 "After injectables, Strides bets big on biotech")
"First of all, let me tell you that Agila Biotech strongly believes that we can reproduce the success we have had in the steriles business in the biotech sphere. To this end, Agila Biotech is developing a fully integrated biotech business to research and develop biotherapeutics. The investments will cater to Agila Biotech's portfolio of biosimilars, biobetters and value-added products as well as partnering efforts. Two of Agila's products will be soon entering animal toxicity studies. This should happen sometime by July of 2013 and we hope to be in clinical trials by the end of this year," Arun Kumar, the managing director of Strides Arcolab, told investors recently. (THE GROWTH JOURNEY)
With this move, Strides Arcolab will join the global trend towards developing affordable and effective remedies through biotechnology. Biologics represent the fastest growing segment in the pharmaceutical market, accounting for six out of top ten global drugs, with patents on first generation biologics expiring by 2020.
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Industry watchers say that for pharmaceutical companies looking at new revenue opportunities or higher market share, as well as for large biotech companies in search of a pipeline of products augmenting their existing portfolio, a ready pipeline of biosimilars and biobetters is a great strategic bargain. (A biobetter refers to a recombinant protein drug that is in the same class as an existing biopharmaceutical but is not identical; it is an improvement over the original. Biobetters are built on the success of existing, approved biologics but are considered less of a commercial risk than developing a brand new class of biologics.)
Big benefits
In other words, Agila Biotech could become very valuable if all its plans work out. Since biotechnology is a long-term play, given the kind of clinical trial work or the spadework that the company has to do with the molecules, Agila Biotech is hoping that there will be healthy revenues in a five- to six-year horizon by following the "growth, investment, and discovery of value phase", much similar to the injectable business which raked in healthy returns (see box.)
Just days after the Mylan deal, Strides Arcolab has swung into action to beef up the biotechnology division and has committed an investment of $15 million in Malaysia for establishing a customised biotech facility located in the Bio-XCell ecosystem in Nusajaya, Johor. It aims to get the centre up and running by end of 2014.
"A successful foray into the biologics space would require building an infrastructure and strong technical foundation to support three pillars: strong pipeline of products, partnering capabilities and novel formulations," says Anand lyer, who is spearheading Strides Arcolab's biotech foray.
Agila Biotech's aim is to bring about a change in the way biomolecules are developed, manufactured and commercialised by adopting the next-generation technology platforms. It is built around a platform that features the application of single-use component technology and transforming bio-manufacturing economics, thus reducing deployment of new manufacturing capacity from three to five years to 12-18 months.
With the unit in place, Strides will have some quick manufacturing arbitrage, especially with partners that it has already signed up with. The company wants to use the unit for contract manufacturing until its own molecules kick in and this will enable it to break even from 2014, while, from its own portfolio, revenues will start flowing in only after four to five years.
Keeping it parallel
While the biologics business is for the long haul which may or may not yield results, Strides Arcolab has been cranking up its legacy pharmaceutical business which focuses on the United States, African and South Indian markets. The company, which runs January-December accounting year, has guided the street that the pharmaceutical business will have operating profit margins of 20 per cent for 2013 at Rs 200 crore. This business has grown from single-digit EBITDA (earnings before interest, tax, depreciation and amortisation) in 2011 to 13 per cent EBITDA in 2012.
Motilal Oswal Securities, in its latest report on Strides Arcolab, has said that the EBITDA guidance for 2013 is aggressive and contingent upon multiple factors. "While Strides Arcolab has successfully unlocked value in its specialty injectable company, we note that adding fillip to the pharmaceutical and biotechnology divisions will also involve a gestation period. We estimate the intrinsic value of Strides Arcolab at Rs 1,003 per share, calculated as Rs 238 for the residual business, Rs 610 of dividend payout and Rs 155 of expected surplus cash," the report added. This implies good upside from the trading price of the stock, Rs 872 at close on NSE Thursday; Motilal Oswal is "neutral" on the stock.
In India, the main focus of Strides Arcolab is on the diabetes segment, where the company has a drug under the brand Renerve, which currently generates sales worth Rs 40 crore; it is also making more investments and increasing line extensions around that. In the US, which will drive most of the company's pharmaceutical revenues, Strides Arcolab has got permission for 47 products, all mostly in niche product segments.
The other bet which Strides Arcolab has placed is on Africa. The company already has a front-end in Africa. With increasing spends there aided by support of Proparco, a financial development institute supported by the French government, Strides is hoping to tap the country's large unorganised market and become a substantial player.