Orchid Pharma Annual Report 2011 12

7/29/2019 Orchid Pharma Annual Report 2011 12

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Annual Report 2011-12


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Forward-looking statements

In this Annual Report, we have disclosed forward-looking information to enable investors to comprehend our prospects and take

investment decisions. This report and other statements - written and oral that we periodically make contain forward looking

statements that set out anticipated results based on the managements plans and assumptions. We have tried wherever possible to

identify such statements by using words such as anticipate, estimate, expects, projects, intends, plans, believes, and words of similar

substance in connection with any discussion of future performance. We cannot guarantee that these forward-looking statements will

be realised, although we believe we have been prudent in assumptions. The achievements of results are subject to risks, uncertainties,

and even inaccurate assumptions. Should known or unknown risks or uncertainties materialise, or should underlying assumptions

prove inaccurate, actual results could vary materially from those anticipated, estimated, or projected. Readers should keep this in

mind. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future

events or otherwise.


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Contents

saury Rpr

Management Discussion and Analysis 02

Directors Report 10

Report on Corporate Governance 22

Corporate Inormation 38

Fiacial sam

Saa

Auditors Report 39

Balance Sheet 42

Statement o Prot and Loss 43

Notes 44

Cash Flow Statement 68

CsiaAuditors Report 70

Balance Sheet 72

Statement o Prot and Loss 73

Notes 74

Cash Flow Statement 94

Statement pursuant to Section 212 96

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ManagementDiscussion and AnalysisInduStry overvIew

Ga pamacica is

The global pharmaceutical industry grew by o 6.6% in 2011, compared to 4.5% in 2010, and

reached a market size o US$ 880 billion. The transormation o the global pharmaceutical

market continues unabated, with ocus steadily shiting rom developed to developing

countries and rom patented drugs to generics. The overall pharmaceutical market isanticipated to reach US$ 1.1 trillion by 2014 (Source: IMS Data).

The US is the major pharmaceutical market, globally. The contribution o the US

to the global pharmaceutical growth increased to 20% in 2011, compared to 17%

in 2010. Ageing population and constant demand or innovative therapies have

triggered the pharmaceutical demand in 2011 and will continue in the years

to come.

1,200 30

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605

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88

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2006 2007 2008 2009 2010 2015E0

US$bn

Market (US$ bn) Growth YOY (%)

(Source: IMS, Networth Research)

Growth in the global pharmaceutical market


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rga mas

US

The US (US$ 320 billion market size) is the largest pharmaceutical

market in the world growing at a CAGR o around 3%. It is also thelargest generic market with a sizeable generic substitution (75%

in terms o volume).

The US is expected to ace the highest patent expiries (to the tune

o US$ 100 billion) over the next ve years (Source: ICRA, March

2012). The share o the US in global pharmaceutical spending is

set to decline to 31% in 2015, rom 41% in 2005.

The US market is experiencing signicant drug shortages in recent

times. A total o 168 drugs are acing acute shortages. The major

reasons or the drug shortages include manuacturing constraints,

stringent manuacturing norms, consolidation in the generic drugindustry and limited supplies o some vital ingredients (Source: IMS,

Drug Shortage).

Executive orders passed by the US government

o USFDA to take measures to reduce current and uture

supply disruptions. It must inorm the drug manuactures in

advance in case o production discontinuation.

o USFDA to expedite regulatory reviews, evaluate new drug

suppliers, manuacturing sites, and production changes to

mitigate potential drug shortages.

o USFDA to inorm The Department o Justice (DoJ) o any

ndings due to shortages that have led market participants

to stockpile the aected drugs or sell them at exorbitant

prices.

(Source: Motilal Oswal Research report, November 2011)

European Union

The EU5* markets have registered growth o 13% in 2011 and are

poised to grow at an average CAGR o 2.5% up to US$ 220 billion

by 2016. The European pharmaceutical market ranks second in theworld ollowing USA. It accounts or around 17% o the total global

pharma market. In most o the European countries a considerable

share o healthcare expenditure is public expenditure. However,

there has been signicant regulatory changes over the past

years on account o austerity measures and attempts to reduce

healthcare expenditure. Focus is on price reduction and increasing

generic substitution. (Source: Jeeries)

*(German, France, Italy, Spain and UK)

Japan

In 2011, Japans pharmaceutical industry registered a growth o

5.7%. The overall Japanese Pharmaceutical Industry is projected

to grow at a CAGR o 2.6% rom 2012 2016.

(Source: IMS Health)

Pharmaceutical spending (by geography)

Spending by Geography (%)

6

41

220

7

11

1

12

Us$ 605 billi

2005 2010 2015

7

36

317

7

11

1

18

Us$ 856 billi

7

31

26 13

11

2

28

Us$1,065-1,095 billi

US Canada EU5 Rest o Europe Japan S. Korea Pharmerging RoW

Rgulad mark rd

Patent expiries o blockbuster drugs

Cost containment strategies implemented by

various governments

Shit towards aordable generics


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Pamgig ma

The 17 Pharmerging countries* are expected to contribute 28%

to global pharmaceutical spending by 2015. They registered a

growth o 1517% in 2011 to reach a market value o ~US$ 170billion. The value contribution o the Pharmerging market has

substantially increased rom US$ 73 billion in 2005 to US$ 154

billion in 2010 (Source: IMS Health).

(*India, China, Brazil, Venezuela, Poland, Argentina, Turkey,

Mexico, Vietnam, South Arica, Thailand, Indonesia, Romania,

Egypt, Pakistan, Ukraine and Russia.)

Pharmrgig mark rd

Relatively low entry barriers in terms oproduct registration requirements and

intellectual property rights.

Price sensitivity.

Favourable regulatory environment.

Rising disposable incomes.

Likely increase in health insurance schemes.

Low manuacturing cost.

Competitive local industry presence.

Perormance o Pharmerging countries

(Source IMS Health)

* Purchasing power parity (PPP)

Aci Pamacica Igis APIs

Active Pharmaceutical Ingredients (API) or bulk drugs are the

principal ingredients or nished pharmaceutical products. APIs

cannot be administered directly to the patient, and other inactive

substances called excipients are added to stabilise the mixture

into an end product, which is called ormulation.

The global API market can broadly be divided into regulated and

semiregulated markets. The semiregulated markets oer low

entry barriers in terms o regulatory requirements and intellectual

property rights.

The highly regulated markets, like the United States, Europe and

Japan have high entry barriers in terms o intellectual property

rights and regulatory requirements, including acility approvals. As

a result, there is a premium or quality and regulatory compliance,

along with relatively greater stability or both volumes and prices.

The API growth will be uelled by rise in demand o generics and

tir Curi 2009 GDP bad PPP *

valuai (trilli Us$)

Icrmal Pharma Mark Grwh

rm 2009-13 (Billi Us$)

Tier 1 1. China 9 40

Tier 2 2. India

3. Russia

4. Brazil

24 515

Tier 3 5. Venezuela 12: Thailand

6. Poland 13: Indonesia

7. Argentina 14: Romania

8. Turkey 15: Egypt

9. Mexico 16: Pakistan


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biological drugs. The API market was valued at US$ 101.08 billion

in 2010, and is expected to grow at a CAGR o 7.9% rom 2012 to

2016. Globally, AsiaPacic is the third largest regional market or

APIs by revenue ater the US and Europe.

API growth drivers

o API suppliers in Europe and the US are acing increasing

pricing pressures due to presence o lowcost providers

in developing markets, excess big pharma capacity and

backward integration by certain generic companies.

o The API outsourcing trend within the global pharmaceutical

industry remains intact as pharmaceutical companies

are increasingly looking to maintain ocus on core

competencies, access new technologies, preserve capital

and ensure multiple sources o raw material supply.

o China remains the largest manuacturer o APIs in theworld, aided by large scale manuacturing capabilities and

Government support. However, quality concerns as reected

by instances o product recalls due to contamination

continue to hamper the ability o Chinese manuacturers to

source APIs to advanced markets. This works as an advantage

or the Indian API Industry.

(Source: Pharmaceutical Bulk Drug Industry: Trends & Outkook by ICRA, May 2011)

API mark rd

Impending patent expiries and greater genericpenetration likely to provide growth opportunities

or domestic bulk drug manuacturers

Evolving presence o domestic bulk drug

manuacturers in the global pharmaceutical

supply chain

High therapeutic / product concentration due to

ocus on manuacture o smaller basket o APIs to

ensure economies o scale

Increasing instances o pureplay bulk drug players

oraying into generic ormulations through ling o

ANDAs and viceversa, generic companies opting or

backward integration.

(Source: Pharmaceutical Bulk Drug Industry: Trends & Outkook by ICRA, May 2011)

Gic g Fmais is

The global generics market reached a value o US$ 225 billion in 2011 (Source: IMS Health: Pharma Voice, 2012). The patent expiries o

blockbuster drugs commencing rom 2012 provides a solid base or robust growth o generics. According to IMS, the global generics

market is anticipated to reach US$ 400450 billion by 2015. Nearly 70% o this demand will be contributed by Pharmerging economies.

The cost containment strategies implemented by governments, shit towards aordable generics, ageing population and chronic

diseases will catalyze the generics markets (Source: IMS Health, Global Use o Medicines, 2011, Pharma Voice, 2012).

13

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16

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18

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59

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63

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67

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70

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74

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76

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86

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86

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85

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85

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83

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81

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40

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36

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29

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23

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200720060%

10%

20%

30%

40%

50%

60%70%

80%

90%

100%%Dollars %Total prescriptions dispensed

2008 2009 2010 MAT Dec2011

2006 2007 2008 2009 2010 MAT Dec2011

Brands Generics

Source, IMS Health, National Sales Perspective, Dec 2011

Generics share


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Cac rsac a Maacig SicsCrAMS

The Contract Research and Manuacturing Services (CRAMS)

segment involves research services outsourced on a contractual

basis to aid the pharmaceutical and biotechnology industries.

Going ahead, these services are anticipated to grow substantially

as innovators are ocusing on outsourcing pharmaceutical

research and manuacturing to attain cost eciencies.

Factors driving growth

o Increasing outsourcing trends in niche and high value

segments.

o US healthcare reorms.

o Government support or the development o inrastructure

and SEZ policy.

o Requirement o aordable medications.

o Strategic alliances.

(Source: Frost and Sullivan, Global contract manuacturing trends, 2010)

CRAMs mark rd

The global CRAMS market is expected to maintain a

sustained growth rate.

India, China, Russia and Brazil are the major markets

or CRAMS.

India has the highest number o USFDA approved

plants (200+ as o November 2011) outside the US.

Majority o outsourcing is done rom the US and

European markets to emerging Asian markets.

(Source: Networth Research)

(Source: IMS, Networth Research, February 2012)

85

2009

US$Billions

0102030405060708090

2010 2012E

58

67

Global CRAMS market

IndIAn PhArMACeutICAl InduStry

India ranks third in terms o manuacturing pharma products by

volume. Indias pharmaceutical industry is gaining its position as a

global leader clearly topping the charts among the Indian sciencebased industries with signicant expertise in the complex eld o

drug manuacture and technology. Indias pharmaceutical market

has registered a strong growth o 16% in 2012. This has been the

highest growth in the past three years (Source: Edelweiss Monthly,

April 2012). The Indian pharmaceuticals sector is poised to reach

US$ 55 billion by 2020, rom US$ 12.6 billion in 2009 (Source:

Mckinsey, India Pharma 2020: Propelling access and acceptance

realising true potential, 2010).

India tops in exporting generic medicines. The Indian pharma

industry produces around 20% to 24% o the global generic drugs.

Around 40% o the total pharmaceutical produce is exported

(55% ormulation and 45% APIs).

The Indian pharmaceutical market is expected to witness rapid

and signicant growth on the back o greater acceptance

and penetration o generics, enhanced export opportunities,

increasing global demand, and a large share o opatent drugs

in the uture.

o

Indias pharmaceutical industry is at an advantageous position

compared to other emerging countries. With the advantage

o being a highly organised sector, the Indian pharmaceutical

companies are growing at the rate o 89% annually.

About orChId

Incorporated in 1992, Orchid Chemicals & Pharmaceuticals

Ltd. (Orchid) is a vertically integrated company, spanning the

entire pharmaceutical value chain rom discovery to delivery

with established credentials in research, manuacturing and

marketing. We have created niche pharmaceutical products

and manuacturing platorms, ensuring sustainable growth

and protability.

US

43

28

45

26

EU NPNC Cephs

29

17

11

26

19

20

6

14

Finished Dosage Forms: Regulatory status

By Geography By Product Segment

Approved

Pending Approval


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Revenue pie in 2011-12

72

28

Active Pharmaceutical Ingredient (API)

Finished Dosage Form (FDF)

Product-wise (%)

37

63

Emerging markets

Regulated markets

Geography-wise (%)

higigs 201112

o Received USFDA approval or several products including

Venlaaxine ER Capsules, Olanzapine Tablets and Levooxacin

Tablets, among others.

o Received the initial US$ 1.5 million rom Merck on the

completion o a milestone in its antiinectives research

collaboration.

o Successully completed in Europe, Phase I trial o its orally

administered PDE4 (phosphodiesterase 4 inhibitor) molecule

OCID 2987, positioned or the treatment o inammatory

disorders, including COPD (Chronic Obstructive PulmonaryDisease).

o Redeemed the outstanding Foreign Currency Convertible

Bonds (FCCBs), including yieldtomaturity, aggregating to

US$ 167.64 million on the due date, February 28, 2012.

o The stateotheart Cephalosporin API manuacturing

acility was successully reinspected by USFDA.

o Awarded with OHSAS 18000:2007 (Occupational Health

and Saety Management System) certication or the API

manuacturing acility at Alathur.

o The API manuacturing acility at Alathur was reassessedand was certied with ISO 9001:2008 (Quality Management

System) and ISO 14001:2004 (Environmental Management

System).

t ra Aa

The road ahead is challenging or the global and Indian

pharmaceutical sector. Orchid is condent o continuing with

a sustainable growth with longterm partnerships with major

pharma companies assuring consistent revenue streams. The

companys stateotheart integrated inrastructure, skilled

proessionals and cuttingedge technology at all productionand research acilities have enabled it to be a preerred partner to

several multinational pharmaceutical companies to associate with

at any stage o its product lie cycle.

Orchid continued its ocus on US regulatory markets with the

number o regulatory lings steadily increasing. Also, Orchids

investments in R&D over the years have started yeilding results.

With a ocus on innovation and invention, Orchid aims to become

a leading science and technology player, going orward.

Moving ahead, Orchid plans to ramp up the existing business

verticals and establish ootprints in new niche high growththrapeutic segments, delivering value to all stakeholders. Orchid

plans to:

o Diversiy and urther enhance reach in the regulated

generics business.

o Consolidate its presence in the API business segment by

ocusing on regulated markets.

o Expand relationships with marque clients with additional

new products.

o Enhance market penetration with existing products.

o Focus on longterm partnerships with major pharma

companies.

o Increase its operations in emerging markets.

o Enhance its presence in the domestic ormulations market.

o Progress on drug discovery programmes.


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FInAnCIAl revIew

In 201112, Orchid delivered a stable and sustainable perormance,

achieving a 4.38% increase in the revenue with a prot o

Rs 103.12 crore, as against Rs 159.48 crore in the previous year,despite adverse events such as closure o the Alathur API plant

or more than one month and the re accident at the R&D centre,

Shozhanganallur.

A P a ss acc

Revenue

Revenue increased rom Rs 1,663.34 crore in the year

201011 to Rs 1,736.33 crore in 201112. This increase

was largely due to continuing supply o APIs to Hospira,

contractual business with other large global pharmaceutical

players in regulated markets, namely Europe and Japan and

contribution rom Karalex Pharma, a ront end marketing

organisation in the US.

Protability

The EBIDTA stood at Rs 411.73 crore as on March 31, 2012 as

against Rs 397.32 crore as on March 31, 2011. Ater providing

or tax, the PAT stood at Rs 103.11 crore or 201112 as

compared to Rs 159.48 crore or the previous nancial year.

This decline in prot was due to shrinking product margins,

the API plant closure at Alathur and higher interest costs.

Expenditure

Total operational costs increased rom Rs 1,314.84 crore in

201011 to Rs 1,380.41 crore in 201112 owing to overall

increase in key operational parameters.

Power and uel expenses increased to Rs 85.72 crore in

201112 as compared to Rs 72.53 crore in 201011 owing to

an increase in uel costs.

Material costs marginally decreased rom Rs 787.95 crore in

201011 to Rs 785.86 crore due to decrease in production

volumes and raw material consumption on account o the

API plant closure during the year.

Employee costs increased to Rs 154.64 crore in 201112 as

compared to Rs 141.38 crore in 201011, primarily due to

the normal annual increments/promotions and additional

recruitment.

Other expenditure including Directors remuneration

increased rom Rs 312.94 crore in 201011 to Rs 354.18 crore

in 201112, mainly on account o increase in R&D expenses,

conversion charges, insurance charges and travelling &

conveyance expenses.

Interest and nance charges increased rom Rs 115.76 crore

in 201011 to Rs 179.05 crore in 201112, due to a rise in

borrowings on account o the FCCBs redemption and a

steep rise in interest rates and nance charges.

Depreciation and amortisation expenses stood at

Rs 149.05 crore in 201112 as compared to Rs 128.45 crore

in 201011.

b baac s

The capital employed in the business increased about

25.69% rom Rs 1,984.08 crore as on March 31, 2011 to Rs

2,493.94 crore as on March 31, 2012. This increase was largely

due to a rise in the term loans and reserves and surplus

balance.

Net worth

Shareholders und (net worth) increased rom Rs 1,134.02

crore as on March 31, 2011 to Rs 1,194.55 crore as on March

31, 2012.

Reserves

Balance in the reserve and surplus accounts stood at Rs

1,124.10 crore as on March 31, 2012 as against Rs 1,063.58

crore as on March 31, 2011. The Company ploughed 58%

o the net prot to its reserves in 201112. Free reserves

accounted or more than 98% o the reserves as on March

31, 2012.

The book value per share stood at Rs 169.58 as on March 31,

2012 as against Rs 160.99 as on March 31, 2011.

External unds

2011-12 2010-11

Total borrowings Rs 1,999.30 crore Rs 2,069.12 crore

Debt equity ratio 1.67 1.82


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InForMAtIon teChnoloGy (It)

Inormation Technology plays a key role in a knowledge intensive

industry like Pharmaceuticals. Inormation Technology at Orchid

plays a key role in business to be responsive and eective,enabling it to be more competitive. Inormation Technology

ensures seamless integration and connectivity across all domains

and locations, enhancing productivity. A number o Inormation

Technology policies in the area like energy conservation, data

integrity etc, have been automated leading to lower manual

intervention, thereby enhancing service levels to users. Orchid

continues to incorporate Inormation Technology developments

in its business processes to derive higher levels o productivity

and operational excellence.

huMAn reSourCeS And InduStrIAl relAtIonSThe Human Resources (HR) unction o the Company is aligned

with the overall growth vision. The HR team diligently and

continuously caters to the recruitment and selection policies,

disciplinary procedures, rewards and recognition, learning and

development sessions and allround development o employees.

The Company has provided a sae and conducive environment

that attracts and retains a dynamic and talented team. The

employees are continuously engaged in delivering exceptional

results to the stakeholders. Orchid is reinorcing motivation and

commitment o employees by scrutinising, developing and

introducing a comprehensive and consistent employment value

proposition to the current and prospective employees. The key

objective is to align the overall selection, talent management,

employee engagement and recognition processes to acilitate the

corporate growth objectives.

During the year, the Company successully maintained a very

balanced and pleasant environment at all the manuacturing

units. No instances o labour unrest hampered the overall

operations. The Company has approximately 4,455 permanent

employees, comprising corporate and managerial sta, along

with sales employees at the manuacturing acilities, including our

joint ventures and subsidiaries.

rISk MAnAGeMent

All businesses are subject to internal as well as external risks. The

internal risks are controllable risks and Orchid has identied such

risks and ormulated such actions to mitigate the eect o suchrisks. The external risks like change in government and regulatory

policies are not within the control o the Company. Stringent

regulatory norms, delay in obtaining regulatory approvals or

key products, patent litigations, currency uctuations, pricing

guidelines in the domestic market are certain risks that can aect

the Companys prospects.

Orchids integrated risk management approach comprises

prudential norms, structured reporting and controls. This

approach conorms to the Companys strategic direction and is

consistent with stakeholders desired total returns, credit rating

and risk appetite.

Review o compliance monitoring systems, application risk

management system in the business units, periodic assessment

o regulatory compliance, risk assessments in multiple areas such

as talent management, inormation security and intellectual

property are done regularly. The risk management activities also

include assessment and review o nancial risks, such as currency

risks, credit risks and liquidity.

InternAl AudIt And Control

Orchid believes that sound internal control systems are necessaryprerequisites to good and sound governance. The management is

committed to ensuring an eective internal control environment,

commensurate with the size and complexity o the business,

which provides assurance on the eciency o the Companys

operations and the security o its assets.

Orchids internal control systems and procedures are designed

to enable the reliable reporting o nancial statements, reporting

timely eedback on the achievement o operational or strategic

goals and ensure compliance with laws and regulations. In

addition to the statutory audit, the nancial and operating controlsat various locations o the Company are reviewed by internal

auditors, who report signicant ndings to the Audit Committee

o the Board. Compliance with various laws and regulations are

also monitored continously.


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Dear Members,

Your Directors take pleasure in presenting the report on business and operations o your

Company along with the audited statement o accounts or the nancial year ended March 31,

2012. The highlights o the nancial results or the year 201112 are given below:

Directors Report

Paricular Yar dd

March 31, 2012

Yar dd

March 31, 2011

Sales & Operating Income 1,736.33 1,663.34

Other Income 55.81 48.79

Total Expenditure 1,380.41 1,314.81

Gross Prot 411.73 397.32

Interest & Finance Charges 179.05 115.76

Gross Prot ater Interest but beore

Depreciation and Taxation

232.68 281.56

Depreciation 149.05 128.45Prot / (Loss) beore Tax, Exceptional and

Extraordinary Items

83.62 153.11

Exceptional Item 83.88 (20.69)

Proft / (Loss) Beore Tax and Extraordinary Items (0.26) 173.80

Extraordinary Items (80.00)

Prot Beore Tax 79.74 173.80

Provision or Taxation

Current & Deerred Tax (23.37) 14.32

Prot / (Loss) Ater Tax 103.11 159.48

(Rs crore)


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2012-13

PerForMAnCe

During 201112, your Company achieved a turnover and

operating income o Rs 1,736.33 crore as compared to

Rs 1,663.34 crore in 201011 recording a growth rate o

4.38%. The gross prot beore interest, depreciation and taxes

stood at Rs 411.73 crore (23.71% o turnover) as compared to

Rs 397.32 crore (23.88% o turnover) o last scal. Ater

providing or interest expense o Rs 179.05 crore (Rs 115.76

crore previous scal), depreciation o Rs 149.05 crore

(Rs 128.45 crore previous scal), Exceptional item Rs 83.88 crore

(Rs Nil previous scal) and Extraordinary item Rs 80 crore (Rs Nil

previous year), the prot beore tax o the Company was Rs 79.74

crore (Rs 173.81 crore previous scal). The net prot ater tax stood

at Rs 103.11 crore (5.94% o turnover) compared to the net prot

ater tax o Rs 159.48 crore (9.6% o turnover) in the previous scal.

buSIneSS overvIew

During the year, your Company continued to record a strong

growth in its operational perormance inspite o its API plant in

Alathur being closed or more than a month owing to the closure

order rom the Tamil Nadu Pollution Control Board (TNPCB), re

accident at the R&D centre and liquidity constraints on account o

redemption o outstanding Foreign Currency Convertible Bonds.

The business model change that your Company had initiated post

the injectable business transer to Hospira in 2010 continues to

augur well with the several longterm supply contracts entered

into with large global players paving the way or continued robust

earnings. Our Active Pharmaceutical Ingredient (API) supply

arrangement continued to perorm signicantly well, registering

higher than expected business volumes.

Your Company is planning to launch several products during the

current nancial year 201213 or the EU and US markets, which

are expected to strengthen the revenue streams or regulated

generics business o the Company rom the current nancial

year 201213.

reGulAtory FIlInGS And APProvAlS

In the generic ormulations domain, Orchids cumulative

Abbreviated New Drug Application (ANDA) lings or the US

market stood at 43. This includes 8 Para IV FTF (FirstToFile) lings.

The breakup o the total ANDA lings is 13 in Cephalosporinssegment and 30 in NPNC space. Few more ANDAs which are

in the later stages o development are expected to be led in

ensuing quarters.

In the EU region, the cumulative count o Marketing Authorisation

(MA) lings stood at 28. The breakup o the total MA lings is 13 in

the Cephalosporin segment and 15 in the NPNC segment.

In the Active Pharmaceutical Ingredients (API) domain, Orchid

increased the cumulative lings o its US Drug Master Files

(DMF) count to 89. The breakup o the total lings is 28 in

the Cephalosporin Segment, 47 in NPNC segment, 2 in the

Betalactam segment and 12 in the Carbapenems segment.

In the European market space the cumulative lings o CoS

(Certicate o Suitability) count remained at 21 which includes

14 in cephalosporin segment, 6 in NPNC segment and 1 in

the betalactam segment. With staunch eorts on product

development, the count o ling and approval is set to increase in

the current nancial year.

dIvIdend

Your Directors recommend a 30% dividend (Rs 3/ per equity

share o Rs 10/ each) or the year ended March 31, 2012, subject

to the approval o shareholders at the ensuing Annual General

Meeting. Under the Income Tax Act, 1961, the receipt o dividend

is taxree in the hands o the shareholders.

AwArdS

During the year, your Company was conerred with the ollowing

awards:

o Export Excellence Award 201011 by MEPZ Special

Economic Zone, Government o India.

o EXIM Achievement Award 2011 or meritorious export

perormance under the category Air Exports by The Tamil

Chamber o Commerce, Chennai.

o Gold Patent Award or the year 201011 in recognition o

its commendable contribution to R&D in Drug Discovery

Sector by the Pharmaceutical Export Promotion Council.

o IGCW 2011 Green Innovation Award or the outstanding

research in the eld o Green Chemistry & Engineering.

IntelleCtuAl ProPerty rIGhtS (IPr)

During the year, Orchid continued to accelerate the Intellectual

Property Rights work on a number o products. The total number

o patent applications led by Orchid in various national and


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international patent oces so ar is 904 (including Process,

Formulation, NCE, NDDS, Biotech and Generics). As o March 31,

2012, 722 patent applications have been published while 170

patents have been granted cumulatively.

ForeIGn CurrenCy ConvertIble bondS (FCCbs)

Your Company had issued Foreign Currency Convertible Bonds

amounting to US$ 175 million in February 2007, which was

listed on the Singapore Stock Exchange. During the years

200809 and 200910, the Company bought back FCCBs amounting

to US$ 37.80 million and US$ 19.778 million respectively. The

outstanding bonds due or redemption in February 2012 was US$

117.422 million.

Accordingly, your Company redeemed the aoresaid outstanding

FCCBs, including yieldtomaturity, aggregating to US$ 167.64

million (Rs 824.08 crore), on the due date i.e. February 28, 2012.

eMPloyeeS StoCk oPtIon PlAn (eSoP)

The details o options granted to employees under the ORCHID

ESOP 2010, ORCHID ESOP Directors 2011, ORCHID - ESOP Senior

Management 2011 schemes and the status o such options as on

March 31, 2012 are given in Annexure IV to this Report.

Your Company ormulated a stock option plan viz., ORCHID ESOP

2010 Scheme or grant o 1,000,000 options to the employees o

the Company including Whole Time Director(s) o the Company

but excluding the Promoter Director(s). The said scheme was

approved by the shareholders at the Annual General Meeting held

on July 21, 2010. Your Company granted 901,000 options during

the year 201011 and as on March 31, 2012, the total number o

options in orce under the said scheme are 854,000.

Your Company has also ormulated the ollowing schemes

which were approved by the shareholders at the Annual General

Meeting held on July 29, 2011.

o ORCHID ESOP Directors 2011 Scheme grant o 500,000

options to the Directors o the Company including Whole

Time Director(s) but excluding Promoter Director(s). Your

Company granted 300,000 options during the year and as atMarch 31, 2012, the total number o options in orce under

the said scheme are 250,000.

o ORCHID - ESOP Senior Management 2011 Scheme grant

o 1,000,000 options to the employees in the grade o Senior

Manager and above out o which 750,000 options will be

granted to the employees o Orchid and 250,000 options to

the employees o various subsidiary companies o Orchid,

either in India or abroad. Your Company granted 42,700

options during the year and as at March 31, 2012, the total

number o options in orce under the said scheme are 42,700.

AMAlGAMAtIon oF wholly owned SubSIdIAry

wIth the CoMPAny

During the year, Orchid Research Laboratories Limited (ORLL) a

whollyowned subsidiary was merged with your Company with

eect rom April 01, 2010 i.e. the Appointed Date. The Honble

High Court o Madras had vide its Order dated March 20, 2012,

sanctioned the Scheme o Amalgamation o ORLL with your

Company. The scheme became eective rom March 30, 2012

upon ling the certied true copy o High court orders with the

Registrar o Companies, Chennai, Tamil Nadu.

overSeAS joInt ventureS

nCPC oci Pamacica Cmpa limi, Cia

Your Companys 50:50 joint venture in China, NCPC Orchid

Pharmaceuticals established or manuacture o sterile

cephalosporin Active Pharmaceutical Ingredients (API) continuedto perorm well. The joint venture is protable with a signicant

sales turnover o US$ 52.11 million during the year under review.

SubSIdIArIeS

b Pamacicas Ic., uSA b

During the year, Bexel became a 100% subsidiary o your Company

upon amalgamation o Orchid Research Laboratories Limited

with your Company. Bexel was incorporated basically to conduct

Research & Development activities in New Drug Discovery

segment. Bexel provides all scientic documentation to Orchid

Research Laboratories Limited, which as o March 30, 2012, standsamalgamated with your Company. The current Bexel IP portolio

is being maintained by Orchid global Intellectual Property (IP)

unit. During the year, Bexel has conducted advanced studies

on BLX1002, while Phase IIa clinical studies has been initiated

or the indication o Nonalcoholic atty liver disease (NAFLD)

/ Nonalcoholic Steatohepatitis (NASH).

oci Pamacicas Ic., uSA

Orchid Pharmaceuticals Inc., is a wholly owned Delaware based

subsidiary o your Company and also the holding Company in

the US, under which all the operational business subsidiaries

have been structured. The Company currently has two operatingSubsidiaries, namely Orgenus Pharma, Inc., and Orchid Pharma,

Inc., in the US.

Orgenus Pharma Inc., is the entity that provides all business

development and operational services or the parent Company

including the initiation o marketing alliances with partner

companies, ling o your Companys Drug Master Files (DMFs) and

Abbreviated New Drug Applications (ANDAs) as the Importer o

record or your Company with the FDA. It continues to represent

your Company or all matters relating to the review and approval

o such lings by the FDA and handling o logistics and product


15/10013

Statutory repo

importation into the US as the Importer o Record or the US

Customs.

Orchid Pharma, Inc., is the commercial entity that started

directly marketing and selling your Companys products in theUS generics market place. Orchid Pharma Inc. has established a

strong corporate image or your Company in the US and will be

launching all uture (unpartnered) generics products under the

Orchid label.

dia Pamacicas Ic., uSA

During the year, your Company increased its stake in Diakron

Pharmaceuticals Inc., and holds 76.4% in the Company. Orchids

stake in Diakron has been a part o the original transaction which

includes direct investment and Master Services Agreement (MSA).

Your Company has completed most o its MSA obligations to

develop and supply clinical quantities o Active PharmaceuticalIngredients (API) and extended release ormulations.

oci ep limi, ui kigm

Your Companys subsidiary in Europe namely Orchid Europe

Limited (OEL) is a wholly owned subsidiary which provides liaising

support to the parent Company and its customers in Regulatory,

Pharmacovigilance, Testing & Release, Retention o samples,

Service Providers and Business Development in Europe.

oci Pamacicas S Aica P l.,

S Aica

Your Companys wholly owned subsidiary, Orchid Pharmaceuticals

(South Arica) Pty Ltd., was incorporated mainly to register and

market your Companys products in South Arica. The Company

is in the process o submitting dossiers or obtaining marketing

approval rom the regulatory authority, MCC or various oral

products and the applications are at various stages o the

registration process.

oci Pama japa k k

The subsidiary Company in Japan has continued to make

noteworthy progress during the year. At the end o the scal

year 201112, there are 9 Drug Master Files (DMFs) led with

Pharmaceutical and Medical Devices Agency (PMDA) o Japan

and additional Drug Master Files (DMFs) will be led in the current

nancial year to meet the market needs.

During the year under review, the Company successully started

supplies to ew Japanese Pharma Companies and business

discussions are on with various companies or supply o new

products and the Company is expected to make good progress

on both business and regulatory ronts during the current year.

GenerAl exeMPtIon FroM CentrAl GovernMent

The Ministry o Corporate Aairs, Government o India vide its

circular dated February 8, 2011 has provided general exemption to

companies rom attaching the balance sheets o their subsidiary

companies as required under Section 212(8) o the Companies

Act 1956.

The exemption is available provided the companies publishthe audited consolidated nancial statements in the Annual

Report. The consolidated nancial statements duly audited

are presented along with the accounts o your Company. The

statement as required under Section 212 is given as part o the

consolidated accounts in this report. The annual accounts o

subsidiary companies are kept at the Companys registered oce

and also at the respective registered oce o the subsidiaries or

inspection and shall be made available to the members seeking

such inormation.

FIxed dePoSIt

The Company has not accepted any xed deposits and as such, no

amount o principal or interest was outstanding as o the balance

sheet date.

dIreCtorS reSPonSIbIlIty StAteMent

In accordance with the provisions o Section 217 (2AA) o the

Companies Act, 1956, your Directors conrm:

o That in the preparation o the annual accounts or 201112

the applicable accounting standards were ollowed along

with proper explanation relating to material departures, i

any.

o That the Directors selected such accounting policies and

applied them consistently and made judgments and

estimates that were reasonable and prudent so as to give a

true and air view o the state o aairs o the Company at the

end o the nancial year (March 31, 2012) and o the prot or

loss o the Company or that period (201112).

o That the Directors took proper and sucient care or the

maintenance o adequate accounting records in accordance

with the provisions o the Companies Act, 1956 or

saeguarding the assets o the Company and or preventing

and detecting raud and other irregularities.

o That the Directors prepared the annual accounts or

201112 on a going concern basis.

CorPorAte SoCIAl reSPonSIbIlIty (CSr)

Your Companys constant ocus has been on community

development as part o its corporate social responsibility initiative.

As a part o CSR your Company has created a Trust Orchid

Trust, which has adopted 24 villages and 6 panchayats and

works continuously in implementing several welare schemes in

keyidentied thrust areas like community health development,

children education, women empowerment, youth development,


16/10014


Statutory repo

community asset creation and a greener environment, sel

employment and capacity building.

envIronMent

Environment Management has been a prime ocus area o

your Company. Your Company has employed a state o the art

technology, zero discharge liquid trade efuent treatment plant

and world class treatment acilities or its liquid and gaseous

pollutants generated rom the production processes. The efuent

treatment plant comprising Membrane Bio Reactor, Nano

Filtration, Reverse Osmosis, Solvent Stripping Column, Thermal

Evaporation & Crystallisation plant treats the entire trade efuent

and recycles it back into the utility process.

Your Company was the rst bulk drug manuacturing company

in the country to get ISO 14001 certication in the year 1999

by Dutch Council and has retained the certication continuously

or its Environment Management System. Your Companys Active

Pharmaceutical Ingredient (API) manuacturing acility at Alathur

was reassessed and was certied with ISO 9001: 2008 (Quality

Management System) and ISO 14001: 2004 (Environmental

Management System).

SAFety exCellenCe journey

Saety is a part o the corporate culture in your Company. This

includes inrastructural, employee, environmental and community

saety. Starting with the employee induction programme,

training programmes on various aspects o operational saetyare periodically conducted. In association with a global expert on

saety procedures, a number o initiatives have been designed to

ensure that all manuacturing processes and systems are executed

in the saest manner. These include:

o Use o highend technologies to recycle discharge and make

it toxic ree through a series o processes thereby leading to

zero discharge manuacturing

o Threetier saety committees to monitor saety initiatives,

standard operating procedures (SOPs), processes and

working standards or R&D and manuacturing units

o Roundtheclock medical care and saety training or all

employees

o Use o sophisticated equipment in mobile vans to monitor

air quality inside and outside plants

In 2011, Orchids Active Pharmaceutical Ingredient (API)

manuacturing acility at Alathur was awarded with OHSAS

18000: 2007 (Occupational Health and Saety Management

System) certication.

The year 20112012 saw an allround improvement in various

elements o Saety in the Company. By ocusing on repeat incidents

and carrying out necessary corrective and preventive actions, your

Company was able to achieve considerable reduction in incidents.

The Central Saety Committee continued to monitor saety, health

and environment perormance and provide necessary direction

or improvement through regular monthly reviews.

ConServAtIon oF enerGy

Your Company has always been striving hard in the eld o energy

conservation. Several measures to conserve energy and to reduce

associated costs were taken during the scal under review as well.

The particulars in respect to conservation o energy as required

under Section 217 (1) (e) o the Companies Act, 1956, are given in

Annexure I to this report.

teChnoloGy AbSorPtIon

The particulars in respect o R&D/Technology absorption asrequired under Section 217 (1)(e) o the Companies Act, 1956, are

given in Annexure II to this report.

ForeIGn exChAnGe eArnInGS And outGo

The particulars in respect o Foreign Exchange Earnings and

Outgo as required under Section 217 (1)(e) o the Companies Act,

1956, are given in Annexure III to this report.

PArtICulArS oF eMPloyeeS

Inormation as per Section 217(2A) o the Companies Act, 1956

read with Companies (Particulars o Employees) Rules, 1975 orms

part o this Report. However, as per the provisions o Section

219(1)(b)(iv) o the Companies Act, 1956, the Report and Accounts

are being sent to all members o the Company excluding the

aoresaid inormation. Any member interested in obtaining a

copy o the particulars may write to the Company Secretary at the

Registered Oce o the Company.

CorPorAte GovernAnCe

The spirit o good Corporate Governance remains integral to the

Companys corporate philosophy. The Company ollows the code

o Corporate Governance issued by the stock exchanges or listed

companies. For 201112 all inormation relating to CorporateGovernance is given in Annexure V to this Report. A compliance

certicate rom the Statutory Auditors is appended to this report.

Green InItIAtIve

To augment the green initiative o the Ministry o Corporate Aairs

and to reduce carbon oot print, your Company sends various

communication including the Annual Reports in electronic

orm, to the members who have opted or the same. This helps

in reducing the number o physical copies to be printed, thereby

contributing to a greener environment. The ull text o the current

years (201112) annual report will also be available in an easily


17/10015

Statutory repo

navigable ormat on our website, www.orchidpharma.com. As a

member o the Company, you will always be entitled to receive all

such communication in physical orm, upon request.

dIreCtorS

rsigai dics

Shri R Sankaran, who has been a Director o Orchid, resigned

rom the Board with eect rom January 9, 2012. The Board places

on record its appreciation or the contribution made by Shri R.

Sankaran during his tenure as Director.

rim dics ai

In accordance with the provisions o the Companies Act, 1956 and

the Articles o Association o the Company Shri Deepak Vaidya

retires by rotation at the ensuing Annual General Meeting and

being eligible oers himsel or reappointment.

rappim Caima & Maagig dic

The tenure o Shri K Raghavendra Rao as Chairman & Managing

Director o the Company expires on June 30, 2012. The Board

o Directors at their meeting held on May 14, 2012 reappointed

Shri K Raghavendra Rao as the Chairman & Managing Director o

the Company or another period o 5 (ve) years with eect rom

July 01, 2012 subject to the approval o members in the ensuing

Annual General Meeting. The notice convening the Annual

General Meeting includes the proposal or reappointment o

Shri K Raghavendra Rao.

None o the Directors o the Company are disqualied under

Section 274(1)(g) o the Companies Act, 1956.

AudItorS

The existing Statutory Auditors, M/s SNB Associates, Chartered

Accountants retire at the orthcoming Annual General Meeting,

and being eligible, oer themselves or reappointment. M/s.

SNB Associates, Chartered Accountants have urnished certicate

under Section 224(1B) o the Companies Act, 1956 o their

eligibility or the appointment.

AudItorS rePortIn reerence to the point no. 5 o the Auditors Report on the

standalone accounts, the Company will be making an application

to the Central Government seeking approval or the remuneration

paid.

CoSt AudIt

The Central Government has prescribed that an audit o the cost

accounts maintained by the Company in respect o bulk drugs and

ormulations be conducted under Section 233B o the Companies

Act, 1956. Consequently, your Company has appointed Shri V

Kalyanaraman, B.Sc., FICWA, as Cost Auditor or 201213 and 2013

14, with the consent o the Central Government, or the audit o

cost accounts maintained by the Company in respect o both bulk

drugs and ormulations.

For the year ended March 31, 2011, the due date o ling the costaudit report was September 30, 2011 and the actual date o ling

the cost audit report was August 20, 2011.

ACknowledGeMentS

Your Directors are thankul to various public sector and private

sector banks and institutions or meeting the long term and

working capital needs o the Companys expanding operations and

also the holders o Foreign Currency Convertible Bonds (FCCBs) and

Global Depositary Receipts (GDRs) or their support.

The Directors are grateul to the Central and State Governments

and the Central DCGI and State FDAs or their continued supportto the Companys expansion plans. Your Board places on record

its appreciation o the support provided by the customers,

suppliers and equipment vendors to the Company. Your Directors

are also thankul to the vendors, distributors and agents or their

continued support.

Your Directors are thankul to the esteemed shareholders or their

support and encouragement. The Directors acknowledge the

commitment and contribution o all employees to the growth o

the Company.

For and on behal o the Board

Place: Chennai

Date: May 14, 2012

k ragaa ra

Chairman & Managing Director


18/10016


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Annexure to the Directors Report

InForMAtIon under SeCtIon 2171 oF the CoMPAnIeS ACt, 1956 reAd wIth CoMPAnIeS dISCloSure oF

PArtICulArS In the rePort oF boArd oF dIreCtorS ruleS, 1988 And ForMInG PArt oF dIreCtorS rePort For the

yeAr ended MArCh 31, 2012.

Annexure I ConServAtIon oF enerGy

a eg csai mass a

The ollowing energy conservation measures were taken

by your Company during the year under review at its

manuacturing acilities

o Optimisation o solvents, process steps involved and

water usage in Active Pharmaceutical Ingredient

(API) process, resulting in reduction o mother liquorgeneration and energy saving.

o Temperature eedback control given to radiator ans

resulted in energy saving.

o Gravity line provided or ew process in RO and ETP

and thus eliminating the usage o motor, resulting in

energy saving.

o Conversion o all vessel lamps rom incandescent lamp

to 3W LED lamp.

o Control switch o ans relocated resulting in reductiono running hours o an leading to energy savings.

o Recycling o condensate liquid resulted in energy

savings and less impact on environment.

o For condensing solvent vapours, CT water was used

instead o +100C.

o Mercury Lamps were replaced with CFL Lamps in the

plant, in order to save power.

o Set point o air conditioner increased rom 230C to 260C

thereby saving power.

Aiia isms a ppsas, i a,ig impm ci csmpi g.

Some o the proposals that are considered / being

implemented or saving energy are:

o Operation o Hydraulic power packs was optimised

resulting in saving potential.

o Sparkler lter or utility.

o Reduction in consumption o puried water in WFI

generation.

o Provision o +10 circulation line or UPS room instead

o 10 so as to reduce power consumption.

o Sparger arrangement in reactors resulting in less

consumption o water.

o Intake air duct or atlas copco compressor.

o Implementation o easible energy conservation

suggestions selected rom employee suggestion

scheme with saving potential.

o Hydro jet cleaning or process equipments being used,

in order to reduce water consumption.

c Impac mass a a a a ci g csmpi a csqimpac cs pci gs.

o Due to the various energy conservation activities

implemented, mentioned in (a) above, there was a

reduction in power consumption by around 3762 units

per day and 5.10 tons o steam per day, leading to a

saving o around Rs 158 lakhs annually.

o Further, the energy conservation measures proposed

to be taken up by the Company as mentioned in (b)

above are expected to bring in savings o around Rs

170 lakhs annually.


19/10017

Statutory repo

ta eg Csmpi a g csmpi p i pci:

(i) Active Pharmaceutical Ingredient (API)

Yar ddMarch 31, 2012

Yar ddMarch 31, 2011

A P a csmpi

1 ecici

a) Purchased

Units 91,992,236 90,885,162

Total Amount (Rs lakhs) 4,733.19 4,358.81

Rate per Unit (Rs) 5.15 4.80

b) Own generation

i) Through Diesel Generator

Units 3,486,523 25,34,932

Units per litre o diesel oil 3.40 3.31Cost per unit (Rs) 11.56 10.61

ii) Through Furnace Oil Generator

Units 5,750,435 85,32,400

Units per litre o uel oil 4.01 4.15

Cost per unit (Rs) 8.05 6.03

2 Ca

Quantity (tonnes) 21,549.36 21,600.35

Total Cost (Rs lakhs) 1,196.48 974.92

Average Rate per tonne (Rs) 5,552.26 4,513.43

3 Fac oi

Quantity ( K litres ) 6,201.63 6,154.69

Total Cost (Rs lakhs) 2,189.99 1,575.33

Average rate (Rs per KL) 35,313.12 25,595.51

4 os / Ia Gai

a) Windmills *

Quantity (in units) 310,803 11,23,265


b) Gas based *

Quantity (in units) 46,974,479 46,362,258


B Cumpi Pr Ui o PrduciProducts with details:

a) Bulk Drugs Oral & Sterile (in MT) 904.30 1,025

Electricity (Rs lakhs per MT) 5.03 5.02

Furnace Oil (Rs lakhs per MT) 0.51 1.54

Coal (Rs lakhs per MT) 1.32 0.95

Others Nil Nil

* Units generated are wheeled to our manuacturing acilities

(ii) Formulations

It is not practical to classiy energy consumption data on the basis o product, since the Company manuactures nished

dosages in various orms and pack sizes with dierent energy requirements


20/10018


Statutory repo

Annexure II - teChnoloGy AbSorPtIon

I. rsac a dpm r&d

1. Specic areas in which research and development activities have been carried out by the Company during

the yearo Process development o certain molecules in the nonpenicillin noncephalosporin segment (NPNC) has been carried out

by your Companys R&D. These molecules belongs to dierent therapeutic categories like antihypertensive, anticancer,

antiulcerative, cholesterol lowering agents, antiasthmatic, treatment o narcolepsy, antimigraine, treatment o urinary

incontinence, antipsychotic, treatment o insomnia, anticoagulant, cardiac arrhythmias, multiple sclerosis, over bladder etc.,

Most o the projects except a ew were successully scaled up and technology has been transerred to the Companys GMP

compliant manuacturing acility at Aurangabad. Cost reductions or already approved projects in Active Pharmaceutical

Ingredient (API) pipeline have been taken up to make the projects not only cost eective but also environmental riendly.

2. Benets derived as a result o the above R&D activities

o Development and scale up o new Active Pharmaceutical Ingredient (API) molecules will not only cater to the requirements

o ormulation research but also help in strengthening our overall product pipeline.

o Created intellectual property or the Company by developing noninringing and innovative processes. 14 patents have been

led or the innovations carried out during the development.

o Several technically complex scaleup challenges like hygroscopic and sensitive polymorph were handled or smooth

scaleup.

3. Future plan o action

The ocus o your Companys research and development will continue to be on quality, reduction o process time and cost o

manuacturing. Your Company through its wholly owned research subsidiary has been keenly working on proprietary, novel drug

discovery research in the ollowing therapeutic areas namely, antiinectives, antiinammatory, anticancer, metabolic disorders

and Central Nervous System (CNS). In addition, the ocus will also be on new chemical entities (NCEs) in various therapeutic areas.

4. Expenditure on R&D

The R&D outlay was as ollows

(Rs lakhs)

Yar dd

March 31, 2012

Yar dd

March 31, 2011

a) Capital 1,449.10 642.78

b) Recurring 6,471.18 3,326.62

c) Total 7,920.28 3,969.40

d) Total R&D expenditure as a percentage o the total turnover 4.42% 2.36%

II tcg aspi, aapai a iai

I. Research and Development

1. Eforts in brie, made towards technology absorption, adaptation and innovation

o Development o new Active Pharmaceutical Ingredient (API) processes or a ew Cephalosporin and Penem products have

been carried out in the laboratory.

o To ensure that our products remain competitive in various markets, the development o cost reduction exercise has been

carried out or key carbapenems like Meropenem, Imipenem, Cilastatin and Tazobactam.


21/10019

Statutory repo

o The drug discovery division has been working on a robust pipeline o 4 drug development projects to address unmet medical

needs. During the year, a rst proprietary molecule in PDE IV inhibitor class completed Phase I clinical studies in healthy

subjects in the Netherlands targeted or treatment o Chronic Obstructive Pulmonary Disease (COPD). Work on another

molecule BLX 1002 reached a Phase IIa clinical trial in Malaysia or the treatment o nonalcoholic atty liver disease.

2. Benets derived as a result o the above eforts, e.g. product improvement, cost reduction, product development,

import substitution, etc

o Development o new Active Pharmaceutical Ingredient (API) molecules will not only cater to the requirements o ormulation

research but will also help in strengthening the Companys overall product pipeline.

o The initiatives towards cost reduction o existing Active Pharmaceutical Ingredient (API) molecules will not only make the

product cost eective but also the processes ecoriendly thus improving the overall eciency.

o The drug discovery division has designed and synthesised more than 800 New Chemical Entities (NCEs) in various therapeutic

areas and signicant molecules are under various biological proling to strengthen the existing pipeline. A signicant number

o patents amounting to 35 have been led in various therapeutic areas to provide protection o intellectual property

generated by the division towards eventual monetisation o promising compounds in uture.

o Your Company in alignment with environmental riendly practices, successully promoted carbon oot print campaign

supported by green chemistry practices or laboratory processes. In addition, signicant energy and water conservation

approaches were adopted to achieve ecient use o resources and reduce waste. Chemical use and solvent consumption

was monitored routinely and conservation approach instituted to reduce cost to the Company and to the environment.

3. Imported technology (imported during the last 5 years reckoned rom the beginning o the nancial year):

a) Technology No new technology has been

imported by Orchid during the

year

b) Year o import Not applicable

c) Has this technology been ully absorbed Not applicable

d) I not ully absorbed, areas where this has not taken place, reasons thereo and uture

plans o action

Not applicable

Annexure III - ForeIGn exChAnGe eArnInGS & outGo

a Aciiis aig ps, iiiais a icas ps, pm p mas pcs a sics, a p pas

The Company is ocusing to increase the sale and distribution o its cephalosporin and the nonpenicillin non cephalosporin Active

Pharmaceutical Ingredients (API) and generics in regulated markets including United States, Canada, Europe, Japan and Australia,

as applicable.

ta ig cag aigs a g

(Rs lakhs)

Yar dd

March 31, 2012

Yar dd

March 31, 2011

1. eaigs i ig cag ig a

F.O.B value o exports 84,665.93 72,585.33

Export o services (net o TDS) 4,617.97 6,092.06

2. C.I.F. a imps cas asis


22/10020


Statutory repo

(Rs lakhs)

Yar dd

March 31, 2012

Yar dd

March 31, 2011

Raw materials 45,945.16 47,157.56Capital goods 23,049.70 7,841.27

Spare parts, components and consumables 1,894.84 2,732.76

3. epi i ig cc ig a cas asis

Travelling expenses 179.76 202.20

Interest and bank charges 5,040.30 1,688.64

Proessional / Consultancy ees 2,160.28 3,425.17

Royalty / technical knowhow

Others 3,920.21 3,211.77

4. dii miacs i ig cc ig a

Net dividend 0.45 317.675. ta ig cag s 2+3+4 82,190.70 66,577.04

Annexure Iv - detAIlS oF StoCk oPtIonS - PurSuAnt to SebI GuIdelIneS on StoCk oPtIonS: - orChIdeMPloyee StoCk oPtIon SCheMeS

s. n. Dcripi oRCHID esoP 2010

schm

oRCHID esoP

-Dircr 2011

schm

oRCHID esoP -sir

Maagm 2011

schm

a. No. o shares available under ORCHID ESOP 1,000,000 500,000 1,000,000

b. Options granted during the year (Net o

Lapses)

Nil 250,000 42,700

c. Pricing ormula The closing prices or the Companys Equity Sharesquoted on the Bombay Stock Exchange and / or

National Stock Exchange preceding the date o

grant o the options.

Rs 10/

d. Options vested during FY 201112 854,000 Nil Nil

e. Options Exercised during FY 201112 Nil Nil Nil

. Total No. o shares arising as a result o Exercise

o Option

Nil Nil Nil

g. Options lapsed during FY 201112 47,000 50,000 Nil

h. Variation o terms o Options Due to all in the

share prices, the

Compensation

Committee revised the

price o the optionsrom Rs 329.55 to

Rs 166.15 as per the

closing price o Orchid

at NSE on October 31,

2011.

Nil Nil

i. Money realized by exercise o options Nil Nil Nil

j. Total No. o options in orce as on March 31,

2012

854,000 250,000 42,700

k. Grant details to


23/10021

Statutory repo

s. n. Dcripi oRCHID esoP 2010

schm

oRCHID esoP

-Dircr 2011

schm

oRCHID esoP -sir

Maagm 2011

schm

(i) Members o Senior Managerial

personnel/Directors during the year

Nil 1. S Krishnan

2. Deepak Vaidya

3. R Sankaran

4. Bharat D Shah

5. Bala V Balachandran

1. Dr B Gopalan

2. A Suresh Babu

(ii) Any other employee who receives

a grant in any one year o option

amounting to 5% or more o option

granted during the year.

Nil Nil Nil

(iii) Identied employees who were granted

option during the year equal to or

exceeding 1 % o Issued capital o the

company at the time o grant.

Nil Nil Nil

l. Diluted EPS as per Accounting Standard 20 Rs 14.46m. i) Method o calculation o employee

compensation cost

The company has calculated the employee compensation cost using the

intrinsic value o the stock options.

ii) Dierence between the employee

compensation cost so computed at (i)

above and the employee compensation

cost that shall have been recognized i

it had used the air value o the options

Rs 58.03 lakhs

iii) The impact o this dierence on prots

and on EPS o the company on the

current year prots (Amortized Amount)

Prot (Loss) ater Tax : Rs 10,311.16 lakhs

Less: Additional Employee compensation

cost o Fair Value over Intrinsic Value

: Rs 58.03 lakhs

Adjusted PAT (loss) : Rs 10,253.13 lakhs

Adjusted EPS : : Rs 14.53

n. Weighted average exercise price and air value o Stock Options granted:

Stock Options granted on Weighted average Exercise

Price (in Rs)

Weighted average Fair Value

(in Rs)

Closing market price at NSE

on the preceding day o the

date o grant (in Rs)

October 28, 2010 (Employees) 166.15 176.01 166.15

November 01, 2011

(Directors)

166.15 187.70 166.15

November 01, 2011 (Senior

Management)

10.00 157.87 166.15

o. Description o the method and signicant assumptions

used during the year to estimate the air value o theoptions, including the ollowing weighted average

inormation.

The BlackScholes Option Pricing Model was developed or

estimating air value o traded options that have no vestingrestrictions and are ully transerable. Since optionpricing

models require use o substantive assumptions, changes

therein can materially aect air value o options. The option

pricing models do not necessarily provide a reliable measure

o air value o options.

p. The main assumptions used in the BlackScholes Option

Pricing Model during the year were as

ollows:

(i) Risk ree interest rate 8.00%

(ii) Expected Lie o Options 2 years

(iii) Expected Volatility 0.46%

(iv) Dividend yield 2.53%


24/10022


Statutory repo

1. CoMPAnyS PhIloSoPhy on Code oF CorPorAte GovernAnCe

At Orchid, we are committed to practicing good Corporate Governance norms. Orchid

rmly believes in adhering to Corporate Governance code to ensure protection o its

investors interest as well as healthy growth o the Company. The Company has been

complying with Corporate Governance norms right rom its inception. We endeavor to

enhance the long term stake holding value o our investors. The Company complies with

the Corporate Governance Code as enshrined in Clause 49 o the Listing agreement.

2. boArd oF dIreCtorS

o Cmpsii ba

The Chairman o the Board o Directors is an Executive Director. As on March 31, 2012

the Board had a composition o six Directors, comprising o two Executive Directors

and our Nonexecutive & Independent Directors. None o the Directors are relatedto each other.

The composition o Board and the details o the Directors with regard to Directorships

in other Companies and Committee positions during the year ended March 31, 2012

are as ollows:

Report onCorporate Governance

Annexure v to the dIreCtorS rePort


25/10023

Statutory repo

s.n nam Cagry numbr

Dircrhip

hld i hr

cmpai @

numbr Bard

Cmmi pii i

hr cmpai

hld a *

Mmbr Chairma

1 Shri K Raghavendra Rao Promoter & Executive Director 1 None None

2 Shri S Krishnan Executive Director 1 None None

3 Shri Deepak Vaidya NonExecutive Independent 4 2 3

4 Shri T A Ganesh NonExecutive Independent

(Nominee o IDBI Bank Ltd)

None None None

5 Shri Bharat D Shah NonExecutive Independent 5 None 3

6 Pro Bala V Balachandran NonExecutive Independent 2 None None

7 Dr M R Girinath$ NonExecutive Independent None None None

8 Dr I Seetharam Naidu$ NonExecutive Independent None None None

9 Shri R Sankaran# NonExecutive Independent 4 2 None

@ Excludes oreign companies, private limited companies, Section 25 Companies and alternate Directorships.

* Includes only membership/Chairmanship in Audit and Investor Grievance Committee across all public limited companies

$ Resigned rom the Board with eect rom July 29, 2011.

# Resigned rom the Board with eect rom January 09, 2012.

1. Resigned rom the Board with eect rom July 29, 2011.

2. Resigned rom the Board with eect rom January 09, 2012.

3. Appointed as Additional Director with eect rom May 18, 2011.

o ba Migs & Aac rc dics

The Board meets at least once in a quarter to review the quarterly nancial results and operations o your Company. It also

meets as and when necessary to address specic issues relating to the business o your Company. During the year the Board met

5 times on May 18, 2011, July 29, 2011, November 01, 2011, January 07, 2012 and February 08, 2012. The attendance records o all the

Directors are as under:

nam numbr Bard

Mig Add

La AGM

Adac

Shri K Raghavendra Rao 5 Present

Shri S Krishnan 5 Present

Dr M R Girinath1 2 Not Present

Dr I Seetharam Naidu1 2 Not Present

Shri Deepak Vaidya 4 Present

Shri T A Ganesh 5 Present

Shri R Sankaran2 2 Present

Shri Bharat D Shah 4 Not Present

Pro Bala V Balachandran3 2 Present


26/10024


Statutory repo

CodeofConduct

The Board o Directors has laid down a Code o Conduct (the Code) or all Board members and senior management

personnel o your Company. The Code is posted on your Companys website www.orchidpharma.com. All Board members

and senior management personnel have conrmed compliance with the Code. A declaration signed by the Chairman &Managing Director is attached and orms part o this Report.

3. AudIt CoMMIttee

In accordance with the provisions o Section 292A o the Companies Act, 1956 and Clause 49 o the Listing Agreement, the

Company has constituted an Audit Committee with NonExecutive Independent Directors. All the members o the committee are

nancially literate and the Chairman o the Committee being a Chartered Accountant is an expert in Accounting and Financial

Management matters. The terms o reerence o the Audit Committee include:

a. Review o :

o Financial statements beore submission to the Board.

o Drat nancial statements and Auditors Report (beore submission to the Board).

o Accounting policies and practices.

o Risk management policies and practices.

o Compliance with stock exchange and legal requirements concerning nancial statements.

o Related party transactions.

o Internal control systems and internal audit reports and their compliance thereo

o Compliance with accounting standards, and

b. Recommending the appointment o Auditors and xing their ee.

The Audit Committee met our times during the year on May 18, 2011, July 29, 2011, November 01, 2011 and onFebruary 08, 2012.

The composition o the Committee and the attendance o each member o the Committee in the meetings are given below:

nam Cagry numbr Mig Add

Shri Deepak Vaidya NonExecutive Independent 4

Dr M R Girinath1 NonExecutive Independent 2

Dr I Seetharam Naidu1 NonExecutive Independent 2

Shri T A Ganesh NonExecutive Independent 4

Shri Bharat D Shah2

NonExecutive Independent 2Pro Bala V Balachandran2 NonExecutive Independent 2

1. Resigned w.e.. July 29, 2011.

2. Appointed w.e.. May 18, 2011.

The Chairman o the Audit Committee, Shri Deepak Vaidya was present at the Annual General Meeting o the Company

held on July 29, 2011.

The Company Secretary is the Secretary o the Audit Committee.


27/10025

Statutory repo

4. reMunerAtIon CoMMIttee

The Company has a Remuneration Committee which determines and recommends the remuneration payable to the Executive

Directors/Whole Time Directors on the basis o their perormance as well as Companys perormance, subject to consents as may

be required. The remuneration to the Executive Directors consists o a xed salary and other perquisites. Wherever applicable theperquisites are considered as a part o remuneration and taxed as per the Income Tax laws.

The NonExecutive Directors are not paid any remuneration except sitting ees or attending the Board Meetings/Committee

Meetings. The Remuneration Committee deals with all elements o remuneration package, stock options, service contracts, etc. o

all Executive Directors/Whole Time Directors.

During the year the committee met once on May 18, 2011 and all the members o the committee attended the meeting.

The composition o the Committee and the attendance o each member o the Committee to the meeting are given below:


Dr M R Girinath1 NonExecutive Independent 1

Dr I Seetharam Naidu1 NonExecutive Independent 1

Shri Deepak Vaidya NonExecutive Independent 1


Shri Bharat D Shah2 NonExecutive Independent *

Shri R Sankaran3 NonExecutive Independent *


2. Appointed w.e.. May 18, 2011

3. Appointed w.e.. May 18, 2011 and resigned w.e. January 09, 2012

* Were not in the Committee at the time o the meeting held on May 18, 2011.

Details o remuneration paid to Directors or the year 201112 are given below:

nam Rmurai paid durig h yar 2011-12 (R I lakh)

salary Cmmii/

bu

siig tal n. sck

opi

Shri K Raghavendra Rao 527.60 0.10 527.70

Shri S Krishnan 130.00 0.10 130.10 4,00,000

Dr M R Girinath1 1.00 1.00

Dr I Seetharam Naidu1 1.00 1.00 Shri Deepak Vaidya 2.00 2.00 50,000

Shri T A Ganesh 2.40 2.40*

Shri R Sankaran2 1.00 1.00 50,000

Shri Bharat D Shah 1.20 1.20 50,000

Pro Bala V Balachandran 0.80 0.80 50,000

* Sitting ees o Rs 2.40 lakhs paid directly to IDBI Limited


2. Resigned w.e.. January 09, 2012.


28/10026


Statutory repo

The shares held by Directors as on March 31, 2012 are given below:

nam numbr shar

Shri K Raghavendra Rao 6,925,173

Shri S Krishnan 9,200

Shri Deepak Vaidya Nil

Shri T A Ganesh Nil

Shri Bharat D Shah Nil

Pro Bala V Balachandran Nil

5. CoMPenSAtIon CoMMIttee

Pursuant to the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines 1999, a Compensation

Committee was constituted in the year 1999 to consider the ollowing matters:

1. Quantum o options to be granted to each employee and in aggregate.

2. The conditions under which options vested in employees may lapse in case o termination o employment due to misconduct.

3. The exercise period within which the employee should exercise the option.

4. The specied time period within which the employee shall exercise the vested options in the event o termination or

resignation o an employee.

5. The right o an employee to exercise all the options vested in him at once or at various points o time within the exercise

period.

6. The procedure or making a air and reasonable adjustment to the number o options and to the exercise price in case o

rights issue, bonus issues and other corporate actions.

7. The grant, vest and exercise o option in case o employees who are on long leave.

8. The procedure or cashless exercise o options, i any.

The Compensation Committee has met two times during the year i.e. on May 18, 2011 and November 01, 2011. The composition

o the Committee and the attendance o each member o the Committee to the meetings are as given below:


Shri K Raghavendra Rao Promoter & Executive Director 2

Shri S Krishnan Executive Director 1


Shri Deepak Vaidya1 NonExecutive Independent 1

1. Appointed w.e.. November 01, 2011


29/10027

Statutory repo

nam Cagry numbr mig Add

Shri K Raghavendra Rao Promoter & Executive Director 13Shri S Krishnan Executive Director 13

Shri R Sankaran1 NonExecutive Independent 3

Shri Bharat D Shah2 NonExecutive Independent

1. Resigned w.e.. January 09, 2012.

2. Appointed w.e.. February 08, 2012

6. AllotMent CoMMIttee

The Allotment committee o the Board was constituted in the year 2001. The purpose o this committee is to consider allotment

o equity shares whenever the need arises. Consequent to the resignation o Dr M R Girinath and Dr I Seetharam Naidu rom the

Board with eect rom July 29, 2011, the Board appointed Shri S Krishnan and Shri R Sankaran as members o the Committee.At present, the Committee comprises o Shri K Raghavendra Rao and Shri S Krishnan as Shri R Sankaran has resigned rom the Board

with eect rom January 09, 2012. The committee has not met during the year under review.

7. ShAre trAnSFer And InveStorS GrIevAnCe CoMMIttee

The Company has a Share Transer and Investors Grievance Committee o Directors to look into the redressal o complaints o

investors such as share transers or credit o shares, nonreceipt o dividend/notices/annual reports, etc. During the year 201112,

the committee met 13 times to consider the transers in the physical segment.

The Board has designated Smt. Bhoomijha Murali, Company Secretary as the Compliance Ocer.

The ollowing table shows the nature o complaints received rom shareholders during 20102011 and 20112012, all o which have

been responded within one month.

s.n naur cmplai Rcivd ad Rlvd

2011-2012 2010-2011

1. Nonreceipt o share certicates sent or transer/bonus shares 10 11

2. Nonreceipt o dividend warrants 35 73

3. Complaints rom SEBI, Stock exchanges and Government departments 5 2

totAL 50 86


30/10028


Statutory repo

8. detAIlS oF AnnuAl/extrAordInAry GenerAl MeetInGS And loCAtIon And tIMe oF the GenerAlMeetInGS held In the PASt three (3) yeArS

Yar AGM / eGM Lcai spcial rlui pad Da tim2011 AGM The Music Academy

Old No.306, New No.168

TTK Road,

Chennai 600 014

1. ORCHID ESOP Senior

Management 2011 Scheme

2. ORCHID ESOP Directors 2011

Scheme

3. Alteration o Articles o Association

o the Company

July 29, 2011 10.00 AM

2010 AGM Sathguru Gnanananda Hall,

Narada Gana Sabha,

314,TTK Road,Alwarpet

Chennai600018.

Employees Stock

Option Scheme 2010July 21, 2010 11.00 AM

2009 AGM Kalaignar Arangam,

Anna Arivalayam,367369, Anna Salai,

Teynampet,

Chennai 600 018

NilSeptember

30, 200910.00 AM

All the resolutions including the special resolutions set out in the respective notices were passed by the shareholders unanimously.

None o the resolutions passed at the above meetings were required to be passed through postal ballot.

Psa baThere were two postal ballots conducted during the year 20112012 pursuant to Section 192A o the Companies Act, 1956. ThePostal Ballot was conducted by Ms S Lalitha, practising Company Secretary who was appointed by the Board o Directors as theScrutiniser.

I) Postal Ballot Notice dated May 18, 2011 contained the ollowing resolutions:

Im n.1: Special Resolution or raising o Long term unds under Section 81(1A) o the Companies Act, 1956Im n.2: Ordinary Resolution or Increase o Authorised Capital under Section 94(1)(a) o the Companies Act, 1956

Im n.3: Special Resolution or Amendments to Memorandum and Articles o Association consequent to the increase oAuthorised capital under Section 16 and 31 o the Companies Act, 1956

Results o the aoresaid Postal Ballot are here under:

Paricular Rlui n. 1u/ 81(1A) Cmpai

Ac, 1956

Rlui n. 2 u/94(1)(a) Cmpai

Ac, 1956

Rlui n.3 u/ 16ad 31 Cmpai

Ac, 1956

n palball rm

n har

n palball rm

n har

n palball rm

n har

A No o valid postalballot orms and

shares

1,110 32,587,007 1,059 32,570,117 1,054 32,569,702

B Total Postal Ballots/ votes in avor oresolutions

1,040 29,467,162 997 30,255,748 996 29,632,127

Percentage (B/A) 90.43% 92.89% 90.98%

C Total Postal Ballot/ votes against theresolution

70 3,119,845 62 2,314,369 58 2,937,575

Percentage (C/A) 9.57% 07.11% 9.02%

D Invalid PostalBallots / Votes

42 6,374 93 23,264 98 23,679

The resolutions have, thereore, been approved by the shareholders with requisite majority


31/10029

Statutory repo

II) Postal Ballot Notice dated November 01, 2011 contained only one Special Resolution or variation in terms

by revising the price o options granted under ORCHID ESOP 2010 Scheme, in accordance with Securities

& Exchange Board o India (Employee Stock Option Scheme and Employees Stock Purchase Scheme)

Guidelines, 1999:

Results o the aoresaid Postal Ballot are here under:

Paricular sPeCIAL ResoLUtIon

n pal ball rm n har

A No o valid postal ballot orms and shares 943 25,237,589

B Total postal ballots / votes in avor o the resolution 746 21,886,416

Percentage o (B/A) 86.72%

C Total postal ballot / votes against the resolution 197 3,351,173

Percentage o (C/A) 13.28%

D Invalid postal ballots / votes 57 15,060

The resolution has thereore been approved by the shareholders with requisite majority

9. dISCloSureS

o No transaction o material nature conicting with the Companys interest was entered into by the Company with related

parties i.e. Companys subsidiaries, Directors or management or relatives.

o Transactions with the related parties are disclosed in Note no. 34 to the nancial statements in the Annual Report.

o There were no instances o noncompliance by the Company on any matter related to capital markets during the preceding

three years. Hence, there were no penalties, strictures imposed by SEBI / Stock Exchanges or any other statutory authorities

against the Company.

o Presently the Company does not have a whistleblower policy. No employee has been denied access to approach the Audit

Committee to report any serious concerns.

o No dierential treatment rom the Accounting Standards was ollowed in preparation o the nancial statements o the

Company.

o The Company complies with all mandatory requirements and has also adopted some o the nonmandatory requirements /

Corporate Governance Voluntary Guidelines 2009, as detailed below.

10. MeAnS oF CoMMunICAtIon

o Financial Results are published by the Company in Financial Express, Economic Times and Makkal Kural.

o Results are also displayed in URL www.orchidpharma.com. Ocial news releases are also updated in the site.

o Presentations made during the year are available on the Companys website www.orchidpharma.com.

o The Company has an intranet portal to communicate with its employees.

o Key developments are comm

Documents

Orchid Pharma Annual Report 2011 12