Natco: Healthy pipeline instills confidence

A key near-term trigger would be the successful launch of Copaxone, planned for September

Natco Pharma’s share price has surged 60 per cent in March on launches, a strong pipeline and re-rating of the stock. The most recent trigger has been the approval to launch Sofosbuvir, generic equivalent of Gilead Sciences,  Sovaldi brand, used for treating chronic hepatitis- C infection. Natco, will market this drug under its own brand and through strategic partners. It is the first company to get approval. Recently, it had signed a non-exclusive licensing agreement with Gilead. Analysts estimate the drug to earn upward of Rs 60 crore in FY16.

In February, the company had announced the filing of an Abbreviated New Drug Application (ANDA) for Sorafenib, generic version of Nexavar, used in the treatment of certain types of cancer. The company expects to have a six-month exclusivity after the drug receives the final approval from the Food and Drug Administration (FDA). In 2014, this drug had sales of $48 million.

The company is also expected to launch an anti-viral medication, Tamiflu, in August 2016, post a favourable verdict from the US Supreme Court this month. The drug has annual sales of $495 million and Natco, through its partner, is the sole generic challenger.

While there have been some immediate triggers, the biggest one is the September launch of the generic version of Copaxone, a drug used in treating multiple sclerosis, with total sales of $1.3 billion in 2014. The company, through its partner in the US, Mylan, will be launching a 20mg version of the drug. Though there is no marketing exclusivity, the drug is a limited competition product, with only four other players. And, though the innovator company (Teva) has been able to switch about 63 per cent of patients to the 40mg version, analysts believe there is still a significant market for the 20mg version, indicating significant potential gains for Natco.

If the company is able to launch these two drugs and get enough traction, they would be able to quadruple earnings during FY15-17, believes Hitesh Mahida of Antique Stock Broking.

The other major drug which could substantially contribute to Natco’s revenues is Revlimid, to treat myeloma. Though the generics version is expected to be launched only in FY21, Natco, along partner Actavis, has a first-to-file status on the drug with current annual sales of about $3 billion.

Of the special opportunities available, Revlimid and Copaxone, according to Antique Stock Broking, are the biggest drugs and contribute Rs 270 each (23 per cent) to the FY17 target price, pegged at Rs 2,350.

Sales growth for Natco in the domestic market is expected to come from the oncology segment, while accounts for 90 per cent of sales.

While there is little doubt about the company's portfolio and prospects, given a sharp run-up in prices, investors should await correction before taking exposure to the stock with a two-three year outlook.