Piramal Pharma Ltd Management Discussions

Macroeconomic Overview

Global Growth Outlook

Over the last three years, we witnessed events that had an impact on the macro economic environment. These include supply chain disruptions in the aftermath of the pandemic, the Russia-Ukraine conflict that triggered a global energy and food crisis, and a considerable surge in inflation, followed by the geo political situation in West Asia and a globally synchronised monetary policy tightening. Global growth bottomed out at the end of 2022, at 2.3%, as median headline inflation peaked at 9.4%. However, 2023 has also been a year of resilience. Global economic activity grew steadily, defying warnings of stagflation and global recession. Despite many gloomy predictions, the world avoided a recession, the banking system proved largely resilient, and major emerging market economies did not come to a sudden stop. Global inflation also descended from its mid-2022 peak, helped by favourable

2023 - A resilient year

Global economic activity grew steadily, defying warnings of stagflation and globalrecession supply developments, decisive monetary policy actions and a decline in energy prices.

As per the World Economic Outlook Report, global growth, estimated at 3.2% in 2023, is projected to continue at the same pace in 2024 and 2025. While there is an uptick in growth from the lows of 2022, the current economic expansion rate remains comparatively low considering historical standards of 3.8% from 2000-2019. This can be attributed to both near-term factors such as still-high borrowing costs and withdrawal of fiscal support, and longer-term factors such as the pandemic and the geopolitical conflict; weak productivity growth; and increasing geoeconomic fragmentation. Advanced economies are expected to see a slight rise in growth, with the increase mainly reflecting a recovery in the Euro area from low growth in 2023. In contrast, emerging markets and developing economies are projected to maintain stable growth throughout 2024 and 2025, with regional differences. Low-income developing countries are expected to experience gradually increasing growth, from 4.0% in 2023 to 4.7% in 2024 and 5.2% in 2025.

Overview of the World Economic Outlook Projections

		Projections
	2023	2024	2025
World Output	3.2	3.2	3.2
Advanced Economies	1.6	1.7	1.8
United States	2.5	2.7	1.9
Euro Area	0.4	0.8	1.5
Germany	(0.3)	0.2	1.3
France	0.9	0.7	1.4
Italy	0.9	0.7	0.7
Spain	2.5	1.9	2.1
Japan	1.9	0.9	1.0
United Kingdom	0.1	0.5	1.5
Canada	1.1	1.2	2.3
Other Advanced Economies	1.8	2.0	2.4
Emerging Market and Developing Economies	4.3	4.2	4.2
Emerging and Developing Asia	5.6	5.2	4.9
China	5.2	4.6	4.1
India	7.8	6.8	6.5
Emerging and Developing Europe	3.2	3.1	2.8
Russia	3.6	3.2	1.8
Latin America and the Caribbean	2.3	2.0	2.5
Brazil	2.9	2.2	2.1
Mexico	3.2	2.4	1.4
Middle East and Central Asia	2.0	2.8	4.2
Saudi Arabia	(0.8)	2.6	6.0
Sub-Saharan Africa	3.4	3.8	4.0
Nigeria	2.9	3.3	3.0
South Africa	0.6	0.9	1.2

Global Inflation and Monetary Policy Projections

Global headline inflation is expected to decline from the annual average of 6.8% in 2023 to 5.9% in 2024 and 4.5% in 2025. Advanced economies are anticipated to reach their inflation targets earlier than emerging markets and developing economies. In 2024, the prices of fuel commodities are projected to drop by 9.7% on average, with oil prices falling approximately 2.5%, which reflects abundant spare capacity and strong non-OPEC supplies. Coal and natural gas prices are expected to continue declining from their earlier peaks, by 25.1% for coal and 32.6% for natural gas in 2024. Non-fuel commodity prices are generally expected to remain stable in 2024. However, prices for base metals might decline by 1.8% due to weaker industrial activity in Europe and China. Food commodity prices are predicted to drop by 2.2% in 2024, mainly due to the expectation of ample global supplies of wheat and maize.

With inflation projected to continue declining toward targets and longer-term inflation policy rates of central banks in major advanced economies are expected to start declining in the H2 FY2024. Among major central banks, by the Q4 FY2024, the Federal Reserves policy rate is expected to have declined from about 5.4% to 4.6%, the Bank of England to have reduced its policy rate from about 5.3% to 4.8%, and the European Central Bank to have reduced its short-term rate from about 4.0% to 3.3%.

(Source: World Economic Outlook, April 2024)

Risk to Global Economic Outlook

The global economic outlook faces potential downside risks such as price spikes due to geopolitical issues, inadequate policy rate adjustments by central banks, slower recovery in China, and geopolitical disturbances leading to geoeconomic fragmentation, which may cause trade limitations, cross-border movements of capital, technology, and workers, and hinder international cooperation. However, the key positive surprises could be short-term fiscal boosts in the context of elections in many countries and faster monetary policy easing driven by supply-side improvements.

Company Performance

Piramal Pharma Limited is a global pharmaceutical company providing end-to-end pharma solutions to its customers and a portfolio of differentiated pharma and consumer products remaining anchored, through a globally integrated network of facilities. We have a worldwide presence with (i) 17 development and manufacturing facilities across India, UK/Europe and North America; (ii) commercial presence in over 100 countries; (iii) 6,719 full-time employees across the world, with 5,076 in India and 1,643 outside India; and (iv) 21 subsidiaries, with 19 incorporated outside India in locations including South Africa, Italy, Europe, Canada, Australia and the U.S.

PPL operates under three business verticals (i) Piramal Pharma Solutions (PPS), an integrated Contract Development and Manufacturing Organisation (CDMO); (ii) Piramal Critical Care (PCC), a Complex Hospital Generics (CHG) business; and (iii) India Consumer Healthcare (ICH) business, selling Over-the-Counter (OTC) products. In addition, we have a joint venture with AbbVi, AbbVie Therapeutics India Private Limited one of the market leaders in ophthalmology in the Indian formulations market. We hold 49% of the paid-up equity share capital in the joint venture. Further, we have a strategic minority investment of 33.33% in Yapan Bio which operates in the biologics / bio-therapeutics and vaccine segments.

Industry Overview

The Contract Development and Manufacturing (CDMO) plays a crucial role in the by providing comprehensive services throughout the drug development and manufacturing process. This business model allows pharmaceutical companies to smoothly products from laboratories to clinics. The primary advantage of partnering with a CDMO lies in its provision of specialised expertise across various stages of drug development, including process development, and analytical service contributes to the efficiency and effectiveness of the pharmaceutical sector, ensuring that the new products reach the market in a timely and responsible manner.

In addition to development expertise, CDMOs also substantial scale-up and commercial manufacturing capabilities. This allows pharmaceutical companies areas such as drug discovery and marketing strategies, while the CDMO handles the technical and regulatory aspects of product development and manufacturing. This collaboration enhances flexibility and cost-pharmaceutical companies to invest heavily in their manufacturing facilities and equipment. The CDMO model also significantly contributes to innovation within the enabling access to advanced technologies and processes. This not only improves the efficiency and quality of drug also ensures compliance with evolving regulatory standards.

As per an industry report, the global pharmaceutical CDMO market size was estimated at US$ 140 Billion in 2023 and is projected to grow at a CAGR of 7% between 2024 to 2030 to cross US$ 200 Billion. This growth would be primarily driven by rising investments in pharmaceutical R&D, demand for the prevalence of chronic and age-related disorders, restructuring of supply chain in response to Covid -19 and geopolitical risk, and the rising need for advanced therapeutics. Moreover, as testing.Thisintegrated companies explore new frontiers in areas such as cell and gene therapy, biosimilars, biologics, personalised medicine, and orphan drugs, a boost in demand for pharmaceutical CDMOs is anticipated. Buoyed by these long-term growth drivers, CDMOs are significantly investing to expand their development capabilities and manufacturing capacities. However, the CDMO market also faces challenges, including toconcentrateontheircore inherent high failure rates during discovery and development stages, a non-conducive funding environment for emerging biotech companies leading to a slowdown in order inflows, evolving regulatory compliance, and the constant need for investment in technology and capacity. Additionally, the industry must adapt to the consequences of global events, such as the COVID-19 pandemic and geopolitical tensions like the Russia-Ukraine conflict, which alter market dynamics and consumer behaviour. but

Piramal Pharma Solutions

Piramal Pharma Solutions is an integrated CDMO, offering end-to-end services throughout the drug development and commercialisation process. PPS caters to both drug substances Active Pharmaceutical Ingredients (APIs), and drug products (formulations). Our integrated network of facilities across India, UK/Europe and North America development and manufacturing capabilities in areas such as high-potency APIs, Antibody-Drug Conjugates (ADCs), peptides, sterile injectables and hormonal products. Our associate, Yapan Bio also has capabilities in the biologics / biotherapeutics and vaccine segments. We have a diverse customer base of over 500 customers comprising of global innovator pharma companies, emerging biopharma companies and generic pharma companies. 84% of our revenues comes from regulated markets such as U.S., Europe and Japan. Over the years, we have had a successful track record of acquiring multiple capabilities and expanding development and manufacturing capacities through customer-led brownfield expansions. By utilising our end-to-end service capabilities and globally diversified development and manufacturing facilities, we provide integrated services (involving multiple sites) to our customers, offering them compelling value propositions such as reduced time-to-market, simplified operational complexity, and reduced supply chain costs. We have executed over 125 integrated projects since our incorporation in 2020. We have a robust development pipeline of over 150 molecules across clinical phases.

In addition to CDMO services, we also have a generic API division that offers over 30 off-patented APIs for global markets. Additionally, we also manufacture and supply vitamins and minerals ingredients, as well as premixes for human and animal nutrition. These products are sold to pharmaceutical, nutraceutical, food and beverage, personal care, animal feed industries and government organisations.

FY2024 – A Turnaround Year Led by Healthy

Order Inflows and Strong Execution

FY2022 and FY2023 were challenging years for our CDMO business, due to COVID-19-induced supply chain disruptions, execution challenges, a slowdown in biotech funding leading to delayed customer decision-making, and a substantial rise in raw material and energy prices. However, we staged a strong recovery in FY2024 with a YoY revenue growth of 19% amidst a tough macro environment. This robust performance was led by healthy inflow of new orders, especially for commercial manufacturing of on-patent molecules. As a result, our CDMO revenue from commercial manufacturing of on-patent molecules more than doubled to US$ 116 Million during the year compared to US$ 52 Million in FY2023. During the year, we also witnessed an increase in innovation related work, which now accounts for 50% of our CDMO revenue compared to 35% in FY2019 and 45% in FY2023. Over the past five years, our innovation related work has grown at about 20% CAGR much higher than growth in our overall CDMO business.

Significant Investments in Differentiated Offerings

Over the last two years, we have invested over US$ 150 Million towards new capacity addition, debottlenecking and technology upgradation, especially in the areas of differentiated offerings such as High Potency APIs, ADC, peptides, and in-vitro services. In FY2023, we went live with our capacity expansion at the Riverview facility in the US (for high potency APIs) and peptide facility at Turbhe, India. A new in-vitro laboratory was also inaugurated at our Ahmedabad PDS facility. In FY2024, we went live with capacity expansion at our Grangemouth facility in the UK to strengthen our presence in the ADC segment.

As a result, the revenue contribution from these differentiated offerings to our CDMO revenue increased from 27% in FY2021 to 44% in FY2024, growing at about 22% CAGR in the last three years. These differentiated offerings have relatively technical complexity and thus have less competitive intensity

Differentiated Offerings

High Potent API (HPAPI)

Antibody Drug Conjugates (ADC)

Peptides

On-patent API development and manufacturing

Potent sterile injectables

Hormonals

Leveraging our Integrated Service Offerings

Our integrated service offerings through end-to-end services and geographically diversified manufacturing and development facilities continued to see good traction, with over 40% of the service orders received during the year being integrated projects. During the year, we also received our first integrated anti-body drug conjugate order involving monoclonal antibodies. This order involves three sites Yapan (for monoclonal antibodies), Grangemouth (for conjugation) and Lexington (for fill finish). Integrated services benefits our customers by reducing their operational complexity, lowering their supply chain cost and reducing their time-to-market.

125+

Integrated projects executed in last five years

Over 40%

of new service orders in FY2024 were for integrated projects

Improved Profitability

The pick-up in our CDMO revenues also led to significant improvement in the profitability of the business supported by operating leverage, cost optimisation initiatives, favourable revenue mix, and normalisation of raw material cost and energy prices. We deployed several operational excellence and strategic procurement initiatives to improve the process efficiencies and yields at our facilities. We expect these initiatives to continue and further improve our EBITDA going forward.

Maintained our Best-in-class Quality

Track Record

In terms of quality and compliance, FY2024 was yet another successful year for our Company, as we cleared 36 regulatory inspections and over 170 customer audits. Over the last 18 months, five of our CDMO facilities at Digwal (India), Pithampur (India), Riverview (U.S.), Lexington (U.S.) and Sellersville (U.S.), which contributed about half of our CDMO revenues in FY2024, successfully completed USFDA inspections with zero observation or an Establishment Inspection Report (EIR). We have successfully maintained our track record of zero OAI (Official Action Indicated) from the USFDA since 2011, thereby highlighting our commitment towards quality and compliance.

36

Regulatory inspections cleared in FY2024

Zero

OAI from USFDA since 2011

Inhalati Industry Overview

As per the USFDA, complex generics are products that have complex active ingredients, formulations, dosage forms, or routes of administration or are complex drug-device combination products. These drugs often present significant development challenges, and hence require a deep understanding and development process. This has been a key entry barrier for players entering the complex generic space. Moreover, many complex generic products demand substantial initial capital investments, dedicated manufacturing facilities, stringent quality assurance systems, and adherence to extensive regulatory norms. Consequently, competition in this sector remains relatively limited. As per a Crisil Report, the global complex generics market was valued at US$ 65-70 Billion in 2022, growing at 11.7% CAGR from 2016 to 2022. Further, it expects this market to grow at a CAGR of 10-12% during 2022-26 to reach US$ 100-110 Billion by 2026 driven by rising R&D trends, increase in novel drug delivery systems, and growing demand for the development of complex molecules used in novel formulations targeting niche therapeutic areas. In the global complex generics market, hospital generic products dominate with a share of around 70-80%, while retail products comprise the remaining portion Key therapy areas within the complex hospital generic market include Anesthesia, Pain Management, Blood-related, and Anti-Infective segments.

Inhalation Anesthetics like Sevoflurane, Isoflurane, and Desflurane, are the most-used drugs for induction and maintenance of general anesthesia in the operating room. These anesthetic drugs are liquid at room temperature and require the use of vaporisers for inhalational administration. As per IQVIA data, the cumulative global market size of Sevoflurane, Isoflurane, and Desflurane, was about US$ 1.04 Billion, with the U.S. and China being the two largest markets for these three products holding about 50% of the global market share. The presence of a large number of registered hospitals in the U.S. conducting a significant volume of surgeries contributes to the high demand for anesthetic drugs in the country. The market growth for inhalation anesthesia mainly stems from the increasing number of surgical procedures and the preference for inhalation anesthesia over intravenous anesthesia, as the former offers better control. Due to high-entry barriers such as dedicated production facilities for raw materials and finished dosage products, high initial investments for supplying medical devices such as vaporisers, and investments on field force that has relationship with hospitals and GPOs, competition is limited in this market as . compared to traditional generics. Abbvie, Baxter, Hengrui, Piramal Pharma and Lunan are amongst the few companies that have launched generic versions of the inhalation anesthesia drugs.

Sevoflurane, with over 80%, holds the highest share in the inhalation anesthesia market described above. It is potent, rapidly acting, and has faster emergence and recovery as compared to the other drugs, making it the preferred choice of surgeons during surgical procedures for induction and maintenance of anesthesia.

US$ 1 Bn

Cumulative global market size of Sevoflurane, Isoflurane, and Desflurane

>80%

Sevoflurane holds the highest share in the inhalation anesthesia market

Intrathecal Therapy

Intrathecal therapy as an area has gained prominence in recent years, especially in providing treatment options to patients suffering from spasticity (involuntary muscle contractions that cause stiffness) and dystonia (muscle contractions that can result in twisted or abnormal postures). An intrathecal pump is surgically implanted in the abdomen of these patients. The pump holds a certain dosage of medicine (Baclofen or Morphine Sulphate) and continuously dispenses it into the fluid-filled space between the thin layers of tissue that cover the brain and spinal cord. The primary benefit of this pump lies in its ability to deliver the dosage directly to the spinal cord, which is the target site for the medications effectiveness. The pump needs to be refilled at regular intervals by a trained provider. As per IQVIA data, the U.S. market of Baclofens pre-filled syringe and vial is over US$ 33 Million with less than five competitors.

Piramal Critical Care

Piramal Critical Cares complex hospital product portfolio comprises over 35 hospital-focused products in the areas of inhalation anesthesia, injectable anesthesia and pain management, intrathecal therapy, and other generic and specialty products. These products are sold in over 100 countries, reaching more than 6,000 hospitals, surgical centres, and veterinary clinics. We maintain a direct sales presence in the U.S., the UK, Germany, France, and Italy, and other geographies through distribution partners. We are vertically integrated in inhalation anesthesia with Dahej (India) facility manufacturing the key starting materials, and Digwal (India) facility and Bethlehem (U.S.) facility manufacturing APIs and drug products.

We Hold Leading Positions* in Some Products / Segments

Piramal Pharma is the fourth largest inhalation anesthesia company globally as per US$ value for a combined market of Sevoflurane, Desflurane, and Isoflurane We are the No. 1 player in Sevoflurane in the U.S. market with a value market share of about 43% We are Rank #1 in the U.S. Baclofen pre-filled syringe and vial market with our brand Gablofen holding more than 70% value market share Our brand Fentanyl (ampoules) is the No. 1 rank brand by US$ value in Japan, France, South Africa and Indonesia markets

* Source: IQVIA Data

FY2024 Performance - Steady Volume Led Growth in Inhalation Anesthesia

In FY2024, we witnessed a steady volume growth for our inhalation anesthesia products in the U.S. market which was partially offset by lower market prices due to increased competition. We continued to maintain our leading position in Sevoflurane in the U.S. with a market share of about 43% compared to 30% three years back. We also saw increasing traction for our inhalation anesthesia products in the non-U.S. markets, such as the UK, France, India, Vietnam and Thailand. Given the healthy demand for our inhalation anesthesia products, all three inhalation anesthesia facilities in India and the U.S. are operating at peak capacities with a focus on operational efficiencies. We are also progressing well on our capacity expansion plans to set up manufacturing lines for Sevoflurane in our Digwal plant in India to cater to emerging markets. Simultaneously, we are enhancing our KSM (Key Starting Material) manufacturing capabilities at Dahej, aiming for a higher level of vertical integration. During the year, we also successfully completed the USFDA inspection at our Bethlehem facility in the U.S., highlighting our ongoing commitment to maintaining quality and adhering to regulatory standards.

During the year, the growth in our intrathecal and injectable pain management segments was impacted by supply constraints at our third-party suppliers. We are taking several measures to mitigate this challenge and have seen some improvement in the supplies. Despite the supply side challenge, our intrathecal brand, Gablofen, continued to be the #1 ranking Baclofen pre-filled syringe and vial brand in the U.S. market. Also, our injectable pain management brand, Fentanyl, is the leading brand in Japan, South Africa, and Indonesia in its representative market. In the other generic and specialty product segment, we launched four new products in the U.S. and European markets during the year. We are also building a pipeline of 24 injectable products, which are progressing in different stages of development. The current addressable market size of these products is about US$ 2 Billion.