K R Ravi Shankar is CEO (India) of Strides Arcolab Limited, which has a global presence in more than 50 countries. With core strengths in R&D and new drug delivery technology, Strides is already emerging as a priority global manufacturer to leading pharmaceutical companies. The company has manufacturing facilities in India, Brazil, Mexico and USA. It has also significant market presence in Latin America, UK, South East Asia, Africa, Australia and Russia. Ravi Shankar, while speaking to Nandita Vijay of Pharmabiz.com, said even companies with sound business models cannot cope with an economic crisis like currency devaluation. They just need to devise aggressive strategies, remain unperturbed and wait for the storm to subside. Excerpts from the interview:

Strides Arcolab has faced a rather difficult situation in the international arena. How did your company manage to come out of the rough weather?

The regulated markets posed quite a few challenges. In terms of constant changes in the trends in the industry, it was an ability to put up with the circumstances to seek a level playing field. Escalating prices on the one hand and intense competition on the other landed us in a pincer like situation.

The year 2001 was dream year in Latin America for Strides. Being one of the few Indian players in the region, we grew significantly and aggressively. In the first full year of operations, we were the largest Indian formulation presence in Latin America. This market contributed 35 to 40 per cent of our business to the turnover of Rs. 240 crore in March 2002. Business was healthy and Strides was building a robust pipeline for the future. The quarter of April-June 2002 was excellent as we commissioned the production plant in Brazil. But in July 2002, there was a debacle with the fall of the Brazilian currency, which dropped by 65 per cent, and we headed for a downward slide in sales. This was not a problem with company because the business model by itself was not wrong. It was the prevailing economic situation and a company even in a win-win situation could not have coped with it.

We devised two options to survive despite the devaluation: Curtail supplies to Brazil. Sell only profitable products and hold on to other inventories. Our Brazilian associates were permitted to sell on condition that they recover payments immediately and pay us out.

The crisis had a negative impact on the bottom lines of company since, correspondingly, overheads were increasing. Brazil was going through elections and between October and December 2002 there was complete slowdown in commerce and trade. In January 2003, after the new government was formed, the Brazilian currency started gaining strength.

Was this approach used with other markets too?

Yes, we did, wherever companies delayed payments. The strategy to stop supplies and collect payments paid-off despite initial reluctance. Strides achieved a 15 per cent growth in sales in both quarters January-March and April-June 2003 which allowed us to bring down the losses by Rs.3 crore and by then Brazilian currencies had reached reasonable levels. Our suppliers set well-defined payment targets and at times paid off ahead of schedule, which allowed Strides to bounce back

The post currency crisis period saw the survival of only the serious pharma players in Latin America. The strategy to hold on and not run away from the market has paid off. During the Brazilian crisis, Strides worked out a game plan in existing markets of Asia-Pacific, Australia and Africa to balance operations in the event of unforeseen economic conditions in another region. The company cultivated contacts in new locations like South Africa, New Zealand, Japan, Europe, UK and US to build a pipeline of products and set up a dedicated team to focus on the developed markets.

How has Strides performed after the crisis?

Currently, the company is on a growth trajectory. Our focus is only exports and the thrust is on the regulated markets where we have a clear philosophy not compete with our potential customers. Instead, Strides intends to partner companies. It will analyses the partnering company's strength, devise a manufacturing plan, add value to their backend services where it will work on developmental pipeline management.

If the partner is a good marketing company, Strides will position itself to launch products for them. In our game plan for growth, we are not keen to enter the Indian arena.

What are the growth drivers of the company?

The biggest growth drivers are the regulated markets. Today, Australia and Japan are growing well for us and it has given us an edge because we are the early entrants here.

There were three- major tie-ups in 2003, would you have estimates on the kind of business these are expected to generate for the company?

From Japan we are confident to generate business to the tune of $ 5 million this year. We are also working on specific projects in the regulated markets for which there is a time lag of either six months to three years to get the product ready and market it. This will generate revenues in post 2005. Our initiatives in South Africa are expected to generate revenues in 2007.Today what ever is happening in the global business arena will generate revenues for us from 2006 onwards only.

What are these specific projects in the regulated that you are talking about?

The projects are contract manufacturing and contract development. The latter will focus on formulation research where we intend to devise non-fringing processes. We are also looking at co-development where costs of product development and production will be shared. Such alliances will be entertained only where cost of development is high and there is also a significant market.

How true is the perception about Strides that soft gelatin and steriles are its growth drivers? In that case what about tablets and hard gelatins?

For Strides soft gelatin and steriles are the focus areas from the dosage form perspective and these are the growth drivers. We also produce tablets and there are several Indian companies in the fray so competition is intense and with varied pricing which is another hassle.

In these two focused areas, what are your investments in 2004?

From a plant perspective, we are already more or less invested in soft gelatine capsules. In steriles there is a significant investment in cephalosporin where a dedicated facility and a research center is coming up our present campus and we don't intend to reveal details. There will be routine capital investments on a year-to-year basis within those budgets.

What is the main reason for Strides to feel that domestic market is still formidable?

We are in India only because we partner some domestic companies here like Sandoz, Wyeth Lederle and Glaxo SmithKline as contract manufacturers. Otherwise we will not be present here as none of our products are in the Indian market. In India we have never entered the OTC segment because we do not have the marketing knowledge in this country and have not even thought of tie-ups. Even if we look at India, for contract manufacturing or contract development, it will be one more country for us. Even if we work for Sandoz in India it is like working for Sandoz in Australia.

In the area of immunosuppressants Strides has four products. Which are the lucrative products in the segment?

Immunosuppressants are a very difficult segment. One needs a lot of skills. The immunosuppressant 'Mycophenolatemofetil'(MMF) is going off patent in 2007, in US and Europe. This product is already developed and we have completed bio equivalent studies successfully in India and the clinical trials were in Brazil. The product is commercialized and we are already selling it. Investments are very difficult to specifically pinpoint. The raw material is from Biocon and we have a non-fringing processes to innovate this product.

What about efforts in AIDS programme?

We have a group within the company called Global Disease Management which handles at Tuberculosis, AIDS and Malaria. We have been pre-qualified by World Health Organization (WHO), UNICEF for various projects.

As the new president of the Karnataka Drugs and Pharmaceutical Association (KDPMA) what is your vision for the sector in the State?

Karnataka's pharmaceutical sector will have the voice and the visibility through KDPMA, which will deliberate on issues concerning the sector. All the manufacturing units in the State will require making concerted efforts to abide by Schedule M. It is a bit too early to tell you any thing else. More details on the progress of the sector will be provided as and when the developments take place.