Business Today - - BT 500 - By E. Ku­mar Sharma 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 WHOap­proved 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-to­four 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.

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