Natco Pharma: Focusing On Complex Products

There are few more big molecules from NATCO in the pipeline:

Carfilzomib

  • NATCO has reached settlement with the Innovator Brecekenridge

  • *First to File in 10 mg

  • Sales of $ 586mn in 2018

Imatinib Myselate

  • Partenered with Lupin (not FTF)

  • Total sales in 2018 was $655mn

Chlorantraniliprole
Innovator FMC had sales of 1540 cr

The MOST important question is - does Natco have a pipeline where they can launch one large value molecule every year or does it remain a one molecule wonder? Ibrutinib is a big molecule and Natco believes it is first to file in that molecule. How about others?:

Revlimid and Ibrutinib launches should drive the topline growth for next 5-6 years (Revlimid would have incremental sales from 2022 till 2026). Going forward NATCO is focusing more on Canada and Brazil markets (as per AR 2019 as it is facing more competition in US), so probably big ticket launches will reduce gradually and more diversified launches will be there. Venture in Agrochem supports the thesis

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I am pretty sure they have a good pipeline and more to come in the future

Carfilzomib - I am not too sure whether this will be a big opportunity in the future, it is an intravenous drug and side effects are significantā€¦But, it is a good anti-myeloma drug, no doubt about efficacy, side effects are concerning. No where close to lenalidomide obviously.

Imatinib - Sun was the FTF, not going to make much money according to Rajeev N, CEO, he disclosed this fact in a conference call last year

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As per my understanding gImbruvica (Ibrutinib) is a decent opportunity with sales of USD 4 bn+. However this will play out somewhere around 2024 or afterwards. One very interesting aspect of this opportunity is the play on dosage form. Innovator AbbVie has settlement with Teva, Hetero and Shilpa for capsule form. Natco filling is for Tablet form. For 2018 AbbVie had 83% sales coming from tablet form.

@Nalini_Kant - gKyprolis (Carfilzomib) is really far off on horizon, somewhere by 2027. Some reports suggests that Amgen (innovator) settled with other generic players (Apotex, Fresenius Kabi, Sagent Pharma)

Chlorantaniliprole - Opportunity is exciting. However, my strong recommendation is to go through Q2ā€™19 investor presentation, Q2ā€™19 concall transcript and FY19 AR of FMC. Cannot reproduce ad-verbatim here for IR issues, however in summary Rynaxypyr has been one of the Golden goose for FMC. They have ring fenced the markets across the globe with layers of patent protection. Additionally, have a ā€˜poison pillā€™ commercial construct. So far, have licenced the product to 15 companies on royalty + raw material sourcing clause. Additionally, indications are that they are working on NextGen variant of these products thereby shifting the market and leaping ahead of competition.


Here is a quick summary that I collated for own use related to Natcoā€™s launch pipeline, market potential and competition landscape. Hope this helps.

Excel attachment in case image is not coming up well.-> Natco Pipeline.xlsx (15.6 KB)

Additionally, a must read report from Edelweise for anyone who want to pursue Natco story seriously. ā†’ Edelweise Report. Exemplary coverage.

Regards,
Tarun
Disc: Invested, no transaction in last 1 year.

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Edelweiss _ US filings review _ 14.01.20.pdf (2.6 MB)

Source: Trendlyne

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NATCO Pharma has recorded consolidated revenue of INR 827.90 Crore for the 2QFY21 +60% YoY. The net profit was INR 203.90 Cro +73.2%.

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NATCO Pharma:

Concall Summary dated 13th Nov 2020

Revenue: ā‚¹802.2 cr (ā–²65.2%) Net Profit: ā‚¹203.9 cr (ā–²73.2%)

Financial Performance:

  • The revenue from operations was ā‚¹802.2 crore in Q2 FY21 as against ā‚¹485.7 in Q2 FY20, an increase of 65.2% YoY.
  • During the quarter, the net profit grew by 73.2% YoY to ā‚¹203.9 crore from ā‚¹117.7 crore in Q2 FY20.
  • It had a cash and cash equivalent of ā‚¹206.2 crore as on September 30, 2020.
  • The net debt was ā‚¹431 crore in Q2 FY21 with actual borrowings of ā‚¹105 crore and foreign bill discounting of ā‚¹326 crore.
  • It declared a dividend of ā‚¹3 per share during the quarter.

Business Performance

  • The active pharmaceutical ingredient (API) had a revenue of ā‚¹199.7 crore during the quarter.
  • The domestic formulations business revenue was ā‚¹108.3 crore in Q2 FY21 while the formulations, export business stood at ā‚¹482 crore during the quarter.
  • It witnessed a decline in the sale of Hepatitis C drug and ~70%-75% of the sales potential had been realised on account of lower visit to hospitals for cancer treatments due to Covid.
  • The cardio and diabetology business performed well, with a demand pick-up of 70% towards oral business. The chemotherapy business remained subdued as the maximum revenue is derived from 5 major states Delhi, Mumbai, Hyderabad, Chennai and Bangalore, which witnessed a decline in patientā€™s visit.
  • The decline in oncology business was more in USA than in India. It witnessed a less decline in India on account of branded nature of the business here.
  • The total capex spending towards agriculture-chemical (agro-chem) business was ā‚¹31 crore during the quarter and overall capital expenditure towards it had been ā‚¹140 crore. The company would be hiring 80-100 people for launching its new product portfolio. It is utilising its capital expenditure mostly towards manufacturing facilities.
  • The company had settled the litigation process towards its launch of Revlimid during March, 2022.
  • Its marketing partner Breckenridge Pharmaceutical Inc. had received approval for the abbreviated new drug application (ANDA) for Pomalidomide capsules from the USFDA, and both the companies had settled litigation for the filing approval.
  • The marketing partner which sells Pomalyst in the USA market for specific cancer treatment had a sale of ~$1 billion during the year.
  • The retail business had performed better in Brazil and Canada as compared to USA.
  • The other expenses were ā‚¹207.2 crore which increased during the quarter on account of Remdesivir launch in USA and the company incurred this as a one-time expense and expects it to normalise during the upcoming quarters.

Disc: Invested in Core PF.

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Read collaborators research on Natco - well done guys

Re - Revlimid and celgene settling with multiple pharma companies

2 important things to understand

A, patent is valid until 2026, so no price erosion until 2026

B, Nato will get single digit market share of Revlimid from celgene in 2022, from March onwards, and this will increase to not more than 33% until 2026. Other companies who have settled with Celgene - the notification says after March 2022 (it could be 2023 or 2024) Celgeneā€™s deal with other companies will not alter Natcoā€™s sales- It will be Celgene who will be losing market share of revlimid between 2022 - 2026.

From 2026, generics will rule the market, Celgene will not competeā€¦Natco will still have an advantage being one of the first generic playerā€¦

But, Natco will have to get FDA approval from FDA this year - this is the most important trigger for Natco this yearā€¦

Ibrutinib opportunity - this is a huge opportunity, from 2026. There are other similar drugs in the market and this story will continue to evolve. There are other drugs such as zanabrutinib, calabrutinib etc. Ibrutinib is the 1st generation of its kind of molecule

Other complex generic opportunities - Natco will surely have several molecules in the pipeline

Hep C india business - this will continue to shrink

Oncology business in India - will stabilize soon and will grow since the incidence of cancer is increasing as the population agesā€¦

Cardiology and diabetes - again good growth areas

Natco is a niche pharma company, there will be growth spurts and in between you will see below average growth. I have been invested since 2013 (after hearing their revlimid story - am still waiting for this dream to become reality). Management is excellent and honest. No financial engineering is happening - no debt.

Discl - 25% of my portfolio, continuing to add (last buy transaction at 908 rs)

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@Donald wrt video posted in collaborator thread on natco, do you advise beforehand on twitter or any platform. Would wish to join such discussions on stocks of intrest like natco, lupin, glenmark, huhtamaki, neogen etc

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This is still a fledgling, evolving venture. If we can sustain this for say 6 months+, yes there are plans to make it more accommodative and accessible by VP forum members (perhaps a limited number). Also include a Domain Expert in the Panel in future discussions. Fingers crossed!

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Just finished watching team VP zoom discussion about Natco. Good presentation, well done

2-3 assumptions, which I donā€™t agree

1, Price erosion of revlimid between 2022-2026 - I donā€™t think there will be price erosion for revlimid during this time since Celgene (now acquired by BMS) has patent until 2026, Celgene is just dividing the cake amongst other companies including natco based on their out-of-court settlements between 2022-2026. Price erosion will happen only after 2026 once it becomes a generic drug and the market will be up for grabs

2, revlimid losing its relevance as other drugs are used in myeloma - selenixor was mentioned as a promising drug. Very wrong assumption. Lenalidomide is the best drug available to fight myeloma, the best thing about it is that it is a tablet which patients could take it at home. There are so many trials where lenalidomide was used and literally there is no drug which comes even close to lenalidomide as far as its track record against myeloma - it is used as 1t line, 2nd line, 3 rd line and also as maintenanceā€¦If money is not an issue for patients lenalidomide is best used in the 1st line setting and also as maintenance/continuous treatment to suppress myeloma. Myeloma remains an incurable cancer, but life expectancy has improved to 5-10 years (previously 2 years only)
The cost of revlimid in the US is $100,000 per year for a patient. In India the same drug is available at approximately 2000-5000 USD per year.

Selenixor is still going through trials, it is not yet standard treatment for patients with myeloma.

3, Why not biologics? - Natcoā€™s strength is complex/organic chemistry and that is what they are doing. Biologics require a completely different skill set which Natco does not have. Biologics is not an answer to every disease by the way

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Two quick questions

  1. Even though the pie is getting distributed in tranches , there should be decent price erosion. Otherwise why will there be market for generic pharma and what will be the differentiating factor between a innovator and a copier. How is the US Healthcare served if the price of innovator is same as that of a complex generic manufacturerā€¦do you have any examples where it happened in the past.
  2. In my limited understanding pomalyst ( thalidomide) again made by celgene is given to myeloma patients where revlimid( linalidomode) is not very effective in 1 line of treatment.
  3. Are patients allowed to take drugs home if the therapy is part of the REMS as directed by the fda ā€¦ as per me it has to be taken under supervision and the quantity is also limited by the source.
  4. AZ drug Calquence has reportedly shown better results as compared to Imbruvica( ibrutinib)ā€¦this is as per trials done during RCT of the drug in UKā€¦SO better drugs are coming and one needs to track that space very closelyā€¦
    Plz do correct me or add if I m incorrect or lacking in my post.
    Regards
    Divyansh
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Why would the price erode between 2022-2026 since celgene holds the patent until 2026? There are no other companies other than celgene who are allowed to sell in the US until 2026. Celgene is just distributing the rights to the patent to the likes of Natco (provided natco gets approval from FDA for revlimid). Lenalidomide made by natco is a generic but the molecule is the same as made by celgene! The generic and the innovators molecule are the same, the only difference is patent rights are held by celgene

Only celgene can distribute the rights to their patent to other companies before the patent expires in 2026. Celgene sets the price and natco will get proportionate market share as per their agreement with celgene. Celgene is losing market share to the likes of Natco, dr reddys etc, so why would they reduce the price of lenalidomide? Celgene is making agreements with various companies to avoid patent fights in the court and if celgene lose, they will lose big timeā€¦
Generics in the US are allowed only after 2026.

Thalidomide is not as good as lenalidomide and more side effectsā€¦

Lenalidomide and pomalidomide have equivalent efficacy. But, lenalidomide has been more successful in trials (early molecule to the market) and pomalidomide less so. If patient progress whilst on lenalidomide, pomalidomide could be tried but the success rate is < 30% and the response lasts only for a few months. This is reflected in their market share in the US. Lenalidomide is 10 billion and pomalidomide is 800 million. Pomalidomide is more expensive than lenalidomide. So the equation is heavily tilted towards lenalidomideā€¦
For eg - If I have 100 patients on lenalidomide at any given point of time, I will have only 5-10 patients on pomalidomide.

Ibrutinib story (treatment of CLL) will continue to evolve. There are other molecules in that space calabrutinib, zanabrutinib etc. But copying Ibrutinib is commendableā€¦

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There are almost a dozen companies in race for generic version of Lenalidomide. Natco certainly has the advantage over others as it has better settlement terms, but it doesnā€™t mean that there will not be any price erosion. There will be gradual increase in price erosion each year as number of generics will keep on increasing. Ideal expectation should be 25-30% price erosion in Year 1 which increasing to 75% over next 4 years.

Secondly ideally we shouldnā€™t compare Lenalidomide and Pomalidomide as both are for different line of actions. Lenalidomide is approved for 5 different indications with major being first line therapy for MM (Multiple Myeloma). Pomalidomide on other hand is approved for only 2 indications and is 3rd line therapy option for Multiple Myeloma. And global sales of Pomalyst are around $ 3 Bn.

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Price erosion will happen from 2026 for lenalidomide as various generic companies compete with each other from 2026 as the patent expires. Until 2026 no price erosion since there is no competition, there is just celgene until then. You guys just donā€™t get it, do you? May be I did not explain well, I am terrible at thatā€¦ :upside_down_face:
This scenario is different folks - this is not like a generic company entering the market and the price collapsesā€¦

In very simple terms (I am assuming no price increase for lenalidomide between 2022-2026)
2022 - celgene gets $100 from lenalidomide, Celgene shares $7 with Natco from March, Alvogen $5 (may be from September 2022)
2023 - Celgene gets $100 (Natco might get $12 - just my guess), Alvogen, Dr Reddys and others who have settled with celgene will get their share as per their agreement)
2024 - celgene gets $100, Natco $18, Alvogen, Dr Reddys also get their share
2025 - celgene gets $100, natco $24, others also get their share

Note celgene is losing gradually between 2022-2026 as per the terms of their settlement with the likes of natco

2026 - patent expires, market open for generic companies, one company might get exclusivity for 6 months, after that price erosion will be severe >90%

No more comments from me about this topic.

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[Natco Pharma gets registration approval from CIB&RC for Chlorantraniliprole](https://www.outlookindia.com/newsscroll/natco-pharma-gets-registration-approval-from-cibrc-for-chlorantraniliprole/2023983#:~:text=Natco%20Pharma%20gets%20registration%20approval%20from%20CIB%26RC%20for%20Chlorantraniliprole,-Outlook%20February%2005&text=New%20Delhi%2C%20Feb%205%20(PTI,used%20in%20pest%20management%20products.)

Can anyone help me know whether they have received any settlement income from Celgene for Revlimid US and in what year? Or is it yet to be received?

They got some amount of one-off settlment income in 2QFY21 from Celgene, that is why the profits were abnormally high

My first Concall Q3FY21 notes, excuse me for the typos / if missed some of the names wrong (Ravi from VP tribe was there on the call, hopefully he can post more here )

Oncology - Impact is mainly due to less number of patients in the hospitals due to covid
Some drugs, for example used in Bone Marrow Transplant , the sales are zero, that means there are no transplants done at all

Agro chemicals - We are aware of the strict regulatory norms against the pesticides so we would like to have basekt of all including Green Pesticides (one cannot move away from the toxic pesticides altogether but we are very much concisicous)
100 employed in this division, have many reps.

Bullish on Agrochemicals
Size of the market is 2000 crore
We are the first to launch, we are not here to do commodities business, we look for sweet spots , we look for niche areas

Agro Capabitlies :
Do your own brand, create market for yourself
Chicken and egg story (unless you donā€™t do it you canā€™t be sucessfull ), do something unqiue standout from the crowd
Regarding the marketing of the new ago chemical molecule , since court case is going on we canā€™t say much, it will be announed very soon about how exactly they are going to go into the market

Revlimid :
There is nothing pending from our side, all the queries are answered hopefully approval come very shortly
March - 2022 (Limited quantity only we can produce to start with), pricing power good be very good
Unless we launch we canā€™t give any projections, we have first mover advantage
Supply side is the question (how many suppliers will be there going forward) when it comes to competetion in this space

Extremely Bullish on FY 22
Bullish on Launches Lenalid and two more

Our strength is always on niche , diversify the portfolio (agro), build the base that is steady
Core portfolio - 20% Degrowth is common in generics (Question on dips / flat reveneues isntead how can you maintain stable growth)

Brazil and Canada

Brazil - Takes longer but margins are good
Canada - Next year very good launches in Brazil and Canda
many launches in Brazil and Canada are close to approval

Oral Oncoloy - More stable compare to Chemo

Our numbers canā€™t be looked at on QoQ basis , we are different business model

10 Launches in next FY in India (Oncology and Cardio)

we are more focussed on chemistry oppotunities not biotech opportunities

Immuno suprressant next year launch

Just come across this wonderful discussion between @sahil_vi @harsh.beria93 and the regulatory and compliance Expert Mr. Amit Rajan , you should listen to what he thinks about Natco ( in the entire video he never recommended or critical of any businesses )

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