Yes it does, this is the emerging market biz. The Africa and india like economies. (Africa is definitely one of them).
Thanks for writing back and agreeing. I’ll continue to study and learn more.
3 Likes
So I was researching about ‘PediaCare’ (https://pediacare.com/) the child centric brand from Strides for US markets and it does have some good sales and very high rated Amazon Reviews. Majority part of Strides in US maybe generics but there are certainly elements of branded generics even in regulated markets.
Review from US website of Amazon, couldn’t find extensive sales data for this brand
They even sell gummies in India under this brand on BigBasket, Amazon, Flipkart etc. I ordered some, will post how they taste and my scuttlebutt review here 
7 Likes
I will summarize my understanding of the business of strides at a very high level. Business can be divided into 4 parts:
Regulated Markets
Generic Generics for US, Australia, europe, UK, South Africa. Co is able to grow due to topline despite pricing pressure and despite adverse USFDA observations due to a strategy of creating their own front end, due to having large scale in some of the molecules, due to focus on developing lots of ANDAs for these markets. One way in which they maximize revenue growth is by maximizing PF meaning once a molecule has been developed for US, they’d also try to file it in EU, Australia etc and thus maximize scale. The fact that they have large market share in some molecules means that they are the lowest cost producer for some of these FDFs at least which is one way to survive in a hyper competitive commodity like market. Co has claimed in concalls that in 70% of their portfolio they are the market leaders. Have been able to grow decently and aiming to grow ~20%+ CAGR topline in next 3 years. One change in strategy they have done is to create a front end in US and stop partnering with other front-end cos. By end of FY22 they envisage 100% of US sales to be driven by US front end (team of 20 people). This number was 86% in Q3Fy21.
Key question for me figure out: Why do they have a large market share, where they do?
Unregulated markets
This part of their portfolio focuses on Africa. They are shifting manufacturing from indian to African (Kenyan) facility. Part of their “For africa by africa” strategy. There is an institutional business as well which consists of Formulations like TLD (similar to what laurus does) being sold. This is a high growth market. In FY20 annual report they talk about tripling the branded generics business. Overall africa is one of most underpenetrated markets so this could end up being a long term growth story.
Blockquote Overall, medicine spending in Africa is set to reach US$160.7 billion by 2024, at a CAGR of 20.4% from 2018 [Source: Goldstein Research].
The key change in strategy here has been to shift from generic generics to branded generics which of course makes the cashflows much higher quality.
Key question for me figure out: What are these brands and what is their competitive standing in African countries?
Injectables
Strides had developed Ajila then sold it to Mylan in 2012. Their non compete ended in Dec19. it is interesting to see that a lot of those agila employees have now joined back Strides to create Injectables 2.0. they envisage this to be a 200-400M$ opportunity for the regulated markets in 2-3 years. 60% of all US drug shortages are injectables. Focus will be on developing those injectables which are difficult to develop or in high demand (shortage). They will take an asset light approach here with key parts of value chain being outsourced (CMO) leading to good profitability metrics. Focus will be to identify products with limited competition & high entry barriers – technical complexity/ API scarcity.
Key question for me figure out: Have they already filed any injectables? If so, is there any pattern visible? is management walking the talk wrt value added, difficulty of injectables filed?
Stelis
This is the largest value in strides. 350M$ of book value (assets constructed and under construction). This is roughly the same as syngene’s book value. They have 3 lines of business here:
- Short term tactical covid-19 business opportunity: existing tie up with RDIF for 400M shots in FY21. Possibly more in subsequent years. Given that we see Arun kumar talk about mRNA and DNA vaccine capabilities in presentations i find it plausible that more tie ups might be announced in time to come. This tactical opportunity will generate some cool 100s of million dollars of growth capital for stelis to pursue the next 2 businesses.
- A biosimilar and biologics division: the biosimilars opportunities are especially interesting with 3-4 tangible opportunities lined up already: Insulin (glargine and other forms): They are also Foraying into the generic insulin market through an acquisition of proprietary technology developed by ex-Eli Lilly scientists. Stelis’ technology is cost competitive with fewer purification steps, higher yield, greater recovery with high purity vs. competition; Biosimilar PTH (Teriparatide) targeting Osteoporosis with < 4 competitors; Drug-device Sodium Hyaluronate Single Injection – only 3 other market leading single injection brands, of which only 1 is close to stelis product. Total opportunity size > 15B$. If they can even capture 5% of market share, there is significant upside. The biosimilars division is not as interesting as the next division though.
- Bio CDMO: In general, there is a shift from NCE to biologics development which is funding biologics R&D spending. Also, innovators do not want to do significant capex and dilute return ratios. There is also the rise of many virtual small and mid sized biotech innovators who dont have their own development or manufacturing capabilities… This is core tailwind for CDMOs sector. Bio CDMO in specific is difficult to develop. Stelis estimates one needs at least 250M$ investment to set up a scaled up manufacturing facility. USFDA Compliance and maintenance of sterile conditions is of utmost importance here. There are 2 parts to CMO biz here: the manufacturing of the drug substance, the filling & finishing of the doze (putting it into a syringe or pen). For this second part, their capacities have already been booked until FY26. They are also in talk with 30 other cos for their drug substance development part of the biz. Co expects hockey stick growth since FY25E and to break even in FY22. A demerger/ipo might also happen towards FY22 end as per management.
Key question for me figure out: How do innovators pick one Bio CDMO partner or another? WHat influences that decision?
PS: This 2019 corporate presentation is quite good.
Strides_Stelis Investor Day 2019.pdf (7.5 MB)
Disc: have a small tracking position, studying
20 Likes
Thanks for sharing your thoughts, thought I’d add on to this. 
- Ketoconazole Tablets - The USFDA is advising against the prescription of Ketoconazole unless absolutely necessary, as there are severe liver complications associated with its use that lead to death.
- Health care professionals should use ketoconazole tablets only to treat serious fungal infections when no other antifungal therapies are available. Skin and nail fungal infections in otherwise healthy persons are not life-threatening, and so the risks associated with oral ketoconazole outweigh the benefits.
My first guess is that this is such a risky / unattractive drug in the first place that a) other suppliers would stay clear of, and b) would be the first to go should there be any development of an anti-fungal that doesn’t have these risky complications. I’m not sure we should attach a lot of value for this particular drug.
- Methoxsalen Soft Gels - Used to treat psoriasis. I found the following information specifically for Strides’ formulation, which is a candidate explanation for their market share. Source:
This new dosage form of methoxsalen exhibits significantly greater bioavailability and earlier photosensitization onset time than previous methoxsalen dosage forms.
- Buspirone Tablets: used to prevent anxiety and panic with a slower release profile to Xanax. Found that different generics players have carved a niche in their own dosage forms. Sourced from an online pharmacy in the US, have a look:
| Company | 5mg 30 Tablets | 7.5mg 30 Tablets | 10mg 30 Tablets | 15mg 30 Tablets | 30mg 30 Tablets |
|---|---|---|---|---|---|
| Strides | - | $16 | $4 | - | - |
| Zydus | - | - | - | $6 | $15 |
| Teva | $6 | - | $7 | $9 | - |
| Accord | $4 | $14 | - | - | $12 |
| Unichem | $5 | - | $5 | $8 | $11 |
| Epic Pharma | - | $12 | - | - | - |
It looks like Strides is winning on pricing power in the 10mg segment, but is the most expensive player in the 7.5mg segment. The pricing difference between 7.5mg and 15mg is absurd, but the following snippet provides an answer. The next question to ask is which dosage is the most common/high volume for Buspar. (And also check pricing consistency with other pharmacies.)
The usual starting adult dose is 10-15 mg daily given in 2 or 3 doses.
The 5 mg and 10 mg tablets are scored so they can be bisected. Thus, the 5 mg tablet can also provide 2.5 mg dose, and the 10 mg tablet can provide a 5 mg dose. The 15 mg and 30 mg tablets are scored so they can be either bisected or trisected. Thus, a single 15 mg tablet can provide the following doses: 15 mg (entire tablet), 10 mg (two thirds of a tablet), 7.5 mg (one half of a tablet), or 5 mg (one third of a tablet). A single 30 mg tablet can provide the following doses: 30 mg (entire tablet), 20 mg (two thirds of a tablet), 15 mg (one half of a tablet), or 10 mg (one third of a tablet).
My takeaway is that if I were on a dosage of 10mg / day taken in two doses, it’s two-three times cheaper to buy a 10mg tablet and bisect it, rather than buy two 5mg doses (5mg tablets provide convenience by corollary and the convenience is priced in). By the same argument, it’s cheaper to bisect/trisect a 15mg tablet if you’re on a dose of 15mg per day. Thus in these two segments, my hypothesis is that both Zydus and Strides should be leaders on pricing power, offering the cheapest doses in their respective price range. This is then surprising that they claim the 7.5mg tablet is where they have the largest market share.
Would you still treat this as a red flag? My observation from the letter was the following:
During the inspection, our investigator observed discarded CGMP documents and evidence of uncontrolled shredding of documents. For example, multiple bags of uncontrolled CGMP documents with color coding indicating they were from drug production, quality, and laboratory operations were awaiting shredding. Our investigator also found a blue binder containing CGMP records, including batch records for U.S. drug products, discarded with other records in a 55-gallon drum in your scrap yard. CGMP documents in the binder were dated as recently as January 21, 2019: seven days before our inspection. Your QU did not review or check these documents prior to disposal.
Their response:
From their concall, they’ve been waiting for two years to get it reclassified as the warning letter doesn’t prevent them from producing things at the plant, but instead has halted the 4-5 ANDAs that are in the pipeline until it’s reclassified.
Puducherry has got no negative impacts. Whatever business we were doing before FDA issue, we’ll continue to do the same numbers. We do not have an import alert in this plant. We only have a warning letter, which allows us to continue to sell products. And all those products are produced in 1 or 2 factories. And therefore, there is no revenue impact. The only impact is that some of our approvals are pending, 4 or 5 approvals are pending, which once this inspection reclassification is over, will come through and which will start improving the numbers from that facility. But at this time, the Puducherry plant runs fully booked, is very busy and is doing things under heightened supervision. So there’s no negative impact on the numbers.
They recently got the same plant inspected by the EU regulatory board and cleared the inspection, so I think they’ve done enough.
My questions are to find out which drug constitutes the largest addressable market, where even a 10% share may lead to larger revenues than a 70% share of a smaller market.
8 Likes
Strides has a policy of not entering into any product unless they can win a majority of market share in that product. The company essentially keeps filing ANDAs and collecting them only to launch products when they know they can win the market share. Existing generic players like Teva are finding it hard to compete with increased flow of generics from India and as and when a major competitor quits the market, Strides swoops in to collect the market share.
This strategy is very similar to Deepak Nitrite’s ‘Right to Win’. Deepak too doesn’t enter a market until and unless it can win a significant market share. Ability to win market shares enables the company to be cost competitive and undercut competition.
Strides is also one of the largest filers of ANDAs with USFDA but has commercialized maybe less than 50% of those filings.
Another key area for Strides business is its foray into China market with a JV with Sihuan Pharma. China until very recently had not allowed any Indian or global player to enter it’s market cause it wanted the local generic players to flourish but local industry moved towards innovative drugs leaving the generic market open. Non availability of generics lead to a large healthcare cost increase. Chinese government realised this and allowed Indian companies to enter market by partnership with local firms as Joint Ventures.
This is very similar tactic used by Chinese government for many of their industries including investment banking. Goldman until very recently had a very successful partnership with a local Chinese firm to conduct business in the region. I believe they are trying to do the same with their generic industry.
The firm Strides has partnered with has a 8.3% market share in Cardio vascular therapies. Chinese generic market is also worth over $137 Billion annually. This is a very large unseen optionality for Strides. Most brokerage reports I have read do not mention anything about China JV at all. I believe Strides with its JV with local player will be very successful in this market given they already have a large product portfolio and are the lowest cost manufacturers in most of their products.
13 Likes
Not really. They seem to be very concerned about the warning letter and working overtime to correct the oversight. They were also rather straightforward in accepting the slip up. “A blemish is a blemish” comment from Mr Arun is famous now. At the same time, any future adverse warning letters will impact valuations and also, any adverse observations for stelis would be a severe setback. As per Pharma compliance expert Mr Amit rajan: seee the section on biologics specifically: Pharma compliance issues - #14 by harsh.beria93
Mr Rajan was of the view that biologics manufacturing cant be done in India because we simply do not have the hygiene standards as a people needed for meeting the requirements of sterile manufacturing.
Any investor in syngene, stelis is taking a contra view. Something to be aware of.
pharmacompass is your friend here. You can search for any drug and get addressable market.
Thanks for adding your thoughts on the smaller molecules large market share. Looks worthy of investigating more at a granular depth for all the molecules.
Can you plz share your company primary source of this info so that i can educate myself and also come to the same page. I have not come across this anywhere until now.
But what does this mean? How does company know when it can win market share? Yes, Mylan and Teva are shutting down plants, and this serves as a big tailwinds, but if you see latest concall there is still pricing pressure and i am not sure they are able to maintain market share for all molecules. So clearly all competition is not going away, competition from India is not going anywhere as an example.
Key question is why other indian generic players are unable to do it as well. IIUC their algo is:
- File lots of ANDAs and stay prepared.
- As soon as there is a demand supply mismatch due to supply going away (eg: Teva/Mylan shutting down plants), they utilize their fungible capacities to enter that market and capture large market share.
Only question is why wouldnt other players that are not closing their plants capture the market share first given they are the well entrenched incumbents in this molecule’s market and strides is the challenger new comer.
This is correct. At the same time 50% andas does not equal 50% opportunity. Some data here as of FY20 end
One key risk that all strides investors need to be aware of (this has already played out in strides once but still):
As a US facing pharma manufacturing co scales up in multiple manufacturing locations, it becomes increasingly difficult to enforce a common high compliance culture. Probability that at least one of the plants messes up and gets warning letter goes up linearly with number of plants and thus scale of the company. This is also why we see aurobindo get so many OAIs and VAIs. Please do read the compliance thread if you haven’t.
17 Likes
Most of the ANDAs filed by Strides with USFDA are for prescription dozes rather than OTC medications. Explains their need for a front end sales team for US markets.
This also means that Strides US Business has elements of brand. Get enough doctors to prescribe your medication and soon it will start getting treated as a brand (can’t do the same with OTC).
Here is a visual analysis I did for their ANDA filing with US FDA. Its an interactive dashboard so feel free to play around.
https://public.tableau.com/app/profile/vizbytar4004/viz/StridesANDAAnalysis/StridesANDAs
Data for the dashboard from USFDA GreenBook Database: Orange Book: Approved Drug Products with Therapeutic Equivalence Evaluations
15 Likes
7 Likes
The Pediacare brand indeed commands good reputation in many developed markets as I have heard frm people living in the US and also Gulf countries.
2 Likes
Lots of Covid specific headwinds like lower prescriptions, supply challenges, lower approvals etc. But the following point from the investor presentation does not seem to be covid specific and may be a continuing problem - the commodity nature of US generic generics:
“Witnessed double digit price erosion in our US portfolio with higher competitive intensity leading to significant drop in revenues”
Thoughts?
3 Likes
can you share source about IPO way , as it was demerger and strides stakeholder value creation statement from strides so far.
1 Like
Several important developments from the concall.
1. There is a shift in strategy in US generics.
The plan to hit $400 million was reliant on the R&D pipeline generating 70-80 molecules, and timely rollout of ANDAs. This quarter saw price erosion due to fewer launches (Khemka’s treadmill analogy), and increased competition from players even in newly launched products.
The shift → They’ve acquired a manufacturing plant in Chestnut Ridge which belongs to a subsidiary of Endo International, along with a basket of 100 ANDAs, 20 of which are commercialised, 78 are approved and waiting to be commercialised. They have shut down the Florida facility and consolidated operations at Chestnut Ridge.
The additional basket of approved ANDAs secures their pipeline towards their $400 million goal, and current R&D focus will shift away from generics into complex molecules. Management claims the basket of ANDAs is in complex generics, in a segment that doesn’t see price erosions.
Key questions:
-
Competitor and price profile of these ANDAs in the pipeline. Management expects a muted Q2 and a rebound from Q3 onwards to meet the $400 million target.
-
Endo deal is to be finalised in 60 days. Both sides have published statements to shareholders on intent to sell. Endo has been wanting to sell Chestnut Ridge since late 2020, one wonders which side got the better deal.
-
The shift in R&D towards complex molecules needs to be understood clearly, especially whether they will target chronic or acute treatments going forward.
2. On Stelis
Mark Womack as the new CEO is a huge step forward for the company. He was a major figure at AGC Biologics, and brings with him knowledge on running a multi continent Biologics CDMO, a strong network, and is relocating to Bangalore, to work on site.
The management said they’re currently focused on the board, and are in talks with their bankers to explore all avenues of listing Stelis. There was no mention of an IPO specifically, and no clear timelines as of now.
As the investor presentation says, they’re in late stage talks with vaccine producers and are awaiting EU inspection for their new facility. It needs to be a physical inspection, and will take some time before products can be launched.
Happy to share other details of the concall. Invested.
17 Likes
As per their recent update, they are evaluating all options for unlocking stellis value (stance still not confirmed despite committing on it in February). While this bull market certainly can get them lot more money via IPO but it is not at all friendly to existing shareholders. I personally have never trusted the management as they don’t follow the goals they set for themselves even for short/medium term (eg) Australia , Demerger, Endo etc.) but still was invested since Stellis would have been very cheap.
Lesson learnt: Never trust a weak management even if they make formal announcements.
Disc: Invested with a small holding.
Update: No more holdings now.
4 Likes
I am wondering whether the Headwinds that they are facing & will quite possibly continue for some quarters, affect in any way the talks that have been going with PE firms on buying out the promoter’s stake in Strides.
Any Views ??
1 Like
Can anyone share the concall link
I could not find it on the Web
Thanks in advance
1 Like
Let’s assume that the generics business recovers this year and makes an EBITDA profit.
In a few years if the management delivers on their targets for US then the generics business can do a CFO of 400 crores 3 years down the line easily- it did 500cr last year. Easily worth 4-5k crore.
Regarding Stelis
The worst for Strides shareholders is that Strides is forced to sell in an IPO- though I don’t see how this pans out.
In this case Strides gets 33% of 5000 crore as cash=1700cr.
Taking 5000 crore as the IPO valuation conservatively- Private markets valued it at 2600Cr recently. If they deliver Sputnik and win some good CDMO contracts Stelis could be listed much much higher too in the current market.
If the markets turn bearish and the IPO market is bad then we get a demerger! That’s great for strides investors.
In the case that none of the above happens we get to keep a fast growing highly capable business under the Strides banner.
The results are really bad but these things happen in commodity businesses.
The amount of cash Stella listing would give/the de merged shares value is just too sweet. An IPO might even be the best thing for us if they get a huge seeking price like 10k crores. Just have to call it a biotechnology platform! Very serious here- it’s a great business and can be marketed like crazy in this environment.
My 2 cents and can’t really see myself not liking the opportunity this presents at this price.
5 Likes
Mr Arun Kumar always kept minority share holders in mind, the amount of wealth he generated right from
Giving dividends when their injectables (Agila) business were sold
Solara
Sequent
now is Stelis time, if they are taking time means there must be some reason. They are very serious about the Stelis execution and at the same time Strides management is also a competitive one and recently they acquired one company in US, we need to wait and see their strategy.
People talk big say "long term , coffee can etc… " but don’t have patience to go through 2-3 quarters of rough phases.
Recent updates on the Stelis as well as solara (Arun kumar is back along with Mr Puri ) , Mr Puri is chair of the board in both the organisations.
Strides has A grade management and it is known for wealth creation for minority share holders.
I have asked this question, "why stelis didn’t raise the capital from Strides from QIP or OFS ? ", the answer (one of the reason) is , PE fund raising route gives better valuations than former.
Disc : Invested, will add more on dips
12 Likes