An employee holds tablets on the production line. (Photographer: Oliver Bunic/Bloomberg)

Drugmaker Strides Eyes Sale as Endgame After Business Ramps Up

(Bloomberg) -- Shashank Sinha’s vision for Strides Shasun Ltd., the Indian drugmaker he runs, resembles a three-act play: It opens with investment, then shifts to growth, and the grand finale: a possible sale.

Strides has already built one business, sold it for about $1.65 billion, and is now ramping up its second. Chief Executive Officer Sinha estimates the current one, focused on selling generic drugs on pharmacy shelves in the U.S. and Australia, is now in its second act, though the ending for this one could be the same as the last.

“This is not a business that is being built for posterity, or for the third or the fourth generation of the founders to run this company,” he said in an interview. “The overall philosophy for this is that there will be a point in time when the value in this business is optimized and then we are obviously open to all options.”

The drugmaker’s current market capitalization stands at around $940 million. Sinha declined to put a timeline on when the company could begin weighing a sale, and said he is focused on growth.

Such an approach would separate Strides’ founder and controlling shareholder, a first generation entrepreneur named Arun Kumar, from most of India’s other pharma barons, many of whom are the second generation or later to run the family business. The global pharma landscape has been particularly ripe for deals, with the value of acquisitions hitting a record in 2015 and remaining elevated the last two years, according to Bloomberg data.

“This is a highly acquisitive industry,” Sinha said. “We believe the next level of this business after it’s kind of peaked out here is probably to be invested by somebody who brings a different value to the business, either in terms of technology or in terms of market access, or whatever else.”

A company spokesman said Kumar wasn’t available for an interview.

International Markets

Strides’ current incarnation has carved out two areas of focus: picking off niche products in the highly competitive U.S. market and becoming the largest supplier of generic drugs in the more consolidated Australian one. Sinha says the U.S. business should double its sales next year from about $100 million last year as new product approvals ramp up. Deals already inked in Australia have Strides products set to be rolled out to about 40 percent of that nation’s pharmacies, he said.

For now, investors still seem skeptical. The stock is down about 40 percent over the past year as a pair of earnings reports at the beginning of this fiscal year came in well below analysts’ estimates due to delays on some key U.S. product launches.

Nevertheless, analysts are optimistic. All 12 surveyed by Bloomberg advise their clients to buy the stock. Annual revenue should climb to $646 million by 2020 from about $515 million last year, according to the average analyst estimate.

“The investment cycle is now largely behind with the company having achieved a critical mass in its key markets of Australia and the U.S.,” Rahul Jeewani, an analyst covering the company for IIFL Holdings Ltd., wrote in a January report. He predicted an increase in both sales and profit margins and recommended buying the stock.

Mylan Deal

Once it executes on its business plan, Sinha says Strides could offer other drug companies looking for acquisitions a way to diversify their own revenue streams. It sold its last business, which made complex injectable medicines on behalf of other drug makers, to Mylan NV for about $1.65 billion in 2013.

Strides’ own corporate group currently includes a biotechnology company, a specialist firm manufacturing drug ingredients and a veterinary business, which could all be ripe for investment after “unlocking value” from Strides, Sinha said.

“There is a point at which the key stakeholders in this business, the founders of this business, will decide whether this has been optimized and they need to unlock value here and invest in the next wave,” he said. “This is not a business being built for the next 100 years.”

©2018 Bloomberg L.P.

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