Creating Lasting Value Investor Presentation

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.


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


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)


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


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


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


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



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)


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


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


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


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


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


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%


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


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


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


(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


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


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


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


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)


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


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


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


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


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


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


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


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


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.

Creating Lasting Value Investor Presentation

Documents

Transcript of Creating Lasting Value Investor Presentation