Strides Pharma Science Ltd. - Quarterly/Annual Result Disclosures and Notes dated 31 Dec 2018

Auditor and Management Disclosures and Notes for the quarterly results dated 31 Dec 2018

1. These financial results have been prepared in accordance with Indian Accounting Standards ('Ind AS') prescribed under Section 133 of the Companies Act, 2013 and other accounting principle generally accepted in India and in terms of Regulation 33 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

2. The above results were reviewed by the Audit Committee and approved by the Board of Directors at their meeting held on January 29, 2019. The statutory auditors have carried out limited review of the above results for the quarter and nine months ended December 31, 2018 and have issued unmodified opinion.

3. On July 2, 2018 and July 18, 2018, the Company received shareholders' approval and approval from Registrar of Companies, respectively, for change of name to Strides Pharma Science Limited.

4. During the previous quarter, the company obtained approval from the shareholders for sale of its wholly owned subsidiary 'Strides Chemicals Private Limited' to Solara Active Pharma Sciences Limited for a consideration of not less than Rs. 13,100 lakhs. Consequently, the subsidiary has been sold on August 31, 2018 for a consideration of Rs.13,100 lakhs. The balance consideration receivable as at December 31, 2018 is Rs.9,010 lakhs.

5. On April 20, 2018, the Company entered into business purchase agreement with Solara Active Pharma Sciences Limited ('Solara") to sell the assets (consisting of Plant & machinery, equipment, computer software and other related capital work in progress) and business conducted by the company at Strides API Research Centre (SRC) along with the employees for a consideration of Rs,3,573 lakhs and working capital subject to adjustment and finalisation for Rs.83 lakhs. The same was approved by the board of directors on March 31,2018.
Accordingly, the results of the SRC unit are included in the discontinued operations for the respective period set out in Note 6 below.

6. Results of discontinued operations (including discontinued operations of earlier periods)

7. Subsequent to the quarter, the group proposed to acquire the remaining 50% equity stake in Vivimed Life Sciences Private Limited, India (associate) and in Strides Vivimed Pte Ltd, Singapore (subsidiary) for an aggregate consideration of INR 7,500 Lakhs. The transaction is subject to conclusion of definitive agreements and closing conditions.

8. Subsequent to the quarter, the group through its subsidiary Strides Pharma Inc. USA, proposed to acquire 100% equity stake inVensun Pharmaceuticals Inc. USA for a base consideration of USO 182 Lakhs (USD 40 Lakhs towards equity and USD 142 Lakhs towards loan) and a deferred contingent consideration up to a maximum of USD 750 Lakhs to be paid over a maximum period of 6 years. The transaction is subject to conclusion of definitive agreements and closing conditions.

9. Subsequent to the quarter, the group through its subsidiary Strides Pharma Canada Inc. Canada, proposed to acquire 80% equity stake in Pharmapar Inc. Canada, for a consideration of CAD 40 Lakhs. The transaction is subject to conclusion of definitive agreements and closing conditions.

10. On December 4, 2013, the Company and its wholly owned subsidiary, Strides Pharma Asia Pte Limited ("the Singapore Subsidiary"), completed the sale of investments in Agila Specialties Private Limitec and Agila Specialties Global Pte Limited (together, "Agila") to Mylan Laboratories Limited and Mylan Institutional Inc. (together, "Mylan") pursuant to separate agreements, each dated as of February 27, 2013 (the "SPAs"), Pursuant to the SPAs, the Strides Group established escrow arrangements to fund certain potential indemnification liabilities, including specified employee, tax and regulatory remediation costs from such consideration. These escrow arrangements included a US$ 100 million 'General Claims Escrow' account and a US$ 100 million 'Regulatory Escrow' account. Pursuant to the SPAs, the Company has also provided a corporate guarantee to Mylan for US$ 200 million (valid up to December 4, 2020) on behalf of Singapore Subsidiary which can be used for discharging financia obligations, if any, of the Singapore Subsidiary to Mylan.
Under the terms of the SPAs, claims against the Company / the Singapore subsidiary (as the case may be) can only be made under specific provisions contained in the SPAs which include the procedures and timelines for submission of notificafions of claims and actual claims and commencing arbitration proceedings. The Company had received a consolidated notification of claims frorr Mylan under the terms of the SPAs. These claims wsre related to third party claims, tax claims, claims against the regulatory escrows and general claims. In the previous years, a significant portion of these claims were settled out of the Regulatory Escrow deposit and the remaining balance of the Escrow account was recognised as income on full and final settlement of related claims. Further, the Company and Mylan also agreed on full and final settlement of warranty and indemnity claims to be adjusted against the 'General Claims Escrow'. During the previous period, the Company was ir arbitration proceedings for certain third party claims.
During the current quarter, the arbitration proceedings with respect to the third party claims have been settled in favour of the Company and Mylan. The Singapore subsidiary and Mylan have enterec into an agreement whereby Mylan has released the pending balance in Escrow account. The Singapore subsidiary has recorded a net gain of INR 27,182 lakhs (net off related expenses and outstanding tax claims) under discontinued operations.

11. Pursuant to the approvals of the board of directors of the Company, the Group entered in to definitive agreements with India Life Sciences Fund III, ILC (ILF) for investment in Consumer Healthcare (CHC) business. During the current quarter, ILF invested in Strides Global Consumer Healthcare Ltd, UK and Strides Consumer Private Limited, India consequent to which the Group ceded its control over the entities carrying out CHC business. However, the Company continues to exercise significant influence and has classified its investments in CHC business as "Investment in Associates".

12. During the quarter ended June 30, 2018, 40,000 equity shares under the Strides Arcolab ESOP 2011 Scheme and 8,878 equity shares under Strides Arcolab ESOP 2015 Scheme were allotted by the Company, on exercising equal number of options.
During the previous quarter ended September 30. 2318, 315,500 equity shares under the Strides Shasun ESOP 2016 Scheme were granted to the eligible employees.
During the current quarter ended December 31, 20'8 563 equity shares under Strides Arcolab ESOP 2015 Scheme were allotted by the company, on exercising equal number of options.

13. The Company has adopted Ind AS 115, Revenue from Contracts with Customers with effect from April 1, 2018. The core principle of this standard is that the Company shall recognise revenue to depic the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. Under Ind AS 115, the Company recognises revenue when (or as} a performance obligation is satisfied, i.e. when 'control' of the goods or services underlying the particular performance obligation is transferred to the customer which is different from transfer of risk and 'ewards under the old revenue standard.
Further, pursuant to the requirements of the new standard, the Company also evaluated its open arrangements on out-licensing arrangements with reference to upfront license fees received in earlie' periods and concluded that some of the performance obligations may not be distinct and hence would need to be bundled with the subsequent continuing obligations. Accordingly, the Company has recognised an incremental deferred revenue relating to such open contracts on the transition date.
Adoption of this standard resulted ir decrease in retained earnings by Rs. 1,430 lakhs as at March 31, 2018 and increase in Revenue from Operations by Rs. 2,456 lakhs with a corresponding increase in expenses by Rs. 2,343 lakhs (primarily on account of increased material costs) resulting in a net increase in profit after tax for the nine months ended by Rs.97 Lacs and an increase in diluted EPS by Rs. 0.11 for the nine months ended December 31, 2018. Compa'ative periods were not restated given the Company adopted the standard using the cumulative effect approach.

14 Exceptional Item gain/ (loss) (net):

15. In May 2018, the Groupond Apotex Inc (Apotex) announced the intention to merge their respective Australia business into a new Company. On September 30, 2018, The Australian Competition and Consumer Commission (ACCC) announced not to object to the proposed merger.
Based on additional due diligence and further deliberations, the Board of Directors proposed to divest its entire interest in the Australia business to Dennis Bastas- Executive Chairman of Arrow Pharmaceuticals Pty Lim ted, Australia (Arrow) for an upfront consideration and with the Company retaining product supply rights for future.
The transaction is subject to ltle Company's shareholders' approval, completion of the merger of Arrow and Apotex , execution of definitive sale agreements and completion of certain other closing conditions and accordingly has not been accounted for as of December 31, 2018.

16. The Company's operations for the current and previous year relate only to the "Pharmaceutical business" and accordingly no separate disclosure for business segments is being provided.

17. Previous period figures have been regrouped to conform with the classification adopted in these financial results.

Arun Kumar
Group CEO and Managing Director