Though one needs to be circumspect in making definitive statements inan annual report it is fair to say that there are clear indicators of your company'soperational and financial turnaround.
On the revenue side your company witnessed impressive growth inbranded generics markets especially in India Russia China Brazil and CIS countries.Other than improving the base business across these markets we launched several newproducts and scaled up in new geographies like Brazil and Colombia.
However strong pricing pressures continued unabated in the US your company's key generics market. This was true for all generic companies and Dr.Reddy's was no exception. Thankfully strong revenue growth in branded genericsoutweighed the negative pull in the US. Consequently your company's global genericsrevenue increased by 8% over the previous year.
In response to the changing conditions in this key market we arebuilding a differentiated pipeline for the US.
In FY2019 alone we filed 20 new Abbreviated New Drug Applications(ANDAs) with the USFDA. As on 31 March 2019 your company had 110 generic filings pendingapproval from the USFDA comprising 107 ANDAs and three New Drug Applications(NDAs). Of the 107 ANDAs 60 are Para IV applications of which we believe 34 haveFirst-to- File' status.
The company's pharmaceutical services and active ingredient (PSAI)business has seen a turnaround. In FY2019 revenues from PSAI grew by 10% over FY2018. Inthe course of the year your company filed 82 Drug Master Files (DMFs) across the globeincluding nine in the US. The strategy of building sustainable and growing PSAI revenuesinvolves deeper customer relationships new product portfolio and ramping up of basebusinesses in key geographies.
You will recall that in our letter to you last year we had written:"From the beginning of FY2018 there has been a totally focused drive on eliminatingneedless layers and unnecessary costs." With changing dynamics of the genericsmarkets we believe that cost competitiveness will continue to be a key driver. Hence weaim to continue creating a leaner and more efficient organization.
In FY2019 our cost optimization initiatives enabled us to improveprofitability. Multi-year initiatives are now in place to drive cost and procurementefficiencies; to optimize R&D spends and productivity; and to improve manpowerthroughput by delayering and eliminating needless overlaps.
Your company has also focused on constructing a leaner business modelso as to create profitable growth for each of its businesses. As a part of the strategyFY2019 saw the company selling its antibiotic formulations manufacturing facility inBristol US; its API manufacturing business unit at Jeedimetla Hyderabad; and the rightsto distribute and market the specialty derma brands portfolio.
We can also share some good news regarding the USFDA warning lettersthat had affected three of your company's manufacturing facilities: API manufacturingat Miryalaguda (Telangana) and Srikakulam (Andhra Pradesh) and the oncology formulationsfacility at Duvvada near Visakhapatnam (Andhra Pradesh).
Regarding the API plant at Miryalaguda the USFDA issued anEstablishment Inspection Report (EIR) in June 2017 indicating successful closure of itsaudit of this facility. This facility was reinspected in January 2019 for which the USFDAissued an EIR in May 2019. Similarly in February 2019 the USFDA issued an EIR for theoncology formulations facility at Duvvada and has determined the inspection classificationof this facility as Voluntary Action Initiated (VAI). In March 2019 we responded to thefollow-up questions from USFDA regarding the API facility in Srikakulam. Based on thesubsequent discussion with USFDA we expect a reinspection will be conducted for the site.
WHAT IS OUR VIEW OF THE NEAR FUTURE
We believe that pricing pressures will continue to affect all playersin generics in the US.
Overcoming this necessitates a robust pipeline of complex formulationswith limited competition a pipeline that allows your company to introduce severalvalue-added products each year and thus make up for price erosions on the earlierlaunched products.
As touched upon earlier in this letter we have such a pipeline of 110 generic filings awaiting approval from the USFDA. We have to leverage this andensure that we succeed in delivering these products molecule by molecule to the US onthe due dates. As we wrote last year "We have to do this without fail and withbest-inclass cost. That is the way out."
Given the challenges in the US market we will continue our efforts todiversify our market presence. We will leverage our global portfolio of products inmarkets outside the US to drive growth. We will also refocus some of our R&D resourcesto service the high potential branded generics markets such as China Russia and otherEmerging Markets. This is an important element of our geographical diversification and newmarket entry strategy to lead with high value products and go-to-marketpartnerships.
India will continue to be important. We have seen a 12% growth inrevenues in FY2019 and improved our market ranking by three places.
We shall propel further growth in our PSAI business. These moves shouldreduce our dependence on the US and also help us generate sustained growth andprofitability to counter-balance volatility of the unbranded generics markets.
We remain focused on improving quality across all aspects of ouroperations with initiatives for continuous improvement reducing manual interventionsthrough digitization and shop floor training programs to constantly upgrade the culture ofquality. We intend to continue this journey and meet the highest regulatory standardsacross markets.
Given your company's significantly improved performance in FY2019the success in improving operational efficiencies and our determination to drive growthwe are reasonably optimistic of the prospects for FY2020.
Our thanks to the management team all employees and partners forcoming together to deliver better results. And our thanks to you for your support.
With best regards
|K SATISH REDDY ||G V PRASAD |
|Chairman ||Co-Chairman Managing Director and CEO |