MANAGEMENT DISCUSSION AND ANALYSIS

GLOBAL PHARMACEUTICAL SCENARIO

Spend on medicines is growing at a slow rate of 3-6% and is expected to touch $1,100 Bn by end of 2015. On account of intensifying government and pay or brssure to reduce costs, the health care spending is expected to be lower than in the past five years when the annual growth has been in the range of 6.2%.The U.S. share of global spending will decline from 41% in 2005 to 31% in 2015, whereas high growth emerging markets led by China will contribute 28% of total spending by 2015. The next five years will also see an accelerating shift in spending towards generics, rising to 39% of spending in 2015, up from 20% in 2005. The most rapid growth is expected to be in Middle East and Africa, which could see an annual increase of 8.7% till 2018 due to population growth and efforts to expand access to care.

In the major developed markets, spending on branded medicines will remain unchanged in 2015 from the level in 2010, since all increases in spending on brands will be offset by reduced spending on those brands losing patent protection. Spending on generics will increase in developed markets over the next five years. In high growth emerging markets, spending will increase by $150 Bn, as improved access and strengthening economies drive higher demand, primarily for generic drugs.

Spend on most therapies will grow at slower rates or even decline - through 2015. Specialty medicines will experience continued growth in the medium term driven by novel mechanisms, improved efficacy and relatively large patient populations, leading to increased uptake of these high-value medicines.

Patents are expected to expire in one or more of the developed markets for 11 of the top 20, current leading medicines. It is expected to result in a $98 Bn patent "dividend" in the coming 5 years against net savings of $54 Bn in brceding 5 years. Increased generic spending in the next five years will be driven by generic competition in new molecules due to patent expiry. Additional generic share gains will come from increased incentives for the usage of generics in many markets. The U.S. will see the largest expansion of generics market spending. Japan will remain the developed market with the lowest generic share despite significant policy incentives to increase generic brscribing and dispensing. South Korea, with its well-developed domestic industry, will continue to spend on generics. Pharmerging countries are expected to nearly double pharmaceutical spending, adding $150 Bn by 2015. Of the total increase in spending, approximately 20% will come from branded products.

DOMESTIC PHARMACEUTICAL MARKET

Domestic Pharmaceutical industry has been growing at 13 to 14% over the last 5 years, a sharp rise from the 9% compounded annual growth rate recorded between 2000 and 2005. From a market size of $12.6 Bn in 2009, Indian pharmaceuticals market is expected to grow to $55 Bn by 2020. The growth is driven by a steady increase in affordability and jump in market access. The affordability of drugs will rise due to sustained growth in incomes and increases in insurance coverage. With real GDP growing at nearly 8% over the next decade, income levels will rise steadily.

There has been manifold rise in public healthcare spending on account of rising income levels and patient awareness. There has been tremendous growth in medical infrastructure and health insurance coverage.

The treatment of chronic diseases has also gone up. The growth has been broad-based across therapy and geography segments.

Metro and large cities will make significant contributions to growth, driven by rapid urbanisation and greater economic development. Rural markets will grow the fastest driven by step-up from current poor levels of penetration.

In addition to income growth, health insurance coverage will augment affordability. However, the largest impact will be seen through government sponsored programmes that are largely focused on the 'Below Poverty Line' (BPL) segment, and are expected to provide coverage to nearly 380 million people by 2020.

Government spending in healthcare will increase significantly. It has been growing at 18 per cent annually since 2005-06, and is translating into a higher level of access in smaller cities and rural markets.

MOREPEN'S STRATEGY

ACTIVE PHARMACEUTICAL INGREDINDTS (API)

Morepen has been handling complex chemical manufacturing processes for quite a numbers of years. Greater emphasis is being placed on various classes of advanced drugs & intermediates like Anti-hypertensive & Anti-diabetic. Morepen has already developed unique sartans like Candesartan Cilexetil and Olmesartan Medoxomil. R&D development for various new sartan drugs like Fimasartan is being planned for future. In a similar manner Morepen is already in advanced stages of development of new anti-diabetic drugs like Linagliptin in gliptin series and Dapagliflozin in other unique gliflozin series. Morepen foresees great market potential in these two categories as a future prospect. Morepen has already developed various polymorphic forms of both major anti-cholesterol drugs like Atorvastatin Calcium & Rosuvastatin Calcium. New polymorphs of these two drugs are already commercialized/scale up for attracting US & European regulated markets.

Besides all this new work which is being carried out, continuous improvements are being made in all existing molecules / product portfolio to keep at par with stringent standard of today's competitive market. Morepen is also beginning to focus more on various high profile markets like Japan, with its high standard or almost impurity free API's & Intermediates.

Towards its journey of profitable growth and technological advancement two new patent applications have been filed during the year. Morepen was awarded brstigious "Pharmexcil Patent Award 2013-14" for grant of US Patent for Montelukast Sodium.

FORMULATIONS AND HOME HEALTH DIAGNOSTICS

The company has expanded its reach in domestics markets in respect of Home Health Diagnostics and Formulation products. The company is focusing on those products on which it has greater say in the market. At the same time the company is also testing newer products in the market with the objective that new product lines are also established. The company has established a brand name for its products across all business segments and the company hopes to leverage its position in the market. The company will continue to work on better products mix and markets with a view to improve its business and financial performance.

In order to retain its customers and also to capture new markets, the company continues to offer products at the competitive price. It has been able to build a steady relationship with its customers by delivering high quality products at competitive prices.

PRODUCT CONTRACT MANUFACTURING (PCM) AND

BRAND SHARING

The company continues to deliver good quality products to its existing customers and also adds new customers in brand sharing space. The Vitamins, Cardio and Diabetic category has continued to remain as the main focused category. The company expects continued performance improvement in the segment. The company is able to utilize its formulation production capacities and capabilities. Brand sharing business is steadily growing with the introduction of new product categories in the market.

Operating revenues of the Company are steadily improving year on year basis. Current year operating revenue of Rs. 37,026 lacs has posted a growth of 10% over brvious year. Better customer reach, improved productivity and efficient cost management have helped the Company to offset the squeeze in margins on account of product and market mix. Operating Surplus of Rs. 4,394 lacs was registered during the year.

OPPORTUNITIES AHEAD

The Indian pharma market size is expected to record double digit growth till 2020. The growth in Indian domestic market will be on back of increasing consumer spending, rapid urbanisation, changing disease profile, raising healthcare insurance and so on. There has been rapid growth in Tier II and Tier III cities.

Going forward, better growth in domestic sales will depend on the ability of companies to align their product portfolio towards chronic therapies for diseases such as cardiovascular, anti-diabetes, anti-debrssants and anti-cancers are on the rise. There is growing demand for generics on account of low income levels.

Moreover, the government has been taking several cost effective measures in order to bring down healthcare expenses. Thus, governments are focusing on speedy introduction of generic drugs into the market. This too will benefit Indian pharma companies. In addition, the thrust on rural health programmes, life-saving drugs and brventive vaccines also augurs well for the pharma companies.

The government has given its approval to amend the existing FDI policy in the pharmaceutical sector in order to cover medical devices. 100% FDI has been allowed under the automatic route for manufacturing of medical devices. It will attract foreign device manufactured to come to India, leading to availability of medical devices at lower prices to local customers.

OUTLOOK ON THREATS, RISKS AND CONCERNS

The Indian pharma industry has come a long way and made significant progress in infrastructure development and technical and R&D capabilities. With the integration of the Indian pharma market with the global market, new issues are being faced and tackled by the industry. Some old challenges such as IPR and pricing continue to be contentious issues in the market. The trends of increased foreign interest in the markets and increased investments in R&D are expected to stay.

Indian pharma market is a price controlled one and pricing remains a contentious issue. The pharma industry and the regulators at times lock horns on pricing issues. With numerous strengths and a growing consumer class, the pharma industry in India may face certain legacy and new issues, but it is expected to grow multifold and continue to be an attractive investment destination.

Fake counterparts, stiff competition from developing economies and unregulated markets also pose threat to Indian pharmaceutical companies.

The sharp fluctuations in foreign exchange rates also impact the Company's financial results as API business is largely export oriented, whereas 'Home Health Diagnostics' business is largely import driven.

The above-mentioned details are being provided as disclosure in relation to the company's business by explaining the brvailing business environment.

FIXED ASSETS

Fixed Assets of the Company are generally well maintained and are in good condition.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Your Company continues to place special emphasis on the internal control systems by way of internal audit of the various areas of operations of the Company and also by way of strengthening the systems & processes. Discrepancies and weaknesses, found at various levels are timely and adequately addressed with a view to efficiently manage the company's valuable resources.

HUMAN RESOURCES 

 Your Company had been able to retain good and talented people. Significant no. of employees has chosen to stay back with Company and have contributed a lot in smooth running of the Company.

Fair practices and equal opportunity has been afforded to employees at all levels. The Company is keeping these traditions alive and is making conscious effort to grow year after year. The Company understands the importance of Human capital and acts judiciously in rewarding its workforce. It has strong belief in collective efforts of all the team members. The inter-personal relationship amongst workers, staff and officers has always been cordial and healthy.

As on March 31, 2015 there were 1,028 permanent employees on the rolls of the Company.

CAUTIONARY STATEMENT

Statements/Declarations contained in the Management Discussions and Analysis Report pertaining to Strategies, future plans and projections have been made in good faith.

Market data and production information contained in this report have been based on the information gathered from various published and unpublished reports and their authenticity cannot be completely ensured/assured.The Management of the Company reserves the right to re-visit any of the brdictive statements to decide the best course of action for the maximization of Shareholders' value/wealth besides meeting social and corporate obligations.