Stada – Q1 2022 Performance & European Generics Market Outlook – Part 1

1.

Stada recently reported 20% growth in Q1 2022 sales YoY – up 18% excluding Russia – and 21% adjusted EBITDA growth. However it’s difficult to understand underlying organic growth given the pandemic’s impact, the lack of like-for-like reporting and all the adjustments. Can you unpack the recent performance across generics, consumer healthcare and specialty? How much of this growth is due to an easy YoY comparator?

2.

How do you think Stada’s Q1 2022 performance benchmarks vs 2019?

3.

You mentioned Stada’s true Q1 2022 performance was broadly in line with that of its competitors. However, in consumer healthcare the company has a fairly large exposure to the cough and cold or wider flu category vs competitors that are far more diversified across other categories which perhaps may not have been as impacted during the pandemic. Based on Stada’s portfolio composition and revenue mix, would one not have assumed it would have performed better than its competitors?

4.

We’ve spoken about the easy YoY comparator. Beyond that, how significant was Stada’s inorganic growth, given the brand acquisitions that have happened over the past 6-12 months?

5.

To your point, how much of Stada’s Q1 2022 reported growth do you think is purely due to an easy YoY comparator vs operational issues being fixed, new launches ramping up and historical acquisitions previously being accounted as inorganic moving into organic?

6.

COGS as a percentage of sales has been creeping up recently, even before some of today’s supply chain and other inflationary pressures. What do you think is driving that? Can this mainly be attributed to a change in product mix as Stada has increasingly diversified into consumer healthcare and specialty over the years, or are other factors at play?

7.

Stada has 16-plus manufacturing sites vs Zentiva, which has four major sites. How should we think about Stada’s COGS and efficiencies here relative to the competition? Is this extended manufacturing footprint an advantage or disadvantage? Does the company need to downsize to drive efficiencies here and offset some of the price increases? If so, how easy would that be?

8.

Given Stada’s footprint of 20 sites, how easy is it for the company to drive further efficiencies and offset supply chain cost inflation? Presumably, that would be easier to do with fewer centralised sites vs an extended footprint.

9.

As Stada reduces its reliance on outsourcing, what would that translate into at the gross margin level?

10.

My understanding is that to survive in the generics business, especially in tender markets such as Germany, one needs to be cost-competitive. To confirm, you think Stada is competitive on COGS and that will only increase as shifts manufacturing to in-house capacity?

11.

Going down Stada’s P&L, we’ve seen selling expenses as a percentage of sales sit around 22.5% which seems relatively high. How does that benchmark vs peers and why? In previous Forum Interviews, I’ve heard the company is struggling somewhat with its field network in key regions. Can you comment on that as well?

12.

How do you see selling expenses as a percentage of revenue evolving? Stada has made a fairly concerted push into portfolio diversification, specifically consumer healthcare brands, but also specialty, which includes complex formulations such as Lecigon [levodopa, carbidopa and entacapone] and biosimilars, the latter of which will need a lot of physician education and sales reps given these act as peudo-brands, especially in competitive markets where there are other biosimilars.

13.

Stada’s R&D expense as a percentage of sales is around 2.5%, only slightly down from 3% in Q1 2021. Do you think that is sufficient to grow in such a competitive market when the larger players such as Teva and Sandoz are spending more than 5% of revenue on R&D?

14.

Stada’s G&A expenses seem pretty high still, which was historically attributed to acquisitions. However, the company hasn’t made any major company acquisitions in 2022 and specialist commentary in previous Forum Interviews indicated that brands don’t typically come with G&A. What might be behind the recent G&A numbers remaining high?

15.

Looking at the EBITDA adjustments, how many of the non-recurring items are essentially becoming recurring costs of doing business for Stada?

16.

Looking at the 12 months ending in March 2022, Stada report a release of provisions of EUR 15.6m in connection with damages. Could you explain what it’s referring to here with damages?

17.

Russia accounts for 15% of Stada’s 2021 sales. We know 10% of the cash balance – roughly EUR 61m – is held in Russia as of Q1 2022. Curiously, the company’s management seems somewhat optimistic noting no adverse business impacts from the Russia-Ukraine conflict. What do you think are the different scenarios from here on out?

18.

Looking at the group numbers for Stada’s consumer healthcare business, the company notes that price increases have been driving top-line performance and gross margin improvement. To what extent do you think those price increases were in Russia vs other core European markets?

19.

Stada’s management has spoken about significant forward-buying in Russia. How do you see that unwinding? What does that mean for the company’s future Russian sales?

20.

How do you think Stada will be impacted specifically vs other multinational companies in the region? Again, maybe we can look at Zentiva, Viatris, Sandoz, Teva, as a proxy.

21.

Are other multinationals pulling out of Russia? If so, what does Stada stand to gain or lose by continuing operations there?

22.

How difficult will it be for Stada to get its EUR 61m cash balance out of Russia?

23.

Can you elaborate on the extent to which Stada’s operations are siloed from the rest of the business, and what percentage of the Russian portfolio is manufactured domestically? How easy would it be to carve that out from the wider Stada group?

24.

Could Stada divest its Russian operations, or might the company hold on to those for as long as possible?

25.

Stada invested in Russia with its 2020 acquisition of the Takeda portfolio. How should we think about the near-to-mid-term growth prospects for the Takeda portfolio outside of Russia?

26.

What have been the consequences of the Russia-Ukraine conflict on the broader western, central and eastern European generic and OTC markets?

27.

Historically, experts have said that the overall European generics market has been growing around 5% YoY, 2% from volume, 4% from LOEs [losses of exclusivity] and then minus 1% YoY on price. How do you expect those three buckets to evolve, given the potential long-term ramifications of the pandemic and wider macroeconomic environment?

28.

Obviously the pandemic has put significant pressure on health systems worldwide. If we look at some of Stada’s major western European markets, such as Germany, do you expect additional pricing pressure on generics to try and support health systems?

29.

Stada notes that normalisation in the generics market is continuing, but we’re not quite at pre-pandemic levels. Assuming no further major waves, what are your expectations for the timelines until we get back to normality and pre-2020, 2019-esque levels?

30.

In the context of Stada generic unit’s 11% adjusted growth, what would be some specific future growth drivers unique to the company?

31.

Examining the generics unit, Stada’s management commented Germany as region performed very well in Q1 2022. However, generics sales in Germany fell 10% in FY 2021. What do you think is driving that variable performance?

32.

Grippostad and Zoflora are part of the CHC [consumer healthcare]. Looking at the generics unit, have there been any material shifts in German tenders insofar as how they’re won, or Stada’s ability to win those tenders?

33.

How penetrated are the low-cost Indian generics players today in Germany? How do you see that competition evolving?

34.

You mentioned antibiotics is a key pillar of Stada’s generics portfolio in Germany. Sandoz is extremely strong in antibiotics and has a very broad portfolio. Would that make Stada more exposed than peers when Sandoz returns to market?

35.

In the UK, low-cost Indian competitors – who used to focus on the more commodity-esque oral solid dose generics – have been increasingly moving into specialty or otherwise niche, complex and differentiated generics. How exposed is Stada’s generic or specialty portfolio to that?

36.

You’ve stressed that there are many molecules going off-patent in 2023. How well-equipped is Stada to capitalise on those opportunities in 2023 and beyond?

37.

How often is Stada first to market? We know market share and pricing declines with every subsequent entry. How aggressive is the company in getting to market first and launching at risk? How often is it part of the first wave of generics?