Balaxi Pharmaceuticals Ltd Management Discussions

INDUSTRY STRUCTURE AND DEVELOPMENT

INDIA PHARMACEUTICAL SECTOR

In the calendar year 2023, the Indian pharmaceutical sector demonstrated substantial performance in production, innovation, and exports, achieving significant milestones while navigating various challenges.

Innovation was a key focus and a commitment that the Indian pharmaceutical sector upholds with significant advancements across the pharma value chain. The sector saw increased investments in research and development (R&D), driven by government and private sector efforts. The Indian governments Production-Linked Incentive (PLI) scheme, with an outlay of Rs. 15,000 crore (US$ 2.04 billion), aims to boost manufacturing capacity and promote innovation. The sectors growth was also supported by a collaborative environment between the government and industry stakeholders, fostering an ecosystem conducive to innovation.

INDIAN PHARMA EXPORTS

Balaxi exports its branded and generic products to Latin

American and African countries. Based on the Pharmexcil data for FY24, the analysis of Indian pharmaceutical and drug exports to various Latin American and African Countries is as follows.

Latin American countries are emerging as a promising market for Indian pharmaceutical exports, showcasing significant growth and potential in recent years.

As healthcare systems in these nations continue to evolve and expand, the Indian pharmaceutical sector, with its high-quality, cost- effective products, is playing a pivotal role in meeting the rising demand. This surge is driven by several factors, including increasing healthcare expenditure, the growing prevalence of chronic diseases, and the rising awareness of and access to healthcare services.

India, known for its robust pharmaceutical industry, is well- positioned to meet this demand, offering a diverse range of generic medications and innovative treatments at competitive prices. The sectors potential for growth and collaboration is immense, and strategic partnerships and trade agreements between India and various Latin

American countries have further facilitated the seamless export of pharmaceutical products, contributing to the impressive growth observed.

The data on Indian pharmaceutical exports to Latin American countries for the fiscal years 2022-2023 (FY23) and 2023-2024 (FY24) underscores this upward trajectory. Total exports to the region increased from $1998.24 million in FY23 to $2336.73 million in FY24, marking a substantial growth rate of 16.93%. This remarkable increase highlights the regions expanding market and the growing acceptance and reliance on Indian pharmaceutical products.

ANALYSIS OF INDIAN PHARMA EXPORTS TO LATIN AMERICAN COUNTRIES

Total Exports (in $ million)

COUNTRY	APR-MAR FY23	APR-MAR FY24	% CHANGE
BRAZIL	642.67	655.57	2.01%
COLOMBIA	158.85	168.22	5.90%
URUGUAY	13.75	14.17	3.04%
PERU	100.06	117.09	17.03%
VENEZUELA	109.08	100.57	-7.81%
BOLIVIA	27.49	23.46	-14.69%
HONDURAS	29.75	35.85	20.47%
CHILE	156.94	208.21	32.67%
NICARAGUA	27.79	31.02	11.61%
MEXICO	293.07	338.51	15.50%
PANAMA REPUBLIC	25.29	20.36	-19.47%
EL SALVADOR	31.83	33.22	4.35%
GUATEMALA	73.16	84.65	15.72%
COSTA RICA	20.85	24.76	18.76%
DOMINICAN REP	67.35	64.75	-3.87%
CUBA	8.20	4.36	-46.82%
PUERTO RICO	24.51	10.43	-57.46%
MARTINIQUE	0.01	0.01	19.23%
ST LUCIA	1.27	1.60	26.38%
ANTIGUA	0.36	0.46	28.78%

Countries such as Martinique, French Guiana, Chile, Guatemala, and the Dominican Republic have exhibited the highest pharma import from India, reflecting the increasing penetration and influence of Indian pharmaceuticals in these markets. This growth not only indicates the current success but also points to the vast potential for future expansion as healthcare needs in Latin America continue to evolve.

STRATEGIC RESPONSES FROM GOVT AND INDUSTRY

GOVERNMENT INITIATIVES:

The Indian government continued to support the pharmaceutical sector through initiatives like the Production- Linked Incentive (PLI) scheme, which aims to boost manufacturing capacity and promote exports. These initiatives have helped Indian pharma companies enhance their production capabilities and meet the growing demand in frontier markets. The Government of India is actively promoting pharma exports through various initiatives, including the Pharmaceutical Export Promotion Council (Pharmexcil), which provides support and resources for Indian exporters. To boost exports to Latin American countries, the government is facilitating trade agreements, participating in international trade fairs, and offering incentives to pharmaceutical companies. These efforts aim to enhance Indias global pharma footprint and increase market access in Latin America.

INVESTMENT IN QUALITY CONTROL:

To address quality control issues, Indian pharmaceutical companies have increased investments in adopting Good Manufacturing Practices (GMP) and advanced technologies. Regular audits and training programs have been implemented to ensure compliance with international standards.

INDIAN PHARMA EXPORTS TO BALAXIS EXISTING MARKETS:

The table below presents the financial performance data for existing markets where Balaxi Pharmaceuticals Limited has a significant export presence. The data, as reported by Pharmexcil for FY23 and FY24, includes export figures for Guatemala, Dominican Republic, Honduras, El Salvador, Angola, and Central African Republic. These figures highlight the changes in export revenue, showcasing both growth and challenges in these markets over the fiscal year.

Total Exports (in $ million)

COUNTRY	FY23	ALIGN=CENTER>FY24	% CHANGE
GUATEMALA	73.16	84.65	15.72
DOMINICAN REPUBLIC	67.35	64.75	-3.87
HONDURAS	29.75	35.85	20.47
EL SALVADOR	31.83	33.22	4.35
ANGOLA	93.01	60.23	-35.25
CENTRAL AFRICAN REPUBLIC	7.81	6.12	-21.63

INDIAN PHARMA EXPORTS TO BALAXIS EMERGING MARKETS:

The following table highlights the export performance data for the targeted markets Balaxi Pharmaceuticals Limited aims to expand into. According to Pharmexcil export data, Nicaragua, Chile, and Ecuador have shown substantial growth potential in FY24 compared to FY23. These targeted markets are key to Balaxis strategic expansion plans, and notable increases in export revenues reflect their growing importance.

Total Exports (in $ million)

COUNTRY	FY23	FY24	% CHANGE
NICARAGUA	27.79	31.02	11.61
CHILE	156.94	208.21	32.67
ECUADOR	50.68	61.49	21.32

SWOT ANALYSIS OF THE COMPANY STRENGTHS

Strong foothold in Established Markets:

Balaxi has a strong foothold ?n the established markets, whlch provldes a competltlve advantage over new entrants. Established relatlonshlps wlth local dlstrlbutors and retailers facil?tate smoother operatlons and market penetratlon.

Diversified Product Portfolio:

Balaxi offers a diversified range of pharmaceutlcal produc?s catering to varlous therapeutlc segments. Thls diversification helps mit?gate rlsks assoclated wlth dependency on a single product Une. There are 960 product reglstratlons ?n elght countrles and 700 ?n the pipeline.

Cost-Effective Sources:

Access and long-standlng relatlons wlth WHO GMP manufacturers at m?ltiple global locatlons ensure a cost-effectlve, seamless flow of medicines.

Regulatory Compliance:

The companys adherence to International regulatory standards ensures the quallty and safety of ?ts produc?s, bulldlng trust and credlblllty among healthcare professlonals and consumers.

Strengthening the valu? chain:

Balaxi ?s strengthening ?ts valu? chain by integrating product dlverslty, partnerlng wlth WHO GMP-approved manufacturers, and enhanclng regulatory affalrs management. Its recent foray ?nto manufacturlng further boosts ?ts capabilities, ensurlng efficlent supply chain management and the dellvery of high- quallty produc?s to customers.

WEAKNESSES

Logistical Challenges:

Lat?n Amerlcas ?nfrastructural ?nefficlencles can lead to delays and ?ncreased costs ?n transportatlon and distribution, affectlng the tlmely availability of produc?s.

Dependency on Key Markets:

Heavy reliance on specific countries within Latin America could expose Balaxi to regional economic downturns and political instability, affecting overall business performance.

Regulatory Hurdles:

Navigating the complex regulatory environments of different Latin American countries can be resource- intensive and time-consuming.

OPPORTUNITIES

Market Expansion:

Expanding into untapped markets within Latin America and leveraging existing distribution networks to reach new customer segments presents opportunities.

Product Innovation:

Investing in more and more new product registrations and own manufacturing can meet the evolving healthcare needs of the Latin American population and capture greater market share.

Strategic Partnerships:

Forming strategic alliances with local healthcare providers, governments, and other stakeholders can enhance market access and operational efficiency.

Rising Healthcare Expenditure:

Increasing healthcare expenditures in Latin America provide opportunities for growth, as more resources are allocated to improving healthcare infrastructure and access to medicines.

THREATS

Political and Economic Instability:

Political upheavals and economic instability in key Latin American markets can disrupt business operations and affect profitability.

Regulatory Changes:

Changes in regulatory policies and compliance requirements can introduce uncertainties and potential delays in product approvals.

Competition:

Intense competition from international pharmaceutical companies can lead to pricing pressures and reduced market share.

Supply Chain Disruptions:

Balaxis dependence on a global supply chain makes It vulnerable to disruptions caused by geopolitical tensions, natural disasters, or pandemics.

KEY DEVELOPMENTS IN OUR MARKETS - ANGOLA

Recent currency fluctuations have significantly impacted Angolas economy, including pharmaceutical imports from India. The steep depreciation of the Angolan kwanza in 2023, driven by the end of the debt moratorium and a weakened oil sector, has led to increased inflation, which stood at around 20% by the end of 2023. This devaluation has made imports, including pharmaceuticals, more expensive, straining Angolas purchasing power and economic stability.

The devaluation of the kwanza, coupled with cuts in fuel subsidies, has raised the cost of living, leading to higher inflation

and reduced consumer spending power. This has particularly impacted sectors reliant on imports, such as pharmaceuticals. The increased import costs due to the weaker currency have made Indian pharmaceutical products more expensive in Angola, potentially reducing the volume of imports and affecting the overall trade balance.

Moreover, the Angolan governments focus on repaying external debt and implementing fiscal austerity measures has limited public expenditure in other areas, further complicating the situation for import-dependent sectors. Despite these challenges, there is a concerted effort to

stabilise the economy through structural reforms and improved fiscal management, which could eventually help mitigate the adverse effects of currency fluctuations.

The currency fluctuations have posed significant challenges to Angolas economy, affecting its ability to import pharmaceuticals from India efficiently. However, ongoing economic reforms and potential improvements in oil production might offer some relief shortly.

KEY DEVELOPMENTS IN OUR MARKETS - GUATEMALA & DR

In 2023 and early 2024, pharmaceutical imports to Guatemala and the Dominican Republic were significantly impacted by political upheavals.

In Guatemala, the political instability disrupted the import process. Widespread protests demanding political reforms further hindered the logistics and regulatory processes essential for pharmaceutical imports. Similarly, in the Dominican Republic, geopolitical tensions influenced domestic politics, complicating the environment for pharmaceutical imports and affecting the healthcare sector. These factors collectively created an unstable environment, complicating the logistics and regulatory processes essential for pharmaceutical imports, thus impacting the healthcare sector in both countries.