Course Correction

Strides Pharma Science attributes its underwhelming performance to a confluence of headwinds and execution challenges.

Arun Kumar, Group CEO and Managing Director, Strides Pharma (Photograph by Nilotpal Baruah) Arun Kumar, Group CEO and Managing Director, Strides Pharma (Photograph by Nilotpal Baruah)

Companies may like to believe their stock's price movement on bourses is not a true reflection of their business performance, but for investors it is still a barometer. This is why it was hard to ignore Strides Pharma Science, which posted the biggest fall in average market capitalisation -- 40.2 per cent between October 01, 2017 and September 30, 2018 as compared to the same period last year. Result: its rank in BT 500 slipped from 209 in 2017 to 341 in 2018.

BT reached out to Arun Kumar, the group CEO and Managing Director, to understand the reasons behind the slide. "While we don't comment specifically on the company's performance on the bourses," a company spokesperson replied, "we believe that it is a combination of factors." He explained that pharma companies with exposure to the US have been affected over the past two years. "Our performance in FY 17/18 was also tepid mainly due to partnership business in the US getting impacted by pricing pressures and loss of marketshare (something that the company had shared in its commentary released as part of the FY 2017/18 results on May 18, 2018)." The company's commodity business of active pharmaceutical ingredient (API) was carved out and is now listed separately under Solara Active Pharma Sciences and "hence the current market price does not reflect the value of the demerged API business," the spokesperson added.

In his media statement along with the commentary, Kumar had said: "The financial year 2017-18 was a difficult year for Strides. While we continue to build momentum with our strategy, our execution was far from satisfactory. We completed several of our corporate actions, including exiting non-core operations and markets that did not add value to our overall goal of being a diversified B2C player globally."

Seeking Direction

Analysts say Kumar often reconfigures, builds, exits and rebuilds businesses. Over the years, he has done so with several of his businesses - picking a niche, building on that and then exiting. In fact, the company's name itself has changed twice in three years. In 2015, Strides Arcolab changed its name to Strides Shasun after Shasun Pharmaceuticals was merged with it. Then, following the demerger of the commodity API business, which became Solara Active, the company was rechristened Strides Pharma Science.

In its other two important markets, Australia and Africa (the other majors being US and Europe), Strides Pharma is focussing on growing its footprint through mergers. In August 2017, Arrow Pharmaceuticals, a subsidiary of Strides, acquired Ameal Pharmaceutical's Australian operations to expand its pharmacy footprint. In FY 2017/18, a merger of the Australian businesses of Strides and Apotex (a generic pharma company) was announced. The combined entity was to create an industry leading position in Australia.

In Africa, in a bid to expand its footprint in some of the key markets in sub-Saharan Africa, Strides Pharma acquired Trinity Pharma, which supplies and distributes generic pharmaceutical products to retailers and provides services related to regulation and registration of products.

In its institutional business as well, Strides Pharma is trying to compensate for losses in part by expansion in another. The institutional business has apparently seen "one of the toughest years, owing to a decline in anti-malarial business," driven by what Kumar describes as "skewed tendering activity". But this could be offset by capitalising on the WHO-approved manufacturing facility in Kenya for global donor agencies and local government tenders, says Kumar in his commentary on the company's 2017/18 annual report. "We have initiated the site transfer for our antiretroviral (ARV) portfolio to the facility; and will participate in global donor funding and regional government programmes," he adds there.

Kumar is of the opinion that part of the problem is the general unfriendly environment surrounding the pharma industry. In his note to investors in the company's 2017/18 annual report, he said: "FY 2017/18 was one of the most challenging years for our business. Our performance was impacted by the challenges in the US market and the institutional business. Our strategies, especially in our US partnered business, did not translate to expected outcomes. The environment was not very conducive in our therapeutic areas on the institutional front," he said. Kumar, however, added that the phase was temporary and the business would start performing "in the next three-to-four quarters."

The dependence on the US market will continue. "US continues to be our key growth market. We are recalibrating our US strategy by reinforcing our focus on the front-end business, to ensure sustainable future growth. We are strengthening our US footprint with an emphasis on niche products or products where we have complete control," states the note.

Kumar, who has had a track record of building several businesses and exiting them, made headlines in 2013 when he sold his injectables business to global major Mylan in an over $1.6-billion deal. Even now analysts consider it unique that a company built such a facility, got it approved by the US drug regulator - the USFDA (though there were some hitches later) and then sold it. But for FY19, Kumar says the focus is on improving growth, which will deliver a strong bounce-back in the second half of the year: "A business needs to constantly course-correct and focus on building the right enablers to move forward.... That's precisely what we are now focusing on at Strides." Investors are watching, too.


Published on: Oct 29, 2018, 9:14 AM IST
Posted by: Jatin Kumar, Oct 29, 2018, 9:14 AM IST