WOCKHARDT LIMITED

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

2009 was indeed a challenging year for the Company. The predominant theme in 2009 was and will continue to
be “More and More with Less and Less”. Strengthening business in existing markets, developing new geographies,
creating wider technical capabilities, enhancing productivity and optimizing efforts across the entire company through
proactive and seamless information technology networks helped the Company maintain its position across all its
businesses and markets.

Despite a slow growth environment across global markets, the company put in significant efforts to keep business on
track. Severe liquidity crisis due to forex losses, recession in our core international markets of Europe and enhanced
management focus on getting the CDR approved & restructuring the business did not prevent the company from
investing in R&D, manufacturing, marketing and human resources and post a 25% increase in its revenues.

To have a common Financial Year (FY) under the Companies Act as well as Income Tax Act, the current FY of the
Company ending on 31st December, 2009 has been extended for a further period of 3 months; thus the current FY of
the Company is from 1st January, 2009 to 31st March, 2010; thereafter the FY will be 1st April to 31st March. Thus
the numbers for the current FY are for a period of 15 months, hence not comparable with FY 2008.

On a consolidated basis sales for FY’ 09-10 grew by 25.4% (15 months sales) to achieve a topline of ` 45,014 million
(US$ 1,001 million); EBITDA was 4% higher at ` 8,527 million (US$ 190 million); however the Company registered a
net loss of ` 10,023 million (US$ 223 million) in 2009-10 due to MTM losses.

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 Key business highlights:
The European business at ` 21,883 Million (` 17,506 Million on annualized basis) grew 20%. Negma & Pinewood
q 
were impacted due to recession in EU and other local issues; Esparma business was divested in June, 2009.
The Indian business at ` 11,412 Million (` 9,129 Million on annualized basis) grew 18%; Animal Health Care
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Division was divested in August, 2009.
The US business at ` 9,139 Million (` 7,311 Million on annualized basis) grew 40% due to new product launches
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and the start of new pediatric division selling branded generics.
The ROW business at ` 2,581 Million (` 2,065 Million on annualized basis) showed 78% growth due to good
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performance of export divisions of India & UK business entities.

Synergies from Integration

Last year’s focus on integrating the acquired businesses and restructuring operations across the globe led to synergies
in Sourcing of raw material, cross selling opportunities in EU & USA, reduction in manufacturing and R&D costs due to
rationalization of capacities. This helped the company during the year to maintain its leading positions in Europe and
steadily grow its market presence in the US. With this we supplemented our organic growth plans in upcoming markets,
such as Brazil, Mexico and CIS countries to create an avenue in the high potential therapy segments of Anti-diabetic,
Dermatology, Oncology and Bio-generics.

Corporate Debt Restructuring (CDR)

The Company had approached the CDR Cell through ICICI Bank. Since the term loans, FCCB loan of USD 108.50 million
were falling due and the Company required additional time to meet these requirements, the Company had approached
the CDR Cell. The Empowered Group (EG) of CDR Cell has admitted the Company to the CDR Scheme.

About CDR
q 
The CDR mechanism, was launched in February, 2002 under the aegis of RBI, is a voluntary and non-statutory
arrangement to ensure timely and transparent mechanism for restructuring the corporate debts of potentially viable
entities, outside the preview of legal proceedings.
q 
Banks and FIs participating in CDR System became member and formed a self-empowered body, which lay down
policies and guidelines, and monitors the process of the CDR. At present there are 56 members such as State
Bank of India, Life Insurance Corporation of India, Bank of Baroda, Bank of India, ICICI Bank etc.
q 
CDR system is based on Debtors Creditor Agreement and Inter Creditor Agreement and this provide the legal
basis to the CDR mechanism.
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Further, if 75 per cent of creditors by value and 60 per cent creditors by number agree to a restructuring package
of an existing debt, the same would be binding on the remaining creditors.
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CDR considers all the preliminary reports for restructuring. However, the detailed package will be worked out with
the help of Lead institution for the potentially viable companies.
Wockhardt filed its preliminary report for restructuring through ICICI Bank and the case was admitted on April 22, 2009.
CDR Empowered Group in its meeting held in June, 2009 approved the restructuring package of the company and the
same was conveyed to the Company on July 4, 2009.

The salient feature of our restructuring proposal is as under:

The key elements of the Restructuring Package as approved by CDR are as under:

q 
The existing loans will continue at concessional rate of interest @ 10% p.a. which has two parts 8% & 2%. While
8% p.a. shall be paid on monthly basis, 2% p.a. shall be converted into Preference share capital redeemable in
2018.

q 
Priority loans will be made available to the company to meet the dues of pressing creditors, operational requirements,
and settlement of crystallized derivative losses. These will be repaid in 8 equal quarterly installments commencing
September 15, 2010.

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 WOCKHARDT LIMITED

q 
Management has committed to sale/divestment of non-core business estimated over a stipulated schedule from
2009 to 2015.

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Promoters shall bring in their contribution over the next one year in addition to the divestment proceeds.

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The existing Rupee term loans will be paid in 24 quarterly installments commencing July 15, 2010.

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Working capital facilities to be enhanced.

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Secured Working capital loans outside the consortium are proposed to be converted into a working capital term
loan (WCTL) will be paid in 24 quarterly installments commencing July 15, 2010.

q 
Short-term loans will be paid in 20 quarterly installments commencing January 15, 2014.

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The Foreign Currency Convertible Bondholders (FCCBs) and the Wockhardt EU Operations (Swiss) AG (EU) loan
will also be restructured.

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The Company shall not execute any new derivative transaction (excluding forwards strictly for hedging purposes
for a maximum period of 180 days) without prior approval of CDR EG.

Present Status on Implementation of CDR Package:

q 
The Company and the CDR lenders have executed Master Restructuring Agreement (MRA). Accordingly, the
terms and conditions of MRA shall be binding upon and effective between the borrower and the lenders.

q 
Some Non-CDR lenders have also executed the MRA.

q 
Entire Cash flow of the Company is routed through Trust & Retention Account (TRA) maintained with ICICI Bank.

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Promoters have brought in their contribution.

q 
Company divested its Animal Healthcare Business.

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Some lenders have sanctioned priority loan to the Company.

The company has settled/is in the process of settling ` 5,000 million, derivatives related losses @ 25%.
q 

q 
FCCB and EU Loan restructuring is under progress.

US business - Branded Generics the new driver

The US business continued to do well. For the fifteen months period ended March 31, 2010 the US business has
shown a growth of 29%. The restructuring of the acquired entity of Morton Grove, new product launches and increased
market share of products helped the business scale up. This has been a result of the continued focus on the region
through the established business of Wockhardt USA LLC.

Last year the Company had formed a Pediatric division with 30 sales representatives to successfully launch Bromfed
DM for cough & cold treatment. In 2009 the Company consolidated its position and gained market share of 12% in
this segment.

The Company received 21 ANDA approvals during the period under review from the US FDA. This achievement is a
reflection of the multi-faceted capabilities of the Company to meet the challenges of the US markets. Wockhardt today
markets over 70 products in the US and expects the healthy growth to continue. This along with other initiatives like
building the private-level OTC business will drive the growth in the future.

Biotechnology
The Company has been one of the earliest movers in the biosimilar space from India and has world class R&D and
manufacturing capabilities. We already have 4 products in the Indian market and a strong pipeline is under development.
In the near term biosimilar exports to RoW markets (US$ 750 million potential) will gain traction and the more regulated
markets of US & EU (US$ 5.2 billion) are already under the radar. US FDA has cleared IND for Wosulin (recombinant
human insulin) filed by Wockhardt and Clinical trial have been initiated in US. With these achievements the company
is uniquely positioned to exploit the biotechnology opportunity. (Source: IMS data)

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 In-licensing Strategy
In-licensing continued to be one of the key growth drivers of our business. These in-licensing deals fulfill our aim to
develop breakthrough products in India and also strengthen our existing portfolios. We have in-licensing agreements
with number of US and Europe based companies through which we are currently marketing 19 products – 11 of these
were launched till 2008; 4 launched in 2009 and another 4 in 2010. These belong to therapeutics like dermatology,
osteoarthritis, derma-cosmetology, orthopedics and dental; the sectors on which Wockhardt is focusing.

Opportunities
In 2009 the global pharmaceutical industry (US$ 800 billion) grew by 6% of which 85% came from emerging markets.
Presently emerging markets contribute 20-25%, however by 2025 it is estimated that they will account for more than
50% of global pharmaceutical sales and India can become a major player in emerging markets given its scientific
manpower and established credentials.

The vision for New Wockhardt is “More & More with Less & Less”. We have enormous strength in the organization,
in technology, in people, in our manufacturing facility and in our geographical reach. This year and in the years
ahead, we are determined to use our strengths to the utmost and create a new future and a New Wockhardt for all
of us.

In India we have planned to add more than 1,000 Territory Managers in the next two years. We are setting up a
state-of-the-art sterile manufacturing facility in Shendra, which will be completed during the year. This and other
initiatives will be a forerunner to our thrust into Contract Manufacturing activity for global biotechnology and
pharmaceutical companies. In Europe, we will be reaching out our products and our manufacturing capacity to the
entire Europe through our B2B model. In US, we have an excellent range of products and some of the ANDAs of the
near future are going to be blockbusters. In Biotechnology, we have great opportunity to be amongst the leaders in
Bio-similar Insulin and its Analogues. Above all, we have the management competency and proven track record to
create this future.

CRAMS
Wockhardt entered the contract manufacturing space last year. This move will allow optimum utilization of our
manufacturing capacity and enable us to position our self across the entire drug process to MNC pharmaceutical
companies. Most of our plants are USFDA-approved and hence we can offer contract manufacturing service for
pharmaceutical companies. The global market for contract manufacturing was estimated to be US$ 19 billion and
is likely to expand to US$ 31 billion by 2010. Our UK operation is already undertaking significant work in CRAMS.
Currently the focus is on sterile manufacturing and in the next few years it will be an integral part of our business.
Sterile injectibles represent the fastest growing product segment of the pharmaceutical contract manufacturing industry.
This segment was valued at US$ 3 billion. It is anticipated that there will be massive demand for manufacturing sterile
syringes, cartridges and vials as biopharmaceutical companies continue to make R&D investments. Asia-Pacific is
expected to emerge as the fastest growing region. Market in this region is estimated to be US$ 3 billion by end 2010.
(Source: Pharmaceutical Contract Manufacturing GIA Report)

Research
In drug discovery, we are focusing on anti-infective mainly due to the fact that very few anti-infective have come into
the market in the past few years. Also some antibiotics are developing resistance and in next five to six years, this
resistance will grow. Even though anti-infective is third largest market in developed countries, in emerging markets it
is one of the largest segments. In India & China it accounts for more than 25%. If the future of global pharmaceutical
industry is in emerging markets, then anti-infectives will provide huge growth opportunity for us.

We have a number of lead molecules that are currently in various stage of development. WCK 771, a broad
spectrum antibiotic for difficult to treat MRSA, has completed phase II human clinical trials stage. WCK 2349, a
promising lead molecule to treat respiratory tract infection, has completed human phase I study. Both these have
also received US IND approval. Of the three molecules in advanced stages of pre-clinical trials mentioned in
2008, WCK 4873 has been identified as a new molecule which has emerged as a front runner Regulatory toxicity
study candidate.

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 WOCKHARDT LIMITED

Challenges
The Company generates 50% of its revenues from EU. The markets are facing tremendous challenges at a fiscal
level. With most of the EU still under recession and having an ageing population, governments across EU have been
exploring several options for containing pharmaceutical expenditure; The Irish healthcare system is financed by a mix
between public (75%) and private (25%) expenditure. In France Social Security is by far the largest financier of health
spending – 77%. In UK Public expenditure on healthcare is about 86%. The steps taken by governments include
medical control of prescription; promotion of the use of generic preparation and introduction of a system of generic
reference pricing.
The direct impact of these initiatives will be on the business margins of the generic pharmaceutical companies
operating there including our company. Competitive pricing pressure, margin erosion and reference pricing will impact
the capacity of pharmaceutical industry to generate robust cash flow in an environment where growth in value will be
difficult to achieve. This has already impacted the valuation of business and the appetite for M&A activity.
Here in India, a conducive environment for enhancing the industry’s capabilities is imperative. Supporting R&D is
one of the drivers for adding value to the business and relaxing price control regime will be the other driver. By price
control, the government will severely impact the sector’s ability to invest in R&D, hurt its competitiveness and retard its
expansion in the global generics market.

Global trends and Indian Scenario

Big pharmaceutical companies are set to lose nearly $100 billion in sales as many blockbuster drugs will lose patent
protection over the next five years. And the pipeline of drugs to replace them looks very thin. Through M & As companies
are aiming to acquire potential drugs of the future and also to cut costs, particularly in research. Drug trails have in
general become more extensive with regulators becoming more demanding. In such a situation, size increases the
chances of success.
The large number of drugs going off patents in the coming years is a big opportunity for Indian generic players.
Through their low-cost but quality manufacturing they can corner a sizeable portion of the market. But beyond these
few years, this business model is likely to face stress. Indian drug companies have to invest in R&D, more so given
the competitive edge the country has in carrying out research at a fraction of the cost incurred in the developed world.
Indeed, clinical research for third parties is rapidly gaining ground. But the idea should be to leverage this expertise to
develop new drugs, particularly for tropical or third world diseases. Indian pharmaceutical companies would do well to
explore the opportunities for inorganic growth or to acquire niche skills. The attractive valuations and somewhat easier
availability of capital for the largely recession-proof sector provides the right backdrop.

Segment-Wise Performance
The Company is exclusively into pharmaceutical business segment.

Internal Control Systems and Adequacy

The Company has set up internal control procedures commensurate with its size and nature of the business. These
business procedures ensure optimum use and protection of the resources and compliance with the policies, procedures
and statutes. The internal control systems provide for well-defined policies, guidelines, authorizations and approval
procedures. The prime objective of such audits is to test the adequacy and effectiveness of the internal controls laid
down by management and to suggest improvements.

Human Resources
The context in which Wockhardt operates today thus demands new and dynamic leadership and management
responses. Leadership development is therefore a strategic priority for Wockhardt. Alongside our other initiatives to
build a learning organization and leverage people potential, we have embarked on a systematic process of developing
global leadership capabilities. There is no greater joy for us at Wockhardt than to nurture our more than 7,000 people
at the threshold of the opportunities that lie ahead.
At Wockhardt, employee initiatives are constantly updated and modified to mark newer beginnings. Our professional
development programs are designed to cover every spectrum of individual development. A competency-based model
has been adopted which defines the required competencies and employee development initiatives at various levels
and functions.

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