Yet another good outcome for Natco. Carfilzomib patent expiry is in 2025 (I think) and used in the treatment of myeloma. No benefit from this in the short term, but good to see a steady pipeline of drugs in the US
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Regarding Natco’s Agrochemicals space foray:
The company has given guidance that it will be focusing on niche molecules and not commodity products. They have identified a basket of niche difficult-to-make products (limited competition) that would give it a competitive advantage. This segment is likely to account for 10-15% of revenues three years down the line.
Ref: Nirmal Bang & ICICI Direct Reports on Q4 FY19 performance.
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hi All,
Natco’s focus on niche drugs has created significant shareholder value. However, i find it very difficult to value the company because -
| Particulars | 2015 | 2016 | 2017 | 2018 | 2019 |
|---|---|---|---|---|---|
| Revenues | 8,253 | 11,416 | 20,202 | 21,848 | 20,945 |
| Operating Profit | 1,661 | 2,188 | 6,280 | 8,622 | 7,138 |
| OPM | 20% | 19% | 31% | 39% | 34% |
| Profit Share | 0 | 0 | 4330 | 8700 | 7350 |
| Revenue ex Profit Share | 8,253 | 11,416 | 15,872 | 13,148 | 13,595 |
| OP ex Profit Share | 1,661 | 2,188 | 1,950 | (78) | (212) |
| OPM ex Profit Share | 20% | 19% | 12% | -1% | -2% |
As can be seen from above, profit shares have been a sizable part of financials, with 4,333 mn in 2017 coming from successful launch of the generic version of Tamiflu (180 day exclusivity, partnered with Mylan), while in 2018, it has increased to around 8,700 mn crores from sale of Doxil and copaxone, further accruing to around 7,350 mn in 2019 (from sale of copaxone). However, this profit share distorts the company’s margins (especially in the last 3 years), with the base business profitability declining, possibly due to investments in future launches. Also, I have been unable to sort the disconnect of the negative OP in the last 2 years.
The timing and a rough estimate of such windfall is generally known to the market, and It can be assumed that today’s market cap of 100,000 mn INR includes the impact of profits coming from copaxone (2020), new launches in RoW and India for 2020 and 2021, and big US filings in 2022 – Revlimid, Nexavar, Everolimus).
Further, although company has low leverage (0.3x D/E in the last 10 years), company has also diluted its equity multiple times over the years –
| Year | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 |
|---|---|---|---|---|---|---|---|---|---|
| Shares Outstanding | 140.7 | 155.7 | 156.9 | 159.7 | 165.6 | 171.0 | 174.4 | 184.5 | 182.0 |
| increase by | 10.7% | 0.7% | 1.8% | 3.7% | 3.2% | 2.0% | 5.8% | -1.4% |
Also surprising has been the buyback in Nov 2018, where the company bought back 2.5 mn shares at 1,000 INR each after raising 10 mn shares at 915 INR each in Dec 2017.
has anyone else found this strange?
you can read my entire thesis on -
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Excellent analysis Umang, well done!
Just my few cents…
Natco is a niche player in the pharma space and continuously evolving. Their ability to copy complex generics is commendable (lenalidomide, ibrutinib, copaxone etc). Lenalidomide opportunity is just huge!
PE of 15 or so. Growth forecast by the management is approx 10% for next year. No debt - so they are not going to out of business. Net cash of 1000 cr approx.
Lenalidomide and other future niche launches - market is valuing at 0 in my view.
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Pipeline of niche launches in the US and shift in focus to other geographies should pay off
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To stockcollector
thanks a lot!
yes, revlimid is certainly big for them. and they have already settled with the innovator so i am assuming a lot of profitability has, to an extent, been de risked.
however, i think pe of 15 may not be a right metric to look at since the earnings include significant one time profit shares, not likely to come till 2022.
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I think it is too simplistic to just deduct the profit share from Revenue and operating profit and then look at numbers. There is a cost which resides for delivering that profit share which has not been accounted for by you.
hi Saurabh
as per the company’s Q4 2019 concall -
"Q: Just a followup so our profit share goes directly to profits or does it have any cost associated?
Rajeev Nannapaneni: Most profit share is just adds to the bottomline."
The costs all get accounted for when the sale is first made to the partner company on an industrial margin of 10-15%.
https://www.bseindia.com/corporates/anndet_new.aspx?newsid=c3d57464-13bf-4821-91b4-350d98f35b2d
EIR with zero observations for Kothur facility
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Anyone attended concall? Can you please share the summary of concall.
A small snap from annual report on why crop protection entry. They think they can possibly leverage on their existing capabilities to foray in crop protection and they are also targetting international foray in same
“We are using our expertise in organic
chemistry to leverage our skillsets
and expand into the agrichemical
space. After carefully assessing the
market potential and understanding
our own strengths, we are targeting
a unique set of molecules for the
Indian market, which have a potential
to expand to other regions.
NATCO has also entered strategic
alliances with partners who will
help us in making inroads into the
segment. We have already initiated
activities related to the construction
of facilities in Nellore area, Andhra
Pradesh for both active ingredient
and crop protection products.
Our agrichemical venture
complements our differentiated
R&D approach and will be a key
growth lever in the coming years.”
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Natco Pharma Limited is pleased to announce successful closure of inspection with the receipt of Establishment Inspection Report (EIR) from the U.S. Food and Drug Administration (FDA) for the inspection conducted at its drug formulations facility in Kothur Village, Telangana, India, during the period May 30th – June 5th, 2019.
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Now entering Chinese Market
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NATCO CONCALL HIGHLIGHTS:
• India business down due to Hepatitis C its down to 31 crore from 70 odd YoY and down from 41 cr QoQ.
• Revilimid approval should be in next few months. Kothrud inspection was general and not product specific.
• Apixaban & Regorafenib launched in India – Have challenged the patents, Were Injuncted and have reversed the Injunction. We have launched in June, so sales should increase.
• Copaxone contribution is increasing and has been big part and hopeful to be stable.
• Some niche filings expected in next few weeks. We remain focused on strategy of filing niche filings.
• Domestic Business – 164 crore, Oncology is 80 Crore, Non onco 31 crore, Third party 23 crore, C&D 30 crore
• Oncology domestic will grow and we are confident. Some billing related issues that we held up on.
• International subsidiary did 28 crore, if we remove R&D expense, we are breakeven already. ROW will become a substantial business going ahead and we are very hopeful to do very well in coming months. We should breakeven on overall business including R&D and filing expense in next 12 months.
• US at the moment is contributing around 35% and we are confident to bring this down.
• R&D expense for the year 6-8%. Last year it was 9%, but target is between the range of 6-8%
• Cardiac segment should do very well. We are confident that this is sustainable. Won litigation yesterday on Ticagrelor, not in the market. We are planning to launch next week. We are bullish on the segment.
• Oncology – Small amount we took provision, some small sales reversal. We are confident for 15% growth on segment.
• Brazil & Canada are doing very well, we have some good launches planned in next few months and years.
• We have launched Gleevec, Nitroglycerine, Tetrabenazine which are small contributions. Erlotinib is coming up in November which should be again a small to medium contribution.
• We are working on filing Copaxone in China with Mylan.
• Top Filings – Revilimid, Ibrutinib, Sorafenib, Evrolimus, Lepatinib, Carfilzomib (1 strength - Settlement) – These are all Sole FTF except Everolimus which is low competition and Carfilzomib only 1 strength
• We have FTF on Bosentan 32mg Suspension
• I am still bullish on my US Business and general generic business. Need to be rationale on R&D investment. Copaxone took 8 years to come out.
• 2 -3 big launches like sole FTF and 4-5 medium launches will take care of next decade. So we are very confident on our business.
• Total cash & cash equivalent are around 1100 crores
• Around 375 Crore is the total capex planned for this year – 100 crore for Agri, Vizag is almost done, Oncology plant expansion, preparing Revilimid launch, Injectable line expansion, API facility.
• Subsidiaries are doing 30 crore quarterly at the moment and we will double by next year. So we expect between 250-300 crore business from subsidiaries in next 18 months.
Some rough notes!
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I hope that is only as a percentage of revenue dependency and not actually decrease in revenue
ec6c8018-1d92-4233-b8e3-ef77e17bf4d7.pdf (121.9 KB)
Form 483 with 6 observations for Mekaguda facility. This is API plant not a finished doses formulation facility.
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