MOSL: STRIDES PHARMA (Buy)-Bio-similars/Sterile Injectables – new growth levers in the making
(STR IN, Mkt Cap USD0.5b, CMP INR360, TP INR440, 22% Upside, Buy)
** Strides Pharma’s (STR) US generics business has taken long strides with sales increasing to USD57m in 2QFY20 from USD10m in 4QFY18. More levers are being created to drive growth in this business over the next 4-5 years.
** Through Stelis, STR is not only developing own biosimilars but also planning to provide fully integrated CMO for drug products and substance.
** In addition to the oral solids portfolio, STR plans to re-build the sterile injectable portfolio with 15-20 annual filings of niche products using technology platforms built in-house and also via strategic partnerships.
** We expect earnings to increase 5x over FY19-21, partly led by a low base of FY19. We continue valuing STR on an SOTP basis to arrive at a target price of INR440. Buy.
US generics on robust growth path
After delivering 31% CAGR in US generics revenue over FY17-19, STR appears well positioned to sustain this momentum led by its robust product pipeline (~40 under development/targets to file 20 ANDAs every year) and superior execution in approved products (led by ‘no failure to supply’, integrated APIs and cost leadership). It targets to take the annual revenue run-rate to ~USD400m over the next 12-18 months from USD113m in 1HFY20.
Creating robust product pipeline in ‘follow-on’ biologics
With an investment of USD160m via Stelis, STR has built a fully integrated bio-pharma business with products nearing the filing stage and availability of a manufacturing set-up for commercial execution. This would not only be used for in-house biosimilars but also to cater to CMO service with full integration of manufacturing. STR targets to achieve revenue of USD150-250m in this business over the next 3-4 years.
Re-entering sterile injectables
After the conclusion of the non-compete period on the Agila transaction, STR will build a portfolio of sterile injectables which are either under the shortage list or facing challenges in terms of manufacturing. Further, it intends to use technology platforms via strategic partnerships to build differentiated products in this business. Overall, STR intends to tap opportunities with an aim to achieve revenue of USD200-400m over the next 2-4 years.
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.
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