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In a year marked by external and internal challenges, we performed well in the first three quarters, while operations were affected in the last quarter. We reported a cumulative profit after tax of Rs. 1,341.36 lakhs in the first three quarters and a net loss of Rs. 869.45 lakhs in the fourth. Overall, our 2008–09 revenue grew 16.34%, while EBIDTA declined 46.38% and net profit declined 76.81%.
The decline in performance was the result of a number of events combined:
Production disruption: The Pollution Control Board (PCB) issued a temporary closure notice for our Unit I for non–compliance with norms. This hampered production for 55 days (subsequently revoked) during the fourth quarter of 2008–09 and resulted in a notional revenue loss.
Raw material price hike: The Chinese government stopped production from chemical zones in and around Beijing in the second quarter of 2008–09 on account of the Beijing Olympics, which disrupted our supply and increased our costs.
Outstanding receivables: Even as pharmaceutical demand remained buoyant, the global liquidity crisis extended our receivables cycle, especially in Latin America.
Creating a model for future growth
It would be pertinent to indicate that despite these challenges, SMS strengthened its business with the objective enhancing its sustainability.
Strengthening our business
We strengthened our business in response to opportunities. This is where we see them:
CRAMs: The global USD 40 bn CRAMs market is expected to grow at a CAGR of 15–20%. Our contract research services will address this large opportunity through synthetic feasibility, synthetic route selection, process development, scale up, lead optimisation and analogue synthesis. The Company also proposes to lease or rent its advanced R&D centre. This business is likely to generate a sizable and sustainable cash flow.
Generics: A number of drugs are going off–patent by 2016–17, creating a substantial market opportunity. We will address generics where we can make a significant difference to downstream customers help relieve patients from pain.
New segments: We are entering high–value segments like anti–migraine, antihypertensive, oncology and anti–tobacco, among others.
The oncology opportunity
A number of our initiatives to strengthen our business were focused around our oncology business.
This was so for a good reason: we see oncology as a growing space marked by an under–delivery of services and therapeutic interventions.
Facilities: In view of this, we commissioned the Phase I of our dedicated oncology unit at Parwada during the year. The FDA–compliant manufacturing unit (40,000 sq. mtrs) comprises dedicated blocks for API, formulation, QA/QC, utilities, warehouse, ETP and integrated health and safety measures. We also installed state–of–the–art imported isolators in the oncology unit to eliminate radiation exposure.
We commissioned our new multi–API facility near Vizag. This facility has two FDA compliant blocks and three cGMP blocks, catering to regulated and unregulated markets; the facility is also expected to offer CRAMs, collaborative manufacturing and contract manufacturing to global pharmaceutical majors.
We invested in a cutting–edge R&D centre to facilitate advanced contract research that offers services from product conception stage to DMF filing.
The 20–lab facility – comprises a dedicated oncology laboratory – is equipped to develop 40 products annually.
Capabilites: Our API block possesses two lines to manufacture two products simultaneously across the entire range of anti–cancer drugs. Our formulation block has been designed in line with cGMP guidelines and is capable of catering to a range of processes and products (including lyophilized injections, liquid injections, tablets and capsules).
Our unit is dedicated to the production of the entire range of anti–cancer APIs and formulations, the only one of its kind in India. The cytotoxic nature of anti–cancer drugs mandatorily warrant dedicated facilities the world over; this trend is expected to extend to India, for which the Company is proactively prepared.
Competence: We developed the competence to develop anti–cancer drugs by patenting the process for Gemcetabine and Imatinib manufacture; we developed cost–effective processes for Capcitabine and Bicalutamide. We were the first company to file a DMF for Sumatriptan in the US; we are progressing into other high–value segments. We tied up with an international pharmaceutical company to develop high–growth anti–migraine drugs like Almotiptan and Zolmitriptan. We entered into a strategic partnership with a European customer for the manufacture of Cephalosporins (largest selling drug family in the anti–infectives segment). We expect to capitalise on the growing anti–infective market. We are foraying into a challenging market for anti–smoking remedies. We tied up with research agencies for clinical trials of oncology drug formulations, positioning ourselves as a single–stop solutions provider (research to clinical trials).
Widening presence: We are present in the high–growth markets of the US, Europe, Latin America, Japan and India, among others. Going ahead, we will consolidate our position in these markets and strengthen our communication with our US pharmaceutical agents and leading pharmaceutical majors to enhance our recall.
Message to shareholders
A combination of these initiatives will catalyse our emergence as a preferred CRAMs partner and globally respected pharmaceutical player, enhancing value for our shareholders.
Mr. P. Rameshbabu,
Chairman and Managing Director