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Directors Report of Orchid Pharma Ltd.

Mar 31, 2015

Dear Members,

The Company has extended its Financial Year 2013-14 i.e October 01,2013 to September 30, 2014 by a period of six months i.e., up to March 31, 2015 and accordingly has prepared its Financial Statements for a period of 18 months i.e. from October 01,2013 to March 31, 2015 i.e. financial year 2013-2015. Your Directors take pleasure in presenting the report on business and operations of your Company for the Financial Year 2013-15 along with the audited statement of accounts for the same period ended March 31,2015.

The Ministry of Corporate Affairs has, vide General Circular 08/2014 No. 1/19/2013-CL-V dt. 4th April 2014, clarified that the financial statements (and documents required to be attached thereto), auditors report and board's report in respect of financial years that commenced earlier than 1st April 2014 shall be governed by the relevant provisions/schedules/rules of the Companies Act, 1956. In veiw of the same, the aforementioned statements have been prepared in line with the applicable provisions of the Companies Act, 1956.

Performance

The highlights of the financial results for the year 2013 - 2015 are given below:

(Rs. crores)

Particulars 18 months ended 18 months ended

31.03.15 30.09.13

Sales & Operating Income 1,7 36.19 1,906.58

Other Income 42.57 59.77

Total Expenditure 1,416.33 1,776.74

Gross profit 362.2 3 169.61

Interest & Finance Charges 537.00 520.38

Gross Profit after Interest (174.77) (350.77) but before Depreciation and Taxation

Depreciation 321.37 243.86

Profit / (Loss) before Tax, (496.14) (594.63) exceptional and extraordinary items

Exceptional Item 157.26 51.11

Profit / (loss) Before fix (653.41) (543.52) and Extraordinary item

Extraordinary items (270.62) -

Profit Before Tax ( 382.79) (54 3.52)

Provision for Taxation

Current & Deferred Tax (191.75) (13.29)

Profit / (loss) after Tax (191.04) (530.23)

During the financial year 2013-15, your Company achieved a turnover and operating income of Rs.1,736.19 crores (Rs.1,906.58 crores in 2012-13). The gross profit before interest, depreciation and taxes stood at Rs.362.23 crores (Rs.169.61 crores in 2012-13). After providing for interest expense of Rs.537.00 crores (Rs.520.38 crores previous fiscal), depreciation of Rs.321.37 crores (Rs.243.86 crores previous fiscal), Exceptional item Rs.157.26 crores (Rs.51.11 crores previous fiscal) and Extraordinary item Rs.270.62 crores (Nil in previous fiscal], the Loss before tax of the Company was Rs.382.79 crores (Rs.543.52 crores (Loss) previous fiscal). The net loss after tax stood at Rs.191.04 crores (Rs.530.23 crores (Loss) in the previous fiscal).

Business Overview

Your Company had made a reference to the Corporate Debt Restructuring (CDR) Cell constituted by Reserve Bank of India for Restructuring of its financial debt. The CDR Cell considered, admitted and approved the debt restructuring proposal given by the Company. The letter of approval was given on March 10, 2014. The Business Transfer Agreement (BTA) with Hospira for the transfer of Aurangabad Penems and Penicillin Plant and R&D facility at Shozhanganallur was completed on July 4, 2014. For the purpose of implementation of the approved package and also to comply with the post-implementation the CDR Lenders appointed State Bank of India as the Monitoring Institution (MI). To facilitate implementation of the approved package and terms, monitoring the performance of the Company as per the restructured package on a continuous basis, a Monitoring Committee (MC), comprising representatives of five member Banks has been constituted. These initiatives enabled your Company to come out of working capital constraints and resulted in improved performance.

Your Company is in the process of launching new products in NPNC segment in the next financial year for the US, EU and other Markets on expiry of patent cover, which will have a positive impact on the Company's revenue and profitability streams.

Future Prospects

With the restructuring of its debt and implementation of the revival package approved by the CDR Cell, your Company believes that it will gradually be able to revive its operations towards profitability. Your Company has been extremely fortunate to have the full support of its Lenders, Employees, Vendors and Customers during the financial stressed period and all efforts are being made to garner continuously full support to revive the operations of the Company. Although, huge efforts are required towards regaining the confidence of various Stakeholders, your Company is hopeful and confident of accomplishing the same over a period of time.

Regulatory Filings and Approvals

In the generic formulations domain, Orchid's cumulative Abbreviated New Drug Application (ANDA) filings for the US market stood at 46. This includes 8 Para IV FTF (First-To-File) filings. The break-up of the total ANDA filings is 13 in Cephalosporins segment and 33 in NPNC space.

In the European Union (EU) region, the cumulative count of Marketing Authorisation (MA) filings stood at 31. The breakup of the total MA filings is 15 in the Cephalosporin segment and 16 in the NPNC segment.

In the API (Active Pharmaceutical Ingredients) domain, Orchid's cumulative filings of US DMF stand at 76. The break-up of the total filings is 28 in the Cephalosporin Segment, 48 in NPNC segment. In the European market space the cumulative filings of COS (Certificate of Suitability) count remained at 20 which includes 14 in cephalosporin segment, 6 in NPNC segment.

Dividend

Due to losses incurred by the Company during the financial year 2013-15, your Directors express their inability to recommend any dividend to the equity shareholders.

Intellectual Property Rights

During the year, Orchid continued to accelerate the IPR work on a number of products. The total number of patent applications filed by Orchid in various national and international patent offices so far was 889 (including Process, Formulation, NCE, NDDS, Biotech and Generics). As of March 31, 2015, 108 patent applications have been published while 97 patents have been granted cumulatively.

Issue of Equity Shares

To Comply with the requirements of Corporate Debt Restructuring Programme, your Company pursuant to the approval granted by the members through Postal ballot on August 26, 2014, had got inprinciple approval from NSE, BSE & MSE to allot 1,85,12,251 (One Crores Eighty Five Lakhs Twelve Thousand Two Hundred Fifty One Only) equity shares of Rs.10/- each at a premium of Rs.39.79 per share to the Promoter Group Company M/s Orchid Healthcare Private Ltd. Out of the above, your Company allotted 1,48,09,801 shares during December 2014. The remaining 37,02,450 shares would be allotted during 2015-16.

Delisting of Company's Equity Shares from the Madras Stock Exchange Limited

In terms of the Exit Order issued by Securities Exchange Board of India (SEBI) through its circular No. WTM/RKA /MRD/47/2015 dated May 14, 2015 to Madras Stock Exchange Limited (MSE), all the Company's listed in the MSE stands delisted from the date of the above said Exit Order.

Consequent to the above your Company's shares stand delisted from MSE. Presently your Company's shares are listed in National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) in India.

Employees Stock Option Plan

The details of options granted to employees under the ORCHID ESOP 2010, ORCHID ESOP - DIRECTORS 2011, Orchid ESOP - Senior Management 2011 schemes and the status of such options as on March 31,2015 are given in Annexure IV to this Report.

Your Company formulated the following schemes:-

* Orchid - ESOP 2010 Scheme - grant of 10,00,000 options to the employees of the Company including whole-time Director(s) of the Company but excluding the Promoter Directors. The said scheme was approved by the shareholders at the Annual General Meeting held on July 21, 2010. Your Company granted 9,01,000 options during the year 2010-11. Pursuant to exercise of options by the employees, 10,000 equity shares of Rs.10/- each were issued during the year 2012-13 and as at March 31,2015, the outstanding options yet to be exercised under the said scheme is Nil.

* Orchid ESOP - Directors 2011 Scheme - grant of 5,00,000 options to the directors of the Company including whole-time directors but excluding promoter director. Your Company granted 3,00,000 options during the year 2011-12 and as at March 31, 2015, the outstanding options in force under the said scheme is 80,000.

* Orchid ESOP - Senior Management 2011 Scheme - grant of

10,00,000 options to the employees in the grade of Senior Ma nager and above out of which 7,50,000 options are ear marked to the employees of Orchid and 2,50,000 options to the employees of various subsidiary companies of Orchid, either in India or abroad. Your Company granted 42,700 options during the year 2011-12 and as at March 31,2015, the outstanding options in force under the said scheme are 32,025.

Associate

Allecra Therapeutics GmbH, Germany

With a view to enter into drug discovery in the areas of obesity, CNS and other therapeutic areas in response to potential MNC interest, Orchid decided to invest in Allecra Therapeutics GmbH (Allecra) and presently holds 18.27% stake in the Company. Allecra is a drug development company based in Germany focused on clinically differentiated products and shall develop unique products for novel treatments to combat multi drug resistant bacterial infections.

Subsidiaries

Bexel Pharmaceuticals Inc., USA (Bexel)

Bexel was incorporated basically to conduct Research & Development activities in new drug discovery segment. The current Bexel IP portfolio is being maintained by OCPL global IP unit.

Orchid Pharmaceuticals Inc., USA

Orchid Pharmaceuticals, Inc. is a wholly owned Delaware based subsidiary of your Company and also the holding company in the United States, under which all the operational business subsidiaries have been structured. The Company currently has two operating Subsidiaries, 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 for the parent Company including the initiation of marketing alliances with partner companies, filing of your Company's Drug Master Files (DMFs) and Abbreviated New Drug Applications (ANDAs) as the Importer of record for your Company with the FDA. It continues to represent your Company for all matters relating to the review and approval of such filings by the FDA, and handling of logistics and product importation into the US as the Importer of Record for the US Customs.

Orchid Pharma Inc., is the commercial entity that started directly marketing and selling your Company's products in the US generics market place. Orchid Pharma Inc. has established a strong corporate image for your Company in the US and will be launching all future (unpartnered) generics products under the Orchid label.

Diakron Pharmaceuticals Inc., USA

Orchid's stake in Diakron has been a part of the original transaction which includes direct investment and Master Services Agreement (MSA). Your Company has completed most of its MSA obligations to develop and supply clinical quantities of API and extended release formulation.

Orchid Europe Limited, United Kingdom

Your Company's 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, Pharma covigilance, Testing & Release, Retention of samples, Service Providers and Business Development in Europe.

Orchid Pharmaceuticals (South Africa) Pty Ltd., South Africa

Your Company's wholly owned subsidiary, Orchid Pharmaceuticals (South Africa) Pty Ltd., was incorporated mainly to register and market your Company's products in South Africa. The Company is in the process of submitting dossiers for obtaining marketing approval from the regulatory authority, MCC for various oral products and the applications are at various stages of the registration process.

Orchid Pharma Singapore Private Ltd, Singapore

Your Company incorporated Orchid Pharma Singapore Private Limited a wholly owned subsidiary in Singapore to deal in pharmaceuticals products. During the year 2013-15, your Company closed this subsidiary due to non-commencement of business.

Central Government Approval

The Ministry of Corporate Affairs, Government of India vide its circular dated February 8, 2011 has provided general exemption to companies from attaching the balance sheets of their subsidiary companies as required under Section 212(8) of the Companies Act 1956.

The exemption is available provided the companies publish the audited consolidated financial statements in the Annual Report. The consolidated financial statements duly audited are presented along with the accounts of your Company. The statement as required under Section 212 is given as part of the consolidated accounts in this report. The annual accounts of subsidiary companies are kept at the Company's registered office and also at the respective registered office of the subsidiaries for inspection and shall be made available to the members seeking such information.

Fixed Deposit

The Company has not accepted any fixed deposits and as such, no amount of principal or interest was outstanding as of the balance sheet date.

Directors' Responsibility Statement

In accordance with the provisions of Section 217 (2AA) of the Companies Act, 1956, your Directors confirm:

* That in the preparation of the annual accounts for 2013-15 the applicable accounting standards were followed along with proper explanation relating to material departures, if any.

* 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 fair view of the state of affairs of the Company at the end of the financial year, comprising 18 months, i.e. on March 31, 2015 and of the profit or loss of the Company for that period 2013-15.

* That the Directors took proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities.

* That the Directors prepared the annual accounts for 2013-15 on a going concern basis.

Corporate Social Responsibility (CSR)

During the year, the Company constituted the Corporate Social Responsibility Committee as required under Section 135 of the Companies Act 2013. The Composition of the Committee comprises Shri K N Venkatasubramanian, Shri S Krishnan, and Shri Nagaraj Garla as members. The said committee has been entrusted with responsibility of formulating and recommending to the Board, a Corporate Social Responsibility Policy. The Board has approved the policy in its meeting held on November 13, 2014 and the same is available on the website of the Company and the web link for the same is http//www. orchidpharma.com/downloads/CSR-POLICY.pdf.

Your Company is undertaking its CSR activity through "Orchid Trust" which qualifies as CSR activity under Schedule VII of the Companies Act 2013. Orchid Trust has undertaken various initiatives and programmes in the following areas such as Education, Health, Youth development, Women Empowerment, Community assets creation (Infrastructure Development), Environment & Renewable Energy.

Various programmes undertaken by Orchid Trust are briefly mentioned here:

Education Development Programmes which includes Orchid Tuition centre, Supplementary Teachers in Schools, Special Coaching for 10th and 12th Standard students.

Health Programmes which includes Transport facilities in case of emergency, Sponsorship to government health programmes, Eye camp.

Women Empowerment Programmes which includes formation of Self Help Group (SHGs), Training on Tailoring, Women counselling center.

Youth development Programmes which includes providing training in various occupation to make them employed and Sponsorship for Sports in the Village panchayats.

Environmental & Renewable energy Programmes which includes Planting tree saplings and Implementation of bio-gas plant instead of LPG.

Nomination & Remuneration policy

During the year, the Company formulated a Nomination and Remuneration Policy in Compliance with Section 178 of the Companies Act, 2013 and Clause 49 of the Listing Agreement. This Policy lays down standards with respect to the appointment, remuneration and evaluation of Senior Management Personnel, Directors and Key Managerial Personnel of the Company. The Policy is available on the website of the Company and the web link for the same is http://www.orchidpharma.com/downloads/Nomination-Remuneration-policy. pdf.

Familiarisation Programme for Independent Directors

The Clause 49 of the Listing Agreement with the Stock Exchange stipulates that the Company shall familiarise the independent directors of the Company about their roles, rights, responsibilities in the Company, nature of the industry in which the Company operates, business model of the Company, etc through various programmes. The detailed familiarisation programme for Independent Directors is available on the website of the Company and the web link for the same is http://www.orchidpharma. com/downloads/Familiarisation-Programme-for-Independant Directors .pdf.

Vigil Mechanism (Whistle Blower Policy)

The Company is committed to adhere to the highest standards of ethical, moral and legal conduct of business operations. To maintain these standards, the Company encourages its employees who have their concerns about unethical behaviour, actual or suspected fraud or violation of the Company's code of conduct to come forward and express these concerns without fear of punishment or unfair treatment through Vigil Mechanism (Whistle Blower Policy) which provides a channel to the Employees and Directors to report to the Management. The mechanism provides for adequate safeguards against victimisation of employees and Directors.

The Policy is available on the website of the Company and the web link for the same is http://www.orchidpharma.com/downloads/ whistle-blower-policy.pdf.

Related Party Transaction Policy

The Company has framed a Related Party Transaction Policy in compliance with Section 177 of the Companies Act 2013 and Clause 49 of the Listing Agreement in order to ensure proper reporting and approval of transactions with related parties. The Policy is available on the website of the Company and the web link for the same is http://www.orchidpharma.com/downloads/RELATED-PARTY-TRANSACTION-POLICY. pdf

Disclosure under the sexual harassment of women at work place (Prevention, Prohibition and Redressal) Act, 2013

The Company has in place an Anti Sexual Harassment Policy in line with the requirements of The Sexual Harassment of Women at the Workplace (Prevention, Prohibition & Redressal) Act, 2013.

Internal Complaints Committee (ICC) has been set up to redress complaints received regarding sexual harassment. All employees (permanent, contractual, temporary, trainees) are covered under this policy.

The Company has not received any complaint on sexual harassment during the financial period ended March 31,2015.

Environment

Environment management is the prime concern in your Company. Orchid has employed a state of the art technology zero liquid trade effluent treatment plant system and world class treatment facilities for its liquid and gaseous pollutants generated from the production processes. The zero discharge of liquid trade effluent treatment plant comprises Membrane Bio Reactor, Nano Filtration, Reverse Osmosis, Solvent Stripping Column, Thermal Evaporation & Crystallisation plant to treat the entire trade effluent and recycle back into the utility process. Waste Air Treatment is done through installation of process scrubbers, vent gas condensation, Reverse Jet Ventury Filter, Electro Static Precipitator.

Safety Excellence Journey

Orchid's commitment to Safety, Health and Environment aspects is being sustained with the active participation from various line management functions. Safety performance of the various locations are periodically monitored and reviewed by the Central Safety Committee and Site Safety Committees. Risk assessment and Risk minimisation have taken priority in the last fiscal year. All line managers have carried out Safety Observation Audits (SOAs) to identify the hazards in their respective areas and have helped control the risk through conversation.

The Company recognises the need for effective safety communication in culture building. This is ensured through periodic Safety Talks, Safety Posters and interactive discussions. Orchid also believes that continuous learning is a crucial element in Safety Management. Accordingly, various training programs have been conducted to reinforce safe behavior and also to enhance the necessary skills to perform the job safely.

The Company also does not want to miss any learning opportunity that an incident may offer. Hence, Incident Investigation also is an important area of focus. All incidents are investigated and Corrective and Preventive Action (CAPA) have been taken.

Conservation of Energy

Your Company has always been striving hard in the field of energy conservation. Several measures to conserve energy and to reduce associated costs were taken during the fiscal under review as well. The particulars in respect to conservation of energy as required under Section 217 (1) (e) of the Companies Act, 1956, are given in Annexure I to this report.

Technology Absorption

The particulars in respect of R&D/Technology absorption as required under Section 217 (1) (e) of the Companies Act, 1956, are given in Annexure II to this report.

Foreign Exchange Earnings and Outgo

The particulars in respect of Foreign Exchange Earnings and Outgo as required under Section 217 (1) (e) of the Companies Act, 1956, are given in Annexure III to this report.

Particulars of Employees

Information as per Section 217(2A) of the Companies Act, 1956 read with Companies (Particulars of Employees) Rules, 1975 forms part of this Report. However, as per the provisions of Section 219(1)(b)(iv) of the Companies Act, 1956, the Report and Accounts are being sent to all members of the Company excluding the aforesaid information. Any member interested in obtaining a copy of the particulars may write to the Secretary at the Registered Office of the Company.

Corporate Governance

The Company follows the code of Corporate Governance issued by the stock exchanges for listed companies. As a Listed Company, necessary measures are taken to comply with the Listing Agreements with the Stock Exchanges. A report on Corporate Governance, along with a certificate of compliance from the Auditors, given in Annexure V, forms a part of this Report.

Green Initiative

To augment the green initiative of the Ministry of Corporate Affairs and to reduce carbon foot print, your Company proposes to send various communication including the Annual Reports in electronic form, to the members who have opted for the same. This would help in reducing the number of physical copies to be printed, thereby contributing to a greener environment. The full text of the current year's (2013-15) annual report is available in an easily navigable format at www.orchidpharma.com. As a member of the Company, you are entitled to receive all such communication in physical form, upon request.

Directors

Appointment of Directors

Shri K N Venkatasubramanian was appointed as Additional Director on the Board on March 31, 2014. Pursuant to the appointment, Shri K N Venkatasubramanian holds office up to the forthcoming Annual General Meeting. A notice has been received from a member as per Section 160 of the Companies Act, 2013 along with the prescribed fee. Shri K N Venkatasubramanian has filed with the Company his declaration of Independence to act as Independent Director for a term of five years if appointed, in terms of Section 149, 150, 152 of the Companies Act 2013. A resolution seeking his appointment as Independent Director is being placed before the members for approval.

Shri R. Kannan was appointed as Additional Director on the Board on May 28, 2015. Pursuant to the appointment Shri R. Kannan holds office up to the forthcoming Annual General Meeting. A notice has been received from a member as per Section 160 of the Companies Act, 2013 along with the prescribed fee. Shri R. Kannan has filed with the Company his declaration of Independence to act as Independent Director for a term of five years if appointed, in terms of Section 149, 150, 152 of the Companies Act 2013. A resolution seeking his appointment as Independent Director is being placed before the members for approval.

Smt Soundara Kumar was appointed as Nominee director of State Bank of India on the board on March 30, 2015. Sri Nagaraj Garla was appointed as Nominee director of IDBI Bank Ltd on the Board on November 13, 2014. Pursuant to their appointment and in line with the provisions of the Companies Act, 2013 both the directors hold office up to the forthcoming Annual General Meeting. Notice has been received from members as per Section 160 of the Companies Act, 2013 along with the prescribed fee relating to appointment of the directors. Both Mr. Nagaraj Garla and Smt Soundara Kumar have filed the consent with the Company to act as Director, if appointed as required under Section 152(5) of the Companies Act 2013. A resolution seeking the appointment of Smt Soundara Kumar and Sri Nagaraj Garla as Directors liable to retire by rotation is being placed before the members for approval.

Vacation of Office

Shri S Yuvaraj was appointed as an additional director by the Board on August 14, 2013 and as a director at the last Annual General Meeting held on March 19, 2014. He now vacates the office pursuant to Section 167(1)(b) of the Companies Act 2013, as he could not attend any of the meetings of the Board of Directors held during the period from April 01, 2014 to March 31, 2015. i.e for a period of 12 months.

Retirement of Directors by rotation

In accordance with the provisions of the Companies Act, 2013 and the Articles of Association of the Company Shri S Krishnan retires by rotation at the ensuing Annual General Meeting and being eligible offers himself for re-appointment.

Change in Terms & Remuneration of Managing Director

Given the financial position of the Company, the Board approved a revision in terms & the remuneration of Shri K Raghavendra Rao for a period of 2 years effective from April 01, 2015, in accordance with the various provisions of Companies Act, 2013. However his appointment as a Managing Director already approved by the shareholders &, valid till June 30, 2017 shall be liable to retirement by rotation.

None of the Directors of the Company are disqualified under Section 164(2) of the Companies Act, 2013.

Auditors

The Statutory Auditors, M/s SNB Associates, Chartered Accountants retire at the forthcoming Annual General Meeting, and being eligible, offer themselves for re-appointment for a period of two (2) years from the conclusion of this Annual General Meeting till the conclusion of 24th Annual General Meeting. M/s. SNB Associates, Chartered Accountants have furnished certificate under Section 139(1) of the Companies Act, 2013 of their eligibility for the appointment.

Auditor's Report

The Auditors' in their report have made certain observations relating to recovery of advances paid to suppliers, non provision of diminution in value of investments in foreign R&D subsidiaries, receivables from one of the marketing subsidiary and confirmation from Banks for certain loans and Bank accounts under "Qualified Opinion" in their report to the members.

The Company has already implemented the approved CDR package and is gearing its operations. Upon scaling up the operations and volume of business, the Company would be able to take delivery of materials/capital goods and complete the projects. With regard to the diminution in value of investments, the Company is confident that the value of Intellectual Property of the molecules held by the foreign subsidiaries will be more than the investment. In view of the inventory level of the marketing subsidiary and based on the demand and the prevailing prices for the products in those markets, the Company is confident that the subsidiary will be in a position to settle the outstanding payments in a phased manner. The Company was not able to obtain bank statements for two of the loan accounts due to the legal proceedings initiated by them for recovery which are still pending.

The Auditors in their report have further made observations relating to excess remuneration paid to Managing Director and Whole Time Director under "Emphasis of Matter" in their report to the members. The Company has made applications to the Central Government for approval of the excess remuneration paid to the Managing Director and the Whole Time Director for the years 2011-12 & 2012-13 and the approval is awaited. For the Year 2013-15, the Company would be making an application for approval of the Central Government for the excess remuneration paid to the Managing Director.

Cost Audit

The Central Government has prescribed that an audit of the cost accounts maintained by the Company in respect of bulk drugs and formulations be conducted under Section 148 of the Companies Act, 2013. Consequently, your Company has appointed Shri V Kalyanaraman, B.Sc., FCMA, as Cost Auditor for 2014-2015 and 2015-2016, with the consent of the Central Government, for the audit of cost accounts maintained by the Company in respect of both bulk drugs and formulations.

For the year ended September 30, 2013, the due date of filing the cost audit report was March 31,2014 and the cost audit report was filed on February 21,2014.

In accordance with the provisions of the Companies Act, 2013 remuneration of the Cost Auditior requires the approval of Shareholders and accordingly approval is being sought for the payment of remuneration for FY 2013-15 & FY 2015-16.

Acknowledgements

Your Directors are grateful and thankful to all the Banks, Financial Institutions both in public sector and private sector who have fully supported your company's initiatives during the stressed financial situation and for their wholehearted mandate for restructuring the long term debts of your Company and for their continuous support for meeting the working capital needs of your Company's businesses.

Your Directors are grateful to the Central and State Governments and the Central DCGI and State FDAs for their support to the Company's business plans. Your Board places on record its appreciation of the support provided by the customers, suppliers and equipment vendors to the Company.

Your Directors are thankful to the esteemed shareholders for their support and encouragement. The Directors and the Management acknowledge and are thankful to the employees who stayed back with the Company during this crucial period and for their commitment and contributions for the revival of the business and operations.

Your Directors are also thankful for the support received from all other stakeholders, including doctors, medical professionals, consultants, advisors, distributors and business partners.

For and on behalf of the Board

Place: Chennai K Raghavendra Rao Date: May 28, 2015 Managing Director


Sep 30, 2013

The Directors takes pleasure in presenting the report on business and operations of your Company along with the audited statement of accounts for the financial year ended September 30, 2013.

Performance

Your Company has extended its Financial Year 2012-13 by a period of six months i.e., up to September 30, 2013 and accordingly has prepared its Financial Statements for a period of 18 months i.e. from April 1, 2012 to September 30, 2013. The highlights of the financial results for the year 2012 - 2013 are given below:

(Rs.Cores)

Particulars 18 Months ended 31.09.2013 Year ended 31.03.2012

Sales & Operating Income 1906.58 1736.33

Other Income 39.77 55.81

Total Expenditure 1776.74 1380.41

Gross profit 169.61 411.73

Interests Finance Charges 520.38 179.05

Gross Profit after Interest but before (350.77) 232.68

Depreciation and Taxation

Depreciation 243.86 149.05

Profit/(Loss) before Tax, exceptional and (594.63) 83.62 extraordinary items

Exceptional Item 51.11 83.88

Profit/(Loss) Before Tax and Extraordinary item (543.52) (0.26)

Extraordinary items (80.00)

Profit Before Tax (543.52) 79.74 Provision for Taxation

- Current & Deferred Tax M (13.29) (23.37)

Profit/(Loss) after Tax (530.23) 103.11

During the financial year 2012-13, your Company achieved a turnover and operating income of Rs 1906.58 crores (Rs 1736.33 crores in 2011-12). The gross profit before interest, depreciation and taxes stood at Rs 169.61 crores, 8.90% of turnover (Rs 411.73 crores (23.71 % of turnover) in 2011 -12). After providing for interest expense of Rs 520.38 crores (Rs 179.05 crores previous fiscal), depreciation of Rs 243.86 crores (Rs 149.05 crores previous fiscal), Exceptional item Rs 51.11 crores (Rs 83.88 crores previous fiscal) and Extraordinary item Nil [(Rs 80) crores previous fiscal], the Loss before tax of the Company was Rs 543.52 crores [Rs 79.74 crores (Profit) previous fiscal]. The net loss after tax stood at Rs 530.23 crores (the net profit after tax was Rs 103.11 in the previous fiscal).

Business Overview

During the year your Company recorded a slow growth, recovering from the issues faced in previous financial year - closure of Alathur plant for a period of more than a month on account of an order from Tamil Nadu Pollution Control Board (TNPCB), and liquidity constraints on account of redemption of outstanding FCCBsin February 2012. Despite the tough liquidity and working capital constraints, your Company managed to sustain sales and operating profitability denoting the basic strength of the business. Orchid initiated a process of restructuring its debt and accordingly made a reference to the Corporate Debt Restructuring (CDR) cell. Once CDR process is completed there would be an ease in flow of working capital through rescheduled loan repayment, funding of interest by banks and reduction in rate of interest which would help the Company in improving its performance.

Your Company is planning to launch some new products in the next financial year for the EU and US markets, which are expected to aid in strengthening the revenue/profitability streams of the Company going forward.

Corporate Debt Restructure (CDR)

The Company was admitted for Corporate Debt Restructuring process in August 2013 by the CDR Empowered Group (CDR

EG) with requisite support from Banks.

Your Company had entered into a Business Transfer Agreement (BTA) in August 2012 with Hospira Healthcare India Private Limited, a subsidiary of Hospira Inc., USA, for the sale and transfer of the Company''s Penicillin and Penem API Business together with its manufacturing facilities in Aurangabad and associated Research and Development Unit situated in Shozhanganallur. Your Company obtained the requisite approvals for this transaction as follows - Shareholders approval in October 2012, Competition Commission of India (CCI) clearance in December 2012 and the Foreign Investment Promotion Board (FIPB) clearance in January 2013. Subsequently, the initial consideration of USD 202.50 million was enhanced to USD217.50 million for transfer of additional portion of land and building at R&D Centre Shozhanganallur.

As the Company is admitted for CDR process, the consummation of BTA has been added as a part of the CDR process. The final CDR package is under preparation and expected to be completed in December 2013.

Regulatory Filings and Approvals

In the generic formulations domain, Orchid''s cumulative Abbreviated New Drug Application (ANDA) filings for the US market stood at 43. This includes 8 Para IV FTF (First-To- File) filings. The break-up of the total ANDA filings is 13 in Cephalosporins segment and 30 in NPNC space. Few more ANDAs which are in the later stages of development are expected to be filed in the ensuing quarters.

In the European Union (EU) region, the cumulative count of Marketing Authorisation (MA) filings stood at 30. The break- up of the total MA filings is 1 5 in the Cephalosporin segment and 1 5 in the NPNC segment.

In the API (Active Pharmaceutical Ingredients) domain, Orchid increased its cumulative filings of its US DMF count to 90. The break-up of the total filings is 28 in the Cephalosporin Segment, 47 in NPNC segment, 2 in the Betalactam segment and 13 in the Carbapenems segment. In the European market space the cumulative filings of COS (Certificate of Suitability) count remained at 21 which includes 14 in cephalosporin segment, 6 in NPNC segment and 1 in the betalactam segment. With staunch efforts on product development, the count of filing and approval is set to increase in the current financial year.

Dividend

Due to losses incurred by the Company during the financia year 2012-13, your Directors express their inability to recommend any dividend to the equity shareholders.

Awards

During the year, your Company was conferred with the following awards:

- Top Indian Public Limited Company in Patent at the 5th National Intellectual Property Award 2013, organised by CM in partnership with the Department of Industria Policy & Promotion and Indian Intellectual Property Office, Government of India.

- EXIM Achievement Award 2012 for meritorious export performance by The Tamil Chamber of Commerce, Chennai.

Intellectual Property Rights

During the year, Orchid continued to accelerate the PR work on a number of products. The total number of patent applications filed by Orchid in various national and international patent offices so far was 931 (including Process, formulation, NCE, NDDS, biotech and Generics). As of September 30, 2013, 731 patent applications have been published while 210 patents have been granted cumulatively.

Employees Stock Option Plan

The details of options granted to employees under the ORCHID ESOP 2010, ORCHID ESOP - DIRECTORS 2011, Orchid ESOP - Senior Management 2011 schemes and the status of such options as on September 30, 2013 are given in Annexure IV to this Report.

Your Company formulated a stock option plan viz., Orchid

- ESOP 2010 Scheme for grant of 10,00,000 options to the employees of the Company including whole-time Director(s) of the Company but excluding the Promoter Directors. The said scheme was approved by the shareholders at the Annual General Meeting held on July 21, 2010. Your Company granted 9,01,000 options during the year 2010- 11. Pursuant to exercise of options by the employees, 10,000 equity shares of Rs 10/- each were issued during the year and as at September 30, 2013, the outstanding options yet to be exercised under the said scheme is 5,09,500.

Your Company has also formulated the following schemes which were approved by the shareholders at the Annua General Meeting held on July 29, 2011.

- Orchid ESOP - Directors 2011 Scheme - grant of 5,00,000 options to the directors of the Company including whole- time directors but excluding promoter director. Your Company granted 3,00,000 options during the year 2011 - 12 and as at September 30, 2013, the outstanding options yet to be exercised under the said scheme is 1,00,000.

- Orchid ESOP - Senior Management 2011 Scheme - grant of 10,00,000 options to the employees in the grade of Senior Manager and above out of which 7,50,000 options are ear marked to the employees of Orchid and 2,50,000 options to the employees of various subsidiary companies of Orchid, either in India or abroad. Your Company granted 42,700 options during the year 2011-12 and as at September 30, 2013, the outstanding options yet to be exercised under the said scheme are 42,700.

Associate

Allecra Therapeutics GmbH, Germany

With a viewto enter into drug discovery in the areas of obesity, CNS and other therapeutic areas in response to potentia MNC interest, Orchid decided to invest in Allecra Therapeutics GmbH (Allecra) and presently holds 20.65% stake in the Company. Allecra is a drug development company based in Germany focused on clinically differentiated products and shall develop unique products for novel treatments to combat multi drug resistant bacterial infections.

Joint Venture Company

NCPC Orchid Pharmaceutical Company Limited, China

NCPC Orchid Pharmaceutical Company Limited was incorporated in 2002, as a joint venture in China for manufacture of sterile cephalosporin APIs. The Joint Venture Partner North China Pharmaceuticals Company Limited (NCPC) desired to re-organise the JV Company and make it as their subsidiary Company. As a result, Orchid made an exit from the Joint Venture during the year 2012-13.

Subsidiaries

Bexel Pharmaceuticals Inc., USA (Bexel)

Bexel was incorporated basically to conduct Research & Development activities in new drug discovery segment. The current Bexel IP portfolio is being maintained by OCPL globa IP unit.

Orchid Pharmaceuticals Inc., USA

Orchid Pharmaceuticals Inc., is a wholly owned Delaware based subsidiary of your Company and also the holding companyin the United States, under which all theoperationa business subsidiaries have been structured. The Company currently has two operating Subsidiaries, 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 for the parent Company including the initiation of marketing alliances with partner companies, filing of your Company''s Drug Master Files (DMFs) and Abbreviated New Drug Applications (ANDAs) as the Importer of record for your Company with the FDA. It continues to represent your Company for all matters relating to the review and approval of such filings by the FDA, and handling of logistics and product importation into the US as the Importer of Record for the US Customs.

Orchid Pharma Inc., is the commercial entity that started directly marketing and selling your Company''s products in the US generics market place. Orchid Pharma Inc., has established a strong corporate image for your Company in the US and will be launching all future (unpartnered) generics products under the Orchid label.

Diakron Pharmaceuticals Inc., USA

Orchid''s stake in Diakron has been a part of the original transaction which includes direct investment and Master Services Agreement (MSA). Your Company has completed most of its MSA obligations to develop and supply clinica quantities of API and extended release formulation.

Orchid Europe Limited, United Kingdom

Your Company''s subsidiary in Europe namely Orchid Europe Limited (OEL) is a wholly owned subsidiary which provides liasing support to the parent Company and its customers in Regulatory, Pharma covigilance, Testing & Release, Retention of samples, Service Providers and Business Development in Europe.

Orchid Pharmaceuticals (South Africa) Pty Ltd., South Africa

Your Company''s wholly owned subsidiary, Orchid Pharmaceuticals (South Africa) Pty Ltd., was incorporated mainly to register and market your Company''s products in South Africa. The Company is in the process of submitting dossiers for obtaining marketing approval from the regulatory authority, MCC for various oral products and the applications are at various stages of the registration process.

Orchid Pharma Singapore Private Ltd, Singapore

During the year, your company incorporated Orchid Pharma Singapore Private Limited a wholly owned subsidiary in Singapore to deal in pharmaceuticals products.

Closure of Orchid Pharma Japan K K

Orchid Pharma Japan KK was incorporated during April 2008 as a subsidiary of your Company in order to foray into the high potential and growing Japanese generics market. During the year 2012-13, your Company closed this subsidiary, as its business activities have been very much constrained due to the non-availability of customer questing samples and test data as a result of Orchid''s financial conditions.

Central Government Approval

The Ministry of Corporate Affairs, Government of India vide its circular dated February 8, 2011 has provided genera exemption to companies from attaching the balance sheets of their subsidiary companies as required under Section 212(8) of the Companies Act, 1956.

The exemption is available provided the companies publish the audited consolidated financial statements in the Annual Report. The consolidated financial statements duly audited are presented along with the accounts of your Company. The statement as required under Section 212 is given as part of the consolidated accounts in this report. The annua accounts of subsidiary companies are kept at the Company''s registered office and also at the respective registered office of the subsidiaries for inspection and shall be made available to the members seeking such information.

Fixed deposit

The Company has not accepted any fixed deposits and as such, no amount of principal or interest was outstanding as of the balance sheet date.

Directors'' Responsibility Statement

In accordance with the provisions of Section 217 (2AA) of the Companies Act, 1956, your Directors confirm:

- That in the preparation of the annual accounts for 2012- 13 the applicable accounting standards were followed along with proper explanation relating to material departures, if any.

- 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 fair view of the state of affairs of the Company at the end of the financial year (30th September 2013) and of the profit or loss of the Company for that period (2012-13).

- That the Directors took proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities.

- That the Directors prepared the annual accounts for 2012- 13 on a going concern basis.

Corporate Social Responsibility (CSR)

It is the strong belief of Orchid that Corporate Social

Responsibility means a holistic development of the community that caters the basic needs on education, health, women and child development, Youth development, capacity building and infrastructure. These are the major areas where significant contribution was achieved with public participation this year.

Mission

To accelerate sustainable development of rural areas by empowering socially and economically deprived sections.

Our Approach :

ORCHID

GOVERNMENT NGOs

As a Corporate Orchid believes in playing the role of a catalyst in bringing the resources and knowledge for development with people''s participation.

Education

Poor Socio-Economic conditions, lack of motivation, lack of infrastructure and poor coaching are some of the challenges which affect rural children''s education and the continuity. Orchid Trust has understood these issues and has planned its education promotion initiatives for their educationa improvement.

Facilitating better training

Appointment of 24 supplementary teachers in schools through the PTA (Parent Teacher Association) in schools were made during the year, where there are no sufficient teachers. As a result the school final year result has improved. The average SSLC results and Higher secondary results percentage have increased considerably due to this assistance.

Running of four community tuition centers, teaching aids to seven Government schools and sponsorship of higher education to 48 poor deserving students were made aimed at making education available to all and providing an atmosphere of pleasant learning to students. Educationa institutes and Grass root associations were involved in research to find out school drop outs and to bring them back to schools.

Summer Camp to Rural children

Summer camp to school going students was organised this year, more than 196 children participated in the camp. Yoga, music, sports, physical exercise, drawing and painting, clay modelling, dance, Karate, drama are some of the programs that were given as entertainment on a participatory approach.

Other Educational Programs

Career guidance programs, best student and Teachers award, talent improvement programmes, school annual day sponsorships, sponsorship of prizes for school awareness programmes are some of the activities that helped the students in improving their skills.

Student Counselling Program

Children were given proper guidance and advice by a professional counsellor whenever they had any persona problems or poor performance in their studies. The counsellor was able to identify the root cause and helped the students to overcome the problems that they faced and facilitated the students to find solutions to solve the issues. This program has helped more than 146 students this year.

Special coaching to SSLC students

Orchid in coordination with the school Parent Teachers'' Association conducted an intensive night coaching for one month for selected students who appeared for public examination in 10th and 12th standard. Teachers volunteered to be available for students to clear their doubts. This program was organised in 7 schools that benefited 346 students.

Health

Mobile Health Program

Orchid Trust conducts weekly village health camp programs for the villages. The exclusive medical team for this purpose visits Pattipulam (in East Coast Road) and Alathur (in Old Mamallapuram Road). Large numbers of people are benefited from this programme/visits, regularly.

Eye Camp

Orchid Trust in coordination with Sankara Hospital conducted 12 monthly eye camps and did eye screening for more than 800 people and free cataract surgery for more than 60 people. A tie up has also been made with Pamma Shankara Hospital for weekly eye camp program in Primary Health Centre, Tiruporur.

Special Health Camp to Women and Children

Mother and child care is one of the basic aspects of health care which is lacking in rural areas and the same may be attributed to many reasons like early marriage, ignorance and the socio economic conditions. The poor rural women were trained on nutrition, vaccination and other aspects of child care.

Orchid Trust in coordination with the ICDS (Integrated Child Development Services) organised a pediatric camp in Tiruporur near Alathur. Many women willingly participated and shown keen interest in learning the aspects. As many as 450 women were benefited by way of consultancy and free treatment.

Sponsorship of Government Health Programs

Orchid Trust brings in more response for Government initiatives like Pulse Polio drive, Health Camps organised by local Primary Health Centre. These sponsorship includes provision of vehicles, food, notice, posters, medicines and program sponsorships.

Empowerment of Women through SHGs

Tailoring for women

The training given to the Self Help Groups (SHGs) on tailoring and embroidering also gave an employment opportunity to the women in apparels. Women were able to get jobs in the nearby export garment units; 14 out of 65 women trained got job opportunities. Leadership training was imparted to 73 SHGs.

Greenery Development

In order to create awareness and to involve women in greenery development initiatives, a program was organised in Alathur in coordination with NEED Trust, Tiruporur known for greenery development initiatives. More than 300 women from the adopted villages took part and received saplings to plant and raise it in their houses.

Infrastructure Development

School buildings

Orchid paid the public contribution part to four school buildings and drinking water were improved in those schools. All these were possible only under the Government scheme called ''Namakku Naame'' with the support of grass root associations and the elected body members.

Canal Distilling

Canal distilling is an ongoing activity for enabling agricultura development in the area. More than 300 acres of land got benefited out of this

Youth Development

Orchid Trust used sports as a gateway to reach the youth. More than 25 youth functions were sponsored. The next step was to offer variety of training programmes on Personality Development, Career Guidance, Self Esteem, Spoken English and Entrepreneurship Development Programmes to change the attitude of youth towards unemployment and motivate them to take up self employment as the alternative.

Environment

Environment management is the prime concern in your Company. Orchid has employed a state of the art technology zero liquid trade effluent treatment plant and world class treatment facilities for its liquid and gaseous pollutants generated from the production processes. The zero discharge of liquid trade effluent treatment plant comprises Membrane Bio Reactor, Nano Filtration, Reverse Osmosis, Solvent Stripping Column, Thermal Evaporation & Crystallisation plant to treat the entire trade effluent and recycle back into the utility process.

Waste water Treatment:

Orchid has segregated the effluent as per the guidelines of Corporate Responsibility for Environmental Protections for pharmaceuticals industries i.e. Low Total Dissolved Solids effluent (including sewage) and High Total Dissolved Solids effluent.

Waste Air Treatment

The major emissions from the Unit are emissions from the boiler, power plant, process scrubbers and powder processing area. Orchid installed process scrubbers in all the production blocks to treat the waste air generating from process reactors. These scrubbers are made up of FRP (fiber reinforced plastic) with structure packing to enhance the efficiency of the scrubbing. The emissions from the process scrubbers meet the general emission standards prescribed by the Pollution Control Board. The scrubbed liquid is sent back to waste water treatment plant for further treatment.

Vent Gas Condensation

Orchid installed the vent gas condensation system for fugitive emissions from the storage tanks of solvents and secondary condensers of solvent recovery area to control the fugitive emissions. The collected solvent is recycled back into the process.

Reverse Jet Ventury Filter

Orchid installed reverse jet ventury filter to control the dust emission during the powder processing of bulk drugs.

You would be happy to note that Orchid is the first bulk drug company in the country which was certified with ISO - 14001 in the year 1999 itself by Dutch Council and has been retaining the certificate continuously for its environment management system.

Safety Excellence Journey:

Orchid''s thrust on Safety and Health has persisted meticulously during this financial period. The sustained safety excellence journey is achieved with the high level participation from various line management functions.

Orchid''s integrated Safety organisation structure and line management responsibility has become one of the key strengths in maintaining safety in all its Units. In addition to Process safety, Orchid strongly believes that human behavior plays a key role, in building safety culture. Hence to monitor and reinforce actions on process safety, safety observation and audit (SOA), is a key focus area in Our Central Safety Committee meetings (CSC). To give thrust to Process safety management the Company continues to develop inherently safe processes with the help of in-house process safety labs.

The CSC meets regularly and review progress on Safety elements and also provides directions to various subcommittees which work towards identifying hazards and minimising the risks at all levels.

Conservation of energy

Your Company has always been striving hard in the field of energy conservation. Several measures to conserve energy and to reduce associated costs were taken during the fiscal under review as well. The particulars in respect to conservation of energy as required under Section 217 (1) (e) of the Companies Act, 1956, are given in Annexure I to this report.

Technology absorption

The particulars in respect of R&D/Technology absorption as required under Section 217 (1)(e) of the Companies Act, 1956, are given in Annexure II to this report.

Foreign exchange earnings and outgo

The particulars in respect of Foreign Exchange Earnings and Outgo as required under Section 217 (1)(e) of the Companies Act, 1956, are given in Annexure III to this report.

Particulars of employees

nformation as per Section 217(2A) of the Companies Act, 1956 read with Companies (Particulars of Employees) Rules, 1975 forms part of this Report. However, as per the provisions of Section 219(1 )(b)(iv) of the Companies Act, 1956, the Report and Accounts are being sent to all members of the Company excluding the aforesaid information. Any member interested in obtaining a copy of the particulars may write to the Secretary at the Registered Office of the Company.

Corporate Governance

The Company follows the code of Corporate Governance issued bythestockexchangesfor listed companies. Corporate Governance info given in Annexure V to this Report. A compliance certificate from the Practicing Company Secretary is appended to this report.

Green Initiative

To augment the green initiative of the Ministry of Corporate Affairs and to reduce carbon foot print, your Company proposes to send various communication including the Annual Reports in electronic form, to the members who have opted for the same. This would help in reducing the number of physical copies to be printed, thereby contributing to a greener environment. The full text of the current year''s (2012- 13) annual report is available in an easily navigable format at www.orchidpharma.com. As a member of the Company, you are entitled to receive all such communication in physical form, upon request.

Directors Appointment of Director

Shri S. Yuvaraj was appointed as Additional Director on the Board on August 14, 2013. Pursuant to the appointment, Shri S. Yuvaraj holds office up to the date of the forthcoming Annual General Meeting. A notice has been received from a member as per Section 257 of the Companies Act, 1956 along with the prescribed fee. Shri S. Yuvaraj has also filed with the Company his consent to act as Director, if appointed, as required under Section 264(1) of the Companies Act, 1956. A resolution seeking his appointment as Director is being placed before the members for approval.

Change in Designation

Shri S. Krishnan, whole-time director of Orchid, resigned from the services of the Company on April 17, 2013. He continues to be on the Board as Non-executive Director.

Resignation of Directors

Shri Deepak Vaidya, Director of Orchid, resigned from the Board with effect from November 19, 2012. The Board places on record its appreciation for the contribution made by Shri Deepak Vaidya during his tenure as Director.

Shri Bharat D Shah, Director of Orchid, resigned from the Board with effect from November 15, 2012. The Board places on record its appreciation for the contribution made by Shri Bharat D Shah during his tenure as Director.

Prof. Bala V Balachandran, Director of Orchid, resigned from the Board with effect from August 14, 2013. The Board laces on record its appreciation for the contribution made by Prof. Bala V Balachandran during his tenure as Director.

Retirement of Directors by rotation

In accordance with the provisions of the Companies Act, 1956 and the Articles of Association of the Company Shri.S.Krishnan retires by rotation at the ensuing Annual General Meeting and being eligible offers himself for re-appointment.

None of the Directors of the Company are disqualified under Section 274(1 )(g) of the Companies Act, 1956.

Auditors

The Statutory Auditors, M/s SNB Associates, Chartered AccountantsretireattheforthcomingAnnual General Meeting, and being eligible, offer themselves for re-appointment. M/s. SNB Associates, Chartered Accountants have furnished certificate under section 224(1 B) of the Companies Act, 1956 of their eligibility for the appointment.

Auditor''s Report

The Auditor''s in their report have made certain observations relating to recovery of advances paid to suppliers, non provision of diminution in value of Investments in a foreign R&D subsidiary and non-provision of penal interest on loans taken by the Company under ''Qualified Opinion'' in their report to the members.

The Company has already been admitted for Corporate Debt Restructuring (CDR) scheme and the final approva for the scheme is expected. Due to financial constraints, the Company was not able to take delivery of materials / capital goods and the Company is confident that with the CDR approval, the Company would be able to take delivery of these materials in due course. As far as the diminution in value of investments is concerned, the Company is confident that the value of molecules held by the foreign subsidiary will be more than the investment. With the approval for the CDR scheme, the interest liability will come down and hence there will be no need for any provision for penal interest. The Management confirms that there will be no impact on the financials on account of the matters referred to in the Auditor''s report.

The Auditor''s in their report have further made observations relating to notice given by IDBI Bank Limited to convert the term loan into shares and the excess remuneration paid to the Managing Director and the Whole time Director under ''Emphasis of Matter'' in their report to the members.

IDBI Bank Limited has given notice to the Company to convert the term loan amounting to Rs 30.19 crores into shares at par as per the terms of the Loan agreement. The same has been disputed by the Company. IDBI has filed a Civil Suit which is pending before the Honourable High Court of Madras.

The Company has paid remuneration to the Managing Director and the Whole time Director based on the approval given by the shareholders at the Annual General Meetings held on September 20, 2012 and July 21, 2010, respectively. Due to the loss incurred by the Company during the year 2012-13, the Company is making an application for the approval of the Central Government for the remuneration paid to Chairman & Managing Director and Executive Director.

Cost Audit

The Central Government has prescribed that an audit of the cost accounts maintained by the Company in respect of bulk drugs and formulations be conducted under Section 233B of the Companies Act, 1956. Consequently, your Company has appointed Shri V Kalyanaraman, B.Sc, FCMA, as Cost Auditor for 2012-13 and 2013-14, with the consent of the Central Government, for the audit of cost accounts maintained by the Company in respect of both bulk drugs and formulations.

For the year ended March 31, 2012, the due date of filing the cost audit report was December 31, 2012 and the actua date of filing the cost audit report was December 29, 2012.

Acknowledgements

Your Directors are thankful to various public sector and private sector banks and financial institutions for meeting the long term and working capital needs of the Company''s businesses.

The Directors are grateful to the Central and State Governments and the Central DCGI and State FDAs for their continued support to the Company''s expansion plans. Your Board places on record its appreciation of the support provided by the customers, suppliers and equipment vendors to the Company. Your Directors are also thankful to the vendors, distributors and agents for their continued support.

Your Directors are thankful to the esteemed shareholders for their support and encouragement. The Directors acknowledge the commitment and contribution of all employees to the growth of the Company.

For and on behalf of the Board

Place: Chennai K Raghavendra Rao

Date: November 29, 2013 Chairman & Managing Director


Mar 31, 2012

The Directors take pleasure in presenting the report on business and operations of your Company along with the audited statement of accounts for the financial year ended March 31, 2012. The highlights of the financial results for the year 2011 -12 are given below:

Rs. (Rs crore)

Particulars Year ended Year ended March 31,2012 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 Profit 411.73 397.32

Interests Finance Charges 179.05 115.76

Gross Profit after Interest but before 232.68 281.56

Depreciation and Taxation

Depreciation 149.05 128.45

Profit/(Loss) before Tax, Exceptional and 83.62 153.11

Extraordinary Items

Exceptional Item 83.88 (20.69)

Profit/(Loss) Before Tax and Extraordinary Items (0.26) 173.80

Extraordinary Items (80.00) -

Profit Before Tax 79.74 173.80

Provision for Taxation

- Currents Deferred Tax (23.37) 14.32

- Profit/(Loss) After Tax 103.11 159.48

PERFORMANCE

During 2011-12, your Company achieved a turnover and operating income of Rs 1,736.33 crore as compared to Rs 1,663.34 crore in 2010-11 recording a growth rate of 4.38%. The gross profit before interest, depreciation and taxes stood at Rs 411.73 crore (23.71% of turnover) as compared to Rs 397.32 crore (23.88% of turnover) of last fiscal. After providing for interest expense of Rs 179.05 crore (Rs 115.76 crore previous fiscal), depreciation of Rs 149.05 crore (Rs 128.45 crore previous fiscal), Exceptional item Rs 83.88 crore (Rs Nil previous fiscal) and Extraordinary item Rs 80 crore (Rs Nil previous year), the profit before tax of the Company was Rs 79.74 crore (Rs 173.81 crore previous fiscal). The net profit after tax stood at Rs 103.11 crore (5.94% of turnover) compared to the net profit after tax of Rs 159.48 crore (9.6% of turnover) in the previous fiscal.

BUSINESS OVERVIEW

During the year, your Company continued to record a strong growth in its operational performance inspite of its API plant in Alathur being closed for more than a month owing to the closure order from the Tamil Nadu Pollution Control Board (TNPCB), fire accident at the R&D centre and liquidity constraints on account of redemption of outstanding Foreign Currency Convertible Bonds. The business model change that your Company had initiated post the inject able business transfer to Hospira in 2010 continues to augur well with the several long-term supply contracts entered into with large global players paving the way for continued robust earnings. Our Active Pharmaceutical Ingredient (API) supply arrangement continued to perform significantly well, registering higher than expected business volumes.

Your Company is planning to launch several products during the current financial year 2012-13 for the EU and US markets, which are expected to strengthen the revenue streams for regulated generics business of the Company from the current financial year 2012-13.

REGULATORY FILINGS AND APPROVALS

In the generic formulations domain, Orchid's cumulative Abbreviated New Drug Application (ANDA) filings for the US market stood at43. This includes 8 Para IV FTF (First—To—File) filings. The break-up of the total ANDA filings is 13 in Cephalosporins segment and 30 in NPNC space. Few more ANDAs which are in the later stages of development are expected to be filed in ensuing quarters.

In the EU region, the cumulative count of Marketing Authorisation (MA) filings stood at 28. The break-up of the total MA filings is 13 in the Cephalosporin segment and 15 in the NPNC segment.

In the Active Pharmaceutical Ingredients (API) domain, Orchid increased the cumulative filings of its US Drug Master Files (DMF) count to 89. The break-up of the total filings 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 filings of CoS (Certificate of Suitability) count remained at 21 which includes 14 in cephalosporin segment, 6 in NPNC segment and 1 in the betalactam segment. With staunch efforts on product development, the count of filing and approval is set to increase in the current financial year.

DIVIDEND

Your Directors recommend a 30% dividend (Rs 3/- per equity share of Rs 10/-each) for the year ended March 31, 2012, subject to the approval of shareholders at the ensuing Annual General Meeting. Under the Income Tax Act, 1961, the receipt of dividend is tax-free in the hands of the shareholders.

AWARDS

During the year, your Company was conferred with the following awards:

- Export Excellence Award 2010-11 by MEPZ - Special Economic Zone, Government of India.

- EXIM Achievement Award 2011 for meritorious export performance under the category Air Exports by The Tami Chamber of Commerce, Chennai.

- Gold Patent Award for the year 2010-11 in recognition of its commendable contribution to R&D in Drug Discovery Sector by the Pharmaceutical Export Promotion Council.

- IGCW - 2011 Green Innovation Award for the outstanding research in the field of Green Chemistry & Engineering.

INTELLECTUAL PROPERTY RIGHTS (IPR)

During the year, Orchid continued to accelerate the Intellectual Property Rights work on a number of products. The total number of patent applications filed by Orchid in various national and international patent offices so far is 904 (including Process, Formulation, NCE, NDDS, Biotech and Generics). As of 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 2008-09and 2009-10,theCompany bought back FCCBs amounting to US$ 37.80 million and US$ 19.778 million respectively. The outstanding bonds due for redemption in February 2012 was US$ 117.422 million.

Accordingly, your Company redeemed the aforesaid outstanding FCCBs, including yield-to-maturity, 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 of options granted to employees under the ORCHID - ESOP 2010, ORCHID - ESOP Directors 2011, ORCHID - ESOP Senior Management 2011 schemes and the status of such options as on March 31, 2012 are given in Annexure IV to this Report.

Your Company formulated a stock option plan viz., ORCHID-ESOP 2010 Scheme for grant of 1,000,000 options to the employees of the Company including Whole Time Director(s) of 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 2010-11 and as on March 31, 2012, the total number of options in force under the said scheme are 854,000.

Your Company has also formulated the following schemes which were approved by the shareholders at the Annual General Meeting held on July 29, 2011.

- ORCHID - ESOP Directors 2011 Scheme - grant of 500,000 options to the Directors of the Company including Whole Time Director(s) but excluding Promoter Director(s). Your Company granted 300,000 options during the year and as at March 31, 2012, the total number of options in force under the said scheme are 250,000.

- ORCHID - ESOP Senior Management 2011 Scheme - grant of 1,000,000 options to the employees in the grade of Senior Manager and above out of which 750,000 options will be granted to the employees of Orchid and 250,000 options to the employees of various subsidiary companies of Orchid, either in India or abroad. Your Company granted 42,700 options during the year and as at March 31, 2012, the total number of options in force under the said scheme are 42,700.

AMALGAMATION OF WHOLLY OWNED SUBSIDIARY WITH THE COMPANY

During the year, Orchid Research Laboratories Limited (ORLL) a wholly-owned subsidiary was merged with your Company with effect from April 01, 2010 i.e. 'the Appointed Date'. The Hon'ble High Court of Madras had vide its Order dated March 20, 2012, sanctioned the Scheme of Amalgamation of ORLL with your Company. The scheme became effective from March 30, 2012 upon filing the certified true copy of High court orders with the Registrar of Companies, Chennai, Tamil Nadu.

OVERSEAS JOINT VENTURES

NCPC Orchid Pharmaceutical Company Limited, China

Your Company's 50:50 joint venture in China, NCPC Orchid Pharmaceuticals established for manufacture of sterile cephalosporin Active Pharmaceutical Ingredients (API) continued to perform well. The joint venture is profitable with a significant sales turnover of US$ 52.11 million during the year under review.

SUBSIDIARIES

Bexel Pharmaceuticals Inc., USA (Bexel)

During the yea r, Bexel became a 100% subsidiary of your Company upon amalgamation of Orchid Research Laboratories Limited with your Company. Bexel was incorporated basically to conduct Research & Development activities in New Drug Discovery segment. Bexel provides all scientific documentation to Orchid Research Laboratories Limited, which as of March 30, 2012, stands amalgamated with your Company. The current Bexel IP portfolio is being maintained by Orchid global Intellectual Property (IP) unit. During the year, Bexel has conducted advanced studies on BLX-1002, while Phase Ha clinical studies has been initiated for the indication of Non-alcoholic fatty liver disease (NAFLD) / Non-alcoholic Steatohepatitis (NASH).

Orchid Pharmaceuticals Inc., USA

Orchid Pharmaceuticals Inc., is a wholly owned Delaware based subsidiary of 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 operating Subsidiaries, 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 for the parent Company including the initiation of marketing alliances with partner companies, filing of your Company's Drug Master Files (DMFs) and Abbreviated New Drug Applications (ANDAs) as the Importer of record for your Company with the FDA. It continues to represent your Company for all matters relating to the review and approval of such filings by the FDA and handling of logistics and product importation into the US as the Importer of Record for the US Customs.

Orchid Pharma, Inc., is the commercial entity that started directly marketing and selling your Company's products in the US generics market place. Orchid Pharma Inc. has established a strong corporate image for your Company in the US and will be launching all future (un partnered) generics products under the Orchid label.

Diakron Pharmaceuticals Inc., USA

During the year, your Company increased its stake in Diakron Pharmaceuticals Inc., and holds 76.4% in the Company. Orchid's stake in Diakron has been a part of the original transaction which includes direct investment and Master Services Agreement (MSA). Your Company has completed most of its MSA obligations to develop and supply clinical quantities of Active Pharmaceutical ingredients (API) and extended release formulations.

Orchid Europe Limited, United Kingdom

Your Company's 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, Pharmaco vigilance, Testing & Release, Retention of samples, Service Providers and Business Development in Europe.

Orchid Pharmaceuticals (South Africa) Pty Ltd., South Africa

Your Company's wholly owned subsidiary, Orchid Pharmaceuticals (South Africa) Pty Ltd., was incorporated mainly to register and market your Company's products in South Africa. The Company is in the process of submitting dossiers for obtaining marketing approval from the regulatory authority, MCC for various or a products and the applications are at various stages of the registration process.

Orchid Pharma Japan K K

The subsidiary Company in Japan has continued to make noteworthy progress during the year. At the end of the fiscal year 2011-12, there are 9 Drug Master Files (DMFs) filed with Pharmaceutical and Medical Devices Agency (PMDA) of Japan and additional Drug Master Files (DMFs) will be filed in the current financial year to meet the market needs.

During the year under review, the Company successfully started supplies to few Japanese Pharma Companies and business discussions are on with various companies for supply of new products and the Company is expected to make good progress on both business and regulatory fronts during the current year.

GENERAL EXEMPTION FROM CENTRAL GOVERNMENT

The Ministry of Corporate Affairs, Government of India vide its circular dated February 8,2011 has provided General exemption to companies from attaching the balance sheets of their subsidiary companies as required under Section 212(8) of the Companies Act 1956.

The exemption is available provided the companies publish the audited consolidated financial statements in the Annual Report. The consolidated financial statements duly audited are presented along with the accounts of your Company. The statement as required under Section 212 is given as part of the consolidated accounts in this report. The Annual accounts of subsidiary companies are kept at the Company's registered office and also at the respective registered office of the subsidiaries for inspection and shall be made available to the members seeking such information.

FIXED DEPOSIT

The Company has not accepted any fixed deposits and as such, no amount of principal or interest was outstanding as of the balance sheet date.

DIRECTORS' RESPONSIBILITY STATEMENT

In accordance with the provisions of Section 217 (2AA) of the Companies Act, 1956, your Directors confirm:

- That in the preparation of the Annual accounts for 2011-12 the applicable accounting standards were followed along with proper explanation relating to material departures, if any.

- 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 fair view of the state of affairs of the Company at the end of the financial year (March 31,2012) and of the profit or loss of the Company for that period (2011-12).

- That the Directors took proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities.

- That the Directors prepared the Annual accounts for 2011 -12 on a going concern basis.

CORPORATE SOCIAL RESPONSIBILITY (CSR)

Your Company's constant focus has been on community development as part of its corporate social responsibility initiative. As a part of CSR your Company has created a Trust - 'Orchid Trust', which has adopted 24 villages and 6 panchayats and works continuously in implementing several welfare schemes in key-identified thrust areas like community health development, children education, women empowerment, youth development, community asset creation and a greener environment, self employment and capacity building.

ENVIRONMENT

Environment Management has been a prime focus area of your Company Your Company has employed a state of the art technology, zero discharge liquid trade effluent treatment plant and world class treatment facilities for its liquid and gaseous pollutants Generated from the production processes. The effluent treatment plant comprising Membrane Bio Reactor, Nano Filtration, Reverse Osmosis, Solvent Stripping Column, Therma Evaporation & Crystallisation plant treats the entire trade effluent and recycles it back into the utility process.

Your Company was the first bulk drug manufacturing company in the country to get ISO - 14001 certification in the year 1999 by Dutch Council and has retained the certification continuously for its Environment Management System. Your Company's Active Pharmaceutical Ingredient (API) manufacturing facility at Alathur was re-assessed and was certified with ISO 9001: 2008 (Quality Management System) and ISO 14001: 2004 (Environmental Management System).

SAFETY EXCELLENCE JOURNEY

Safety is a part of the corporate culture in your Company. This includes infrastructural, employee, Environmental and community safety. Starting with the employee induction programme, training programmes on various aspects of operational safety are periodically conducted. In association with a global expert on safety procedures, a number of initiatives have been designed to ensure that all manufacturing processes and systems are executed in the safest manner. These include:

- Use of high-end technologies to recycle discharge and make it toxic free through a series of processes thereby leading to zero discharge manufacturing

- Three-tier safety committees to monitor safety initiatives, standard operating procedures (SOPs), processes and working standards for R&D and manufacturing units

- Round-the-clock medical care and safety training for all employees

- Use of sophisticated equipment in mobile vans to monitor air quality inside and outside plants

In 2011, Orchid's Active Pharmaceutical Ingredient (API) manufacturing facility at Alathur was awarded with OHSAS 18000: 2007 (Occupational Health and Safety Management System) certification.

The year 2011-2012 saw an all-round improvement in various elements of safety in the Company. By focusing on repeat incidents and carrying out necessary corrective and preventive actions, your Company was able to achieve considerable reduction in incidents. The Central Safety Committee continued to monitor safety, health and environment performance and provide necessary direction for improvement through regular monthly reviews.

CONSERVATION OF ENERGY

Your Company has always been striving hard in the field of energy conservation. Several measures to conserve energy and to reduce associated costs were taken during the fiscal under review as well. The particulars in respect to conservation of energy as required under Section 217 (1) (e) of the Companies Act, 1956, are given in Annexure I to this report.

TECHNOLOGY ABSORPTION

The particulars in respect of R&D/Technology absorption as required under Section 217 (1)(e) of the Companies Act, 1956, are given in Annexure II to this report.

FOREIGN EXCHANGE EARNINGS AND OUTGO

The particulars in respect of Foreign Exchange Earnings and Outgo as required under Section 217 (1)(e)of the Companies Act, 1956, are given in Annexure III to this report.

PARTICULARS OF EMPLOYEES

Information as per Section 217(2A) of the Companies Act, 1956 read with Companies (Particulars of Employees) Rules, 1975 forms part of this Report. However, as per the provisions of Section 219(1 )(b)(iv) of the Companies Act, 1956, the Report and Accounts are being sent to all members of the Company excluding the aforesaid information. Any member interested in obtaining a copy of the particulars may write to the Company Secretary at the Registered Office of the Company.

CORPORATE GOVERNANCE

The spirit of good Corporate Governance remains integral to the Company's corporate philosophy. The Company follows the code of Corporate Governance issued by the stock exchanges for listed companies. For 2011-12 all information relating to Corporate Governance is given in Annexure V to this Report. A compliance certificate from the Statutory Auditors is appended to this report.

GREEN INITIATIVE

To augment the green initiative of the Ministry of Corporate Affairs and to reduce carbon foot print, your Company sends various communication including the Annual Reports in electronic form, to the members who have opted for the same. This helps in reducing the number of physical copies to be printed, thereby contributing to a greener environment. The full text of the current year's (2011-12) Annual report will also be available in an easily navigable format on our website, www.orchidpharma.com. As a member of the Company, you will always be entitled to receive all such communication in physical form, upon request.

DIRECTORS

Resignation of Directors

Shri R Sankaran, who has been a Director of Orchid, resigned from the Board with effect from January 9, 2012. The Board places on record its appreciation for the contribution made by Shri R. Sankaran during his tenure as Director.

Retirement of Directors by rotation

In accordance with the provisions of the Companies Act, 1956 and the Articles of Association of the Company Shri Deepak Vaidya retires by rotation at the ensuing Annual General Meeting and being eligible offers himself for re-appointment.

Reappointment of Chairman & Managing Director

The tenure of Shri K Raghavendra Rao as Chairman & Managing Director of the Company expires on June 30, 2012. The Board of Directors at their meeting held on May 14, 2012 reappointed Shri K Raghavendra Rao as the Chairman & Managing Director of the Company for another period of 5 (five) years with effect from July 01, 2012 subject to the approval of members in the ensuing Annual General Meeting. The notice convening the Annual General Meeting includes the proposal for reappointment of Shri K Raghavendra Rao.

None of the Directors of the Company are disqualified under Section 274(1 )(g) of the Companies Act, 1956.

AUDITORS

The existing Statutory Auditors, M/s SNB Associates, Chartered Accountants retire at the forthcoming Annual General Meeting, and being eligible, offer themselves for re-appointment. M/s. SNB Associates, Chartered Accountants have furnished certificate under Section 224(1 B) of the Companies Act, 1956 of their eligibility for the appointment.

AUDITORS'REPORT

In reference to the point no. 5 of the Auditors' Report on the standalone accounts, the Company will be making an application to the Central Government seeking approval for the remuneration paid.

COST AUDIT

The Central Government has prescribed that an audit of the cost accounts maintained by the Company in respect of bulk drugs and formulations be conducted under Section 233B of the Companies Act, 1956. Consequently, your Company has appointed Shri V Kalyanaraman, B.Sc, FICWA, as Cost Auditor for 2012-13 and 2013- 14, with the consent of the Central Government, for the audit of cost accounts maintained by the Company in respect of both bulk drugs and formulations.

For the year ended March 31, 2011, the due date of filing the cost audit report was September 30, 2011 and the actual date of filing the cost audit report was August 20, 2011.

ACKNOWLEDGEMENTS

Your Directors are thankful to various public sector and private sector banks and institutions for meeting the long term and working capital needs of the Company's expanding operations and also the holders of Foreign Currency Convertible Bonds (FCCBs) and Global Depositary Receipts (GDRs) for their support.

The Directors are grateful to the Central and State Governments and the Central DCGI and State FDAs for their continued support to the Company's expansion plans. Your Board places on record its appreciation of the support provided by the customers, suppliers and equipment vendors to the Company. Your Directors are also thankful to the vendors, distributors and agents for their continued support.

Your Directors are thankful to the esteemed shareholders for their support and encouragement. The Directors acknowledge the commitment and contribution of all employees to the growth of the Company.

For and on behalf of the Board

Place: Chennai K Raghavendra Rao

Date: May 14,2012 Chairman & Managing Director


Mar 31, 2011

Dear Members,

The Directors have pleasure in presenting the 19th Annual Report of your Company along with the audited statement of accounts for the financial year ended March 31, 2011. The Report also includes the consolidated financial statements and the Management's Discussion and Analysis Report in accordance with the guidelines on Corporate Governance. The highlights of the financial results for 2010-2011 are given below:

(Rs crore)

Particulars Year ended 31.03.2011 Year ended 31.03.2010

Sales & operating income 1663.34 1249.83

Other income 7.60 1016.58

Total expenditure 1252.92 1422.55

Gross profit 418.02 843.87

Interest & finance charges 115.76 241.23

Gross profit after interest but before depreciation and taxation 302.26 602.64

Depreciation 128.45 151.10

Profit / (Loss) from ordinary activities before exceptional items 173.81 451.53

Exceptional item - 8.52

Profit / (Loss) before tax 173.81 460.05

Provision for taxation

- Current & deferred tax 14.32 128.71

Profit / (Loss) after tax 159.48 331.34

Add: Surplus brought forward 58.59 28.32

Surplus available 218.08 359.66

Appropriations:

- Transfer to general reserve 150.00 200.00

- Excess provision of dividend for earlier year written back (21.74) (2.47)

- Dividend 25.57 88.79

- Tax on distributed profits 4.15 14.75

Balance carried to balance sheet 60.09 58.59

Performance

During 2010-11, your Company achieved a turnover and operating income of Rs 1663.34 crore compared to Rs 1249.83 crore in 2009-10. The gross earnings before interest, depreciation and taxes stood at Rs 418.02 crore for the current financial year. The gross earnings for the previous year included the profit on sale of undertaking and thus not comparable. After providing for interest expense of Rs 115.76 crore (Rs 241.23 crore previous fiscal) and depreciation of Rs 128.45 crore (Rs 151.10 crore previous fiscal), the profit before tax of the Company was Rs 173.81 crore.The net profit after tax stood at Rs 159.48 crore, compared to the net profit after tax of Rs 331.34 crore in the previous fiscal. However, figures for the previous year ended March 31, 2010 are not comparable as they include the sale consideration received by the Company on account of sale and transfer of its Injectable formulation business to Hospira in March 2010.

Pharmaceuticals business

The key highlight of our performance was the change in our business strategy where we moved away from a supply push approach to a demand pull business model. This is reflected in growing number of long-term contracts with large global pharmaceutical companies. These long term business agreements provide clear revenue visibility and allowed for improved business planning and management which strengthened business profitability and liquidity.

Our API-supply arrangement performed significantly well, registering higher than expected business volumes. Our newly acquired front-end marketing Company, Karalex Pharma, LLC, in the US delivered heartening results.

We expanded our contractual business with Hospira to supply API for their Add Vantage vials (patented technology) which will generate superior returns for your Company over the medium term. We settled five Para IV products, out of which four are FTF applications, which will allow us to market products in the US. These represent attractive opportunities over the coming years.

Dividend

Your Directors recommend a 30% dividend (Rs 3/- per equity share of Rs 10/- each) for the year ended 31st March 2011, subject to the approval of shareholders at the ensuing Annual General Meeting. Under the Income Tax Act, 1961, the receipt of dividend is tax-free in the hands of the shareholders.

Regulatory filings and approvals

In the generic formulations domain, Orchid's cumulative ANDA filings for the US market stood at 42. This includes 8 Para IV FTF (First–To–File) filings. The break-up of the total ANDA filings is 13 in Cephalosporins segment and 29 in NPNC space. Few more ANDAs which are in the later stages of development are expected to be filed in ensuing quarters.

In the EU region the cumulative count of Marketing Authorisations (MA) filings stood at 17. The break-up of the total MA filings is 9 in the Cephalosporin segment and 8 in the NPNC segment. A few more dossiers have been lined up for filing during 2011, based on the De-centralised Procedure (DCP) slots allotted by the respective Reference Member States (RMS) countries in the EU. This is likely to increase the cumulative filing count in the coming quarters.

In the API domain, Orchid increased its cumulative filings of its US DMF count to 81. The break-up of the total filings is 27 in the Cephalosporin segment, 41 in NPNC segment, 2 in the Betalactam segment and 11 in the Carbapenems segment. In the European market space the cumulative filings of COS (Certificate of Suitability) count stood at 21 which includes 14 in Cephalosporin segment, 6 in NPNC segment and 1 in the Betalactam segment.

Awards

During the year, your Company was conferred with the following awards. Greentech Gold award 2011 in Pharmaceutical sector for outstanding achievement in safety management given by the Ministry of Health & Family Welfare, Government of India and Greentech Foundation for Orchid's Alathur facility.

Good Green Governance (G3) award by the Ministry of Water Resources & Minority Affairs, Government of India.

Outstanding Achievement in Environment Management in the Chemical Sector was conferred by Greentech Foundation with a Silver Award 2010.

- Siemens Ecovatives - IBN Live Award 2010 conferred in recognition of the Company's commitment to the environment.

- Bureau of Energy Efficiency (BEE) Certificate of Merit on Energy Efficiency was received by the Company's Alathur API facility from the Ministry of Power, Government of India, New Delhi.

- Excellent Energy Efficient Unit was conferred on the Company at the 9th Energy Efficiency Summit 2010 by the Confederation of Indian Industries.

Southern Region excellence award from Confederation of Indian Industries for meritorious achievement in Environment, Health & Safety (EHS) for the year 2010.

Dr R J Rathi award for Environmental Pollution Control for the year 2010 in Industries in Maharashtra for Orchid's Aurangabad facility given by Mahratta Chamber of Commerce, Industries & Agriculture and Dr Ramvilas Rathi Charity Trust, Pune.

Intellectual property

During the year, Orchid continued to accelerate the IPR work on a number of products. The total number of patent applications filed by Orchid in various national and international patent offices so far is 820 (including Process, Formulation, NCE, NDDS, Biotech and Generics). As of March 31, 2011, 621 patent applications have been published while 153 patents have been granted.

Foreign Currency Convertible Bonds

Your Company had issued FCCBs during November 2005, which were listed on the Luxembourg and London Stock Exchanges and during February 2007, which are listed on the Singapore Stock Exchange. The FCCBs due in 2010 are termed 2010 Bonds and those due in 2012 are termed 2012 Bonds.

During the year under review, your Company redeemed the outstanding FCCBs (2010 Bonds), including yield-to-maturity, aggregating to US$ 25.69 million (Rs 114.10 crore), on the due date i.e. November 03, 2010.

The status of outstanding FCCBs (2012 Bonds) is as follows:

Description 2012 Bonds

FCCB Issue value US$ 175 million

Conversion into equity so far Nil

Redemption value (%) of the book value 142.77%

FCCBs bought back 57.578 million

FCCBs outstanding 117.422 million

Your company intends to raise long-term resources aggregating to an amount not exceeding Rs 1,000 crore through a combination of appropriate instruments to take care of the outstanding FCCBs coming up for redemption in February 2012. The fund raising proposal was approved by the board at its meeting held on May 18, 2011 and a resolution seeking the members approval by way of postal ballot is being sent.

Employees stock option plan

The details of options granted to employees under the ORCHID - ESOP 1999, ORCHID - ESOP 2005 and ORCHID - ESOP 2010 schemes and the status of such options as on March 31, 2011 are given in Annexure IV to this Report.

Your Company formulated a stock option plan viz., Orchid - ESOP 2010 Scheme for grant of 10,00,000 options to the employees of the Company including whole-time Director(s) of the Company but excluding the Promoter Directors. The said scheme was approved by the shareholders at the Annual General Meeting held on July 21, 2010. Your Company granted 9,01,000 options during the year and as at March 31, 2011, the outstanding options under the said scheme is 8,98,000.

Your Company has also formulated the following schemes which have been approved by the Board of Directors at their meeting held on May 18, 2011 and the resolutions are placed before the members for approval in the ensuing Annual General Meeting.

Orchid-ESOP Senior Management 2011 Scheme - grant of 10,00,000 options to the employees in the grade of Senior Manager and above, out of which 7,50,000 options will be granted to the employees of Orchid and 2,50,000 options to the employees of various Subsidiary Companies of Orchid, either in India or abroad.

- Orchid-ESOP Directors 2011 Scheme - grant of 5,00,000 options to the directors of the Company including whole time directors but excluding Promoter Director.

Listing of equity shares

Your Company's equity shares are presently listed on the National Stock Exchange of India Limited (NSE), Bombay Stock Exchange Limited (BSE) and the Madras Stock Exchange Limited (MSE). The GDRs issued during 2005-06 are listed on the Luxembourg Stock Exchange and the London Stock Exchange. The convertible bonds issued by the Company during 2006-07 are listed on the Singapore Exchange Limited.

Alliances / Acquisitions

Your Company acquired Karalex Pharma, LLC, a US based generic marketing and sales services Company headquartered in New Jersey through your Company's step down subsidiary Orchid Pharma Inc. Karalex Pharma has been a leading provider of generic pharmaceuticals focused exclusively on the US healthcare market. Through this acquisition, your Company has created its presence in the front end US market and will be able to reach its generic products to the US customers directly.

Overseas joint ventures

NCPC Orchid Pharmaceuticals Company Limited, China

Your Company's 50:50 joint venture in China, NCPC Orchid Pharmaceuticals established for manufacture of sterile Cephalosporin APIs continued to perform well. The joint venture is profitable with a significant sales turnover of US$ 55.42 million during the year under review.

Subsidiaries

Orchid Research Laboratories Limited, India (ORLL)

Your Company's Indian subsidiary, ORLL is engaged in proprietary, novel drug discovery research in the following therapeutic areas namely, anti-infectives, anti-inflammatory, anti-cancer, metabolic disorders and Central Nervous System (CNS). New drug discovery and development activities are conducted in state-of-the art laboratories spanning expertise in analytical research, bio-informatics, medicinal chemistry, molecular biology, pharmacology, drug metabolism and Pharmacokinetics, intellectual property management and quality assurance.

The subsidiary company has a robust pipeline of drug development projects to address unmet medical needs. During the year under review, regulatory documents were filed for four clinical candidates in India and EU for initiation of clinical trials. ORLL has also designed and synthesised a good number of New Chemical Entities (NCEs) in various therapeutic areas and significant molecules are under various biological profiling to strengthen the existing pipeline.

ORLL has built a successful partnership with Merck and Co., USA for collaborative drug discovery in the anti-infectives area. Certain NCEs were synthesised and tested in various in vitro and in vivo biological assays and several promising compounds have been identified. A significant number of patents have been filed in various therapeutic areas to provide for protection of intellectual property generated by ORLL.

Bexel Pharmaceuticals Inc., USA (Bexel)

During the year, Bexel conducted advanced basic studies on the lead molecule BLX-1002 internally and has filed documents seeking consent to conduct expanded phase 2 clinical trials with the regulatory authorities. Though, the molecule has exhibited potential for multiple indications, the envisaged clinical trial will test efficacy for a select indication. Further, basic mechanistic studies in animal models conducted at a leading research institute have presented insights to understand the mechanism of this molecule. Additional advanced studies in animals and later in select patients is being planned to generate scientific data backed mechanistic rationale for the molecule. The referred studies are being planned in the subsequent quarters, while approval to conduct clinical trial is awaited.

Orchid Pharmaceuticals, Inc., USA

Orchid Pharmaceuticals, Inc., is a wholly owned Delaware based subsidiary of your Company and also the holding company in the United States, under which all the operational business subsidiaries have been structured. The Company currently has two operating subsidiaries, Orgenus Pharma, Inc., and Orchid Pharma, Inc., (formed during the year) both located in Princeton, New Jersey, in the US.

Orgenus Pharma, Inc., is the entity that provides all business development and operational services for the parent Company including the initiation of marketing alliances with partner companies, filing of your Company's Drug Master Files (DMFs) and Abbreviated New Drug Applications (ANDAs) as the

Importer of record for your Company with the FDA. It continues to represent your Company for all matters relating to the review and approval of such filings by the FDA, and handling of logistics and product importation into the US as the Importer of Record for the US Customs.

During the year under review, the Company formed a new subsidiary namely Orchid Pharma, Inc., in the USA. Orchid Pharma, Inc., is the commercial entity that started directly marketing and selling your Company's products in the US generics market place through the acquisition of Karalex Pharma, LLC during the fiscal year 2010-11. Orchid Pharma, Inc., has established a strong corporate image for your Company in the US and will be launching all future (unpartnered) generics products under the Orchid label. Equipped with a strong and experienced US commercial team, this Subsidiary would be a key growth driver for your Company, starting this year.

Diakron Pharmaceuticals Inc., USA

During the year, your Company increased its stake in Diakron Pharmaceuticals Inc. and holds 64.55% in the Company. Orchid's stake in Diakron has been a part of the original transaction which includes direct investment and Master Services Agreement (MSA). Your Company has completed most of its MSA obligations to develop and supply clinical quantities of API and extended release formulation. At present, phase 1 clinical studies in patients have commenced in Europe with the new extended release formulation and the study is likely to be completed during the year 2011. Subsequently, based on the phase 1 study results, additional formulation studies will be needed and phase 2 clinical studies in human subjects will be planned later.

Orchid Europe Limited, United Kingdom

Your Company's subsidiary in Europe namely Orchid Europe Limited (OEL) provides liaising support to the parent Company and its customers in Regulatory, Pharmacovigilance, Testing & Release, Retention of samples, Service Providers and Business Development in Europe. The Company has chalked out a business plan for capturing a significant market share for the products. With a rich product pipeline and the expanding product portfolio, the Company's business development is already in discussions with major generic houses in EU for expanding the co-operation and are simultaneously discussing with regional majors to increase market share.

Orchid Pharmaceuticals (South Africa) Pty Ltd., South Africa

Your Company's wholly owned subsidiary, Orchid Pharmaceuticals (South Africa) Pty Ltd., was incorporated mainly to register and market your Company's products in South Africa. The Company is in the process of submitting dossiers for obtaining marketing approval from the regulatory authority, MCC for various oral products and the applications are at various stages of the registration process.

Orchid Pharma Japan K K

The subsidiary Company in Japan has continued to make noteworthy progress during the year. At the end of the fiscal year 2010-11, there are 9 DMFs filed with Pharmaceutical and Medical Devices Agency (PMDA) of Japan and additional DMFs will be filed in the current financial year to meet the market needs.

A major achievement was to commence the supplies to one of the top 5 Japanese innovator Companies for their global business partners. Business discussions are on with various Japanese Companies for supply of new products and the Company is expected to make good progresses on both business and Regulatory fronts during the current year.

Central Government Approval

Your Company has been making applications for an approval under Section 212(8) of the Companies Act, 1956 from the Ministry of Corporate Affairs, seeking exemption from attaching the Annual Report of subsidiary Companies with the Annual Report of Orchid. The Ministry of Corporate Affairs, Government of India vide its circular dated February 8, 2011 has provided general exemption to companies from attaching the balance sheets of their subsidiary Companies as required under Section 212(8) of the Companies Act 1956.

The exemption is available provided the Companies publish the audited consolidated financial statements in the Annual Report. The consolidated financial statements duly audited are presented along with the accounts of your Company. The statement as required under Section 212 is given as part of the consolidated accounts in this report. The annual accounts of subsidiary Companies are kept at the Company's registered office and also at the respective registered office of the subsidiaries for inspection and shall be made available to the members seeking such information.

Fixed deposit

The Company has not accepted any fixed deposits and as such, no amount of principal or interest was outstanding as of the balance sheet date.

Directors' Responsibility Statement

In accordance with the provisions of Section 217 (2AA) of the Companies Act, 1956, your Directors confirm:

- That in the preparation of the annual accounts for 2010-11 the applicable accounting standards were followed along with proper explanation relating to material departures, if any.

- 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 fair view of the state of affairs of the Company at the end of the financial year (31st March 2011) and of the profit or loss of the Company for that period (2010-11).

That the Directors took proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities.

That the Directors prepared the annual accounts for 2010- 11 on a going concern basis.

Corporate Social Responsibility

Your Company's constant focus has been on the community development as part of its corporate social responsibility. Various activities are continuously being carried out and focused on Community Health Development, Children Education, Women Empowerment, Youth Development, Community Asset Creation and a Greener Environment.

Specialised children education programs through activities like summer camp, special english coaching, leadership and motivation programs during the year have reached a good number of 950 children. These programs aim to achieve the development rights of the children as stated by United Nations.

Various health programs benefitted 9713 people which included personal surgical support and community based education programmes on health. The women development programs reached around 1900 women directly through 161 women self- help groups organised at the hamlet level. The youth development programs helped around 2700 young boys and girls to enhance their skills to be employed elsewhere and also to take up self-employment program. An integrated development program aimed at better living for tribal people benefitted about 200 tribes and their families.

Environment

Environment management has been a prime focus area of your Company. Your Company has employed a state of the art technology, zero liquid trade effluent treatment plant and world class treatment facilities for its liquid and gaseous pollutants generated from the production processes. The zero discharge of liquid trade effluent treatment plant comprising Membrane Bio Reactor, Nano Filtration, Reverse Osmosis, Solvent Stripping Column, Thermal Evaporation & Crystallisation plant treat the entire trade effluent and recycles it back into the utility process.

Your Company was the first bulk drug manufacturing Company in the country to get ISO - 14001 certification in the year 1999 by Dutch Council and has retained the certification continuously for its environment management system.

The Environment programs have also been carried out in the form of planting saplings, dissemination of bio technologies to the communities and installation of bio gas plants for a few houses as pilot projects. Your Company also has plans laid out for sustainable development of communities in the form of low cost sanitation, recycling of wastes into articles etc.

Safety Excellence Journey

The year 2010 - 2011 saw an all-round improvement in various elements of Safety in the Company. By focusing on repeat incidents and carrying out necessary corrective and preventive actions, your Company was able to achieve considerable reduction in incidents. The Central Safety Committee continued to monitor safety, health and environment performance and provide necessary direction for improvement through regular monthly reviews.

In recognition of the various safety initiatives, your Company was awarded OHSAS 18001 certification in February 2011 for its API facility at Alathur, near Chennai.

The manufacturing sites at Alathur, Aurangabad and the Research & Development unit at Shozhanganallur received International Safety Award - Merit from British Safety Council, UK for the year 2010.

Conservation of energy

Your Company has always been striving hard in the field of energy conservation. Several measures to conserve energy and to reduce associated costs were taken during the fiscal under review as well. The particulars in respect to conservation of energy as required under Section 217 (1) (e) of the Companies Act, 1956, are given in Annexure I to this report.

Technology absorption

The particulars in respect of R&D/Technology absorption as required under Section 217 (1)(e) of the Companies Act, 1956, are given in Annexure II to this report.

Foreign exchange earnings and outgo

The particulars in respect of Foreign Exchange Earnings and Outgo as required under Section 217 (1)(e) of the Companies Act, 1956, are given in Annexure III to this report.

Particulars of employees

Information as per Section 217(2A) of the Companies Act, 1956 read with Companies (Particulars of Employees) Rules, 1975 forms part of this Report. However, as per the provisions of Section 219(1)(b)(iv) of the Companies Act, 1956, the Report and Accounts are being sent to all members of the Company excluding the aforesaid information. Any member interested in obtaining a copy of the particulars may write to the Secretary at the registered office of the Company.

Corporate Governance

The spirit of good Corporate Governance remains integral to the Company's corporate philosophy. The Company follows the code of Corporate Governance issued by the stock exchanges for listed companies. For 2010-11 all information relating to Corporate Governance is given in Annexure V to this Report. A compliance certificate from the statutory auditors is appended to this report. General Shareholders Information is given in Annexure VI.

Green Initiative

To augment the green initiative of the Ministry of Corporate Affairs and to reduce carbon foot print, your Company proposes to send various communication including the Annual Reports in electronic form, to the members who have opted for the same. This would help in reducing the number of physical copies to be printed, thereby contributing to a greener environment. The full text of the current year's (2010-11) annual report will also be available in an easily navigable format on our website, www.orchidpharma.com. As a member of the Company, you will always be entitled to receive all such communication in physical form, upon request.

Directors

Appointment of Chairman

Consequent to the resignation of Shri R Narayanan from the Board of Orchid, the Board decided that Shri K Raghavendra Rao will be the Chairman and Managing Director with effect from October 28, 2010. We are pleased to inform that Shri K Raghavendra Rao was conferred the prestigious 'Padma Shri' award for the year 2011 by the Government of India in the Trade and Industry category. The award was presented to Shri K Raghavendra Rao by the Honourable President of India on April 1, 2011.

Appointment of Additional Directors

Shri R Sankaran was appointed as Additional Director on the Board on January 19, 2011. Pursuant to the appointment, Shri Sankaran holds office up to the date of the forthcoming Annual General Meeting. A notice has been received from a member as per Section 257 of the Companies Act, 1956 along with the prescribed fee. Shri R Sankaran has also filed with the Company his consent to act as Director, if appointed, as required under Section 264(1) of the Companies Act, 1956. A resolution seeking his appointment as Director is being placed before the members for approval.

Shri Bharat Dhirajlal Shah was appointed as Additional Director on the Board on January 19, 2011. Pursuant to the appointment, Shri Bharat Shah holds office up to the date of the forthcoming Annual General Meeting. A notice has been received from a member as per Section 257 of the Companies Act, 1956 along with the prescribed fee. Shri Bharat Shah has also filed with the Company his consent to act as Director, if appointed, as required under Section 264(1) of the Companies Act, 1956. A resolution seeking his appointment as Director is being placed before the members for approval.

Professor Bala V Balachandran was appointed as Additional Director on the Board on May 18, 2011. Pursuant to the appointment, Shri Bala Balachandran holds office up to the date of the forthcoming Annual General Meeting. A notice has been received from a member as per Section 257 of the Companies Act, 1956 along with the prescribed fee. Shri Bala Balachandran has also filed with the Company his consent to act as Director, if appointed, as required under Section 264(1) of the Companies Act, 1956. A resolution seeking his appointment as Director is being placed before the members for approval.

Resignation of Directors

Shri R Narayanan, who has been the Chairman and Director of Orchid since inception, resigned from the Board with effect from October 28, 2010. The Board places on record its appreciation for the outstanding contribution made by Shri R Narayanan during his long tenure as a Director and Chairman on the Board of Orchid.

Shri Anil Thadani, who has been a Director of Orchid, resigned from the Board with effect from September 28, 2010. Consequent to his resignation, Shri Raj Rajkumar, Alternate Director to Shri Anil Thadani also ceased to be director from the said date. The Board places on record its appreciation for the contributions made by Shri Anil Thadani and Shri Raj Rajkumar as Directors.

Retirement of Directors by rotation

In accordance with the provisions of the Companies Act, 1956, and the Articles of Association of the Company, Dr M R Girinath and Dr I Seetharam Naidu retire by rotation and are eligible for re-appointment. However, Dr M R Girinath and Dr I Seetharam Naidu have opted not to get re-elected at the ensuing AGM. A resolution pursuant to Section 256 of the Companies Act, 1956 for not filling the vacancy, at present, caused by Dr M R Girinath and Dr I Seetharam Naidu's retirement has been included in the Agenda of the Annual General Meeting (AGM).

Auditors

The existing Statutory Auditors, M/s SNB Associates, Chartered Accountants retire at the forthcoming Annual General Meeting, and being eligible, offer themselves for re-appointment.

Cost Audit

The Central Government has prescribed that an audit of the cost accounts maintained by the Company in respect of bulk drugs and formulations be conducted under Section 233B of the Companies Act, 1956. Consequently, your Company has appointed Shri V Kalyanaraman, B.Sc, FICWA, as Cost Auditor for 2010-11 and 2011-12, with the consent of the Central Government, for the audit of cost accounts maintained by the Company in respect of both bulk drugs and formulations.

Acknowledgements

Your Directors are thankful to various public sector and private sector banks and institutions for meeting the long term and working capital needs of the Company's expanding operations and also the holders of FCCBs and GDRs for their support.

The Directors are grateful to the Central and State Governments and the Central DCGI and State FDAs for their continued support to the Company's expansion plans. Your Board places on record its appreciation of the support provided by the customers, suppliers and equipment vendors to the Company. Your Directors are also thankful to the vendors, distributors and agents for their continued support.

Your Directors are thankful to the esteemed shareholders for their support and encouragement. The Directors acknowledge the commitment and contribution of all employees to the growth of the Company.

For and on behalf of the Board

K Raghavendra Rao

Chairman & Managing Director

Place: Chennai

Date: May 18, 2011


Mar 31, 2010

The Directors have pleasure in presenting the 18th Annual Report of your Company along with the audited statement of accounts for the financial year ended March 31, 2010. The Report also includes the consolidated financial statements and the Management’s Discussion and Analysis Report in accordance with the guidelines on Corporate Governance. The highlights of the financial results for 2009-10 are given below:

(Rs crore) Particulars Year ended Year ended 31.03.2010 31.03.2009 Sales and operating income 1249.83 1191.44 Other income 1016.58 22.85 Total expenditure 1422.55 1033.28 Gross profit 843.87 181.00 Interest and finance charges 241.23 155.19 Gross profit after interest but before depreciation and taxation 602.64 25.82 Depreciation 151.10 129.97 Profit / (Loss) from ordinary activities before exceptional items 451.53 (104.15) Exceptional item 8.52 67.30 Profit / (Loss) before tax 460.05 (36.85) Provision for taxation - Current and deferred tax 128.71 13.72 - Fringe benefit tax - 1.61 Profit / (Loss) after tax 331.34 (52.17) Add: Surplus brought forward 28.32 81.57 Surplus available 359.66 29.40 Appropriations: - Transfer to general reserve 200.00 - - Excess provision of dividend for earlier year written back (2.47) (9.64) - Dividend 88.79 9.16 - Tax on distributed profits 14.75 1.56 Balance carried to balance sheet 58.59 28.32

Performance

During 2009-10, your Company achieved a turnover and operating income of Rs 1249.83 crore compared to Rs 1191.44 crore in 2008-09. The other income of Rs 1016.58 crore included consideration arising out of the sale and transfer of the Company’s Generic Injectable Formulations Business. The gross earnings before interest, depreciation and taxes stood at Rs 843.87 crore compared to Rs 181.00 crore of last fiscal. After providing for interest expenses of Rs 241.23 crore (Rs 155.19 crore previous fiscal) and depreciation of Rs 151.10 crore (Rs 129.97 crore previous fiscal), the profit before tax of the Company was Rs 460.05 crore, compared to the previous year’s loss before tax of Rs 36.85 crore. The net profit after tax stood at Rs 331.34 crore, compared to the net loss after tax of Rs 52.17 crore in the previous fiscal. The profitability figures reflect the impact of adoption of the modified AS 11 accounting treatment and the impact of buyback (and cancellation) of Foreign Currency Convertible Bonds (FCCBs) of the face value of USD 19.778 million of the 2012 Bonds and the sale transaction effected during the last quarter.

Pharmaceuticals business

A highlight of the performance this year was the approval from the US Food and Drug Administration (US FDA) for the Company’s Abbreviated New Drug Applications (ANDAs) for Piperacillin and Tazobactam for Injection. The US FDA also determined that Orchid is the ‘first applicant’ for the products and accordingly granted 180-day generic drug exclusivity, under applicable provisions.

Orchid launched this product in marketing and distribution partnership with Apotex in the US and utilised significant portion

of the manufacturing capacity to cater to the US market. Also, the market share of Piperacillin-Tazobactam injections for Europe and ANZ regions too showed good signs of growth during the second part of the fiscal year 2009-10.

In the NPNC (Non-Penicillin, Non-Cephalosporin) segment, the Company geared up to meet the increase in demand by dedicating a separate manufacturing line at the formulations facility. The Company is of the opinion that significant improvement in the manufacturing process and a dedicated manufacturing line supported by higher levels of API manufacturing will lead to the desired results in the ensuing quarters.

Sale and transfer of Sterile Injectable Business

Your Company successfully completed the sale and transfer of the Company’s Generic Injectable Formulations Business, including the facility situated at Irungattukottai near Chennai to Hospira Healthcare India Private Limited, a subsidiary of Hospira Inc., USA (Hospira) based on the approval from various Government agencies and the shareholders. The business transfer proposal was built on the existing product development and commercialisation relationship between Hospira and Orchid, which covered several product-market segments.

In order to have financial flexibility and to support new growth opportunities across the value chain, the business transfer was completed by your Company. The transferred business includes the business of development, manufacture and marketing of injectable pharmaceutical products including the product pipeline. Your Company will however be free to conduct the said business in India and Russia & CIS countries.

As part of the transaction Hospira would source the APIs required for its injectibles business from Orchid on a long term basis which

would provide revenue assurance to Orchid. Hospira would undertake manufacture of oral cephalosporin formulations for Orchid on a contract basis. Your Company is also expecting growth in various sectors of its operations like core API Business, Oral Formulations Business, other non-injectable formulations products and in the Drug Discovery space.

The transaction paved way for your Company to repay a substantial portion of the long term debt. The Company had repaid loans totalling to around Rs 1355 crore using the said consideration. In addition, the Company will also have enhanced flexibility to grow the retained businesses and pursue new growth opportunities.

Dividend

Your Directors recommend a 100% dividend (Rs 10 per equity share of Rs 10/- each) for the year ended 31st March 2010, subject to the approval of shareholders at the ensuing Annual General Meeting. Under the Income Tax Act, 1961, the receipt of dividend is tax-free in the hands of the shareholders.

Regulatory filings and approvals

In the generic formulations domain, Orchid’s cumulative ANDA filings for the US market stood at 36. This includes 8 Para IV FTF (First–To–File) filings. The break-up of the total ANDA filings is: 13 in Cephalosporins segment and 23 in NPNC segment. Few more ANDAs which are in various stages of development are expected to be filed in ensuing quarters.

In the EU region the cumulative count of Marketing Authorisations (MA) filings moved to 18. The break-up of the total MA filings is: 12 in the Cephalosporins segment and 6 in the NPNC segment. Few more dossiers have been lined up for filing during 2010, based on the DCP slots allotted by the respective RMS (Reference Member States) countries in the EU. This is likely to increase the cumulative filing count significantly in the ensuing quarters.

In the API (Active Pharmaceutical Ingredients) domain, Orchid increased its cumulative filings of its US DMF count to 80. The break-up of the total filings is: 29 in the cephalosporin segment, 38 in NPNC segment, 2 in the betalactam segment and 11 in the carbapenems segment. In the European market space, the

cumulative filings of COS (Certificate of Suitability) count remained at 20 which includes 13 in cephalosporin segment, 6 in NPNC segment and 1 in the betalactam segment.

Awards

During the year, your Company was conferred with the following awards.

• Corporate Social Responsibility (CSR) award by the Government of Tamil Nadu for the year 2008-09.

• G3 – GOOD GREEN GOVERNANCE AWARD - 2010 – Orchid’s Alathur facility declared as Runners Up in the Chemical Manufacturing sector. This award is given by SRISHTI PUBLICTIONS P LTD., New Delhi.

• Greentech Safety Award 2010 (Silver Award) in pharmaceutical sector for outstanding achievement in Safety Management given by Greentech Foundation, New Delhi for Orchid’s Alathur facility.

• British Safety Council International Safety Award for 2009 given by the British Safety Council for high safety standards.

• Category III TERI Corporate Award for Environmental Excellence 2009 (Special Award) in appreciation of Orchid’s efforts for source reduction of pollutants by process transformation from magnesium based dehalogenation process to catalytic dehalogenation process.

Intellectual property

During the year, Orchid continued to accelerate the IPR work on a number of products. The total number of patent applications filed by Orchid in various national and international patent offices so far was 699 (including Process, Formulation, NCE, NDDS, Biotech and Generics). As of March 31, 2010, 415 patent applications have been published while 107 patents have been granted cumulatively.

Description 2010 Bonds 2012 Bonds FCCB value US$ 42.50 Million US$ 175 Million Conversion into equity done so far US$ 22.79 million Nil Redemption value (%) of the book value 147.17% 142.77% FCCBs bought back so far 2.25 million 57.578 million

Employees stock option plan

The details of options granted to employees under the ‘ORCHID - ESOP 1999’ and ‘ORCHID - ESOP 2005’ schemes and the status of such options as on March 31, 2010 are given in Annexure to this Report.

Your Company also formulated a stock option plan viz., Orchid - ESOP 2007 for grant of 5,00,000 options to the employees of subsidiary companies either working in India or overseas, or a Director of the Company (excluding the Promoter Directors). The said scheme was approved by the shareholders at the Annual General Meeting held on July 19, 2007. As of March 31, 2010, your Company did not grant any options under this scheme.

During April 2010, your Company has formulated a stock option plan viz., Orchid - ESOP 2010 for grant of 10,00,000 options to the employees in the grade of General Manager and above, including whole-time directors of the Company (excluding the Promoter Directors). The resolution seeking the approval is placed before the shareholders.

Listing of equity shares

Your Companys equity shares are presently listed on the National Stock Exchange of India Limited (NSE), Bombay Stock Exchange Limited (BSE) and the Madras Stock Exchange Limited (MSE).

Alliances / Acquisitions

Your Company recently entered into an out-licensing and distribution alliance with US-based pharma major Alvogen for

marketing 8 of your Company’s oral non-antibiotic generic formulations in the US market. Alvogen would source these products from your Company on an exclusive basis and share profits arising from marketing of these products in the US. Through this alliance, your Company is confident of achieving robust additions to its business from the US non-antibiotic generic formulations segment going forward.

Your Company proposes to acquire Karalex Pharma, LLC, a US- based generic marketing and sales services company headquartered in New Jersey, USA through an all-cash deal. The transaction is expected to close by July 2010 subject to customary closing conditions. Through this acquisition, your Company has created a front-end presence in the US market and will be able to reach its generic products to the US customers directly paving the way for synergistic returns from our upcoming and long-term strategic generic pharmaceuticals pipeline comprising key first- to-file and Paragraph-IV products.

Overseas joint ventures

NCPC Orchid Pharmaceuticals Company Limited, China Your Company’s joint venture in China, NCPC Orchid Pharmaceuticals has been engaged in the production, marketing, research and development of cephalosporin bulk and formulation products. The Company has maintained a considerable share for its key injectable Cephalosporin API products in the Chinese markets and continues to perform well. The Joint Venture has made a significant sales turnover of US$ 47.78 million during the year under review.

Diakron Pharmaceuticals Inc., USA With a view to enter into the drug discovery in the anti-coagulant space Orchid decided to invest in Diakron and presently holds about 42% stake in the Company. As part of the transaction Orchid entered into certain Master Services Agreement among other agreements for development of clinical quantities of API and an extended release formulation with different doses. During the year under review, the manufacture of non-GMP API has been completed and the development of formulation is expected to be completed during the third quarter of this year.

Subsidiaries

Orchid Research Laboratories Limited, India (ORLL) ORLL continued its research in the anti-infectives, anti- inflammation, anti-cancer and metabolic disorder areas and has achieved progress. Developmental candidates in anti-cancer and anti-inflammation areas have reached the stage of regulatory toxicological & safety studies. In the anti-metabilic disorders area the Company is exploring possibilities of repositioning of a molecule which has multiple efficacy indications. Under the collaborative research program which relates to the anti-infectives area certain NCEs have been designed, synthesised and screened and the Company is confident of making good progress going forward.

Bexel Pharmaceuticals Inc., USA (Bexel) During the year, Bexel continued its further studies on the lead anti-diabetes molecule BLX-1002. The results of these studies still do not justify out-licensing as an anti-diabetic molecule. However, the molecule has multiple efficacy indications scope for repositioning of the compound in other indications and they are being explored. Certain important studies in this context are being conducted by a reputed overseas research institute in animal models and the initial results are showing promise.

Orchid Pharmaceuticals Inc., USA Orchid Pharmaceuticals, Inc., is a wholly owned Delaware based subsidiary of the Company and is also the 100% holding company of Orgenus Pharma, Inc. Orgenus has reported a

satisfactory year in the US market. The Company continued to support your Company in its current business relationships and also provide the required services with ground operations and regulatory processes. It has also continued to explore new strategic business expansion opportunities for the Company.

Orchid Europe Limited, United Kingdom The principle activity of your Company’s subsidiary in Europe namely Orchid Europe Limited (OEL) is to support the generic foray into the EU market and provision of regulatory support as well as business development support to the parent company. The entity is already active in the field of generics registrations and in identifying business partnerships and is well established on the path of supporting the generics plans of Orchid in Europe.

Orchid Pharmaceuticals (South Africa) Pty Ltd., South Africa

Your Company’s wholly owned subsidiary, Orchid Pharmaceuticals (South Africa) Pty Ltd., was incorporated to register and market bulk drugs and formulations in South Africa. The Company is only in the process of submitting dossiers for obtaining marketing approval from the regulatory authority, MCC and the applications are at various stages of the registration process.

Orchid Pharma Japan K K

The Company has made noteworthy progress during the year. Through this subsidiary company the various capabilities which include manufacture and supply of API, formulation and CRAMS capabilities of the parent company Orchid Chemicals & Pharmaceuticals Limited have been presented to various companies in Japan. A major achievement during the fiscal year was obtaining the approval of Pharmaceutical and Medical Devices Agency (PMDA) for Orchid’s Alathur facility. On the regulatory front the Company plans to file more DMFs and ANDAs during the year for oral cephalosporin and other products. Discussions with few companies are on and the Company expects to make good progress during this year.

Central Government Approval

Your Company had applied for an approval under Section 212(8) of the Companies Act, 1956 from the Department of Company Affairs, Ministry of Finance seeking exemption from attaching the Annual Report of subsidiary companies with the Annual Report of Orchid and to provide the accounts in the same manner as certified by overseas auditors in the respective countries where the subsidiaries are situated. The statement as required under Section 212 has been prepared on the assumption that the Company would receive the approval and the same is given as part of the consolidated accounts in the report.

The consolidated financial statements of the subsidiaries duly audited are presented along with the accounts of your Company. The annual accounts of subsidiary companies are kept at the Company’s registered office and also at the respective registered office of the subsidiaries for inspection and shall be made available to the members seeking such information.

Fixed deposit

The Company has not accepted any fixed deposits and as such, no amount of principal or interest was outstanding as of the balance sheet date.

Directors’ Responsibility Statement

In accordance with the provisions of Section 217 (2AA) of the Companies Act, 1956, your Directors confirm:

• That in the preparation of the annual accounts for 2009-10 the applicable accounting standards were followed along with proper explanation relating to material departures, if any.

• 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 fair view of the state of affairs of the Company at the end of the financial year (31st March 2010) and of the profit or loss of the Company for that period (2009-10).

• That the Directors took proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for

safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities.

• That the Directors prepared the annual accounts for 2009- 10 on a going concern basis.

Safety Excellence Journey

Orchid has always been committed to the highest standards of Safety, Health and Environment right from its inception. Significant time, effort and resources are being invested in maintaining a safe work environment. Continuous emphasis is laid on Safety Observations and incident investigations along with timely completion of corrective and preventive actions.

In the last couple of years consistent efforts have been put in identifying and mitigating reactive hazards by thermo-chemical studies in the process safety lab in the R&D Centre. Hazard Identification, Risk Assessment and Risk Reduction have been made as integral part of Process Development and Research so that scaling up is safe.

Corporate Social Responsibility

Community development continues to be the prime focus of your Company’s CSR activities. The activities are built over five pillars i.e. Health, Education, Youth Development, Women Empowerment and Community asset creation.

Considerable creative talent was unearthed when a Summer Camp for over 350 rural school children was conducted with an aim to strengthen values such as friendship and teamwork. Certain new initiatives were taken to bring awareness on road safety in the rural areas. A road safety awareness rally was one such initiative in which people from all walks of life participated. Three main activities namely, Mobile health clinic, Eye camp and Medical referral support initiatives continued during the year, due to which more than 1200 people were benefitted.

The women empowerment programmes aimed at improving the awareness level of the women and to create employment opportunities for them. Your Company supports 160 Women self help groups out of which 25 new groups were formed during the year 2009-10.

Micro finance support were given to youth for setting up micro enterprises to address unemployment and with a focus to develop education and skill sets among the youth, as part of youth development initiatives. Focus was also given to Community asset creation.

Conservation of energy

Your Company has always been striving hard in the field of energy conservation. Several measures to conserve energy and to reduce associated costs were taken during the fiscal under review as well. The particulars in respect to conservation of energy as required under Section 217 (1) (e) of the Companies Act, 1956, are given in Annexure I to this report.

Technology absorption

The particulars in respect of R&D/Technology absorption as required under Section 217 (1)(e) of the Companies Act, 1956, are given in Annexure II to this report.

Foreign exchange earnings and outgo

The particulars in respect of Foreign Exchange Earnings and Outgo as required under Section 217 (1)(e) of the Companies Act, 1956, are given in Annexure III to this report.

Particulars of employees

Information as per Section 217(2A) of the Companies Act, 1956 read with Companies (Particulars of Employees) Rules, 1975 forms part of this Report. However, as per the provisions of Section 219(1)(b)(iv) of the Companies Act, 1956, the Report and Accounts are being sent to all members of the Company excluding the aforesaid information. Any member interested in obtaining a copy of the particulars may write to the Secretary at the registered office of the Company.

Corporate Governance

The spirit of good Corporate Governance remains integral to the Company’s corporate philosophy. The Company follows the code of Corporate Governance issued by the stock exchanges for listed companies. For 2009-10 all information relating to Corporate Governance is given in Annexure IV to this Report. A compliance certificate from the statutory auditors is appended to this report. General Shareholders Information is given in Annexure VI.

Directors

Appointment of Shri S Krishnan

Shri S Krishnan has been associated with your Company for over a period of 9 years and was heading the finance function in the last few years. Considering his expertise in the field of finance and other related functions, the Board felt that he may be inducted into the Board of Orchid as an Executive Director to look after the overall day-to-day operations of the Company and affairs concerning, amongst others, finance, corporate communication, mergers and acquisitions opportunities / activities of the Company. Accordingly, Shri S.Krishnan was appointed as Executive Director- Finance with effect from April 28, 2010 for a period of 5 (five) years. Shri S. Krishnan, in addition to his executive responsibilities as a Board member, will also hold the current role of the Chief Financial Officer of the Company. A resolution seeking his appointment as Director is being placed before the shareholders for approval.

Resignation of Dr.C Bhaktavatsala Rao Dr.C.Bhaktavatsala Rao has been associated with Orchid since its inception as Director and was subsequently appointed as the Deputy Managing Director of the Company with effect from August 19, 1998. In the context of the sale and transfer of the sterile injectables formulations business to Hospira, Dr.C.Bhaktavatsala Rao sought separation from the services / directorship of Orchid as well as from

the Boards of all the affiliate companies as of the closing hours of business on March 29, 2010, to head Hospira Healthcare India Pvt. Ltd. as its Managing Director.The Board places on record its appreciation for the varied and substantial contributions made by Dr.C.Bhaktavatsala Rao during his entire tenure.

Change in IDBI Nominee

IDBI Bank Limited withdrew the nomination of Shri S. Jeyakumar and nominated Shri T A Ganesh as its nominee in his place, with effect from May 10, 2010. The Board places on record its appreciation for the contribution made by Shri S Jeyakumar and welcomes Shri T A Ganesh.

Retirement of Directors by rotation

In accordance with the provisions of the Companies Act, 1956, and the Articles of Association of the Company, Shri. Deepak Vaidya and Shri. Anil Thadani retire by rotation at the ensuing Annual General Meeting and being eligible offer themselves for re-appointment.

Auditors

The existing Statutory Auditors, M/s SNB Associates, Chartered Accountants retire at the forthcoming Annual General Meeting, and being eligible, offer themselves for re-appointment.

Auditor’s report

Note No. 30 in the notes on accounts of Schedule ‘Q’ to the Standalone Financial Statements explains the point referred to in point 5(b) of the Auditor’s Report on Standalone accounts.

Cost Audit

The Central Government has prescribed that an audit of the cost accounts maintained by the Company in respect of bulk drugs and formulations be conducted under Section 233B of the Companies Act, 1956. Consequently, your Company has appointed Shri V Kalyanaraman, B.Sc., FICWA, as Cost Auditor for 2010-11 and 2011-12, with the consent of the Central Government, for the audit of cost accounts maintained by the Company in respect of both bulk drugs and formulations.

Acknowledgements

Your Directors are thankful to Bank of India, IDBI Bank Ltd, State Bank of India, Allahabad Bank, Bank of Baroda, Canara Bank, Central Bank of India, ICICI Bank Limited, Indian Bank, Punjab National Bank, State Bank of Hyderabad, Union Bank of India and other public sector and private sector banks and institutions for meeting the long term and working capital needs of the Company’s expanding operations and also to the holders of FCCBs and GDRs for their support.

The Directors are grateful to the Central and State Governments and the Central DCGI and State FDAs for their continued support to the Company’s expansion plans. Your Board places on record its appreciation of the support provided by the customers, suppliers and equipment vendors to the Company. Your Directors are also thankful to the vendors, distributors and agents for their continued support.

Your Directors are thankful to the esteemed shareholders for their support and encouragement. The Directors acknowledge the commitment and contribution of all employees to the growth of the Company.

For and on behalf of the Board Place: Chennai R Narayanan Date: May 27, 2010 Chairman