Orchid - India Ratings

CONFIDENTIALProfile and StrategyDecember 2002K Raghavendra RaoManaging Director

Orchid … a fact fileIndustry statusProduct range(bulk and pharma)Market coveragePlants• USD 90 million, Chennai based pharma major in India• Leader in the global cephalosporins segment• Largest manufacturer-exporter of Ceph APIs in India• Amongst the Top Five in the world• Publicly listed company with NSE, BSE and other stock exchanges• Cephalosporins• Non-cephalosporins• Nutraceuticals• Over 70 countries• Spans Europe, South America, Asia, Middle East, Russia, CIS and US• Offices in US, Russia, CIS and Brazil• Nationwide distribution system in India• Modern manufacturing plants at- Alathur, near Chennai (bulk and pharma)- Aurangabad, 400 kms from Mumbai (bulk)Research center• State-of-the-art research centers at Sholinganallur (near Chennai)- Process research - New Drug Discovery- Pharma research - Novel Drug DeliveryCertifications• ISO 9001:2000• ISO 14001• EDQM approvals• US FDA certifiedEmployee strength• 1800 +, across plants, research center, field and offices1

Orchid’s web of six core capabilitiesQuality leadership• ISO 9001:2000 certified• cGMP approved• EDQM / US FDA approvedCost advantage• 30-40% lowermanufacturing cost thanglobal pharmaceuticalcorporationsEnvironmental showcaseManufacturing Prowess• India’s first and only “ZeroDischarge”, ISO 14001certified facility• ETP investment overRs 500 million• Recognized as the GoldStandard in environmentalconsciousness by theGovernment of IndiaOrchid is emerging as apreferred supplier to globalpharmacos which recognizeOrchid’s quality leadership,cost advantage andmanagement strengths• World-class Lyophillization andCrystallization plants• Highly automated, flexiblemanufacturing capabilities• Expertise in handling complexand hazardous reactions• New plant for non-cephsWorld class talent• Innovative, entrepreneurial,collaborative senior management team• Over 200 highly qualified professionalswith advanced degrees in science,engineering and management(including PhD/MS/Mtech/MBA)R&D strengths• Non-infringing novel routes forsynthesis for patenting• Antibiotic Adduct Research• New Chemical Entities• Alternative processes to improve yieldsand reduce effluents2

Shareholding pattern as of December 2002 (%)P ublic21%FIs7%CollaboratorsOt he rs1%6%Promoters &Associates19%IFC14%Schroders32%4

Orchid’s strategy in 1999 aimed at expansion andmodernization of facilitiesFollowing projects were undertaken in 2000 with Schroders investmentCephalosporin infrastructure at Alathur upgraded and balanced to requirementsA bulk drugs unit in Aurangabad has been acquired and upgraded for high-endnon-cephalosporin betalactumsR&D strengthened with state-of-the-art NMR, LCMS and GCMS equipmentSAMe bulk nutraceutical facility set up in Alathur for US dietary supplement marketNutraceutical formulations facility set-up to value add for US dietary supplementmarketLoans drawn down selectively to reduce interest burden5

Recognizing the changing market dynamics, Orchid recast its plans in2001 to focus on regulated markets, formulations and drug discoveryPre-2001Post-2001 (Additional to Pre-2001)Volume expansion in nonregulatedmarkets for API businessEntry into regulated markets,based on US FDA compliant infrastructureDomestic market oriented formulationbusinessExport oriented formulations businessbased on US FDA compliantformulation plantsApplied research and reverseengineeringNIP research Drug Discovery and NovelDrug Delivery Systems based on newresearch streams and infrastructureOnly organic growthJoint ventures and acquisitions to defendand grow markets6

Orchid drew up a new business strategy in 2001,based on McKinsey inputsThe strategy is to grow the business in multiplehorizons comprising core, emerging and knowledgeintensivebusinesses.Horizon 3• NDD / NDDS researchHorizon 2• Biotechnology• FormulationsHorizon 1• Nutraceuticals• Bulk Unregulated• Bulk RegulatedIn each of the Horizons, Orchid has taken specificgrowth initiatives, both organic and inorganic7

Integrating the earlier Schroders investment, thecapital investment plan was ....Applications Rs Mn USD (Mn)Bulk actives business 2465 55Formulations business 535 11JVs & offshore marketing offices 700 16Research 800 18Total 4500 100SourcesTerm Loans 1600 36IFC– FCCBs 940 20– ECB 460 10Equity– Schroders Funds 800 18– Internal Accruals 700 16Total 4500 1008

Projects executed / under execution with IFCinvestment plan# Project1New cephalosporin sterile crystalline, non-sterileand intermediate plants for US FDA at AlathurInvestment(USD Mn)29StatusTo be commissioned byQ3 of 2002-032 Aurangabad (acquisition and modernisation) 12 CompletedNew sterile and oral cephalosporin formulation3plants for US FDA at Irungattukottai, ChennaiExpansion of A10 nutraceutical formulations facility4at Alathur for select non-cephalosporinsEstablishment of Animal House with Toxicology &5 Pharmacology Center at Sholinganallur for NewDrug DiscoveryCreation of new drug discovery infrastructure atSholinganallur (medicinal chemistry, analytical6chemistry, modelling, microbiology andpharmacology)Establishment of biotechnology laboratory for7enzyme research and future drug discovery8 ERP / Marketing offices abroad 2Total 6511To be commissioned byQ4 of 2002-031 Completed45To be completed by Q4of 2002-03A few labs completed;additional ones underengineering; to becompleted by mid-20031 Basic lab completedERP on-line; officesbeing established9

Projects also cover the following inorganicinitiatives# Project1250 : 50 JV with IBPP, Italy for appliedresearch in Europe50 : 50 JV to establish BexelPharmaceuticals for drug discovery inUSOrchid'sinvestmentin the JV(USD Mn)28StatusUSD 0.85 Mncontributed inFeb / Mar 2002USD 1 Mncontributed inJuly 2002350 : 50 JV with NCPC Group in China tomanufacture and market bulk sterileCephalosporin activesTotal 155To becontributed inOct-Nov 200210

Performance in 2002-03 will be significantlybetter, paving the way for more sustained growth.(USD Mn)SBUTurnoverNet Profit *2001-02 2002-03 2001-02 2002-03Bulk 85 102 4.2 6.5Formulations`- Domestic 4 9`- Exports 1 4`- Total Formulations 5 13 -1.4 0.6Total (Bulk + Formulations) 90 115 2.8 7.1* Without deferred tax but after corporate tax11

Actions taken for performance enhancementBulk ActivesBusiness• High-value, high-marginproduct mix• Yield improvements andsolvent recoveries• Better sales collections• Launch of Biotin fromAurangabadFormulationsBusiness• First mover premiumproducts• Co-marketingarrangements• Export of formulationsthrough registrations• Revival of SAMe marketin the US12

For the long term, specific projects for regulatedmarket entry are advancing well• US FDA inspection for Cephalexin (oral) plant at Alathursuccessfully completed in November 2002 ; paves the way for USmarket entry early 2003• Inspection for Cefazolin (sterile) plant at Alathur is due in Q2 of2003; followed by US market entry• New US FDA compliant sterile, non-sterile and intermediate blocksat Alathur will be commissioned by Q3 of 2002-03; will supportentry of all key cephs to US progressively from 2003-04 based onDMFs• Non-infringing processes developed for all cephalosporinproducts and filed for patent protection• More filings have been made for COS with EDQM ; will supportbroader European penetration from 2003-0413

The US Ceph generics business will develop ina significant way from 2005• Broad-based alliance with a leading global genericscompany finalised for the full range of Orchid’scephalosporin formulations, to be marketed in US andCanada• New oral and sterile cephalosporin formulations plants atIrungattukottai (near Chennai) to be commissioned in Q4of 2002-03, will help formulations export to US as well asother regulated and non-regulated markets• A discrete organisation and leadership with end-to-endconnectivity has been established to fast-track the USgenerics business14

In research and other knowledge intensive areas,long term value is being built• Process research singularly focused on development ofnon-infringing processes ; as many as 68 novel processesfiled for patent protection under US, PCT and India-WTOprovisions• Over 60 market driven products for domestic and exportneeds ; In addition several novel delivery system (NDDS)projects underway, with 15 under patent protection• New drug discovery focused on development of noveloxazolidinone and COX-2 inhibitor compounds ; 8provisional patents filed for NCE structures15

A snap-shot of Orchid’s patent filings• Orchid’s cumulative patent filing count is 78; over the last 12 months,as many as 60 patent applications have been filed - thrice the numberfiled over the earlier three years of IPR activity.AreaCountryUS PCT EP India-WTO Others TotalProcess 14 16 2 32 4 68NCEs 0 0 0 8 0 8Formulations 3 4 0 8 0 15Total 17 20 2 48 4 91• Further boost to IPR in terms of NDD and NDDS is targeted in the coming months16

The organic strategy is supplemented by threeimportant inorganic growth initiatives• Joint Venture in China with NCPC Group for manufacturing andmarketing of sterile bulk actives and formulations• Joint Venture in US with BEXEL for drug discovery in metabolicdiseases• Joint Venture in Europe with IBPP for peptide drugs and nicheproductsNCPC Orchid Pharmaceuticals Co. Ltd.Biotechnological Chemical Development Ltd.17

Organisation has been substantially strengthened overthe last 12-18 months to support the growth plan• SBU structure in place to manage new businesses• Over 25 senior level personnel inducted fromreputed companies with US FDA track record• Key functions such as R&D, Regulatory Affairs, IPRand US Generics particularly strengthened• Emphasis is placed on cultural integration,management development and performancemanagement18

The current growth initiatives will mark asignificant transformation of Orchid’s businessRegulated MarketsCurrent programmes will provide entry into the USmarkets progressively from 2003-04, both in bulk andpharmaScale andearningsConsequently, Orchid will achieve high turnover,robust profitability and high growthInnovationOrchid will have patented new drugs from itsdiscovery bases in India and US, with consequentrating for IPROrchid is poised to leverage its high technology infrastructurefor robust growth and profitability, extending the leadershipposition in cephalosporin bulk and formulations19

SummaryRobust performance growth is forecast on the basis of athree pronged strategy, under implementationNCEs from Orchid and Bexelplatforms for outlicensing toMNCs after Phase II clinicalsExport-oriented formulations growthcovering domestic and non-regulatedmarketsUS cephalosporin generics business,with US FDA compliant API andformulation plants20

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