Event update: Strides (Outperformer) - Positive development on Ranitidine in US
Event
USFDA has announced laboratory results of the lab tests conducted on Ranitidine samples for assessing the levels of NDMA impurity – Positive for Strides
Key highlights
- FDA has set limits of 0.32ppm of NDMA for Ranitidine; similar to that of Australian regulator
- As per the results of the tests, samples for only Strides and Ajanta have met the impurity threshold for Ranitidine tablets / capsules
- Samples from Sanofi, Amneal, Novitium, DRL, Sandoz and Aurobindo have reported higher than permissible NDMA – so these players cannot sell their current Ranitidine formulation in the US market· Therefore, only Strides tablets and Ajanta capsules can sell their currently approved formulations in the US market
- Notably, the NDMA impurity emanates from the API; Strides and Ajanta (OTC formulation) both utilize Ranitidine API from Solara Life Sciences
- Strides had voluntarily suspended selling Ranitidine in US market on 27th Sept while it awaited FDA test results. Post clarity from the FDA, we expect Strides to re-initiate sales of the product over next few days
- Currently, Strides has approval for both Rx and OTC formulations but till now it has been only selling the Rx formulation· Notably, Strides had ~35% market share in Rx segment prior to the voluntary sales suspension ($9m sales in H1); given the current context, it can significantly ramp-up its market share going forward
- Key monitorable will be Rx loss from Ranitidine to other drugs as well as price changes in the new competitive landscape· This could turn out to be an interesting upside opportunity for Strides from an FY21 perspective
Valuations & view
Post a tough FY18, Strides has effected a fairly remarkable recovery in FY19 with the US sales growing from $21m in Q4FY18 to $57m in Q2FY20. Temporary disruptions in Ranitidine are more than effectively offset by strong growth in overall US sales and mgt focus on profitability over volumes. The operating performance is set to improve further in coming quarters with the crossing of the profitability inflection point and other regulated markets also reaching a critical mass. Australia business exit is positive as it has meaningfully de-leveraged the balance sheet – a key investor concern. Overall, this should drive 27% CAGR growth in EBITDA over FY19-21E. Over the medium term, Strides’ proposed re-entry in injectables business could be an interesting value driver. Maintain Outperformer with a target price of Rs569 (8x FY21E EBITDA).
Strides Pharma Science Ltd, formerly Strides Shasun Limited, is a vertically integrated global pharmaceutical company. The Company is engaged in the development and manufacturing of active pharmaceutical ingredients (APIs) and formulations, as well as biotech. Its business segments include Pharmaceutical and Biotech businesses. Its geographical segments are Africa, Australasia, North America and Europe, South and Central America, India and Others. The Company focuses on developing complex pharmaceutical products across therapeutic segments. The Company's products include general tablets, hard gelatin capsules, soft gelatin capsules, sachets, dry powders, dry syrups, potent drugs, semi solids, ointments and creams. It is also involved in supplying generics to hospitals approved by the National Health Service (NHS) and over-the-counter (OTC) products through retail outlets. It operates approximately 10 facilities, which are diversified across Asia, Africa and Europe.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
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