creating lasting value investor presentation
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Creating Lasting Value
Investor PresentationMarch 2006
March 2006 Investor Presentation 2
Disclaimer Except for the historical information contained herein, statements in
this presentation and the subsequent discussions, which include words or phrases such as “will”, “aim”, “will likely result”, “would”, “believe”, “may”, “expect”, “will continue”, “anticipate”, “estimate”, “intend”, “plan”, “contemplate”, “seek to”, “future”, “objective”, “goal”, “likely”, “project”, “should”, “potential”, “will pursue” and similar expressions or variations of such expressions may constitute "forward-looking statements". These forward-looking statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those suggested by the forward-looking statements. These risks and uncertainties include, but are not limited to our ability to successfully implement our strategy, our growth and expansion plans, obtain regulatory approvals, our provisioning policies, technological changes, investment and business income, cash flow projections, our exposure to market risks as well as other risks. Sun Pharmaceutical Industries Limited does not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date thereof.
March 2006 Investor Presentation 3
Contents Strategic Focus and Recognition Management and Governance Growth Milestones and Financial Snapshot Key Strategic Elements Business Operations
Formulations India US International
API Manufacturing
Research & Development Financials Future Key Elements / Guidance
March 2006 Investor Presentation 4
Strategic Focus Speciality prescription brands in India and emerging markets US generic presence Speciality APIs Innovation projects in drug discovery and delivery systems
Recognition
Ranked by Forbes Global among the best companies for 2001, 2003, 2004, 2005
(Turnover less than USD 1 billion, from a total universe of over 20,000 companies that meet their criteria, Forbes Oct 2001, Oct 2003, Oct 2004, Oct 2005)
March 2006 Investor Presentation 5
Management and Governance Sun Pharma established in 1983
IPO in 1994 Consistently focused on Speciality Products and Innovation to fulfill
unmet patient needs Entrepreneurship, a way of life; professionals manage all key
functions Eminent Independent Directors
Hasmukh Shah, Former Chairman and Managing Director, IPCL Keki Mistry, Managing Director, HDFC Ashwin Dani, Vice Chairman and Managing Director, Asian Paints Mohanchand Dadha, Former Chairman and Managing Director,
TDPL Audit Committee chaired by Keki Mistry comprises Hasmukh Shah
and Mohanchand Dadha
March 2006 Investor Presentation 6
R&D Centres250,000 sq ft Baroda50,000 sq ft Mumbai
Stake increased to 63% on buyout of 3 stakeholders; USD 46 million invested
48% stake through technology transfer
Growth Milestones
ResearchCentre inaugurated
IPO, Rs 550 million
Greenfield Bulk drug unit setup
Equity stakein MJ
Equity stake in Caraco USD 7.5
million investment
8 strategic acquisitions completed
1983 – 1993Successfully transitioned from start up to industry therapy area leadership
FCCB USD 350 million
Hungary acquisition
US FDA, European Approvals
New world-class injectable unit set up.,
receives USFDA approval
Acquisitionof Able Lab
assets
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Proposed De-merger of
Innovative R&D
March 2006 Investor Presentation 7
Growing Steadily
Turnover double and Net Profit triple in 4 years,
continuing the trend of the past decade despite increasing size
Prior to 01-02 Standalone;rest consolidated
12,301 3,962
5,000
6,000
7,000
8,000
9,000
10,000
11,000
12,000
13,000
00-01 01-02 02-03 03-04 04-05
1,250
1,750
2,250
2,750
3,250
3,750
4,250
Turnover (CAGR 22.6%) Net Profit (CAGR 36.5%)
880
214
100
200
300
400
500
600
700
800
900
90-91 91-92 92-93 93-94 94-95
0
50
100
150
200
250
Turnover (CAGR 61.4%) Net Profit (CAGR 99.7%)
4,445 837
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
95-96 96-97 97-98 98-99 99-00
350
400
450
500
550
600
650
700
750
800
850
Turnover (CAGR 38.3%) Net Profit (CAGR 31.3%)
March 2006 Investor Presentation 8
Sustained Profitability
Superior business model
Sun Pharma Net Margins consistently higher than EBITDA Margins for peers (other top 10 Indian pharma companies)
GrossMargin
gap
EBITDAMargin
gap
NetMargin
gap
71
34
33
58
1410
-
10
20
30
40
50
60
70
80
2001-02 2002-03 2003-04 2004-05 9m 2005-06
%
Gross Margin (Sun) EBITDA Margin (Sun) Net Margin (Sun)Gross Margin (Other top 10) EBITDA Margin (Other top 10) Net Margin (Other top 10)
March 2006 Investor Presentation 9
Shareholders Market capitalisation at INR 178 billion / USD 4.0 billion Rs 1,000 invested in the 1994 IPO
Currently worth Rs 68,750 Earned dividend of Rs 1,244
Foreign Institutional Investors hold 15.6% High stability of institutional investors : Average holding time is
around 5 years
March 2006 Investor Presentation 10
Strategic Consistency Create sustainable revenue streams through focus and
differentiation Products for chronic therapies and complete disease management
basket Differentiate with technically complex products Phased product rollout
Innovative in identifying and pursuing opportunities Seek acquisitions that offer significant value addition opportunities
Balance short-term profitability while investing for the future Focus on research to bring novel products to market Conservative use of resources through superior and continuous
optimisation of costs Integrated from Development through Manufacturing (API and
Formulation) to Marketing
India Less Regulated Markets US / Europe
March 2006 Investor Presentation 11
Successful at acquisitions
Acquired 13 high potential yet under-performing businesses *
Successful turnarounds
15
20
25
30
35
40
45
95-96 96-97 97-98 98-99 99-00 00-01 01-02 02-03 03-04
Net Margin Operating Margin
8 early acquisitions
ConsolidatedFinancials
StandaloneFinancials
* Includes companies, plants or brands
Main Asset YearBulk Drug plant at Ahmednagar
1995-96
Bulk Drug plant at Ankleshwar
1996-97
Formulation plant at Halol
Nov-96
TDPL brands, bulk drug and formulation plant at Chennai
Apr-97
Formulation plant at Detroit, US
Aug-97
NATCO brands 1998-99Ophthalmology brands
1998-99
Bulk drug plant at Chennai
Apr-00
Bulk Drug plant at Baroda
Mar-04
Womens Health Brands
Nov-04
Bulk drug and formulation plant in Hungary
Aug-05
Formulation plant in Bryan, Ohio, US
Sep-05
Assets of Able Labs, NJ, US
Dec-05
Business Operations
March 2006 Investor Presentation 13
53%
7%
22%
11%
7%
18%
5%
2%
15%60%
Balancing opportunity and returns
Consolidated1999-2000 2004-05
Size of circle indicates relative sale value
Estimated Consolidated
India Formulations (CAGR 17%)
International Bulk (CAGR 8%)
India Bulk (CAGR 4%)
InternationalFormulations(CAGR 31%)
US Generics(CAGR 86%)
Rs 5,050 million
Rs 12,750 million
March 2006 Investor Presentation 14
Standing Strong Sun Pharma ranked 6th* with 3.28% market share and 14% growth Ability to spot unmet patient need and launch products quickly
Over 40 new products launched in 2004-05, contributing 6% of sales More than half of these technically complex on account of delivery
system / formulation
Over 50% of brands in over 300 therapeutic categories among top 3 by molecule
Sales spread out over several products and not dependent on a few “blockbusters” Top 10 brands contribute 24% of sales
* Based on revised IMS – ORG methodology. Starting August 05, IMS – ORG compiles industry sales data based on stockists sales while earlier
this was based on retailers sales
March 2006 Investor Presentation 15
Chronic Leadership
Speciality Marketing Focus A stable and consistent business
Prescriptions have a long life, repeat value generally not switched Steady and consistent revenue streams
Neuro-Psychiatry, 29%
Cardiology, 22%
Diabetology, 11%Gastroenterology,
10%
Gynecology & Urology, 7%
Musculo-Skeletal & Pain, 6%
Antiasthamatic & Antiallergic, 5%
Opthalmology, 4%
Anti-Cancer, 1%
Others, 4%
March 2006 Investor Presentation 16
Relentless Customer Focus First in India to introduce therapy focused marketing divisions
Now, 17 therapy area focused marketing divisions: Speaking the customer’s language
A 2000 representative strong field team for regular customer calls Selective niche coverage of 120,000 specialists who write high
value chronic area prescriptions; strong relationships with most
Ranks to offer platform for in licensing post 2007
Source : CMARC Jul – Oct 2005
SPECIALITY 1998 Jul - Oct 05Psychiatrist 1 1Neurologist 1 1Cardiologist 5 1Ophthalmologist NA 1Diabetologist 6 2Gastro-enterologist 6 2Orthopaedicians 31 3Nephrologist NA 4Oncologist 20 5Cons Physician 8 6Chest Physicians 16 6
March 2006 Investor Presentation 17
Climbing Steadily Sun Pharma market share up from 0.93% (Dec-92) to 3.27% (Dec-
05) Market share for most of the peer group companies has either
declined or increased marginally over the same period
1992 Market Share indexed to 100 for all companies
50
100
150
200
250
300
350
400
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Sun Pharma Cipla Ranbaxy Nicholas Piramal Cadila DRL
March 2006 Investor Presentation 18
US Generics
The highest priority market Integrated generic manufacturer : Speed and cost for large volume
products Flexibility for manufacture onshore / offshore
Caraco, the US generics subsidiary, markets 20 products Current Sun Pharma stake at 73% (with preference stock
conversion assumed); to increase to 76% based on technology transfer
Investment : USD 50 million and over 30 products transferred Sun Pharma stake now valued around USD 325 million
Bought 2 heritage brands from Women's First for USD 4 million with sales of USD 5 million; first steps involve telemarketing, mailing, ensuring availability
Strengthened management team : Daniel Movens, industry veteran, joins as CEO
March 2006 Investor Presentation 19
(20)
(10)
-
10
20
30
40
50
60
70
80
2001 2002 2003 2004 2005
US
D M
illio
n
Net Sales Gross Profit R&D Expenditure Net Income
Caraco : Sure Turnaround
Sales grows 13 times and Gross Profit 22 times in 4 years
Market CapUSD 13 million
Current Market Cap
USD 475 million
March 2006 Investor Presentation 20
Caraco
Product pipeline In Dec 2005, Caraco launched a generic version of Ultracet for
which it had earlier received summary judgment for non-infringement
As of Dec-05, 38 ANDAs pending approval between Caraco and Sun 13 from Caraco, generally para 3 25 from Indian site comprising
Large volume products (with relative thin margins) Regulatory / legal challenge Dosage form other than aqueous based tablets
March 2006 Investor Presentation 21
Europe Generic Markets Work with a partner in 3 key markets UK, France and Germany
Filings made from an Indian site Offer manufacturing and product development support - no direct
market presence planned Acquired an API and dosage form manufacturing company in
Hungary with controlled substance capacity
March 2006 Investor Presentation 22
Branded Generic Markets
Less Regulated Markets Product basket width / technology as a growth driver
Currently 7 % of the turnover : To grow at 40%+ per annum over the next two years
Technically complex specialty products with good market opportunity and relatively less competition are close to market
Across 26 countries, around 740 products registered and another 350 await registration
Replicating the speciality template Focus countries / regions market characteristics similar to India in
terms of brand promotion : CIS, China, South East Asia, South Africa, the Middle East
Important new markets : Brazil, Mexico, Peru, Colombia 260 strong local field force promotes brands to doctors generating
prescriptions and building loyalty
March 2006 Investor Presentation 23
Speciality Bulk Actives
High Margin Regulated Markets
Rapid ramp up of the speciality bulk business largely to end users in regulated markets From 2 products in 1995 to over 100 now across 6 plants
Strong regulatory capability 8 DMF and 10 EDMF approved Hungary : 8 products including controlled substances approved for
US / Europe 34 DMF and EDMF awaiting approval
(*FDA cleared, ANDA activation pending)
March 2006 Investor Presentation 24
Manufacturing
Formulation 9 manufacturing sites (Halol, Silvassa, Dadra*, Jammu*, Dhaka,
Detroit, Hungary, Ohio, New Jersey) compliant with international regulatory standards Over 750,000 sq. ft. area and 10 billion tablets / year capacity
Halol UKMHRA, USFDA and several other market approvals Dedicated areas for anticancer, steroids, hormones, parenterals USFDA approved, new specialty injectables plant- 36,000 sq ft
manufacturing area 7 lines with capability to handle liquids (vials, ampoules), powder,
lyophilized products, eye drops
Hungary : Film coated and effervescent tablets, capsules Ohio : Creams, ointments and liquids New Jersery : Controlled substances
* Partnership
March 2006 Investor Presentation 25
Manufacturing
Bulk 6 World class locations (Panoli, Ahmednagar, Ankleshwar, Baroda,
Chennai, Hungary) with all sites ISO 14001, ISO 9002 approved Reactor capacity 1200 KL with over 650,000 sq ft area
Over 25 bulk processes scaled up ((including those for filing) / launched annually
Panoli and Ahmednagar International regulatory approvals: USFDA, European Stand alone units for
Peptides Anticancers Steroids Sex Hormones
Hungary Controlled substances manufacture
Research & Development
March 2006 Investor Presentation 27
Research and Development
Innovation Initiative Starting at 4% of sales in 1993, R&D spend increased to 12% in
2004-05 Strong research teams in reverse engineering, dosage form
development, biological support, chemistry Balancing the risk
Immediate term : ANDA, DMF, Products for India Medium term : Drug delivery systems Long term : Innovation based drug delivery systems, new chemical
entity
March 2006 Investor Presentation 28
Research & Development
Intellectual property creation fuels long term sustainability
2002-03 2003-04 2004-05 9m 05-06% of new products that are technically complex 31% 44% 50% 45%
Cumulative ANDA filed 16 22 39 57 Cumulative ANDA approved 13 16 17 19
Cumulative DMF / COS filed 12 27 45 52 Cumulative DMF / COS approved 10 10 16 18
Cumulative Patents filed 90 321 345 422 Cumulative Patents received 5 33 34 42
No of scientists 282 380 388 420
R&D Spend % of Net Sales 11.6 12.9 12.1 10.9
March 2006 Investor Presentation 29
Drug Discovery: Innovation Goals Innovation to be de-merged into a new company Priority areas
NDDS Platforms
Targeted drug deliveryControlled release systems
» Gastric retention systems» Matrix based products for highly soluble drugs
Biodegradable injections/implantsDry powder inhalers
2 products on trackHuman studies in the next few months
NCE 3 known targets, analogue based approach Known biology hence lower risk of failure 1 product is in human studies, US IND to be filed shortly
March 2006 Investor Presentation 30
R&D Infrastructure Sun Pharma Advanced Research Centre (SPARC)
Baroda World class labs in Formulation Development, Process Chemistry,
Biotech (tissue culture, cloning), Biological Research (Pharmacokinetics, Pharmacology, In vitro, In vivo screening), Analytical Development
Priority is NCE and NDDS 16 acre campus, 250,000 sq ft research area,167 labs Current strength : Expert 355 person-strong scientific team;
Additional 150 person staff to be recruited in 2 years Mumbai
Develops Dosage forms and generics for US, Europe Also works on new NDDS platforms 65 person strong scientific team Well equipped lab over 50,000 sq. ft
Financial Highlights
March 2006 Investor Presentation 32
Financials
Consolidated
(Rs million)2002-03 2003-04 2004-05 9m 2005-06
P&L SummaryNet Turnover 8,410 9,995 12,301 13,212 Net Sales 8,319 9,830 11,853 12,301 Gross Profit 5,468 7,461 8,749 8,868 EBITDA 2,783 3,950 4,297 4,247 Net Profit 2,487 3,107 3,962 4,303 R&D Spend 967 1,268 1,440 1,337
BS SummaryShareholders Funds 5,764 8,159 11,307 Loan Funds 1,305 4,130 18,230 Net Fixed Assets 3,486 4,928 6,213 Net Current Assets 3,859 4,808 16,360
Cash Flow SummaryNet Cash from Operating Activities 1,513 2,878 3,754 Net Cash used in Asset Creation Activities 829 2,427 1,666 Net Cash generated in Financing Activities 728 1,773 13,640
March 2006 Investor Presentation 33
Financial Ratios
Consolidated
2002-03 2003-04 2004-05 9m 2005-06Growth (%)
Net Turnover 20.4 18.8 23.1 44.8 Net Sales 21.0 18.2 20.6 37.2 Gross Profit 41.6 36.4 17.3 31.4 EBITDA 39.6 41.9 8.8 22.7 Net Profit 47.9 25.0 27.5 47.0
Margins (%)Gross Margin 65.7 75.8 73.0 70.7 Operating Margin 33.4 40.1 35.9 33.9 Net Margin 29.6 31.1 32.2 32.6
Return (%)ROCE 36.4 29.8 13.2 RONW 43.1 38.1 35.0
OthersDebt / Equity 0.23 0.51 1.61 Fully Diluted EPS (Rs) 13.20 17.00 20.80 20.80 R&D Spend % of Net Sales 11.6 12.9 12.1 10.9
Revenue 7.2 6.8 8.6 8.5 Capital 4.4 6.1 3.5 2.4
March 2006 Investor Presentation 34
Future Key Elements / Guidance India Formulations market share to increase to 4% up from 3.28% Rapid expansion of the international business including Caraco to
50% of sales Sales growth (Apr 05 – Mar 06)
India formulations : 15 - 20% Caraco : 25 - 30% over calendar 2004 International formulations (without US) : 40% Bulk business (India + International) : 20 - 25%
R&D spend 10 - 11% of consolidated sales Spend in innovation to increase to 50% of research budget in the
next two years Separation of Innovative programs (NCE + NDDS) into a new
company Capex : Around Rs 1,000 million Seeking an acquisition in the US
To become a research based international pharma company
For updates and specific queries, please visit
www.sunpharma.com
or feel free to contact
Mira Desai, +91 22 56455645, [email protected]
Uday Baldota, +91 22 56455645, [email protected]
In addition to Company data, data from IMS – ORG, CMARC, Stock Exchanges and industry publications has been used for this presentation.