entered into listing
agreements with each of the Indian stock exchanges on which our equity shares are listed. Each of
the listing agreements provides that if a person or entity acquires or agrees to acquire 5% or more
of the voting rights of our equity shares, the purchaser shall report its holding to us and we
must, in accordance with the provisions of the Takeover Code, report its holding to the relevant
stock exchanges.
Although the provisions of the listing agreements entered into between us and the Indian stock
exchanges on which our equity shares are listed will not apply to equity shares represented by
ADSs, holders of ADSs may be required to comply with such notification and disclosure obligations
pursuant to the provisions of the Deposit Agreement to be entered into by such holders, our company
and a depositary.
Subsequent transfer of shares
A person resident outside India holding the shares or debentures of an Indian company may
transfer the shares or debentures so held by him, in compliance with the conditions specified in
the relevant Schedule of Foreign Exchange Management (Transfer or Issue of Security by a Person
Resident outside India) Regulations, 2000 as follows:
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A person resident outside India, not being a Non-Resident Indian (NRI) or an overseas
corporate body (OCB), may transfer by way of sale or gift the shares or convertible
debentures held by him or it to any person resident outside India; |
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A Non-Resident Indian may transfer by way of sale or gift, the shares or convertible
debentures held by that person to another Non-Resident Indian only; provided that the person
to whom the shares are being transferred has obtained prior permission of the Government of
India to acquire the shares if he has a previous venture or tie up in India through an
investment in shares or debentures or a technical collaboration or a trade mark agreement or
investment by whatever name called in the same field or allied field in which the Indian
company whose shares are being transferred is engaged. |
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Provided further that the restriction in clauses (i) and (ii) shall not apply to the transfer
of shares to international financial institutions such as Asian Development Bank (ADB),
International Finance Corporation (IFC), Commonwealth Development Corporation (CDC),
Deutsche Entwicklungs Gesselschaft (DEG) and transfer of shares of an Indian company
engaged in the Information Technology sector. |
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(iii) |
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A person resident outside India holding the shares or convertible debentures of an
Indian company in accordance with the said Regulations, (a) may transfer the same to a
person resident in India by way of gift; or (b) may sell the same on a recognized Stock
Exchange in India through a registered broker. |
Restrictions for subsequent transfers of shares of Indian companies between residents and
non-residents (other than OCBs) were relaxed significantly as of October 2004. As a result, for a
transfer between a resident and a non-resident of securities of an Indian company, no prior
approval of either the RBI or the Government of India is required, as long as certain conditions
are met.
ADS guidelines
Shares of Indian companies represented by ADSs may be approved for issuance to foreign
investors by the Government of India under the Issue of Foreign Currency Convertible Bonds and
Ordinary Shares (Through Depositary Receipt Mechanism) Scheme, 1993 (the 1993 Scheme), as
modified from time to time, promulgated by the Government of India. The 1993 Scheme is in addition
but without prejudice to the other policies or facilities, as described below, relating to
investments in Indian companies by foreign investors. The issuance of ADSs pursuant to the 1993
Scheme also affords to holders of the ADSs the benefits of Section 115AC of the Income Tax Act,
1961 for purpose of the application of Indian tax laws. In March 2001, the RBI issued a
notification permitting, subject to certain conditions, two-way fungibility of ADSs. This
notification provides that ADSs converted into Indian shares can be converted back into ADSs,
subject to compliance with certain requirements and the limits of sectoral caps.
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Fungibility of ADSs
A registered broker in India can purchase shares of an Indian company that has issued ADSs, on
behalf of a person resident outside India, for the purposes of converting the shares into ADSs.
However, such conversion of equity shares into ADSs is possible only if the following conditions
are satisfied:
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the shares are purchased on a recognized stock exchange; |
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the shares are purchased with the permission of the Custodian to the ADS offering of the
Indian company and are deposited with the Custodian; |
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The custodian has been authorized to accept shares from non-resident investors for
reissuance of ADSs; |
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the shares purchased for conversion into ADSs do not exceed the number of shares that
were released by the Custodian pursuant to conversions of ADSs into equity shares under the
Depositary Agreement; and |
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a non-resident investor, broker, the Custodian and the Depositary comply with the
provisions of the Scheme for Issue of Foreign Currency Convertible Bonds and Ordinary Shares
(through Depositary Receipt Mechanism) Scheme, 1993 and the related guidelines issued by the
Central Government from time to time. |
Transfer of ADSs
A person resident outside India may transfer ADSs held in Indian companies to another person
resident outside India without any permission. A person resident in India is not permitted to hold
ADSs of an Indian company, except in connection with the exercise of stock options.
Shareholders resident outside India who intend to sell or otherwise transfer equity shares
within India should seek the advice of Indian counsel to understand the requirements applicable at
that time.
The RBI placed various restrictions on the eligibility of OCBs to make investments in Indian
companies in AP (DIR) Series Circular No. 14 dated September 16, 2003. For further information on
these restrictions, the circular is available on www.rbi.org.in for review.
10.E. Taxation
Indian Taxation
General. The following summary is based on the law and practice of the Income-tax Act, 1961
(the Income-tax Act), including the special tax regime contained in Sections 115AC and 115ACA of
the Income-tax Act read with the Issue of Foreign Currency Convertible Bonds and Ordinary Shares
(through Depository Receipt Mechanism) Scheme, 1993 (collectively, the Income-tax Act Scheme), as
amended on January 19, 2000. The Income-tax Act is amended every year by the Finance Act of the
relevant year. Some or all of the tax consequences of Sections 115AC and 115ACA may be amended or
changed by future amendments to the Income-tax Act.
We believe this information is materially complete as of the date hereof. However, this
summary is not intended to constitute an authoritative analysis of the individual tax consequences
to non-resident holders or employees under Indian law for the acquisition, ownership and sale of
ADSs and equity shares. Each prospective investor should consult tax advisors with respect to
taxation in India or their respective locations on acquisition, ownership or disposing of equity
shares or ADSs.
Residence. For purposes of the Income-tax Act, an individual is considered to be a resident of
India during any fiscal year if he or she is in India in that year for:
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a period or periods of at least 182 days; or |
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at least 60 days and, within the four preceding fiscal years has been in India for a period
or periods amounting to at least 365 days. |
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The period of 60 days referred to above shall be read as 182 days in case of a citizen of
India or a Person of Indian Origin living outside India who is visiting India.
A company is a resident of India under the Income-tax Act if it is formed or registered in
India or the control and the management of its affairs is situated wholly in India. Individuals and
companies that are not residents of India would be treated as non-residents for purposes of the
Income-tax Act.
Taxation of Distributions.
a) As per Section 10(34) of the Income-tax Act, dividends paid by Indian Companies on or after
April 1, 2003 to their shareholders (whether resident in India or not) are not subject to tax in
the hands of the shareholders. However, the Indian company paying the dividend is subject to a
dividend distribution tax at the rate of 16.995%, including applicable surcharges and the special
levy called the Education and Higher Education Cess (education cess), on the total amount it
distributes, declares or pays as a dividend.
b) Any distributions of additional ADSs or equity shares by way of bonus shares (i.e., stock
dividends) to resident or non-resident holders will not be subject to Indian tax.
Taxation of Capital Gains. The following is a brief summary of capital gains taxation of
non-resident holders and resident employees relating to the sale of ADSs and equity shares received
upon redemption of ADSs. The relevant provisions are contained mainly in sections 10(36), 10(38),
45, 47(viia), 111A, 115AC and 115ACA, of the Income-tax Act, in conjunction with the Income-tax
Scheme. You should consult your own tax advisor concerning the tax consequences of your particular
situation.
A non-resident investor transferring our ADS or equity shares, whether transferred in India or
outside India to a non-resident investor, will not be liable for income taxes arising from capital
gains on such ADS or equity shares under the provisions of the Income-tax Act in certain
circumstances. Equity shares (including equity shares issuable on the conversion of the ADSs) held
by the non-resident investor for a period of more than 12 months are treated as long-term capital
assets. If the equity shares are held for a period of less than 12 months from the date of
conversion of the ADSs, the capital gains arising on the sale thereof is to be treated as
short-term capital gains.
Capital gains are taxed as follows:
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gains from a sale of ADSs outside India by a non-resident to another non-resident are not
taxable in India; |
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long-term capital gains realized by a resident from the transfer of the ADSs will be
subject to tax at the rate of 10%, plus the applicable surcharge and education cess;
short-term capital gains on such a transfer will be taxed at graduated rates with a maximum
of 30%, plus the applicable surcharge and education cess; and |
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long-term capital gains realized by a non-resident upon the sale of equity shares
obtained from the conversion of ADSs are subject to tax at a rate of 10%, plus the
applicable surcharge and education cess; and short-term capital gains on such transfer will
be taxed at the maximum marginal rate of tax applicable to the seller, plus the applicable
surcharge and education cess, if the sale of such equity shares is settled outside of a
recognized stock exchange in India. |
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long-term capital gain realized by a non-resident upon the sale of equity shares obtained
from the conversion of ADSs is exempt from tax and any short term capital gain is taxed at
15%, plus the applicable surcharge and education cess, if the sale of such equity shares is
settled on a recognized stock exchange and securities transaction tax (STT) is paid on
such sale. |
As per Section 10(38) of the Income-tax Act, long term capital gains arising from the transfer
of equity shares on or after October 1, 2004 in a company completed through a recognized stock
exchange in India and on which sale the STT has been paid are exempt from Indian tax.
As per Section 111A of the Income-tax Act, short term capital gains arising from the transfer
of equity shares on or after October 1, 2004 in a company completed through a recognized stock
exchange in India are subject to tax at a rate of 15%, excluding education cess and the applicable
surcharge.
Purchase or sale of equity shares of a company listed on a recognized stock exchange in India
is subject to a security transaction tax of 0.1% (0.125% from June 1, 2006) of the transaction
value for any delivery based transaction and 0.02% (0.025% from June 1, 2006) for any non-delivery
based transaction.
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The applicable provisions of the Income Tax Act, in the case of non-residents, may offset the
above taxes, except the STT. The capital gains tax is computed by applying the appropriate tax
rates to the difference between the sale price and the purchase price of the equity shares or ADSs.
Under the Income-tax Scheme, the purchase price of equity shares in an Indian listed company
received in exchange for ADSs will be the market price of the underlying shares on the date that
the Depositary gives notice to the custodian of the delivery of the equity shares in exchange for
the corresponding ADSs, or the stepped up basis purchase price. The market price will be the
price of the equity shares prevailing on the Stock Exchange, Mumbai or the National Stock Exchange.
There is no corresponding provision under the Income-tax Act in relation to the stepped up basis
for the purchase price of equity shares. However, the tax department in India has not denied this
benefit. In the event that the tax department denies this benefit, the original purchase price of
ADSs would be considered the purchase price for computing the capital gains tax.
According to the Income-tax Scheme, a non-resident holders holding period for the purposes of
determining the applicable Indian capital gains tax rate relating to equity shares received in
exchange for ADSs commences on the date of the notice of the redemption by the Depositary to the
custodian. However, the Income-tax Scheme does not address this issue in the case of resident
employees, and it is therefore unclear as to when the holding period for the purposes of
determining capital gains tax commences for such a resident employee.
The Income-tax Scheme provides that if the equity shares are sold on a recognized stock
exchange in India against payment in Indian rupees, they will no longer be eligible for the
preferential tax treatment.
It is unclear as to whether section 115AC of the Income Tax Act and the rest of the Income-tax
Scheme are applicable to a non-resident who acquires equity shares outside India from a
non-resident holder of equity shares after receipt of the equity shares upon redemption of the
ADSs.
It is unclear as to whether capital gains derived from the sale of subscription rights or
other rights by a non-resident holder not entitled to an exemption under a tax treaty will be
subject to Indian capital gains tax. If such subscription rights or other rights are deemed by the
Indian tax authorities to be situated within India, the gains realized on the sale of such
subscription rights or other rights will be subject to Indian taxation. The capital gains realized
on the sale of such subscription rights or other rights, which will generally be in the nature of
short-term capital gains, will be subject to tax (i) at variable rates with a maximum rate of 40%,
excluding the prevailing surcharge and education cess, in the case of a foreign company and (ii) in
the range of 30.9% to 33.99%, including the applicable surcharge, in the case of resident employees
and of non-resident individuals with taxable income over Rs.1,000,000.
Withholding Tax on Capital Gains. Any gain realized by a non-resident or resident employee on
the sale of equity shares is subject to Indian capital gains tax, which, in the case of a
non-resident is to be withheld at the source by the buyer. However, as per the provisions of
Section 196D(2) of the Income-tax Act, no withholding tax is required to be deducted from any
income by way of capital gains arising to FIIs (as defined in Section 115AD of the Act) on the
transfer of securities (as defined in Section 115AD of the Act).
Buy-back of Securities. Indian companies are not subject to any tax on the buy-back of their
shares. However, the shareholders are taxed on any resulting gains. We are required to deduct tax
at source according to the capital gains tax liability of a non-resident shareholder.
Stamp Duty and Transfer Tax. Upon issuance of the equity shares underlying our ADSs, we are
required to pay a stamp duty of 0.1% per share of the issue price of the underlying equity shares.
A transfer of ADSs is not subject to Indian stamp duty. A sale of equity shares in physical form by
a non-resident holder is also subject to Indian stamp duty at the rate of 0.25% of the market value
of the equity shares on the trade date, although customarily such tax is borne by the transferee.
Shares must be traded in dematerialized form. The transfer of shares in dematerialized form is
currently not subject to stamp duty.
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Wealth Tax. The holding of the ADSs and the holding of underlying equity shares by resident
and non-resident holders will be exempt from Indian wealth tax. Non-resident holders are advised to
consult their own tax advisors regarding the taxation of ADS in their country of residence.
Gift Tax and Estate Duty. Currently, there are no gift taxes or estate duties. These taxes and
duties could be restored in future. Non-resident holders are advised to consult their own tax
advisors regarding this issue.
Service Tax. Brokerage or commission paid to stockbrokers in connection with the sale or
purchase of shares is subject to a service tax of 12.36%, reduced to 10.3% effective as of
February 24, 2009. The stockbroker is responsible for collecting the service tax from the
shareholder and paying it to the relevant authority.
United States Federal Taxation [SUBJECT TO REVIEW BY CLIFFORD CHANCE]
The following is a summary of the material U.S. federal income and estate tax consequences
that may be relevant with respect to the acquisition, ownership and disposition of equity shares or
ADSs and is for general information only. This summary addresses the U.S. federal income and estate
tax considerations of holders that are U.S. holders. U.S. holders are beneficial holders of
equity shares or ADSs who are (i) citizens or residents of the United States, (ii) corporations (or
other entities treated as corporations for U.S. federal tax purposes) created in or under the laws
of the United States or any state thereof or the District of Columbia, (iii) estates, the income of
which is subject to U.S. federal income taxation regardless of its source, and (iv) trusts for
which a U.S. court exercises primary supervision and a U.S. person has the authority to control all
substantial decisions. This summary is limited to U.S. holders who will hold equity shares or ADSs
as capital assets. In addition, this summary is limited to U.S. holders who are not resident in
India for purposes of the Convention Between the Government of the United States of America and the
Government of the Republic of India for the Avoidance of Double Taxation and the Prevention of
Fiscal Evasion With Respect to Taxes on Income. If a partnership holds the equity shares or ADSs,
the tax treatment of a partner will generally depend upon the status of the partner and upon the
activities of the partnership. A partner in a partnership holding equity shares or ADSs should
consult his own tax advisor.
This summary does not address tax considerations applicable to holders that may be subject to
special tax rules, such as banks, insurance companies, financial institutions, dealers in
securities or currencies, tax-exempt entities, persons that will hold equity shares or ADSs as a
position in a straddle or as part of a hedging or conversion transaction for tax purposes,
persons that have a functional currency other than the U.S. dollar or holders of 10% or more, by
voting power or value, of the shares of our company. This summary is based on the tax laws of the
United States as in effect on the date of this Annual Report and on United States Treasury
Regulations in effect or, in some cases, proposed, as of the date of this Annual Report, as well as
judicial and administrative interpretations thereof available on or before such date, and is based
in part on the assumption that each obligation in the deposit agreement and any related agreement
will be performed in accordance with its terms. All of the foregoing are subject to change, which
change could apply retroactively and could affect the tax consequences described below.
Each prospective investor should consult his, her or its own tax advisor with respect to the
U.S. Federal, state, local and non-U.S. tax consequences of acquiring, owning or disposing of
equity shares or ADSs.
Ownership of ADSs. For U.S. federal income tax purposes, holders of ADSs will be treated as
the holders of equity shares represented by such ADSs.
Dividends. Except for ADSs or equity shares, if any, distributed pro rata to all shareholders
of our company, including holders of ADSs, the gross amount of any distributions of cash or
property with respect to ADSs or equity shares (before reduction for any Indian withholding taxes)
will generally be included in income by a U.S. holder as foreign source dividend income at the time
of receipt, which in the case of a U.S. holder of ADSs generally should be the date of receipt by
the Depositary, to the extent such distributions are made from our current or accumulated earnings
and profits (as determined under U.S. federal income tax principles). Such dividends will not be
eligible for the dividends received deduction generally allowed to corporate U.S. holders. To the
extent, if any, that the amount of any distribution by us exceeds our current and accumulated
earnings and profits (as determined under U.S. federal income tax principles) such excess will be
treated first as a tax-free return of the U.S. holders tax basis in the equity shares or ADSs and
thereafter as capital gain.
Subject to certain limitations, dividends paid to non-corporate U.S. holders, including
individuals, may be eligible for a reduced rate of taxation if we are deemed to be a qualified
foreign corporation for United States federal income tax purposes and certain holding period
requirements are met. A qualified foreign corporation includes a foreign corporation if (1) its
shares (or, according to legislative history, its ADSs) are readily tradable on an established
securities market in the United States or (2) it is eligible for the
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benefits under a comprehensive income tax treaty with the United States. In addition, a
corporation is not a qualified foreign corporation if it is a passive foreign investment company
(as discussed below) for either its taxable year in which the dividend is paid or the preceding
taxable year. The ADSs are traded on the New York Stock Exchange. Due to the absence of specific
statutory provisions addressing ADSs, however, there can be no assurance that we are a qualified
foreign corporation solely as a result of our listing on the New York Stock Exchange. Nonetheless,
we may be eligible for benefits under the comprehensive income tax treaty between India and the
United States. Absent congressional action to extend these rules, the reduced rate of taxation will
not apply to dividends received in taxable years beginning after December 31, 2010. Each U.S.
holder should consult its own tax advisor regarding the treatment of dividends and such holders
eligibility for a reduced rate of taxation.
Subject to certain conditions and limitations, any Indian withholding tax imposed upon to a
U.S. holder with respect to distributions on ADSs or equity shares should be eligible for credit
against the U.S. holders federal income tax liability. Alternatively, a U.S. holder may claim a
deduction for such amount, but only for a year in which a U.S. holder does not claim a credit with
respect to any foreign income taxes. The overall limitation on foreign taxes eligible for credit is
calculated separately with respect to specific classes of income. For this purpose, distributions
on ADSs or equity shares will be income from sources outside the United States, and will be passive category
income or general category income for purposes of computing the United States foreign tax credit
allowable to a U.S. holder.
If dividends are paid in Indian rupees, the amount of the dividend distribution included in
the income of a U.S. holder will be in the U.S. dollar value of the payments made in Indian rupees,
determined at a spot exchange rate between Indian rupees and U.S. dollars applicable to the date
such dividend is included in the income of the U.S. holder, regardless of whether the payment is in
fact converted into U.S. dollars. Generally, gain or loss, if any, resulting from currency exchange
fluctuations during the period from the date the dividend is paid to the date such payment is
converted into U.S. dollars will be treated as U.S. source ordinary income or loss.
Sale or exchange of equity shares or ADSs. A U.S. holder generally will recognize gain or loss
on the sale or exchange of equity shares or ADSs equal to the difference between the amount
realized on such sale or exchange and the U.S. holders tax basis in the equity shares or ADSs, as
the case may be. Such gain or loss will be capital gain or loss, and will be long-term capital gain
or loss if the equity shares or ADSs, as the case may be, were held for more than one year. Gain or
loss, if any, recognized by a U.S. holder generally will be treated as U.S. source passive category
income or loss for U.S. foreign tax credit purposes. Capital gains realized by a U.S. holder upon
the sale of equity shares (but not ADSs) may be subject to certain tax in India. See
TaxationIndian TaxationTaxation of Capital Gains. Due to limitations on foreign tax credits,
however, a U.S. holder may not be able to utilize any such taxes as a credit against the U.S.
holders federal income tax liability.
Estate taxes. An individual shareholder who is a citizen or resident of the United States for
U.S. federal estate tax purposes will have the value of the equity shares or ADSs held by such
holder included in his or her gross estate for U.S. federal estate tax purposes. An individual
holder who actually pays Indian estate tax with respect to the equity shares will, however, be
entitled to credit the amount of such tax against his or her U.S. federal estate tax liability,
subject to a number of conditions and limitations.
Backup withholding tax and information reporting requirements. Any dividends paid, or proceeds
on a sale of, equity shares or ADSs to or by a U.S. holder may be subject to U.S. information
reporting, and a backup withholding tax (currently at a rate of 28%) may apply unless the holder
establishes that he, she or it is an exempt recipient or provides a U.S. taxpayer identification
number, certifies that such holder is not subject to backup withholding and otherwise complies with
any applicable backup withholding requirements. Any amount withheld under the backup withholding
rules will be allowed as a refund or credit against the holders U.S. federal income tax, provided
that the required information is furnished to the Internal Revenue Service.
Passive foreign investment company. A non-U.S. corporation will be classified as a passive
foreign investment company for U.S. Federal income tax purposes if either:
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75% or more of its gross income for the taxable year is passive income; or |
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on average for the taxable year by value, or, if it is not a publicly traded corporation
and so elects, by adjusted basis, if 50% or more of its assets produce or are held for the
production of passive income. |
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We do not believe that we will be treated as a passive foreign investment company for the
current taxable year. Since this determination is made on an annual basis, however, no assurance
can be given that we will not be considered a passive foreign investment company in future taxable
years. If we were to be a passive foreign investment company for any taxable year, U.S. holders
would be required to either:
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pay an interest charge together with tax calculated at ordinary income rates (which may
be higher than the ordinary income rates that otherwise apply to U.S. holders) on excess
distributions, as the term is defined in relevant provisions of the U.S. tax laws, and on
any gain on a sale or other disposition of ADSs or equity shares; |
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if a qualified electing fund election (as the term is defined in relevant provisions of
the U.S. tax laws) is made, include in their taxable income their pro rata share of
undistributed amounts of our income; or |
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if the equity shares are marketable stock and a mark-to-market election is made,
mark-to-market the equity shares each taxable year and recognize ordinary gain and, to the
extent of prior ordinary gain, ordinary loss for the increase or decrease in market value
for such taxable year. |
If we are treated as a passive foreign investment company, we do not plan to provide
information necessary for the qualified electing fund election.
The above summary is not intended to constitute a complete analysis of all tax consequences
relating to the ownership of equity shares or ADSs. You should consult your own tax advisor
concerning the tax consequences to you based on your particular situation.
10.F. Dividends and paying agents
Not applicable.
10.G. Statements by experts
Not applicable.
10.H. Documents on display
This report and other information filed or to be filed by us can be inspected and copied at
the public reference facilities maintained by the SEC at Room 1200, 450 Fifth Street, Washington,
DC, U.S.A. These reports and other information may also be accessed via the SECs website at
www.sec.gov.
Additionally, documents referred to in this Form 20-F may be inspected at our corporate
office, which is located at 7-1-27, Ameerpet, Hyderabad, 500016, India.
10.I. Subsidiary information
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss of future earnings or fair values or future cash flows that
may result from a change in the price of a financial instrument. The value of a financial
instrument may change as a result of changes in the interest rates, foreign currency exchange rates
and other market changes that affect market risk sensitive instruments. Market risk is attributable
to all market risk sensitive financial instruments including foreign currency receivables and
payables and long term debt. We are exposed to market risk primarily related to foreign exchange
rate risk, interest rate risk and the market value of our investments. Thus, our exposure to market
risk is a function of investing and borrowing activities and revenue generating and operating
activities in foreign currency. The objective of market risk management is to avoid excessive
exposure in our foreign currency revenues and costs.
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