 "Natco's Kothur (Andhra Pradesh) facility")
Natco Pharma has lately been buzzing with positive news. In December, the company settled with global branded drug makers for two product launches in the US, besides receiving approval for two Hepatitis-C drug launches in India. The Hepatitis C drugs are a two-drug fixed-dose combination priced at Rs 25,000 for a bottle of 28 tablets, and another product in two dosage strengths to be priced at Rs 6,000 and Rs 4,000 a bottle of 28 tablets. The company has a non-exclusive licensing agreement with Gilead Sciences to manufacture and sell generic versions of its chronic Hepatitis-C medicines for which Natco can price on its own but pay royalties to Gilead. The agreement with Gilead also allows Natco to market these chronic Hepatitis-C medicines in 91 developing countries.
Meanwhile, in the domestic market, the company’s sales are doing well, led by oncology and hepatitis treatment products. Natco Pharma had reported 7% revenue growth led by Sovaldi generics (Hepatitis-C drug) that contributed about 28% of total revenues in the September quarter.
During the first half, the product had contributed about Rs 90 crore and Natco’s management expects a monthly run-rate of close to Rs 20 crore from the drug. The new launches will add to this growth. Analysts as those at Edelweiss say that in India, the company’s first mover advantage in Hepatitis-C franchise will sustain, yielding handsome benefits.
For the US markets, Natco has also settled for launch of generics of anti-viral Tamiflu (tentative launch by February 2017) besides anti-cancer drug Revlimid with Celgene, thereby ensuring a launch in March 2022. Though the Revlimid launch is later than anticipated, it removes any uncertainty about the launch. The street had been looking out for this product since there is no other generic filer for such a drug and, hence, the generic sales of this product will continue to grow till 2026, say analysts.
While the opportunity may be long-term, it nevertheless strengthens the pipeline. Notably, the company continues developing a differentiated pipeline that is likely to keep its valuations buoyant. The stock at Rs 567 has more than doubled in a year. Analysts at IIFL say that Natco remains upbeat on the potential of US pipeline as sizable launches loom in FY17 and beyond. They believe pending US approvals of large drugs like Copaxone (multiple sclerosis) and Tamiflu provide robust revenue visibility along with superior margins over the next two to three years. Analysts at Edelweiss say that while Copaxone 20mg is a potent near?term opportunity, pipeline products have adequate fire power to boost profits multi-fold over the next few years, even if Copaxone profits ebb.
IIFL analysts estimate Natco to clock 39% revenue and 51% EPS CAGR over FY15?18 aided by 550 basis points expansion in margin. They have a target price of Rs 620 while analysts at Edelweiss rate Natco as a top pick in the mid-cap space with target price of Rs 640.
