Natco Pharma: Focusing On Complex Products

(Tarun) #84

Some quick notes from todays concall:

  • Revenue growth of 31% YoY. PAT of 97%.

  • Broadly segment wise revenue split (in Cr.):

  • Copaxon opportunity:Target action date was in June. One ‘minor’ follow-up questions was replied to FDA. Currently no action pending for Natco. Are ‘Ready to Launch’ subject to approval. Is still an FY’18 opportunty.

  • US pipeline: The message is getting re-enforced since last 2 concall. Natco want to be very selective about US opportunity. They DONT WANT to chase any opportunity where possibility of 4/5 players competing. With buyer consolidation, there is nothing left worth the compliance risk if there are too many players. Rather, they find better proposition in putting energy chasing interesting prospects in India market.
    One apt example quoted by Rajeev during the call was related to Pomilomide. Here for India filling they are expecting ~18Cr worth business vs. USD1mil, that too with all regulatory issues involving FDA.

  • R&D: Was in the range of 6.5% and maintain the same for FY’18. Broadly 50% towards domestic opportunity. rest equal split for US and Lat-Am.

  • Cardio and Diabitic (C&D) opportunity: July launched first generic, Artrotrovan (hope i have got the name/spelling correct), niche launches planned for 12-18 months.Bullish for India portfolio.Projection for 150Cr for FY19. overall 20% domestic growth projection.

  • Pipeline: Vidaza to be launched this quarter. Not much juice left for Natco. DRL/Mylan/Shilpa (with possible three sub-licence agreement) is a crowded place. Doxil is exciting opportunity.

  • CapEx: Projection of 400 Cr. So far done with ~86 Cr. Primary focus on Vizag formulation plant followed by Assam and Dehradun capacity ramp-up.

  • gTamiflue Suspension: So far no generic for suspension. can be ~250-500 mil opportunity over and above current tablets HOWEVER will depend on competition landscape at that point in time.

Personally, most important take away is related to they being extremely choosy on ANDA opportunity going forward. Can turn out to be prudent move or a growth halter. No easy evaluation at this moment. Can be assessed only in hindsight.


(stockcollector) #85

I attended the concall (missed the last part though due to disconnection), my rough notes:

Consolidated revenue 448 (30% growth)
NPAT - 93.7(97% growth)
EPS - 5.58

Segments API - total 86 cr, domestic 6.7 and exports 79 cr
Formulations - Domestic 182 cr(oncology 73 cr, branded 84, 3rd party 24 cr)
Exports - 43.6 and 133 cr (Tamiflu 72 cr, Doxil 8.5 cr minimal sales, next quarter will be more meaningful) other exports 43 crores


Copaxone - management still tight lipped, expecting an outcome this FY
Domestic - few niche launches and many first generics
R&D spend 6-6.5% of sales (more India focussed than US)

Tamiflu suspension - no other filers so far
Hep C - 100 crore revenue in India (price erosion stabilised, consolidation of competitiors, only 4 firms now competing, sales approx 40 crores/month)
Hep C exports 3.7 crores, sale in 12 countries, approval sought in total 30 countries

Debt - 156 crores, Cash 209 crores
Capex for this year in India - 400 crores, 86 crores spent so far (India focussed)

ANDA - will be selective from now on, focus on profitable products, aim 4-5 filings this year
American business very competitive, several players. Hence focus will be on India and other markets such as canada, brazil, singapore and philippines

Oncology growth > Hep C

Azacitidine will be launched this year in US, not expecting much profit since many players already present

Pomalidomide - 18 crores sale or profit in India, doing well

15-20 niche launches in India this year.


(chets) #86

@stockcollector Good summary!

Few additional points:

  1. Had almost a month of no sale this quarter due to GST. However things are back to normal in July.
  2. Targeting 20% growth in domestic market this year.
  3. Tamiflu updates: Next quarter Doxil will offset Tamiflu sales to an extent. Expected sales from Tamiflu are low next quarter as it is a seasonal drug. Better sales expected in Dec-March quarter but numbers will be lower than last year. Hoping for Tamiflu suspension approval later this year to capitalize on flu season.
  4. US market: Will file only for niche products. Expect 4-5 ANDA filings in next year. Reason being, there is not much money to be made in high competition drugs.
  5. Domestic market: More focus now on domestic and very bullish on India. India potential is being under played. Real value is in India if u do a good brand and do it early.
  6. Copaxone: We are ready for launch, waiting for FDA approval. No other details were shared.
  7. Doxil: Since launch was late, no significant earnings this quarter. However expecting good numbers in coming quarter.

Overall, the management wants to focus more on India market as they feel better money can be made if they launch the right products and launch them early. Also they want to avoid getting into crowded high competition launches.

(saumya) #87

Natco pharma posted good q1 results even though no sale in one month in domestic market due to gst,
Still stocks are falling like it’s lupin or sunpharma.
Can anyone explain

(stockcollector) #88

Entire pharma pack is down, sentiment is very low, competition in the US is driving margins/profitability low. Natco is still trading at a high PE, even if corrected for one off gains (Tamiflu) Natco is trading at >40 PE (assuming normalised EPS of 20, actual EPS is 30 approx). Market is assuming that the past lofty growth rates are not going to be maintained/sustained, so a de-rating is happening. This price correction is healthy and gives the opportunity for investors who believe in the long term story.
Lenalidomide is the most promising drug in Natco’s portfolio in my view and this will take another 2-4 years to kick in as per the deal with Celgene. I am not so sure about copaxone.
They also have a very strong Oncology focus and dominant market share in India which the market is not giving the credit it deserves.

Discl- hold

(Venkatesh) #89

The 1Q results had a big component of Tamiflu profit share. This Tamiflu component is one off. In the sense it will not recur in 2Q and 3Q. By the time 4Q comes (flu season in US) there will be more competition. Management believes they will get approval for Tamiflu suspension by then which should make up.

If you remove Tamiflu from numbers, underlying numbers are weak. That is because India business is down due to GST destocking, But India started rebounding from month of July.

They have highlighted on the call that they will reduce focus on USA and focus more on India and look at launching only niche drugs with limited competition in USA.

In the backdrop of generic competition, pharma sector weakness, one off weak India quarter due to GST and they reducing focus on USA, some investors might have panicked.

(Shiv Kumar) #90

the pharma business of piramal enterprises continue to grow while other
companies appear to be in sharp decline.

(chets) #91

It is amusing to see sentiments related to a business change overnight. :slight_smile:
Most of us knew that the tamiflu revenues were going to be stellar only for 1-2 quarters. As stated by @stockcollector some correction is healthy and provides opportunities.
If copaxone announcement comes in next few weeks, the exuberance will be back and lofty targets will be normal again.

Disc: Invested and looking to add more.

(Venkatesh) #92

By the way Mylan will report numbers tonight and will also hold its conference call. So by tomorrow you might have some update on Copaxone.

@Shivkumar I dont think pharma business of Piramal Enterprise is comparable to that of other Indian pharma companies

(chets) #93

This is from mylans earnings announcement…not good for natco.

(Tarun) #94

Natco was not alone in getting beating from market today. Partner in crime Mylan has also got the equal music out there.

Not sure what to make out of the explanation ‘The change was made “given the region’s ongoing challenges and the uncertain U.S. regulatory environment,”.

Till very last quarter, same Mylan management was very bullish on launch prospect. And the bigger question that warrants focus is, what gives them the assurance that by 2018 the uncertain regulatory environment will change.

(Sumeet Shah) #95

Mylan did fall initially to the tune of 9 percent, but it closed in positive (0.25% up) and in after market hours, it was only 1.1% down. They have revised their guidelines, but apparently in the concall, they were still positive about Copaxone and other things (according to friend merp96 in another forum). I will be reading the concall script once I get it.
As for Natco, even if we remove the additive effect of Tamiflu, there is still a 10 percent growth or so, in the Indian market, which, according to me is reasonable, considering problems Pharma is facing. If you see results of Sun, Lupin, DRL, Aurobindo, all of them have significantly negative growth yoy.
Probably a re rating is happening in Natco, as initially it enjoyed a high PE but with earnings visibility reducing (especially Copaxone, which many short term investors may have assumed, will get approval by June or July and that has not happened), and Pharma in doldrums, many short term holders and few long term holders may be getting out and investing elsewhere. To note, in these few days fall, there have been no block deals (or at least I am not aware of); so big holders are persisting.

(Pegasus) #96

The removal of complex products from Mylan’s guidance is primarily to do with Gx Advair where the company has to resolve scietific issues raised by US FDA, There are no scientific issues to be addressed in Gx Copaxone and we may well see the approval in 2017 itself.

Natco is expected to retain the momentum in earnings. Here is what I feel will drive earnings in subsequent quarters:
Q2 FY 18 - Bounce back of domestic business (July shows business back to normal) and increased profit sharing of Gx Doxil. Expect PAT of Rs 100 - 125 Cr.
Q3 FY18 - Launch of Lanthanum Carbonate in US, sustained traction in Gx Doxil, coupled with significant scale-up of domestic business. Expect PAT of Rs 125 - 150 Cr.
Q4 FY18 - Launch of Gx Tamiflu Suspension, Gx Glivec, traction in Gx Doxil and domestic business. Expect PAT of Rs 150 - 175 Cr.

Thus we see that a PAT of Rs 500 - 550 Cr for FY18 is very much in achievable zone.

The above calculations dont factor in Copaxone launch at all and I sense it will DEFINITELY come in FY18. As mentioned during Mylan call there is no scientific issue outstanding and its only a matter of time.

(chets) #97

(Pegasus) #98

Promoters have started buying the stock from open market.
They picked up 25,000 shares from the market last week post the fall.

(Pegasus) #99

Natco has received approval for Gx Lanthanum Carbonate.
Another niche approval.
Lupin is commercialization partner for Natco in this product.
Lanthanum is $125Mn product & Lupin/Natco are 1st Generic (expected to be only generic in near future)
Expected to contribute ~$15Mn annually to Natco’s PBT

(debanjanray2003) #100

Today analysis by Business Standard newspaper assures that the recent fall in Natco Pharma’s price is actually an opportunity to buy for the long term investors.

Here is the news:

"Natco Pharma’s niche portfolio an opportunity
Despite delay in generic Copaxone launch, the firm’s
strong prospects make the risk—reward favourable


Natco Pharma, which had reported a strong June quarter performance, has seen a steep correction in its share price thereafter. The reason being an indication by marketing partner Mylan towards a delay in the launch of generic Copaxone, a drug used for the treatment of _ multiple sclerosis.

Mylan indicated that all major launches, including generic Copaxone, would be deferred to 2018, from 2017, looking at the ongoing challenges in the US and uncertain regulatory environment. The news comes as a disappointment to the Street, which was factoring the gains in FY18.

However, the stock price correction can be considered as a good opportunity for long-term investors, as business prospects remain healthy.

Natco’s business model in the US challenges large and complex product patents with small but effective portfolio of complex molecules that face limited competition. Thus, it has been able to launch prod- ucts at regular intervals, a key performance driver. The latest launch was of Tamiflu generics in December 2016, which has contributed over ’ $100 million to its revenue.
The drug major is nowbetting big on Copaxone.

Natco Pharma and its alliance partner Lupin have recently got approval for Fosrenol chewable tablets, a renal treatment generics drug. With this, the company eyes a reasonable market share of $10 -20 million. Other products which can contribute signifi- cantly to its performance include oncology treatment Revlimid and hypertension drug Tracleer. Its oncology drug Vidaza injections and Doxil generics have been launched, and are expected to contribute to its numbers in the September quarter.

The US contributes around 40 per cent to Natco‘s top line. It also derives a sim- ilar share from the domestic arena. The growth in its niche portfolio is shaping well in India. Natco’s strong foothold in the Hepatitis-C segment (about a fourth of domestic revenue) may have witnessed price control but analysts said the launches would lead to sustainable growth. The oncology segment, too, is growing well, contributing about a fifth to the company’s domestic sales. The manage- ment said Natco was now focusing on increasing invest- ments in India and the rest of the world markets. Though some may have perceived it negatively, it is a good propo- sition looking at the challeng- ing environment in the US. Its India revenue have grown fourfold in the past three years. There was a 39 per cent growth in FY17. The rest ofthe world markets also offer good opportunities, looking at the low base of Natco.

Ranvir Singh, analyst at Systematix Shares, say the strategy is positive and besides, the company has continuedto surprise with its US launches regularly.

Factoring the delay in Copaxone launch, analysts at Axis Capital have cut their FY18/19 earnings per share by 15 per cent, but still arrive at a discounted cash low-based target price of Rs. 940. Their analysis suggests a bull case target of Rs.1,120 and a bear case target price of Rs.825. Clearly, there are gains from the current level of Rs. 704."
20170906-Natco-BS-GoodForLongTerm.pdf (320.1 KB)

(Cshar) #101

Don’t believe on reports, all reports are prepared to dump holdings of HNI & Brokerage houses. Without Copaxone, sustaining current PE will be difficult. No doubt Natco is best stock in Pharma, here whole pharma is in doldrums due to severe pricing pressure. Watch Q2 results to find out real impact & take a call.

(arunjacob) #102

one of my concern is about the long term growth of the Natco’s US business

What about the profitability of all the high value drugs once the exclusivity is gone? (assuming 50% profit sharing with the partner pharma company). For example , management says that they have to think about the supplying of tamiflu to US market in the next flu season depending on the competition. Is it still profitable to produce the drugs after 50 -60% price fall & ~50% profit sharing ?

Also to supply the high value drugs outside the US , do they still have to share the profit with partner pharma company?

(bsahni) #103

My notes from Natco AGM​:point_down:t2::point_down:t2:

  1. No 3D Printing on drugs as if now.

  2. Online Drug Delivery not possible as our Products are Hospital driven.

  3. No Brexit Impact.

  4. Confident of Copaxone in near future.

  5. GST & Demonetisation impacted business in short term but long term growth intact.

  6. Copaxone approval is expected in this Fiscal year. Hoping Gud news this FY but not in a position to give exact timelines.
    Mylan is currently working on this.

  7. New Product Pipeline in Diabetology & Cardiology in Indian Market showing gud results.

  8. Low equity base & huge reserves.

  9. Trying to enter Brazil but stringent approvals reqd & it’s in progress.
    Canadian subsidiary is doing extremely well.

Australian & Singaporean subsidiaries hv also got products registered & shd be contributing towards business growth

  1. Strategy of doing complex products is not diluted.

Will be filing 10-15 ANDA in US per year. But as developed markets are too competitive & margins getting squeezed so we will be inclined to put more money & effort on domestic & ROW.

  1. We are more Careful in choosing our portfolio & everybody is overdoing US where this is significant pressure & competition & underdoing Domestic & ROW but we are committed to balance the PF with domestic & ROW opportunity

  2. Q1 was affected by GST & it is stabilized now

  3. One third of Profits is distributed as dividend.

No bonus or split as if now even though huge reserves on low equity base.

Huge event is reqd for that time.

  1. Company is debt free.