investor presentation q4fy17 - neuland labs...levofloxacin, olanzapine, salmeterol, salbutamol,...

©2016,Neuland LaboratoriesLimited.AllRightsReserved

InvestorPresentationQ4FY17

BSECODE:524558|NSESYMBOL:NEULANDLAB|BLOOMBERG:NLL:IN|REUTERS:NEUL.NS

SafeHarbour

2

Except for the historical information contained herein, statements in this presentation and thesubsequent discussions, which include words or phrases such as "will", "aim", "will likelyresult", "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 of such expressions may constitute "forward-looking statements“. These forward looking statements involve a number of risks, uncertaintiesand other factors that could cause actual results to differ materially from those suggested bythe forward-looking statements. These risks and uncertainties include, but are not limited toour ability to successfully implement our strategy, our growth and expansion plans, obtainregulatory approvals, our provisioning policies, technological changes, investment and businessincome, cash flow projections, our exposure to market risks as well as other risks. The Companydoes not undertake any obligation to update forward-looking statements to reflect events orcircumstances after the date thereof.


BusinessOverview

CompanyOverview

4

Legacy Scale Capability Reach

2verticals:GenericDrugs

Substance(GDS)&Custom

ManufacturingSolutions(CMS)

2regulatoryapproved

manufacturingsiteswith~532.7KL

capacity

~3400sqmFDAapproved

Researchanddevelopment

centerwithbestinclass

infrastructure

650+filingswithregulators

1000+employeesincluding~200

scientists

80+countriesofpresence

75%ofrevenuesthroughexports

93%ofrevenuesthroughregulated

markets

33+yearsinpharmawithrobustquality

systems,regulatoryandcomplianceframework

Portfolioof75+productsacross10

therapeuticcategories

OurJourney

5

01 02 03

LayingStrongFoundation

Expansion Execution

Deepeningourcapabilities

Oncoursetoprofitablegrowth

Development

1984-2003

§ Incorporationin1984andIPOin1994

§ SaleoffirstAPIin1986§ FirstUSFDAauditin1997- one

ofthefewIndiancompaniesofoursizetogetauditedbyFDA

§ Longtermcustomerrelationships

2004-2012 2013-Today§ Investmentsincapacity

expansion§ InitiationofR&Dactivityat

grouplevel§ ForayintoJapanandUSbyway

oflocalpresencethroughsubsidiaries

§ Entryintopeptidesbusiness

§ StrategicalignmentofbusinesstowardsnicheAPIsandCustommanufacturingsolutions

§ Cleared10th USFDAauditwithoutfailure

§ Focusonprofitablegrowthwith100%APIcommitmentandrobustcomplianceframework

BusinessVerticals

6(1)TheclassificationofproductsasLess-differentiated/NicheisbasedonNeuland’sunderstandingoftheproductandmarket.Theclassificationofaproductisliabletochangebasedonchangingmarketdynamics(2) CMSBusinessoriginatesinNeulandPharmaResearchPrivateLimited(NPRPL),howeverNeulandLaboratoriesLimited(NLL)istheexclusivemanufacturerforNPRPL

PrimeAPIs

NicheAPIs

Workexecutedexclusivelyforthecustomerson

productsatvariousphasesoftheirlife-cycle(2)

MatureAPIs,typicallywithhighcompetitionintheAPI

space

APIswithcomplexprocessesandnichepresence

CustomManufacturingSolutions(CMS)

PrimeAPIsandNicheAPIscollectivelyformGenericDrugsSubstance(GDS)for

Neuland

7

GenericDrugSubstance(GDS)

Capability

§ 2USFDAandEUGMPcompliantmanufacturingfacilities

§ Collectivecapacity:~500KL

BusinessApproach

§ WorkonmoleculeseitherwithabusinessleadershipapproachorpartnershipwithclientonCOGS

§ Ensureuninterruptedsupplywithqualitycommitment

StrategyForward

§ Maintainleadershippositioninkeymolecule

§ Workonprocessoptimizationtoimproveyields,productivityandthusmargins

Capability

§ Highendcomplexchemistrycapabilities

§ Backendsupportbyresearchanddevelopmentdepartment

§ Experienceofhurdlefreescaleup

BusinessApproach

§ Workwithleadingcompaniesandhelpthemtomeettheirtechnicalrequirementswhilebeingcompetitive

StrategyForward

§ FocusonnicheAPIswithcomplexchemistry

§ Launch2-4productseachyearforcommercialscaleup

§ FileIPfornoninfringingprocesses

PrimeAPIs

NicheAPIs

RobustmanufacturingbaseplacedonthefoundationofqualityandpureplayAPIcommitment

8

CustomManufacturingSolutions(CMS)

Services

§ ManufacturingAPItocustomerspecifications

§ Designinganddevelopingmanufacturingprocesses

§ Processoptimizationforcompetitiveness

§ FilingofDMF/CMCfortheAPI

§ Patentprotectionforprocesses

BusinessApproach

§ LocalpresenceinUSandJapanwithtechnicalaswellascommercialemployees

§ Consultativeapproachoncustomerrelationships

§ BusinesstargetedonNeuland’stechnologycapabilitiesandperceivedcustomerneedsleadingtoincreasedtraction

StrategyForward

§ Adddepthintechnicalcapabilitiesusingenzymatictechnology

§ InvestmentinQBDlabs,processengineeringandforayintonewareasofcustomersolutions

§ Workeffectivelyoncustomerrelationshipsandleverageonportfolioexpansion

CreateasustainableCMSbusinessthatisdrivenbytechnologyandstrongcustomerrelationships

BusinessMix

9

71% 65% 57% 50%

18% 22%27%

26%

11% 13% 17% 24%

FY-14 FY-15 FY-16 FY-17

CMS NICHE PRIME

RevenuebyVerticals Revenuebyendterritory

Europe59%

India1%

NorthAmerica29%

Japan4%

ROW

7%


Capabilities

10

11

TworegulatoryapprovedmanufacturingfacilitiesBonthapally,Hyderabad– 222.5KL Pashamylaram,Hyderabad– 310.2KL

Yearofestablishment 1986

Employeestrength 399

Keyproducts

Ramipril,Mirtazapine,EnalaprilMaleate,Sotalol Hcl,Levetiracetam,Levofloxacin,Olanzapine,Salmeterol,Salbutamol,Besofloxacin,NCEAPIs,PeptideAPIs,VitaminD2analogues

FeaturesMultiproductblockswhere2productscanbeproducedsimultaneously

Yearofestablishment 1994

Employee strength 321

KeyproductsCiprofloxacinHcl,Entacapone,NCEAPIs,Intermediates&RSMs

FeaturesMultiproductblocks where2productscanbeproducedsimultaneously

OnestateofartR&Dcentre

12

Infrastructure• 11DevelopmentLabs• 60Fumehoods• AnalyticalLab• KiloLabdedicatedforScaleup• DedicatedLabsforPeptides• SeparatefacilityforD2analogues

SignificantR&DAchievements:• SeveralNCEAPIsaddedinNDAorcommercialstage

drugs• SupportformultipleAPIseachyearinPhase2and

Phase3clinicalcandidates• GenericAPIbusiness:

– 600+DMFsfiled– 300+APIprocessesdeveloped– 50+patentsfiled.RecentlyreceivedUSPTOpatent

forimprovedprocesssynthesisofPaliperidonePalmitate

*FacilitybelongstoNPRPL,anaffiliateofNeulandLaboratoriesLtd.

R&DFacility,Hyderabad*

Location n Bonthapally

Area n 3382.5sq mts

YearofEstablishment

n 2008

Expertise

n ~200experienced, qualifiedscientists(>30PhDsandmultiplePost-graduates)

n 4PhDsand11M.Scs forthePeptidesLab

LeveragingonManufacturingandR&Dbasetocreateasynergisticbusiness

ComplianceFramework

13

QualityControl

§ QualityControlfacilitatedwithWetChemistry,Instrumentation&MicrobiologyLaboratories

§ EquippedwithsophisticatedinstrumentslikeHPLCs,GCs,FTIR,UV&ParticleSizeAnalyzer

§ About50+chemistsperformactivitiesaroundtheclockin3shiftoperations

§ StabilitystudiesasperICHguidelines

EHS

§ HazardandEHSImpactstudiesregularlyconducted

§ 24X7occupationalhealthcenterwithambulancefacility

§ EffluenttreatmentplantwithROsystemandsolidswaste

ImpeccabletrackrecordwithrobustqualityandEHSframework

RegulatoryFilings

14

51DMFswithUSFDA

~400 19CEPsReceivedfordifferentproducts

EUDMFfilingsacrossGermany,France,Poland,

Italyetc

25Filingswith

HealthCanada

5JapaneseDMF

filed

11filingswithKFDAKorea

144ROWfilingsincluding

Turkey,Mexico,Braziletc

650+Filingstilldate

5IDLsfiled


Financials

15

FY17StandalonePerformance

16

FinancialPerformance OperatingHighlights

§ Total Operating income was ₹5,727.4 mn forFY17 as compared to ₹5,099.7 mn in the FY16,an increase of 12%

§ EBITDA stood at ₹883.9 mn as compared to₹814.9 mn during the same period in theprevious year (FY16), up by 8%

§ EBITDA Margin at 15.4% for FY17 as against15.9% in FY16

§ Net profit stood at ₹324.3 mn for FY17 ascompared to ₹264.1 mn in FY16, an increaseof 23%

§ Basic EPS stood at ₹36.5 as against ₹29.7 inFY16, an increase of 23%

§ Scaled up five products for GDS business(Aripiprazole, Apixaban, Ticagrelor, Rotigotineand Lacosamide)

§ Successfully cleared ANVISA audit for our UnitII

§ Business momentum in Salmeterol as weadded new customers and markets

§ Strong pick up in Brinzolamide as themolecule gets launched in the US

§ Progress in Deferasirox with addition of newcustomers and initiation of supplies forvalidation batches in multiple geographiesincluding APAC

§ Encouraging initial response from the Chinesepharmaceutical markets where we initiatedsale of our newer APIs

KeyOperatingMetric

17

51%44%

25%27%

24% 28%

Q4FY16 Q4FY17

CMS NICHE PRIME

YoYAnalysis

47% 53% 56%44%

29%29% 19%

28%

23% 19% 25% 28%

Q1FY17 Q2FY17 Q3FY17 Q4FY17

CMS NICHE PRIME

QuarteronQuarterMovement

KeyOperatingMetric

18

2 13 4 3 3 4

32

66

5

9 8

Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17

Clinical Commercial

53

9 10 8

*- QuantitiestakenforvalidationandlaunchareconsideredasCommercial

CMSBusinessDepth

12 12

HistoricalFinancials

FinancialPerformance(INRCr) CurrentRatio(x)

DebttoEquity(x)

FixedAssetTurnover(x)

FY13 FY14 FY15 FY16 FY17Sales 464 469 469 510 573

EBITDA 61 73 67 82 88

NetProfit 14 27 16 27 32

464 469 469

510

0

50

100

350

550

161 146 109 97 90289 318 357 368 420

0

500

FY12 FY13 FY14 FY15 FY16

RevenueGrowth

RevenueofBaseProduct(Cipro) ExpansioninNon-CiproBusiness

1.9 1.51.2

0.9 0.9

2013 2014 2015 2016 2017

0.9 0.9 1.1 1.2 1.2

2013 2014 2015 2016 17

2.72.8 2.8 2.9 2.9

2013 2014 2015 2016 2017

19


FutureStrategy

GrowthStrategyforBusiness

Business

Chemistry

Quality

Scale

Relationships

Financials

ExtendcapabilitiestoorganicallybuildasustainableGDSandCMSbusiness

Deployadvancedchemistryskillstoadddifferentiatedproductstoitsportfolio

DeveloptechniqueslikeQBDtostayaheadofthecurve&setprecedentsfor“noqualitycompromise”

Investintocapacitytoaugmentsalesandacceleratebusinessgrowth

LeverageonLong–standingrelationshipswithleadinggenericandinnovatorcompanies

Re-aligningrevenueportfolioforaprofitablegrowth

₹

Createanorganizationthatresultsinvalueforallstakeholders

21

ChangeinCorporateStructure

22

The Board of Directors of the Company at their meeting held on August 27, 2016 in-principle

approved a proposal to merge Neuland Health Sciences Private Limited (Holding Company- NHSPL)

and Neuland Pharma Research Private Limited (Fellow subsidiary - NPRPL) with Neuland Laboratories

Limited (NLL) subject to all necessary approvals.

Proposed Transaction

§ Consolidation of NHSPL, NPRPL and NLL into a single company by amalgamating NHSPL, NPRPL

into NLL through a Scheme of Amalgamation and Arrangement between NLL, NHSPL and NPRPL

and the respective shareholders and creditors.

§ The transaction is subject to various approvals including shareholders and creditors, SEBI, Stock

Exchanges on which the Company’s shares are listed and the High Court of Judicature of Andhra

Pradesh & Telangana / National Companies Law Tribunal. The appointed date of the Scheme is

April 1, 2016.

CurrentGroupStructure

23

NeulandHealthSciencesPvt.Ltd.(NHSPL)(PeptidesResearchandMarketing)PromoterGroupholding:67.11%

Othersholding:32.89%

NeulandLaboratoriesLtd.(NLL)NHSPL:51.67%

Promoters/PromoterGroup:0.01%Public:48.32%

NeulandLaboratoriesIncNLLholding:100%

NeulandLaboratories,K.K.NLLholding:100%

NeulandPharmaResearchPvt.Ltd.(NPRPL)(ResearchandContractManufacturingServices)

NHSPLEquityholding:99.99%Others:0.01%

RationaleofScheme

§ The amalgamation will build more stronger and sustainable business and enhance the potential

for future growth.

§ Combined entity with strong financials will have greater access to sources of funds, improved

cash flows and increased net worth.

§ Consolidation of intellectual property, R&D capabilities and physical infrastructure into one

combined entity including an opportunity to avail additional tax benefits for in house R&D

§ Cost savings from utilizing the combined facilities of all the three entities with more focus on

operational efforts and simplification of business processes

§ Elimination of intercompany transactions costs, usage of common resource pool like human

resource, administration, accounts, legal amongst others

§ Operational convenience in terms of execution of contracts and provision of related services

§ Improved relationship with customers, as the combined post amalgamation entity would

become an end-to-end API solution provider

24

TransactionStructure

25

AppointedDate April 1st,2016

Terms

Schemetoinvolveshareexchange§ 552equitysharesofNLLforevery1000equitysharesofNHSPL*§ 410equitysharesofNLL forevery100equitysharesofNPRPL^§ Intercompanyshareholdingwillbecancelled#

Shareholding(pre mergerandpostmerger)%

ExpectedClosure Thetransaction isexpectedtoclosebyQ2ofFiscal2018

*552(Fivehundredandfiftyonly)equitysharesofNLLofRs.10/- eachfullypaid-upforevery1000(OneThousandOnly)equitysharesofNHSPLofRs.10/- eachfullypaid-upbasedonthesubdivisionofShareCapitalofNHSPL(asenvisagedintheScheme)ofRs.12.43croresconsistingof1,24,29,520equitysharesoffacevalueofRs.10/- eachfullypaidup.^410(Fourhundredandtenonly)equitysharesofNLLofRs.10/- eachfullypaid-upforevery100(OneHundredOnly)equitysharesofNPRPLofRs.10/- eachfullypaid-up.#NHSPLholdssharesinitssubsidiaries,NLLandNPRPL,andtheintercompanyshareholdingwillbecancelledandnewsharesof NLLwillbeallottedtoshareholdersofNHSPLandbalanceshareholdersofNPRPLasontheRecordDate%Referannexureforfulldetails,thenon-promoter/investorisashareholderofNHSPLandposttheapprovalofscheme,itwillbebecomepartofpublicshareholdersofNLL

34.7

17.0

48.3

PreMerger PostMerger

41.3

20.2

38.5

Promotergroup

Non-promoter/investor%

Public

ValuationOverview

§ ValuationanalysishasbeenundertakenbyindependentValuationfirm,DeloitteHaskins&Sells

§ Valuationmethodologybasedoncommonlyusedandacceptedmethodstotheextentrelevantand

applicableincluding

§ ComparableCompaniesMultiplesmethod/EarningsCapitalisationValuemethod

§ Valuebasedonmarketquotesasavailablefromrecognisedstockexchanges

§ Discountedcashflowmethod

§ NetAssetValuemethod

§ Valuationmethodologytakesintoaccountthetrailingtwelvemonthsandfutureprofitabilityofthe

companies,contractswithcustomersetc.

§ FairnessOpinionhasbeengivenbySBICaps

26

ExpectedTimelines

27

ApprovalbyBoardsofallcompanies

andannouncement

BSEandNSEapproval

ApplicationtoJurisdictionalHigh

Court/NCLT

CourtConvenedShareholdersandCreditorsapproval

HighCourtapproval

Transactioncompletion

Q3FY17

ExpectedbyQ2FY18

PostMergerStructure

28

Promoters/PromoterGroup:41.29%Public:58.71%

NeulandLaboratoriesIncNLLholding:100%

NeulandLaboratories,K.K.NLLholding:100%

Morestrongerandsustainableorganizationwithenhancedpotentialforfuturegrowth

Preandpostmergershareholding

Sl.No CategoryofShareholder Pre-merger% Postmerger%

1 Promoter&PromoterGroup(a+b) 51.68 41.29a.NeulandHealthSciencesPrivatelimited 51.67 -

- Promoters&PromoterGroupindividuals 34.68 -- Non-Promoters 17.00 -

b.Promoters&PromoterGroupindividuals 0.01 41.292 Public(c+d) 48.32 58.71

c.Public 48.32 38.48d.Non-promotersofNHSPL&NPRPL - 20.23

Total(1+2) 100.00 100.00Totalnumberofoutstanding shares 8,884,254 11,154,889

29

Forfurtherinformationcontact:

[email protected]

[email protected]

Industrystructureandkeydrivers

31

• Increased demand for biopharmaceutical

manufacturing services

• Complex and potent drug development will

lead to higher demand of High Potency Active

Pharmaceutical Ingredients which command a

higher price

• Reformulation of drugs nearing patent expiry

and for companies looking to differentiate

commoditised products

• The pharmaceutical industry is keen to cut

spending in many areas, including drug

production

• Pharmaceutical companies will look to take

advantage of low cost manufacturing

opportunities available in India

KeyDrivers

DataSource:VisionGain.com

MarketProjectionsthrough2022- GlobalAPIIndustry

APIIndustry’sShareinGlobalContractManufacturingIndustry

FinishedDosageFormulations,

33%

APIs, 67%

Forecast

2022

FY14(Est) FY15(P) FY18(P) FY20(P) FY22(P) API($bn) 37.25 42.75 48.03 53.2 58.66

0

BoardandKeyManagement

32

Dr.D.R.RaoChairmanandManaging

Director

DSucheth RaoViceChairmanand

CEO

DSaharsh RaoJointManagingDirector

§ EngineeringGraduate§ MastersinMIS-

Weatherhead SchoolofManagement,Cleveland,OH,U.S.A.

§ MBA- UniversityofNorthCarolina,U.S.A.

§ MechanicalEngineer§ MBAinCorporateFinance-

UniversityofNotreDame,U.S.A.§ EarlierProductionGroupLeaderin

CumminsInc.U.S.A.

§ M.Sc. from Andhra University, PostGraduate Diploma in Technology – IITKharagpur

§ Ph.D. in Organic Chemistry -Universityof Notre Dame, U.S.A.

§ Has held senior positions in R & D,production and quality assurance atGlaxo India

§ Member of Royal Society of Chemistry


33

Humayun DhanrajgirIndependentDirector

ManagingDirectorandExecutiveVice-ChairmanatGlaxoIndiaEx-PresidentofOrganizationofPharmaceuticalProductionofIndia

Dr.ChristopherM.CimarustiNon-ExecutiveDirector

Dr. WillMitchelIndependentDirector

PVMaiyaIndependent Director

HelpedsetupICICIBankandretiredasitsChairman&CEOManagingDirectoratCentralDepositoryServices(India)Limited

ProfessorofInternationalManagement,FuquaSchoolofBusiness,DukeUniversity,Durham,NC,USA.Ontheeditorialboardofseveralmanagementjournals.

Ph.D.inOrganicChemistry- PurdueUniversity,U.S.A.PostDoctoralResearch- ColumbiaUniversity,U.S.A.FormerSr.VicePresident,PharmaceuticalDevelopment- Bristol-MyersSquibb


34

Bharati RaoIndependentDirector

DeputyManagingDirectorofSBI.PresentlyontheBoardsofvariouscompanies,includingSBICapitalMarketsLtd.,SBIGlobalFactorsLtd.,TataTeleservicesLtd.,Delphi-TVSDieselSystemsLtd.andVijaya Bank.

Dr.NirmalaMurthyIndependentDirector

MastersdegreeinstatisticsfromBombayUniversityandadoctoratefromtheHarvardSchoolofPublicHealth,Boston,USAFounderPresidentoftheFoundationforResearchinHealthSystem,anon-governmentresearchorganization

investor presentation q4fy17 - neuland labs...levofloxacin, olanzapine, salmeterol, salbutamol,...

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