New horses in the race, may be dark horses?

People close to Kumar say he’s unapologetic about the maze of companies he creates and keeps. All intellectual property resides in one entity in Singapore; equity resides in another, and so on. To couch it mildly, his entry and exit entities are concurrent. The moment he gets into a business, his exit outfit is ready. So much for no steady strategy.

What are the multiple entities?

“Sometimes you need multiple entities to do joint ventures, R&D, one particular market entry, and other partnerships. You need isolated companies to do such things. But still the number you quote [profits from continued versus discontinued operations] is pretty high. It’s not difficult to do; it’s just a lot of financial engineering,” says an investor in southern India, who didn’t want to comment publicly.

Like a rolling stone that gathers no moss, Kumar doesn’t put money after pride. Or sentiments.

There was an element of mystery when he sold his branded generics business, housed in Strides Healthcare, for Rs 500 crore ($72.1 million) to Eris Life Sciences in 2017. Eris had gone public in June that year and clearly needed to add growth. (We wrote about it here.) Analysts at the time wrote notes saying there was no rationale in the sale because just a while ago, Kumar had waxed eloquent about building a branded generics business. But as much as the deal appeared to have stupid written all over it, the underlying reason, hitherto unreported, is illuminating.

As always, Strides had built its branded generics business by acquisitions. It had grown to Rs 181 crore ($26 million) in revenues at the time of the sale no doubt, but the three businesses within it could not be amalgamated. “They were not talking to each other. From capital allocation point of view, some Rs 300 crore had gone into the branded generics business, but it wasn’t going anywhere,” says the company insider quoted above. In selling to Eris, Strides just about got its money back, but the company isn’t regretting the absence of multiples.

No moss philosophy

Similarly, the exit from Australia earlier this year is in sync with Kumar’s gather-no-moss philosophy. “[Arrow Pharmaceuticals, the Australian subsidiary] was a public company with no family ownership. [Read patient management.] The business wasn’t accretive for two years and that wasn’t conducive to a public company,” says a source with knowledge of the deal. When in doubt, ask the shareholders. Strides asked, and decided to exit. Nonetheless, it managed to cling to the coattails of the outgoing business with a 10-year suppliers’ deal.

No emotions betrayed for a market that gave Strides one of its early successes—it entered Australia with a $20-million investment in 2006 in Ascent Pharmahealth and exited with a $393-million sale to Watson Pharmaceuticals in 2012.

Few insults cut as much as the idea that a company you’ve nurtured for 28 years is struggling to find a foothold in a changing business environment. (The group got a CEO only in 2016).

When Kumar returned in April last year, quarterly revenues from the US market had halved to $21 million. He swung into action and among other things, took back all products from the partners. The revenues are back to old levels; the company has added nearly $100 million in one year from the US market.

Astute Product Selection

Now to the spell of deals in January. Chiefly, acquisitions in the US and Canada. Going by his playbook, he’d do the same things—astute product selection, accelerated filings with the regulators, FDA or non-FDA, and tremendous speed to market.

So confident is he of this playbook, that when most Indian generics companies sign on the failure-to-supply penalty clause—often $50 million or above—he claims he’s paid zero penalties. He chooses vanilla products which are simple to make and have no Indian competition. Say, a $10 million product. Something most midsize-to-big Indian companies supplying to the US market wouldn’t bother looking at.


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