Multiple growth catalysts falling in place for Natco Pharma: Analysts

Strong impetus to exports by a mega product launch in North America and business outside the US bode well for earnings

Natco Pharma, which has seen its stock almost double from March lows, could see more gains. The patent settlement by Dr Reddy’s Laboratories for a mega generic launch of multiple myeloma drug Revlimid in the US recently is positive for Natco, too. The company had a first-to-file status for the drug in four strengths (5, 10, 15, 25 mg) and was also the first to settle with the innovator in 2015, and enjoyed better deal terms, too. However, given the uncertainty around the litigation, the Street had not ascribed any value to the Revlimid opportunity. 

While the settlement removes the overhang and investors have started factoring for the drug's launch now, looking at Dr Reddy’s settlement terms, Natco still enjoys the best launch terms, say analysts. Revlimid generics with sales of close to $7.5 billion provides a large opportunity for Indian drug makers.

The company's strategy for the US has been focused on niche-cum-complex products. Its ANDAs (abbreviated new drug applications), too, include high entry barrier products that are difficult to manufacture and enjoy limited competition. Moreover, Natco has also been de-risking its business model and plans to double its non-US revenues over the next few years.

It plans to grow its India business exponentially by launching 8-10 products every year. Concentrating on oncology, cardiology, and diabetic products, it is looking at launching molecules generics of which are not available. Analysts say it may enter into more partnerships like its non-exclusive licensing agreement with Gilead Sciences to manufacture and sell the generic version of its chronic Hepatitis C drug. Besides, it is targeting other markets, such as Brazil and Canada. A few new launches are also anticipated in these markets; Natco is also set for the launch of Revlimid in Canada. It is also eyeing the Chinese market.

In addition, Natco announced launching agrochemical products and its green-field expansion is expected to start by end of FY21. However, analysts expect benefits to accrue only from FY23.

Multiple growth catalysts are visible now, say analysts, and sentiment, too, should remain firm looking at the Revlimid generics target action date approaching in December (for approval of product launch). Though the launch will happen in FY22, export growth has been strong in the last couple of quarters, helped by one-time supplies of some products and greater market share of generic Copaxone (oncology product) in the US. Factoring in further upside from Revlimid generics, Anand Rathi expects 47.4 per cent annual growth in formulation exports over FY20-23.

Axis Capital, looking at multiple triggers from FY22, has given a target price of Rs 1,000 for the stock trading at Rs 916.50.