Differentiated pipeline boost for Natco Pharma

Scaling up of oncology and hepatitis portfolio in India and a strong US pipeline will help it sustain the pace of growth

The Natco Pharma stock has been moving up on the back of positive news flow in recent weeks. In December, the company settled with global branded-drug makers for two launches in the US, besides, receiving approval for two Hepatitis C drug launches in India.

The company has a non-exclusive licensing agreement with Gilead Sciences to manufacture and sell generic versions of its chronic Hepatitis—C medicines. The price of the drug in various combinations and strengths for a 28-tablet bottle is Rs 4,000 to Rs 25,000. The agreement with Gilead also allows Natco to market the chronic Hepatitis—C medicines in 91 developing countries.

In the domestic market,  sales are shaping up well, led by oncology and Hepatitis treatment products. Natco Pharma had reported seven per cent revenue growth, led by generics of the Hepatitis —C drug that contributed about 28 per cent of revenue in the September quarter. During the financial year’sfirst half, the product had contributed about Rs 90 crore and Natco’s management expects close to Rs 20 crore a month from the drug. The new launches will add to this growth. Analysts at Edelweiss say in India, the company’s first mover advantage in the Hepatitis —C franchise will sustain, yielding handsome benefits.

For the US markets, Natco has also settled for launch of generics of anti-viral Tamiflu, early next year, besides, anti-cancer drug Revlimid with Celgene, thereby ensuring a launch in March 2022. While the opportunity is  long-term, it strengthens the pipeline. The differentiated pipeline is likely to keep its valuations buoyant. The stock at Rs 567 has more than doubled in a year. Analysts at IIFL believe pending US approvals of large drugs like Copaxone (multiple sclerosis) and Tamiflu (anti-viral) provide robust revenue visibility, along with superior margins over the next two to three years.

Analysts at Edelweiss say while Copaxone 20 mg is a strong near-term opportunity, the product pipeline has adequate firepower to boost profits multi-fold over the next few years, even if Copaxone profits ebb.

IIFL analysts estimate Natco to clock 39 per cent revenue and 51 per cent earnings per share annually over FY15-18 period aided by a 550 basis points expansion in margin.