In an interview with ET Now, Shashank Sinha, Strides Shasun, says their US portfolio is going to ramp up significantly and would probably double or nearly double in the next 12 to 15 months.
Let us start first with the recent approval of g-Sustiva. What does it bring on the table? Is it a niche drug with you being the largest manufacturer?
We are the only the second generic to get approval for this drug and this is a drug for the treatment of HIV AIDS. We expect this to be an interesting opportunity. The overall size of the market is more than $115-120 million in the US and being only the second generic, we expect that we will have a good launch. The product is going to be launched immediately.
Post the sale of Agila, you have limited portfolio of drugs in the US. What is the strategy now? Will Strides focus largely on R&D efforts?
Our Agila portfolio was an injectables business and what we are building out now in the US is an oral solid dosage business. This business is being built organically. You are right we have made significant investment in creating the R&D infrastructure to ramp up this business and that has been ongoing for the last several years.
We have been investing ahead of business to create that infrastructure. We now have good momentum in filing. We also have good momentum in product approvals. So, we are on track to file 15 to 20 new products. This is double the rate at which we were filing for new products in the last couple of years and with the new approval timelines being shorter than they have been in the past, we expect those approvals to come through within a 12-month period. So certainly, it adds to the kind of ramp up that we are expecting to have in the US markets. This is an organic strategy and we are going to build oral solid dosage business in the US.
You exited the US business or you reduced your exposure to US business at the right time, but you are trying to enter the market where we all know that the entire landscape has changed. US FDA is much more stringent. Pricing war is real and with Amazon’s entry you do not know what the market would look like after three years.
Well I can only respond to that with respect to our strategy. Certainly, Strides has one of the best compliance standards in the Indian generic pharma industry. Yes, the US FDA audits have become stringent, the standards are much higher but that works to the benefit of a company like ours which has had a very successful and a very clean compliance track record. As far as the retail environment is concerned, Amazon is a few years out there.
It is premature to think and it is only two or three years away but certainly there has been change in the retail industry and there has been consolidation. That also makes the US generic pharma retail industry very efficient and unlike in many other countries, you can operate that with a small sales force because the retail end of it is very well consolidated and well organised.
Our strategy has always been to look at niche products. We are not looking at the mass market end and the most server pricing erosion has happened where competition is severe, where there are 10-12-15 players and that is what is seeing high teens kind of price erosion. Wherever there is defensibility and more than 50% of our portfolio is differentiated, and we have talked about the fact that product selection is the key to our strategy.
So yes, it is not probably the same growth momentum in the US market as it used to be let us say five years ago but we are contrarians and we believe that we are not being disrupted. We are the disruptors in the US generic pharma industry.
Right now, as US sales percentage of your business coming from the US, where does that stand for Strides?
It is about a third of our total business.
Do you see that crossing 50% in next two-three years?
Well, we are going to have much higher momentum. The 50% is a result of what happens in the other two-thirds of our business. To be honest, we have growth strategies everywhere — in Australia and in emerging markets as well. I certainly think that we are going to be very bullish about the fact that our US portfolio is going to ramp up significantly. We expect that portfolio to double or nearly double in the next 12 to 15 months, based on the fact that there is momentum in filing as I mentioned earlier and approvals are coming through faster. Our R&D engine is firing now and we expect that on the basis of that, we should be able to significantly ramp up our presence in the US market.
Everyone in India or in the generic pharma industry has two buzz words — complex generics and biosimilars. Are you consciously working on those two areas?
Complex generics is too complex to talk about. I will talk about product selection of niche categories where we have better competitive advantage than others and that basically means that we will select products differentiated by the product form. We make soft gel capsules, not very common in the market, we have a lot of topical products, we have products which have extended release or modified release formulations, which are again not very common.
So, our portfolio is differentiated on the basis of the way we pick our products. Also, there is vertical integration. Wherever we control the entire value chain where we manufacture both the API and the finished product, that gives us greater pricing or cost advantage to be able to compete in the US market.
The next level is competitive strategy that we bring into the market. The parent company Strides itself does not do biotech. We have a oral solid dosage business which is a non-biotech business but we do have significant investment in a subsidiary which has been incubating our biotech business but that is for a later discussion.
You are also very big in Australia, tell us a little bit more about how Australia unlike the US, is a different market or are you seeing pricing pressure there too?
Well, Australia is a very different market. It is a mirror image or a contrast image of the US market. There are two three things which are unique about Australia and the first thing is that unlike in the US, where there is a lot of fragmentation amongst companies which supply products, Australia is a highly consolidated market as far as suppliers are concerned, so that is number one.
The other interesting contrast is that unlike the US where the retail is very consolidated, in Australia, by law, retail is very fragmented and it is actually a mirror image. Unlike the US where we have a niche strategy, in Australia we have a leadership strategy. So, our portfolio diversification is almost perfect in the sense that in Australia we are the second largest company by volume. We have a 10-year agreement for distribution with the largest wholesaler, with the biggest footprint.
We have also been making acquisitions to expand our portfolio. So, we re-entered the Australian market first with an acquisition and we have added to that with other acquisitions.
Today, we have about two-thirds of our portfolio already in place but there’s one-third more to go. We are about two-thirds of the way in our distribution footprint but there is one-third more to go there and we are executing to that strategy. We do that clearly, we are aspiring to be market leaders in Australia and when we achieve that, we will certainly have the operating leverage and the knock-on benefits of that on our overall profitability and margin structure in the Australian business. So, we are very bullish about our game plan in Australia.
I understand that you are already part of the big four, how soon before you actually become a number on player in Australia?
We have our aspirations. If we execute our plan according to our strategy, the way the building blocks are in place, we should be there in two to three years.
What is the outlook on the Africa institutional business? What is the likely growth considering competition from other Indian players is now increasing in that particular region?
The institutional business has obviously been in a bit of a phase where there has been delay in the orders and that has happened because the three-year award period for the institutional contracts.
They were given on time, we have received our tender awards and we have a three-year kind of tenders awarded to us. We have our market share, the beneficiary governments in Africa need to receive the funds and then place orders and that has kind of got a little bit stretched out. We think it is a timing issue.
Overall, with one player back in the market who was out of the market, the redistribution of tender awards will be back to the historical levels. We do not expect huge growth there but it is a business which has five or six prequalified vendors and we are one of them. We have our market share as far as the tender awards are concerned. We also have a pipeline of products that are in registration which will expand our product portfolio and we will be able to participate in other tenders which we have not been able to do in the past.
We believe that there is a good rebound in the institutional business. It is hard to say what the growths are going to be but all the sort of key blocks are in place from new product point of view and also from our winning the tender awards.