Natco Pharma: Focusing On Complex Products


(Harshit Goel) #188

Concall Q4FY18 notes

  • Our top 4 products in USA are Tamiflu, Copaxone, Liposomal Doxorubicin and Lanthanum Carbonate.
  • Copaxone is doing good in USA, shift to 40 mg was beneficial. Greater benefits from Copaxone will be seen in later quarters.
  • Imatinib will be launched in FY 2019 but won’t make any money on it. Too much competition is there for it. If we launch it in first wave then might make some money but if we launch it with everybody else we won’t make any money on it.
  • Revlimid will provide good annuity type income from March 2022.
  • Decline in Hepatitis C sales in domestic market has been stabilised. Currently we are doing Rs. 70 cr sales per quarter which is reasonable and will stabilise at these levels.
  • Q4 sales bifurcation
    Formulation Export: Rs. 492 cr. (rs. 433 cr was profit share and Rs. 59 cr sales)
    Formulation Domestic: Rs. 158.5 cr.
    API Domestic: Rs. 8.2 cr.
    API Export: Rs. 51.50 cr.
  • FY18 sales bifurcation (standalone)
    Formulation Export: Rs. 1040 cr.
    Formulation Domestic: Rs. 720 cr.
    API: Rs. 285 cr.
  • Guidance of 8-10% growth in topline and net profit for FY 2019.
  • Conditions in US generic market is tough, there is no visible sign of a turnaround. One can remain hopeful but we would like to plan keeping reality in mind. Therefore we will focus on ROW market from FY 2020.
  • For FY 2020 and 2021 focus will be on ROW markets specially India, Brazil and Canada. We expect to file 6-7 FTF in next one year in both Brazil and Canada. Hope to get approvals in Brazil by March 2019 and launch products in FY 2020. Whatever we loose from Tamiflu from 2020 will be made up from India, Brazil and Canada. Will be focusing on Oncology and Multiple Sclerosis in ROW. Brazilian market is based on government tenders.
  • Excluding Hepatitis C we will grow by 15-16% in domestic market.
  • Vizag Plant will be completed in next 2-3 months, expect to commercialise it by September 2018.
  • Will spend Rs. 350-400 cr on CAPEX this year.
  • There was a one time increase of Rs. 30 cr. in employee cost in Q4. Rs. 20 cr was given as one time bonus to employees and Rs. 10 cr. extra provision was done due to change in Provident Fund rules by government.
  • Other income in Q4 includes Rs. 16 cr as interest income and Rs. 4 cr. as export benefits. This will be maintained at same levels in next quarter as also we have surplus cash balance.
  • Tax rate for next two years will be 21%.
  • We don’t hedge our foreign currency exposure, everything is left open. The day we receive dollar payment we convert it into rupee.

(manivannan.g) #189

(Bhaskar Jain) #190

(sumit680) #191

Hello everyone,
With the initial glances over Natco Pharma, i have my few observations-

  1. Growth

So we can see that natco has shown an excellent growth in terms of sales and profits…but the same growth is not being reflected in terms of Cash Flow…

  1. High amount of Receivables

year on year, there has been a higher growth of receivables than sales…it may indicate that the company is increasing its sales by offering a longer payment duration to the distributors.On average, receivables have grown at an avg rate of 36% while sales have grown at an avg rate of 25%…
This particular factor might be a tool for gaining larger share in market by allowing such incentives to distributors but it derides the Company of cash.

  1. Since natco is involved in production of complex formulations, it incurs a heavy capex

…the heavy capex might be because of expansion …so the net free cash flow since last 10 years has been negative…but the they have generated less than avg cash flows from operations…this thing needs to be understood…the annual reports also seem to be shallow…

  1. While the oncology and hepatitis theme is great, the business model seems to be just avg…this may lead to a below avg valuation as compared to the peers…so Biocon which is also incurring the heavy capex due to R&D and expansion, is generating better cash flows than Natco and avlb at a higher valuation…Natco is using QIPs for generating cash and avoiding the debt route but it also means dilution of equity…as such promoter’s holding is low at 48%…

  2. This information may be helpful while deciding an entry price for Natco…i feel that it should be bought at 1 year forward looking valuation of less than 20…

Ill request seniors for correction in my assumptions…

regards


([email protected]) #192

Thanks for sharing this fine analysis. On the receivables, its better to compare across industry. I did a quick check on Biocon andfound a similar trend. here´s a report from Livemint which can help answer your question. https://www.livemint.com/Companies/IudSH0HtBFTFEuOp7QMUtK/SES-highlights-long-receivables-period-for-Indian-pharma-com.html.

Also Biocon is quoting at higher valuation in anticipation of the contribution of biosimilars business. This vertical is the expected new growth driver for pharma companies.

Please keep sharing your observations.


(Vijay Dosapati) #193

Natco Pharma results are out.

Revenue has increased by 28% YoY and Net profit has increased by 93% YoY


(Harshit Goel) #194

Total Consolidated Revenue increased by Rs. 125.80 cr yoy from Rs. 448.70 cr in Q1FY18 to Rs. 574.5 cr. in Q1FY19. Out of this Income from Profit Sharing increased by Rs. 120.17 cr., Domestic Oncology Formulation increased by Rs. 18 cr. and Other Income increased by Rs. 32 cr. Almost every other business segment of the company showed decline in yoy revenue numbers, something we need to keep a watch on.

Latest Investors Presentation: https://www.bseindia.com/xml-data/corpfiling/AttachLive/24274c20-032e-44a7-899d-6ccc30df1a0e.pdf

Regards
Harshit


(Harshit Goel) #195

NATCO PHARMA FY18 Annual Report Notes

  • Sales Total = Rs. 2242 cr.: API = Rs. 285 cr. (12.71%), Domestic Formulation = Rs. 720 cr (32%), International formulations = Rs. 1041 cr (47%).
  • With the long-awaited blockbuster launch of the generic Glatiramer Acetate (Copaxone) injection and the generic Liposomal Doxorubicin in the US, in addition to other niche and several first-to-launch products in India, we have achieved our financial targets. Lanthanum Carbonate (Fosrenol) was also launched in FY18.
  • Additionally, the generic Oseltamivir (Tamiflu) sales in the US was a strong contributor for the Company for the second year in a row in spite of competition.
  • International formulations facility
    Kothur facility: Oncology, Gastroenterology, Central Nervous System (CNS) and Cardiology
    Visakhapatnam facility located in a Special Economic Zone (SEZ), to be commissioned shortly.
  • Domestic Formulation facility
    Nagarjuna Sagar facility: Oncology, Antibiotics and Antiviral
    Dehradun Unit 6 facility: Oncology and Antiviral
    Dehradun Unit 7 facility: Oncology
    Guwahati facility: Gastroenterology
  • API Facility
    Mekaguda facility, Telangana
    Chennai facility, Tamil Nadu
  • We have seven manufacturing facilities for formulations and APIs. Our business is supported by an employee strength of 4,831.
  • 3 USFDA approved facilities: Kothur (formulations), Mekaguda and Chennai (APIs).
  • 60% ANDAs for the US backward integrated with our own API.
  • 46 niche ANDA filings in the US, 29 approved ANDAs and 42 DMFs filed in the US.
  • Received six ANDA approvals from the USFDA in FY 2017-18. Our R&D spends for the fiscal stood at Rs.166.5 cr., 7.8% of the standalone revenue vs 6% in the previous fiscal.
  • The Company earned foreign exchange amounting to Rs.1032.1 cr and used foreign exchange amounting to Rs. 297.8 cr during the year ended 31 March 2018
  • Have a well-established presence in the domestic formulations market, particularly in the gastro hepatology and oncology therapeutic areas. Further, we have diversified our product portfolio by launching products in cardiology and diabetology (CnD) therapeutic areas in 2017. Launched 7 products in India in 2017-18; 3 of which were first to launch in the country
  • NATCO Pharma (Canada): 15 product approvals with a mix of in-house and a few in-licensed products. Active products include generic versions of Oseltamivir Phosphate, Imatinib Mesylate, Citalopram and Ondansetron
  • Natcofarma do Brasil: Backed by a strong portfolio of oncology products, we expect to file several products in the coming years. Recently received first product approval for Letrozole.
  • The subsidiaries generated a total revenue of 945.5 million (net). Amongst these, Canada was profitable with about737 million in revenue, while our arm in Singapore had a fruitful year with eight product approvals.
  • In FY 2017-18, we raised around `9,150 million via a Qualified Institutional Placement (QIP). This capital will be invested in organic growth and potential niche inorganic opportunities.
  • Products Launched in Domestic Market
    Oncology: Carfilnat (Carfilzomib), Pomalid (Pomalidomide), Alphalan (Melphalan injection) (Note: All were first-to-market in India)
    Pharma Specialty: Velpanat (Sofosbuvir + Velpatasvir), Tafnat (Tenofovir)
    CnD: Arganat (Argatroban) Dabigat (Dabigtran Etexilate)
  • Our six flagship brands,Geftinat, Erlonat, Veenat, Sorafenat, Lenalid and Bortenat in Oncology in Domestic market, recorded annual sales of over Rs. 100 million each in FY 2017-18.
  • The Group has two customers who contributed more than 10% of the Group’s total revenue during the current year and one in the previous year. The revenue from such major customers during the year is Rs. 845.6 cr. (31 March 2017: Rs. 642.9 cr).
  • In the US, there is significant pricing pressure driven by payer consolidation, restrictive reimbursement policies and cost control tools such as exclusionary formularies and price protection clauses. In addition, patients are seeing changes in the design of their health plan benefits and may experience variation, including increases, in both premiums and out-of-pocket payments for their branded medications. Outlook According to IQVIA Market Prognosis, real net per capita spending on medicines in the US will decline in 2018 and continue almost unchanged at almost $800 per person through 2022. The combination of rising off-invoice discounts and rebates, slowing overall medicine spending growth and a strong economy resulted in the aggregate adjustment of normalised medicine spending to decline in three successive years following the peak in 2015 and this is estimated to continue unchanged upto 2022.

Regards
Harshit

Disclosure: Invested


(Tarun) #196

My take away from Q1FY19 result and concall:

  • 23% top line growth Y-O-Y from 449 Cr to 575Cr.
  • EBIDTA margin jumped from 31.2% to 44.1%.
  • PAT margin from 20.9% to 31.6%.
  • As rightly pointed by @harshitgoel above, segment wise not that great result though base Onco business holding and further strengthening (as per concall vibes).
  • Summary of segment wise trending over past 9 quarters:

  • gCopaxone - Approx 18% market share (think this was 15% start of the quarter). So far Mylan + Natco has been conservative on pricing war with Teva. Mylan’s gCopaxone was pitched just 14% below the brand price, i.e. $5,000 vs Teva’s $5,800. However, off lately Mylan has been into all out showdown with aggressive 60% price to $1900. This is expected to shift market for them fro incumbent. Other important aspect that Natco management acknowledged was that this is not entirely pricing aspect, from therapeutically perspective this has some short of stickiness due to which the market share acquisition
    is slow.

  • Hep-C franchise: There was a slow down in run rate from ~110 Cr/Quarter to 75 Cr/Quarter. Management assessment to stabilize around 85ish Cr. Expanding foot print to rest of the word particularly condensed pockets of HepC like Indonesia and Philippine. based on past comments, 12 countries has HepC approval against filled for 30 countries.

Though recently NPPA has imposed price cap on certain Hep C medicines however may not have significant impact o Natco as its flagship drug Velpaat is already priced much lower than the cap. (this was indicated in one of the concall as well, think in Q3’18 call)

http://nppaindia.nic.in/ceiling/press04July18/FormulationPrices(50).pdf

VELPANAT ( Velpatasvir 100mg + Sofosbuvir 400mg): Proposed retail price 15482 vs. Natco price 13875.

  • Tamiflu: with other generics coming in fray the numbers will not repeat itself from what they saw during flue season CY17 and CY18. Though they have approval for both suspension and table now. Interesting comment during concall is that they have not booked entire profit in Q1 and will spill over to Q2. (Substantial -in managment words).

  • Substantial cash in books: company is sitting with whopping 1450 Cr. cash/liquid instruments. Additional strong cashflow expected from Copaxon and Doxil for the FY. Though Rajeev has been very tight lipped during concall, Investor presentation calls for inorganic growth.

  • CnD segment: Growing well. They had a projection of ~150 Cr topline by FY’19. Again, targeting niche products under CnD. Within a very short duration of forming CnD segment they are looking at gBrilinta for India market. This appears to be one of the top drug in US market with $1B clocking. Though have been stayed by AstraZenca:
    https://economictimes.indiatimes.com/industry/healthcare/biotech/pharmaceuticals/astrazeneca-sues-drl-on-patent/articleshow/65123998.cms

  • CapEx: 400 Cr. for FY out of which 100 Cr. so far utilized. Vizag plant expected to come online by mid of year.

  • Revlimed: Same stance, they have limited launch agreement with Innovator however can move early (as early as 2019) if competition comes in.

  • Targeting at least two, three FTFs this year.

  • Operational break even for Brazil sub by year end.

  • Other income break-up: approx 56 Cr. other income as against 40 Cr last quarter.
    export credit 20 Cr.
    Forex gain: 15Cr.
    Interest income: 20 Cr.

Overall, seems that the same industry wide headwinds (short of) are at play for Natco as well. However, couple of big opportunities makes it equally interesting. Additionally, managements focus on play by strength gives some confidence.

Thanks,
Tarun
Disc: Invested, no transaction in last 90 days.


(Tarun) #197

(Growth_without Debt) #198

Good news for Natco