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Formulations-Advanced Markets (USA and Europe)

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FROM

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CONCEPTIONCONVICTION

Ms. Vinita Gupta, President & MD - Lupin Pharmaceuticals Inc. USA

A wide spectrum of products, vertical integration, perceptive marketing strategies and attractive prices have enabled us to develop a formidable presence in the Advanced Markets, a testimony to our flight from conception to conviction.

The Company's Advanced Markets business in the US and Europe did extremely well during the year, recording sales of Rs. 8,430 Mn. (US$ 210.9 Mn) and registering a growth of 75%, over the previous year. This was led by the US contributing Rs. 7,657 Mn. (US$ 191.6 Mn) and Europe reporting sales of Rs. 773 Mn. (US$ 19.33 Mn).

USA

The Company's key growth driver, reporting a stellar growth of 103%, riding on the success of Direct-To-Market (DTM) and brand business.

Intellectual Property (IP) based products, coupled with sound marketing, backed by world class manufacturing and research capabilities, have helped the Company emerge as a strong generic player in the US.

The Company has built a strong foothold in the paediatric Branded market and is an emerging market leader in the generic space over the past 3-4 years in the US.

formulation business was the

> Industry Overview

> API > R&D

> IRF

> HR

> AAMLA

> CIS > Financial Overview

> Advanced Markets

21

LUPIN LIMITED Annual Report 2007-08Management Discussion & Analysis

2004-05

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9

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2005-06

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2006-07 2007-08

Rs.

in M

n

Formulations Revenue - US

72

05

> CSR

The Company has built a strong foothold in the Branded market and is an emerging market leader in the generic space over the past 3-4 years in the US

During the year, the Company filed 11 ANDAs, taking its cumulative filings to 62, with 27 ANDA approvals received. Additionally, the cumulative DMF filings stand at 74, with 14 made during the year. The estimated market size of Lupin's ANDAs i.e., molecules for which it has got approval / submitted dossiers, is close to US$ 42.5 Bn. (source IMS MAT DEC 07).

Lupin has developed a balanced pipeline, of Para III, Para IV filings, controlled release and other niche products.

IP Based Products

The Company has built strong capabilities in identifying and challenging unique opportunities. The IP team had two big wins this year.

In the early part of the year, a significant achievement for the Company was the introduction of Cefdinir, after a successful litigation and settlement with Abbott Laboratories and Astellas Pharma Inc., in USA. Lupin was the first Company to receive an approval from the US FDA for Cefdinir and launched the products after the settlement.

Similarly, in case of the Ramipril litigation, the Court of Appeals for the Federal Circuit reversed a district court decision, finding the Aventis patent on Ramipril invalid. Ramipril is one of the ACE inhibitors used for the treatment of high blood pressure. Lupin believes that it is a landmark decision and reflects the strength and maturity of the Company's IP capability.

US Generics

This year, the generics business in the US clocked sales of US$ 118Mn, recording an exponential growth of 127%. The key growth drivers were increased market share for Lisinopril and Lisinopril+HCTZ and the launches of Cefdinir, Trandolapril, Lovastatin, Amlodipine and

rdSimvastatin. For the year 2007, Lupin was ranked as the 3 fastest growing Company in the US, in terms of prescriptions (as per IMS) and Lupin's Lisinopril was rated as the fastest growing product, in terms of prescriptions, having garnered leading market share position in field of 10 competitors.

The Company has a product basket of 15 generic formulations in the market and it ranks in the top 3 in 10 of the 15 products.

Lupin's prescription growth and penetration has been faster and deeper than any other large domestic player.

The key factors contributing to the success of the Company's generic strategy in the US are:

Wide Product Portfolio

The Company has built significant expertise in identifying and developing the right products. It focusses on 'difficult to make' complex and innovative products, in addition to niche products. The Intellectual Property Management Group focusses on building a differentiated product pipeline, based on the Company's key strengths in the areas of APIs and formulations.

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CefprozilTab.

CefprozilSusp.

Lisinopril LisinoprilHCTZ

MeloxicamTabs

QuinaprilHCl

Lovastatin

Apr-07 Apr-08

(%)

Market Share Gains By Lupin Across Several Products*

01000000

2000000

3000000

4000000

5000000

6000000

Caraco Pharm, Sun PharmaceuticalDr. Reddy's LabRanbaxy Labs

Lupin

April 2005 March 2008

Ramp-up By Lupin In Total US Market * Prescriptions

*Source IMS (Featured in Lehman Brothers Global Equity Research Report)


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Intellectual Property based products, coupled with marketing muscle, backed by world class manufacturing capabilities and research, have helped the Company emerge as a strong global generic player

'Best New Manufacturer of the Year, Generics Rx' Award from AmerisourceBergen

Vertical Integration

Lupin's success in the Advanced Markets is aided by the Company's strong vertically integrated operations spanning across intermediates, APIs and formulations which distinctly provide it the competitive edge needed in the increasingly competitive markets.

Scale and cost has played a critical role in carving Lupin's market success. Lupin's cost efficient manufacturing of APIs and formulations in India, provides the Company the competitive edge needed in an otherwise crowded generic market.

Quality

The Company's presence in the market has been applauded by its customers. During the year, the Company received the 'Best New Manufacturer of the Year, Generics Rx' award from AmerisourceBergen, a leader in healthcare distribution in the US. The award recognises Lupin's contribution and commitment towards excellence as a generic drug supplier in the US. The Company also received the 'Quality Supplier Award' from Cardinal Health Inc., a leading wholesaler. This award is a recognition of the suppliers, who meet or exceed Cardinal's standards of quality in service levels, lead-times and customer service.

Marketing Strategy

The Company's carefully crafted marketing strategies have resulted in enhanced market penetration. Today, the Company has a presence across all major classes of trade such as, the chain drug stores, distributors, wholesalers and mail order houses. The mix of these channels is guided by the strength of the individual class of trade for a given molecule. The Company is engaged in developing strategic alliances with key trade partners, with the objective of achieving a sustainable long-term position in the market.

Mr. Nilesh Gupta, President - Advanced Markets

US Branded

The Company's foray in the US market, with the launch of 'Suprax®' as a brand for the paediatrics segment, was an outcome of innovative market strategy, which was unlike most other generic players.

Driven by a blend of experience, deep market understanding and effective management of its 50-strong sales team to enhance productivity, Suprax® has evolved to become a US$ 40 Mn plus brand, over the last four years. During 2007-08, Suprax® continued to chart strong growth, recording a prescription growth of 55% and revenue growth of 52%. The Company, so far, participates only in 26% of the national market, leaving ample scope to further enhance the penetration of Suprax®.

In order to further extend the brand franchise, the Company launched Suprax® Double Strength powder for suspension. The product has proved to be a success as evident from the rising prescriptions, which reflect a healthy trend towards the Double Strength products. Additionally, the Company recently introduced Suprax® 400 mg tablets that offer an additional value proposition to Paediatricians by covering the adolescent and teenage patient population. The incidence of urinary tract

thinfections is high in children and Paediatricians are the 5

largest specialty prescribing antibiotics for this indication. Suprax® tablets are well-positioned to fit into this niche segment.

The Suprax® brand basket now includes, Suprax® (Cefixime for oral suspension 100 mg/ 5 ml, 200 mg/ 5ml and Suprax® 400 mg tablets ( Cefixime Tablets).

Following the success of Suprax®, the Company is focussing on strengthening its portfolio with more value-added, differentiated products and is constantly engaged in product development, using its proprietary controlled release and taste masking platforms.

The Company is also aggressively pursuing in-licensing opportunities to add to its basket for paediatricians.

After making successful inroads in the US, the Company is working to replicate this success in the European markets. Today, the European pharmaceutical markets are witnessing deeper generic penetration as Governments accelerate their efforts towards encouraging the use of generic medicines, in order to contain burgeoning healthcare costs arising from an upsurge in the ageing population.

The Company's product portfolio for Europe encompasses offerings in the Anti-infective, Cardiovascular and CNS segments. The accent is on leveraging the Company's development, manufacturing and commercialisation capabilities and offer complex products, which provide a natural hedge against competition and price erosion.

EUROPE

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Total Suprax TRx Share of Double Dose(%)

Suprax's Double-dose Strength Gaining Market Share*

May 2005 April 2008

*Source IMS (Featured in Lehman Brothers Global Equity Research Report)

UK-Direct to Market

France and Other European Markets

Lupin launched its direct-to-market initiative under its own label during the year. Its flagship product Lisinopril has been well received and has achieved a market share of 15% in the first four months of product introduction.

The Company has a strong pipeline of 21 MAAs for various products. The Company expects to repeat the successful launch of Lisinopril with a host of additional offerings.

Lupin is forging ahead in France and other markets, leveraging its partnership business model. During the year, Cefpodoxime Proxetil tablets introduced in France through multiple partners garnered over 50% market share. The Company is looking forward to replicate this success with the launch of Cefpodoxime Proxetil powder for suspension, amongst other products. Additional Sale of IP

In the year Lupin also received Euro 20 Mn for the additional patent applications on Perindopril to Laboratoires Servier of France.

Having set its foot on European soil, the Company is considering every avenue of value creation. As a result, it has entered into several out-licensing arrangements for its products across the region. Lupin has planned 10-15 dossier filings and an estimated 5-7 launches in the European Union in the near term.

, sale of


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Lupin launched its direct-to-market initiative in UK under its own label, during the year. Its flagship product Lisinopril has been well received and has achieved a market share of 15% in the first four months of product introduction.

0%

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100%

Cefpodoxime Proxetil Tab. - France Generic Split: Lupin Vs. Others

Sep-07 Oct-07 Nov-07 Dec-07Aug-07

Pack

s

OthersLupin

The Company's Research and Development programme progressed well during the year. Guided by its mission to become an innovation led transnational pharmaceutical company, Lupin's scientific pool of over 440 researchers constantly strive to develop new technologies and products.

Lupin Research Park (LRP) located at Pune, spread across 19 acres is the hub of the Company's research activities. The Centre harbours a culture that fosters innovation and helps shape inventions into innovative commercial products.

Research and Development

FROM

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INVENTIONS INNOVATION

We continuously hone our expertise to fuel the development of innovative, difficult-to-replicate entities as well as processes. With innovation brewing in our laboratories, we identify and adapt new technologies as well as scientific approaches to deliver sophisticated medicines.

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Mr. Nilesh Gupta, President - Advanced Markets

Scientific Pool - LRP

48% MSc and M. Tech

Others 17%

M. Pharm and Ph.D 35%

Today, the Company has the proficiency to develop a wide range of pharmaceuticals, across the value chain encompassing complex APIs to value-added difficult to develop formulations. During 2007-08 the total investment of the Company in R & D (excluding depreciation) was Rs.2,037.5 Mn, 7.5% of consolidated net sales.

Lupin's research and development initiatives are spread across:

! Generics Research

Process Research and Development

Formulations Research and Development

! Advanced Drug Delivery Systems (ADDS)

! Intellectual Property Management

! New Chemical Entity Research

! Biotechnology Research

£

£

PROCESS RESEARCH AND DEVELOPMENT

Lupin's success in the global generic pharmaceutical market can be attributed to its process research capabilities that has helped Lupin build a robust backward integrated model for complex and difficult to develop APIs.

The synthesis of APIs today is governed by stringent norms as the process chemistry employed needs to be cost effective, hazard-free, non-infringing, adhering to pharmacopoeial quality and eco-friendly. In order to develop safe processes the Company deploys various emergent synthetic tools such as biocatalysis, metal-mediated chemistry, use of water as reaction media, as far as possible and novel separation techniques.

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> Industry Overview

> API > R&D

> IRF

> HR

> AAMLA

> CSR> CIS > Financial Overview

> Advanced Markets


The Company has the proficiency to develop a wide range of pharmaceuticals, across the value chain

Sr. No. Molecule Therapy Area

1 Cefixime for Oral Suspension Cephalosporin200 mg/5 ml Antibiotic

2 Simvastatin Tablets CVS

3 Ziprasidone Capsules (Tentative) CNS

4 Cefadroxil Capsules CephalosporinAntibiotic

5 Amlodipine Tablets CVS

6 Carvedilol Tablets CVS

7 Lovastatin Tablets CVS

8 Pravastatin Tablets CVS

9 Cefadroxil for Oral Suspension CephalosporinAntibiotic

During the year, the Company received ANDA approvals for nine products for the US market. The UK MHRA approval for Lisinopril underpins the Company's ability to submit high quality dossiers and gain approval in good stead.

Aided by a wide product portfolio, the Company is consolidating its presence in the global generics space. Following the acquisition of Kyowa Pharmaceutical Industry Co. Ltd., Lupin now has a dedicated team focussing on the development of generics exclusively for the Japanese market.

In its journey towards becoming a specialty pharma company, Lupin has identified ADDS to be an important building block for its research initiatives and recognises this

ANDA Approvals Received During The Year

ADVANCED DRUG DELIVERY SYSTEMS (ADDS)

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To sustain its competitiveness in the international market, Lupin has broadened its scope of activity of process research, for better understanding and expertise in the synthesis and characterisation of solids. It has developed expertise in the science of crystallisation.

Lupin, today produces cost-effective APIs for different regulatory markets of the world in time, with acceptable and dependable quality. The Company's productivity is evidenced from the DMF filings made so far. During 2007-08, the Company filed 14 DMFs in the US and Five EDMFs/COS in Europe for APIs taking the cumulative number to 74 DMFs (US), 92 EDMFs (EU) and 16 COS (EU).

The Company has initiated research in the highly specialised area of steroidal hormones. Towards this, Lupin has established high-tech infrastructure, in both research and manufacturing involving stringent safety and operational norms.

During 2007-08, 11 ANDAs in the US, seven MAAs in UK/Europe and two dossiers in Australia were filed. The cumulative bank of 62 ANDAs with several Para IV filings and 1938 dossiers for formulations for rest of the world bears testimony to Lupin's finished products research capabilities. The Company's ANDA focus has shifted to complex and difficult to develop molecules that offers a unique niche position.

The Company's fast growing finished products business in Advanced Markets is strong testimony to its formulations research capabilities.

FORMULATIONS RESEARCH AND DEVELOPMENT

Cumulative Filings - Formulation Key Markets

62

USA UK

21

FRANCE

9 9

(EU others)

Cumulative Filings - API Key Markets

74

DMF (US) EDMF (EU)

92

COS (EU)

16

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area as an important growth driver for the future. Consequently, during the year sizeable investments were

expertise in IP management. Located at LRP, the Company's Intellectual Property Management Group (IPMG) plays a significant role in constantly evaluating its research portfolio to identify wealth creation opportunities. Lupin's wide spectrum of products comprising niche generic products, Para IV filings and diversification into newer therapy areas like oral contraceptives is all driven by IPMG.

The process of creating intellectual wealth starts with judicious product identification, based on technological complexity, patent chal lenges and emerging opportunities.

The functional objective of this group is in tandem with Lupin's strategy of developing differentiated, value added products.

The IP team is responsible for the Company's patent challenges across the globe. Its key achievements during the year were reflected in the Ramipril and Cefdinir litigations and in the Perindopril outlicensing.

The Company introduced its Cefdinir generic following a sucessful litigation and settlement with Abbott Laboratories and Astellas Pharma Inc., related to District Court litigation proceedings. Similarly, in the case of Ramipril litigation, the Court of Appeals for the Federal Circuit reversed a District Court decision on Ramipril and found the Aventis patent on

47


Dr. Ninad Deshpanday, President - Pharma R & D

Ramipril invalid. Ramipril is one of the ACE inhibitors used for the treatment of high blood pressure. Subsequently, the Company launched Ramipril in June 2008.

During 2007-08, the Company received Euro 20 Mn from Laboratoires Servier, France for the sale of additional patents rights for Perindopril.

The Company also believes in protecting its inventions and has developed a healthy basket of patents over the years.

During the fiscal year the Company filed 97 patent applications and received patent grants for 37 patents, with five patents related to formulations and drug delivery technologies, 10 patents related to chemical processes and 22 patents related to new chemical entities.

The Company believes that its NCE programme can be truly transformational and is committed to develop new and innovative healthcare products catering to different disease areas.

Lupin has created a creditable pipeline of four Investigational New Drugs (IND) that focus on three different disease areas of Migraine, Psoriasis and Tuberculosis. The year 2007-08 witnessed significant progress in the development of these drug candidates. Additionally, noteworthy advances were made in the novel drug discovery programmes related to Type-2 Diabetes and Rheumatoid Arthritis.

Lupin has developed a safe and non-toxic nasal spray for the prophylactic treatment of migraine. Encouraged by the compound's efficacy and safety profile during Phase II trials, the Phase III trial was initiated in eight centres in India. The New Drug Application would be filed after the review of Phase III findings

In a bid to create an orally active curative that is efficacious and safe, Lupin has developed a herbal formulation for the treatment of psoriasis. The formulation has completed Phase I and Phase IIa clinical trials. Phase IIb clinical trials, spread over seven centres are in progress. Concomitantly, Lupin is also in the process of

NEW CHEMICAL ENTITY RESEARCH

LL 2011 (AMIGRA)

.

LL 3348 (DESORIS)

filing an IND with the US FDA to conduct clinical trials in USA. This project is being developed in collaboration with CSIR's NMITLI programme.

As an extension to its Psoriasis programme, Lupin has also identified a novel molecule from a plant source. Being orally bioavailable, this pure compound has displayed promising anti-psoriatic activity in preclinical studies. This drug candidate has completed Phase I clinical trials. Currently, the compound is undergoing Phase II evaluation across seven centres in India.

The Company has successfully completed Phase I studies for its lead TB molecule (LL 3858) alone and in combination with standard Anti-TB drugs (LL 4858). Having submitted Phase I report to the DCGI in March 2008, the Company is awaiting permission for conducting Phase IIa studies.

The Company's ongoing Novel Drug Discovery and Development efforts are directed towards identifying and developing new therapeutic leads for the treatment of metabolic diseases and inflammatory disorders.

PPAR Modulators: This programme has resulted in the

identification of a novel PPAR modulator, with PPARa dominant agonist efficacy. Having displayed a good efficacy and safety profile, the compound LL 6531 has been selected for further development. Preparations are underway to take this molecule through an exploratory IND (eIND) with the DCGI, to further evaluate it in humans.

LL 4218 (DESOSIDE-P)

LL 3858 (SUDOTERB)

Metabolic Diseases

PRECLINICAL RESEARCH

PATENTS FILED600

Process230

NCE202

Formulations168

Pending162

Granted68

Pending177

Granted25

Pending155

Granted13

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DPP-IV Inhibitors: Lupin's DPP-IV programme has resulted in the identification of compounds with efficacy and selectivity profiles which are either comparable or superior to those of competitor molecules.

PTP1B Inhibitors: The programme to identify inhibitors of protein tyrosine phosphatase 1b (PTP-1B), a drug target for Type-2 Diabetes and obesity, is progressing well with the identification of several compounds that are potent and highly selective.

The enzyme p38a mitogen-activated protein kinase

(p38aMAPK) is a drug target involved in the etiology of rheumatoid arthritis. Lupin has identified several compounds which are now being evaluated in chronic arthritis models.

Lupin is closely associated with an extensive network of CSIR laboratories and other academic institutions in India and abroad on various research projects.

The Department of Science and Technology (DST), Government of India and Lupin have joined hands for the clinical development of Lupin's Migraine and Psoriasis molecules. The DST has selected the above two clinical development programmes of Lupin for funding and has

Inflammatory Disorders

Partnerships with Institutions

committed over Rs. 100 Mn to support the said projects.

In line with the Company's decision to foray into Biotechnology last year, further progress was made during this year. A dedicated team of scientists specialising in Biotech research have been working constantly to develop a basket of proteins. In order to sharpen the focus in this area a new independent Biotech facility is in the process of being set up in Pune, Lupin is also exploring collaborative arrangements to expedite its business in this segment. The Company is targeting both Biosimilars and New Biological Entities (NBEs), in order to develop cost effective products, free from side effects

BIOTECHNOLOGY

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NCE Pipeline Preclinical Phase I Phase II Phase III Market

LL 2011 Anti-migraine (Amigra)

LL 3348 Anti-psoriasis, Herbal (Desoris)

LL 4218 Anti-psoriasis (Desoside-P)

LL 3858 Anti-TB (Sudoterb)

LL 6531 Anti-diabetic, PPAR Modulators

Anti-diabetic, DPP-IV Inhibitors

Anti-diabetic, PTP1B Inhibitors

Anti-inflammatory, p38aMAPK Inhibitors

Dr. B. N. Roy, Technical Advisor

Regulatory, Intellectual Property, Process, Formulation, Analytical and NCE Research Team

50Cutting Edge Research

51


and in compliance with the existing regulatory guidelines. Biotech research will be the new engine of differentiation for the Company. Worldwide, as the NCE pipeline is drying up Biotech is fast emerging as the future growth driver. Going forward, it is estimated that over 40% of new entities will originate through the Biotech route.

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The importance of quality cannot be undermined in any organisation. The customers, both in India and overseas, are becoming increasingly demanding with respect to cost, quality and delivery performance. Achieving these three, require imbibing the philosophy of 'Total Quality Management' into the organisation's culture. It has to become the very essence of the organisation.

The Pharma industry is subject to strict quality control and scrutiny. India has the largest number of US FDA approved plants, outside of the US which exemplifies the increasing focus on quality assurance of the industry.

At Lupin, we believe that quality is the mainstay of competitiveness. We have thus been working towards creating an environment of Quality and Compliance in line with global best practices. We believe that quality has to be built into the product and therefore employ practices to instill this culture throughout the organisation.

Lupin's Corporate Quality Assurance (CQA) works as a link between manufacturing and its customers for ensuring that quality is built into the product itself. It ensures that the Company has a common quality system ensuring consistency, effectiveness and efficiency, during the manufacture of APIs and formulations at all sites.

At Lupin, we take considerable pride in the quality that we ensure and assure

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FROM

TO

QUALITY CONTROL INSTILLING QUALITY

Quality Control

The CQA focusses on:

! Establishing Quality Standards

! Developing processes to achieve those standards

! Monitoring to ensure Compliance

! Upgrading technology standards

! Training personnel on quality aspects

A team of 12 people is engaged in driving the quality philosophy of the organisation and assuring that global standards of good manufacturing are implemented in the best manner at every facility of the Company. The team also develops and implements Quality Policy and Guidelines for key systems and processes.

CQA is supported by a team of over 500 people comprising the quality functions at sites responsible for implementing the policy and the guidelines laid down by CQA, ensuring compliance to regulatory requirements.

ON SITE QUALITYThe CQA group monitors effectiveness of the site Quality functions through periodic quality reviews, periodic audits and review of compliance to regulatory inspections and customer audits. CQA also supports the site Quality organisation by providing necessary resources, technical guidance and training. The Company also continuously endeavours to upgrade skills and competence levels in QC / QA function by introducing advanced technologies and techniques.

Enterprises that exemplify leadership in quality not only deliver quality products and services, but also effectively set industry benchmarks and redefine standards for those, who share their mission.

At Lupin, we set our quality standards above and beyond regulatory and customer requirements and take considerable pride in the quality that we ensure and assure.


Human Resources

FROM

TO

COMPETENCE EXCELLENCE

Our yearning to deliver brilliance has compelled us to have by our side, the best-in-class talent that aligns its strides to our objectives. Our distinguished pool of intellectuals is impregnated with the right elements that drive success - competence as well as excellence.

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Mr. Rajan Dutta, President - Human Resources Development

At Lupin, we believe, our people are our biggest strength. We continuously nurture and motivate our human assets. We attribute our success so far, to the efficient and committed workforce of close to 9,000 Lupinytes across the globe. The Company's clear business goals are well entrenched amidst our people and each employee is proud to contribute towards the overall mission of the Company. The HR function is constantly engaged in providing opportunities to our people to equip them with the right skills to enable them to learn, perform and succeed. Coupled with guidance and motivation, we aim to groom the leaders for the Lupin of tomorrow.

During the year, the Company's HR initiatives were focussed on:

! Increasing employee productivity

! Optimisation of costs

! Enhancing employee retention

! Augmenting operational excellence and successful wage settlements

Lupin's moral fiber rests on a strong set of values. The Company's workforce has truly imbibed the values compr is ing integr i ty , super ior per formance , entrepreneurship, customer orientation, working together and respect for people.

We have designed exhaustive induction programmes to instill these values amongst new recruits. Through repeated interactions and communication with its employees, the Company further ensures that the essence of its values is not only understood but is also implemented. As an extension of the organisation culture, Lupin offers a high degree of empowerment and the

THE ETHICAL SPINE

55

> Industry Overview

> API > R&D

> IRF

> HR

> AAMLA


> Advanced Markets

The Company's clear business goals are well entrenched amidst our people and each employee is proud to contribute towards the overall mission of the Company


developmental needs of the Company's High Performing/ High Potential managers.

LEAP is 4-day training programme for High Potential & High Performing executives, conducted in two phases of 2-days each, scheduled at a month's gap. This has been designed to enhance the skill and competence level of executives, so that they can take on higher responsibilities.

As a learning intervention for Managers, it focusses on increasing self-productivity; enhancing strategic leadership input and building as well as leading diverse teams.

Aimed at executives, Excell focusses on personality development through self-understanding; self-management and communication skills; organisation alignment and implementation of effectiveness, efficiency and productivity.

This is a 2-day finance training for non-finance managers, which focuses on building fiscal awareness and understanding.

This initiative is aimed at grooming individuals to take up managerial roles and responsibilities, enhancing their efficiency and productivity.

LEAP

I LEAD

EXCELL

FINANCE FOR NON-FINANCE

FIRST TIME MANAGERS

freedom to work as entrepreneurs. UDBHAV is one such programme, aimed at value coaching for new recruits in Operations and R&D. It orients new talent towards 'Workforce / Workplace Preparedness', before one is put on the job.

Given the competitive market scenario, Lupin's primary challenge is to develop a team that can sustain high growth. The Company has succeeded in creating a strong brand image in the marketplace. Lupin is an active recruiter at most leading technical and management institutes across the country, selecting only the best to add to its pool. Furthermore, the Company has built meaningful relationships with HR agencies and consultants to induct the best talent in the Company, globally. HR plays a close, well co-ordinated role in addressing the recruitment needs of the Company.

Cultivating young talent into leaders is an ongoing process. In its endeavour to create a reservoir of leaders, the Company has developed several customised training programmes. These initiatives are aimed at training, imparting product knowledge as well as the overall personal development. Some of these programs are :

ACE is a result of Lupin's strategic tie-up with Indian Institute of Management, Ahmedabad (IIM A). This initiative imparts training in two phases of 4 days each, scheduled at a gap of a month and a half. It comprises interactive discussions, case studies, cross-functional sharing of experiences and field projects, and addresses the

RECRUITING TALENT

ENSURING THE RIGHT ORIENTATION

ACE : A CUTTING EDGE

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ICEBERG

REACHING OUT

Iceberg is a specially designed programme for Managers and General Managers. It is about knowing and managing oneself in a demanding work environment; managing relationships with people, processes and customers, in a complex workplace; managing emotions and the art of dealing with others for productive results and ultimately, achieving the desired outlook.

Apart from induction programmes, SAMPARK is another initiative that facilitates communication between the senior management and the employees. Through this programme, the Chairman and the Managing Director address Lupinytes every quarter, to motivate them and reiterate the corporate philosophy.

As the Company moves forward to achieve new milestones, it is constantly building its competencies through acquisition, training and further development of the best talent available in the industry.


57

Lupin recorded a 34% rise in consolidated revenues, up from Rs. 20,717 Mn in FY2006-07, to Rs. 27,730 Mn, in FY2007-08. The Company also generated Rs. 4,083 Mn in net profit, a 32% increase over the previous year's Rs. 3,086 Mn. Profit growth was triggered by the Company's sound performance in the Advanced Markets; success within the domestic market and Intellectual Property based revenues. These factors contributed towards the growth in Earnings before Interest, Depreciation, Tax and Amortisation (EBIDTA) by 31%, from Rs. 4,913 Mn in the previous year, to Rs. 6,423 Mn. EBIDTA margins were also higher at 23.7% of the net sales, despite a considerable drop in realisation, due to rupee appreciation.

Financial Overview

FROM

TO

MANAGING FINANCE OPTIMISING FINANCIALS

At Lupin, we have brought about a paradigm shift in the strength of our financial base. We have leveraged our financial expertise to propel the Company to achieve its future aspirations and development needs.

The triggers for the impressive performance in the FY 2007-08 inter-alia were :

Lupin Pharmaceuticals Inc., (LPI) the Company's subsidiary reported a stellar performance, recording Formulation sales of Rs. 7,205 Mn, reflecting a growth of 103%. The Company has displayed a commendable performance in the US, both in the branded and generics space. The Company has commercialised 15 generic products, of which, four are market leaders.

ROBUST GROWTH IN THE ADVANCED MARKET OF USA

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Consolidated Sales (Gross)

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Consolidated Net Profit

rdLPI has been reported by IMS health as the 3 fastest growing generic pharma company by prescriptions in 2007. In the branded segment, Suprax® prescriptions for the period grew by 55%. The Suprax® franchise was expanded with the addition of the Double Strength suspension and tablets, both of which, have been well received by the market.

The Company has successfully broken its dependence on Acute therapy segments by developing its presence in the Chronic therapy area as well. The Company, while consolidating its strengths in Anti-TB and Cephalosporins also reflected strong growth in new therapy areas of Asthma, Diabetics and CVS. Additionally, it also successfully in-licensed products into the domestic

INDIA REGION GROWTH

formulation business to supplement its portfolio of products. The domestic formulation business continued to post a robust performance, with sales of Rs. 9,496 Mn, reflecting a growth of 26% - a rate higher than the IPM. During this period, the Company improved its market share from 2.4% to 2.7%. The domestic formulation business accounted for 34% of the Company's consolidated gross sales and continued to be a strong performer in FY 2007-08.

During 2007-08, Lupin acquired Kyowa Pharmaceutical Industry Co. Ltd., Japan. This marks the Company's foray into a market, which it believes, would be very lucrative in the years to come. The prudential acquisition policies of the Company are also reflected in the cost of acquiring a

SIGNIFICANT STEPS IN JAPAN

59


> Industry Overview

> API > R&D

> IRF

> HR

> AAMLA


> Advanced Markets

SBU Wise Sales

IRF

API Emerging Markets

US & EuropeRest of the World

Profit growth was triggered by the Company's sound performance in the Advanced markets; success within the domestic market and Intellectual Property based revenues

Mr. Ramesh Swaminathan, President - Finance & Planning

9%30%

34%

27%

'critical mass' in a market that holds much potential for the future. The acquisition was EPS neutral, right from the start and would be accretive in years to follow.

The Company continued to increase the filings related to product registrations in other parts of the world. While the operations grew modestly during the current year, it is expected that with the approvals clicking in, the turnover from these parts would grow in years to come. During the year, the Company commenced generating revenues through its subsidiary in Australia.

The API and Intermediates business, which is based on a resilient business model, continued maintaining steady progress. During the year, Lupin acquired Novodigm Ltd., (erstwhile Rubamin Laboratories Ltd.) Vadodara. This acquisition would enable the Company to set up its strategic initiative in the CRAMS segment.

Lupin earned a significant income from the sale of additional patent rights for Perindopril from Laboratoires Servier, France. Euro 20 Mn were added to the Company's total revenues on this count. This follows the pattern set in the previous year, when similar revenues were generated. It is an endorsement of the Company's Research and IP prowess.

Lupin has allocated 7.5% of its overall consolidated net sales for its R&D operation. With an increase in sales, the R&D spend of the Company is on a rise. The total expenditure (excluding depreciation) on Research and Development, during the year stood at Rs.2,037.5 Mn.

During 2007-08, the capital expenditure, including assets (net) acquired on acquisition of subsidiaries, was Rs. 3,650.6 Mn. The Company commissioned its formulations plant at Jammu and is now developing fresh

REST OF THE WORLD MARKET

STRATEGIC INITIATIVE

INTELLECTUAL PROPERTY BASED REVENUES

R&D SPEND

CAPACITY EXPANSIONS

capacity at Indore. In line with its strategy of being vertically integrated, Lupin has put up various multi purpose plants for APIs.

The Company's borrowing increased negligibly, consequent to robust cash flows and judicious financial planning. The total cost of interest stood at Rs.373.5 Mn, representing about 5% average cost of borrowing, during the year. The total debt at the year-end stood at Rs.10,303 Mn, net of FCCB deposits. Debts excluding FCCBs, which are likely to be converted, were at Rs. 8,341.9 Mn. The debt-equity ratio was 0.78:1. Lupin's short-term debt programme received the highest rating from ICRA.

The Company recorded basic Earnings Per Share of Rs. 50.01, up 32% from the previous year. The Board has recommended a dividend of 100% i.e. Rs.10/- per equity share of the face value of Rs.10/- each (including a special dividend @ 50% i.e. Rs. 5/- per equity share) absorbing a sum of Rs. 960.3 Mn, inclusive of tax on dividend.

The tax obligations of the Company, including FBT, were higher at Rs. 1,318.0 Mn, compared to Rs. 988.1 Mn in the previous year. However, the effective rate for current tax on a stand alone basis stood at 14.8%, as against 19% in the previous year. The Company has increased its reserves and surplus by Rs.4,046.3 Mn to Rs.11,976.0 Mn.

Price erosion in the US is one of the biggest threats faced by Lupin. The FOREX markets continue to remain volatile. However, the Company has appropriate hedging strategies in place to sustain its overall margins. Given price and cost related pressures, margin maintenance and improvement thereon, warrant increased focus. Lupin is also encountering the Drug Price Control Order challenge, which has encompassed the entire Indian pharmaceutical space.

The Company has a sound internal control system commensurate to its size, scale of business and complexity

EFFECTIVE RESOURCE PLANNING

CHALLENGES

INTERNAL CONTROL SYSTEMS

60

product mix, covering critical and chronic disease areas. It has circumvented the risk of overdependence on few products/therapy areas, through its wide portfolio offerings. The Company develops, manufactures and markets a wide range of quality, affordable generic and branded generic formulations and APIs for the developed and developing markets of the world. It is amongst the world's largest manufacturers of drugs that combat tuberculosis bacterial infections, with significant presence in the areas of Diabetics and Asthma. In the India Region, the Company is focussed on enhancing its offerings for the Chronic Therapy areas.

Through its strengths in backward integration, ability to master complex chemistry, process and products, global scale, skills in sterile manufacturing, synthetic process development, fermentation and through its global reach with long terms contracts, its expertise and competencies are leveraged to counter the highly price sensitive API and Intermediates markets. Its strengths in API and Intermediates play a crucial role in maintaining the competitive positioning of its Formulation offerings to the advanced markets.

The threats of price erosion of generics in the advanced markets is countered through the prudent selection of the product portfolio, accent on value added and complex products, strict vigil and control over cost, sharpening the supply chain management, leveraging its strengths in backward integration, economies of scale and quality differentiation. The Company positioned itself as a quality supplier, with impeccable service standards, thereby, providing itself the lever of being the 'supplier of choice'.

of operations. Clearly defined policies, procedures and inbuilt checks and controls supplement the internal control procedures. A well established and empowered system of internal audit independently reviews the financial and operational controls and reports deviations, if any, and further enables course correction, as required. The Company is constantly engaged in practicing the best financial and operational control systems, as per international practices and standards. The Company operates on the 'SAP' platform, which is a well-acclaimed ERP solution.

A reputed firm of Chartered Accountants M/s Khimji Kunverji & Co., are engaged as the internal auditors who submit their reports to the Audit Committee of the Board, which reviews the same and provides guidance on measures to be initiated to further enhance the efficiency and effectiveness of this vital control system.

The Company has adopted a risk management system that is designed to identify, analyse and mitigate the operational and business risks. The executives implement measures for risk mitigation, in consultation with the management and continually review the corrective actions to enhance the efficacy of the system.

The Company had appointed Deloitte Touche Tohmatsu India Pvt Ltd (Deloitte) to assist in designing the Risk Management Framework and related process.

The risk of over dependence on few markets is being addressed by the Company through its prudent business strategy of identifying and penetrating other potential pharma markets across the globe. The Company's global footprint extends to most of the large pharma markets of the world, with its products available in over 50 countries, including advanced markets such as, North America and Europe. The Company also pursues a prudent policy of growing and obtaining a position in critical markets of the world through the inorganic route, subject to the acquisition offering strategic fit to its operations.

Having established its leadership in the Anti-TB and oral Cephalosporin segments, the Company has progressed towards a robust formulations business comprising a wide

RISKS, CONCERNS & THREATS


61

Mr. Sunil Makharia, Executive Vice President - Finance

The Company believes that its focussed, productive and dedicated sales team for the branded space in the US and innovative promotional campaigns, together with the introduction of line extensions, would further extend the brand franchise of Suprax®.

The Company has a dedicated regulatory cell comprising experienced, qualified and trained personnel, conversant with regulatory requirements, working in close proximity with the Research team. The accent is on attaining quality filings tuned to the diverse needs, requirements and expectations of varied regulatory authorities, across the world and thereby, aim at speedier approvals.

Lupin has, over the years, built a relationship driven, multi-supplier model for its raw materials, services and finished goods needs that provides a natural hedge against the failure or inability of any supplier. Procurements by a focussed and specialised team ensures that the benefit of competitive pricing is obtained, while maintaining the highest quality standards.

The cost competitiveness, ability to provide high quality and niche products covering wide therapeutic areas, long term alliances and partnerships ensuring stable orders, provide the natural hedge against sales risk.

The Company's business can be affected by foreign exchange fluctuations. The Company hedges its risk through forward exchange contracts and derivatives.

Lupin believes that it has the requisite competencies to handle varied risks and is continually evolving proactive strategies to counter the same and emerge successfuly.

With its strengths in APIs, formulations, R&D, vertical integration, cost competencies, economics of scale, world class manufacturing facilities, marketing and distributions prowess, the Company is well equipped to capitalise the opportunities that are set to arise in future. Lupin looks at the future with confidence, as it moves along its journey of excellence and superior performance.

OPPORTUNITIES, STRENGTHS AND OUTLOOK

62

Lupin is committed to the challenging task of becoming a proactive partner in nation building through the Lupin Human Welfare & Research Foundation (LHWRF).

Initiating the programme of Rural Development within a small number of 35 villages, LHWRF has now succeeded in revitalising, revamping and recreating life in 2,200 villages in Rajasthan, Madhya Pradesh, Maharashtra and Uttarakhand States of India, which has led to LHWRF emerging as one of the largest NGOs in the country. The Foundation has been successful in making a big difference in the development of poverty-ridden villages, and especially in the life of the poorest of the poor and empowerment of a large number of women in these areas.

Today, LHWRF, on its part, is a catalyst and an observer of a self-evolving, self-sustaining spectacular transformation. At LHWRF, the Company has learnt far more from rustic traditional wisdom and the villagers will to develop together in a converged and cooperative manner, than it could teach them.

As a socially responsible organisation, we strive to take care of the less privileged sections of our society. We extend our expertise to transform the lives of our people and make a difference to the society.


63

THE KEY FOCUS AREAS OF THE FOUNDATION ARE:

ANOTHER YEAR OF SERVING THE COMMUNITY

! Economic Development

+Agriculture

+Animal Husbandry

+Rural Industry & Microfinance

! Social Development

+Health

+Education

+Women Empowerment

+Infrastructure Development

Today, LHWRF is indeed recognised as a pioneer in undertaking several unique initiatives, within its key focus areas.

During 2007-08, the Foundation has undertaken significant steps towards improving the quality of life of farmers in the country.

Corporate Social Responsibility

FROM

TO

PROVIDING HELPTRANSFORMING LIVES

SIGNIFICANT UNDERTAKINGS

ESTABLISHMENT OF KAUSHAL INSTITUTE

Lupin is working towards developing two major programmes, one targeting the youth and the other, the landless as well as the poor by empowering them through Animal Husbandry. Both these programmes are aimed at uplifting 21,000 BPL (Below Poverty Line) families to above the poverty line, to lead prosperous lives.

The Ministry of Rural Development, Government of India, has agreed, in principle, to sanction a massive project worth Rs.15 crore to train 15,000 youngsters and ensure the employment of 80% of them. The programme will also provide self-employment to 20% youth in seven districts across the State of Rajasthan. This initiative is aimed at addressing the unemployment issue prevalent in these districts and kindle a ray of hope in the minds of youth towards their future.

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> API > R&D

> IRF

> HR

> AAMLA

> CIS > Financial Overview

> Advanced Markets

> CSR

64

ADDRESSING WATER CRISIS

LHWRF has embarked on an ambitious initiative of restoration of traditional tanks and ponds in the Bharatpur district. As a majority of wells are located near ponds, de-silting of these ponds will not only provide water for multiple uses, but it will also generate the requisite awareness for water conservation for the future. LHWRF has setup a target to dig 55 ponds in one block of the district.

Additionally, LHWRF has also undertaken two water resource development projects at its Pune center. The Government has already sanctioned one of the two projects, costing Rs. 2 crore, for providing drinking water in the rural areas of the Pune district. The development of a watershed is the other project, with an estimated cost of Rs. 1.8 crore, which is being undertaken in association with NABARD. This project is going to capture the run-off water for conservation and gainful utilisation.

DAIRY DEVELOPMENT

PUBLIC PRIVATE PARTNERSHIPS

LHWRF has undertaken this initiative to provide sustainable income through out the year, against the vagaries of the monsoon. The programme, costing nearly Rs. 8.5 crore, is expected to provide 6,000 buffaloes, along with vermi-compost and chilling plant to bring about 6,000 most vulnerable families into the main stream of life.

LHWRF has signed MoUs with Mother Dairy and National Dairy Development Board. According to the agreement, Mother Dairy plans to set up chilling plants and bulk coolers in villages. LHWRF is expected to ensure a minimum of 2,000 litres milk collection to these chilling centers. These chilling centers will be monitored by Lupin and run by trained women members and Mother Dairy will offer performance based incentives. Over Rs.5 crore is expected to be invested to promote this activity in the Bharatpur District.

“I had never imagined that I would become a successful dairy owner with only 2 acres of land. Currently, my earning through this integrated model dairy is Rs.15,000 to Rs. 20,000 per month. Earlier, my source of income was sufficient only for producing cereals for my family consumption.

Today, the situation has changed and my sources of income are Dairy, Vermi-compost, Bio-gas, natural insemination, milk collection center and animal feed. This has been possible because of the motivational, technical and financial support from Lupin.”

Mr. Sohan Singh

65


EMPOWERING WOMEN

Having formed women Self Help Groups (SHG) in each

UNESCO Team visits Mr. Sohan Singh's Dairy farm

FARMER’S SUCCESS STORY

Sohan Singh's 2 acres of land was hardly enough to produce cereals for meeting his families consumption needs. Having received timely aid from LHWRF, today Sohan enjoys a sustainable means of income that has paved the way for a life of dignity.

LHWRF established one model dairy for Sohan Singh. After ensuring sufficient production of milk, a cooling plant with a capacity of 2,000 liters has been commissioned by Mother Dairy. With this initiative, Sohan Singh draws a commission of Rs. 0.70 per litre. A latest

Chinese model biogas plant was also installed that ensures optimum utilisation of cow dung to provide cooking gas for women, slurry for soil enrichment and light for children to read. Furthermore, the Foundation also arranged for a loan from Rashtriya Mahila Kosh to purchase Murrah buffaloes, which alone ensured a monthly income of Rs. 5,000-6,000.

Hidden in the success of Sohan Singh, is the fact that LHWRF presents a model for the farmers of the country to come out of their distress.

The Foundation is the architect of diverse programmes targeted at the overall upliftment of the village through economic, social and infrastructure development

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