Chairman's Speech
Speech delivered by the Chairman at the 19th Annual General Meeting – July 29, 2011
Dear fellow shareholders,
It gives me immense pleasure to welcome you on behalf of our Board of Directors and colleagues at Orchid Chemicals & Pharmaceuticals Limited to the Nineteenth Annual General Meeting. I thank each one of you for attending the meeting. The Notice convening the meeting, the Directors' report and the audited annual accounts as on March 31st, 2011 have been with you for sometime now, and with your permission, I take them as read.
I take this opportunity to share with you Orchid's significantly improved performance in 2010-11 and our strategy to sustain the growth momentum over the coming years.
Global economy
The global economy grew at a robust pace in calendar 2010 as against 2009. Both advanced and emerging economies contributed to this recovery despite the financial and political turmoil and natural disasters globally.
- Europe witnessed the re-emergence of the financial disorder in 2010. Concerns about banking sector losses and fiscal sustainability led to an unprecedented widening of spreads in these countries. But, the key difference was that the spillover to other continents was limited.
- Natural disasters across the globe – Japan being the most recent -- posed a significant challenge for global economic growth and took a massive toll on human life, resulting in wealth erosion.
- Political turmoil in the Middle-East and North Africa contributed to a modest deceleration in global industrial production and trade.
The global economy is expected to register a slower growth at about 4.3% (IMF estimates). This marginal deceleration is attributed to the financial pressure on the Euro zone and high-inflationary pressures in emerging economies.
Our achievement in 2010-11
This was an important year – the first year after your company transferred its generic injectable formulations business to Hospira and we surpassed our guidance - given at the beginning of the financial year - by a considerable margin. This superior performance was the result of the following multiple growth factors:
- Increased supplies to Hospira
- Contractual agreements with other leading global pharmaceutical players in regulated markets
- Returns from our front-end acquisition in the US
Interestingly, when I look back at the deal to check if it was beneficial for your Company and the shareholders, I feel satisfied that the management took the right decision at the right time. Otherwise, the debt overhang would have weighed heavily on the operating profit and shareholder wealth in the short-term and would have restricted your Company’s ability to grow over the long-term.
The strategic shift
The year 2010-11, marks an inflection point in your Company's history as we implemented a critical strategic shift in the business model - from a supply-push model to a demand-pull approach, taking into account product requirements, supply constraints of large multi-national players and aligned our supply strategies accordingly.
This alignment with large generic companies helped us predict our growth, demand and revenue potentials effectively and this is exactly what we did. Your company put in place an operating canvas that incorporated long-term supply arrangements involving niche products which assured sustainable growth with strong margins. This shift to a more robust business model helped your company bring down key working capital parameters like inventory and receivable days.
The new operating DNA of your company is focused on creating a business model that aims to capitalise on existing infrastructure while diversifying into new niche therapeutic segments, enabling us to sustain long-term business and profitability growth over the coming years.
Front-end marketing capability
With the acquisition of Karalex Pharma LLC., in 2010-11, your company has completed its coverage of the entire generic pharmaceutical business cycle – from manufacturing capability to product delivery. This positions your company favourably in the lucrative and growing US generic market and internalises shareholder value. To further strengthen the formulations business in the regulated markets, your company entered into an agreement with Alvogen, for marketing eight high-potential oral products in the US.
Regulatory filings
Your company strengthened its product basket by developing a product range which would yield and deliver strong revenues going forward. These products cover the antibiotic and non-antibiotic domains. Out of the cumulative filings at 67 across US and Europe, your company received approvals for 38. In addition, your company is focusing on commercialising more than 100 products in the next four years.
The next step
Your company has also entered into long-term business arrangements with large global pharmaceutical majors for formulations supply. Your company endorsed a second agreement with Hospira for supplying the API for their patented Add-Vantage vials - a specialised vial technology. Your company also entered into an alliance with a global innovator to supply a patented cephalosporin formulation which will add to robust revenues. Additionally, your company is evaluating other opportunities that create win-win propositions for both partners. These initiatives should accelerate your Company’s growth over the long-term.
Optimism for 2011-12
We are excited about our prospects for 2011-12. We estimate that your company will grow by a strong double-digit percentage, harvesting the benefits of the seeds we sowed during earlier years. A few initiatives, the impact of which was only partially reflected in the numbers of 2010-11, will deliver a full year impact in 2011-12. The key growth drivers for 2011-12 are:
- Benefits from existing API supply contracts
- Additional new supply arrangements in the API and formulation segments
- Increased presence in the CRAMS segment
- New product launches in the regulated markets
- Further penetration in the domestic and emerging markets
Recent event
Notice from TNPCB
Your company's Cephalosporin API manufacturing facility located in Alathur (Chennai) was recently issued a Closure Notice by the Tamilnadu Pollution Control Board (TNPCB) citing some non-compliance with regard to the disposal of solid waste.
Members are aware that your company follows very stringent operational standards at all of its campuses on several fronts ranging from Good Manufacturing Practices for producing its products to being a forerunner in establishing environment friendly manufacturing operations and technologies. This site has been repeatedly inspected and approved over several years by multiple global regulatory authorities including the US-FDA, the UK-MHRA, the EDQM and several others. In addition to this campus being a model for 'zero-discharge' operations for many to follow, the entire operation has been certified ISO-14001 compliant for its environment management system.
Your company is in discussions with the TNPCB at the highest levels to provide them the evidence and assurance they seek to ascertain the environment-friendly nature of our operations at this site, and are confident that this matter should be resolved very soon.
Conclusion
Before I conclude, I take this opportunity to thank the central and state governments, financial institutions, public and private sector banks, government agencies and non-government institutions for extending their support in your Company’s growth and development. I thank your Company's valued business stakeholders namely vendors, customers, strategic alliance partners and business associates for their support in accomplishing our business plans. Most importantly, I acknowledge the critical role played by the employees whose contribution to your Company’s business growth was paramount.
On behalf of the Board, I would like to thank all the shareholders for their unstinted support in helping your Company enhance its technological and business strengths and remain on the growth path.
Thank you for your attention!