Natco Pharma: Focusing On Complex Products

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A few updates over last 2 months. Though some updates are a month older, I thought to put them here, so those who don’t track this remain aware.

Update 1, Dec 12, 2016: Natco Launches the First Generic equivalent of Tamiflu® Capsules in the USA Market.
Link: http://corporates.bseindia.com/xml-data/corpfiling/AttachHis/D99B51DA_DB09_43E0_A6FF_3B19846081F2_103856.pdf

Natco’s partner Alvogen launched the first generic equivalent of Tamiflu in the US. The peak season for Flu in the US is from December to March, with the peak being in February. The following is a chart from the CDC website, showing Flu activity in the US
https://www.cdc.gov/flu/about/season/flu-season.htm
Depending on how Alvogen markets it in the US, there will be a reasonable share in the Tamiflu market. A small amount may reflect in the Q3 earnings and major amount will reflect in Q4 earnings. Needless to say, there are only two players for Tamiflu in the US market and this should definitely reflect in the earnings.

Update 2, January 25, 2017: Updates on USFDA inspection at its Kothur Formulation Facility.
Natco informed that it received 6 observations, all of which are correctable and procedural, and which the company believes, are minor in nature. They have been officially declared here, on BSE site:
http://corporates.bseindia.com/xml-data/corpfiling/AttachHis/1FA6837B_BF13_4406_83EF_505F1A5AB49C_100154.pdf

I did read the observations, and they clearly look minor, like Natco is claiming. US FDA observations recently have been affecting many pharma companies (For eg. Divis Labs). I would appreciate Natco management here, for immediately having shared the six observations transparently with all; and for not having used manipulative words in declaring the same (See Divis Labs announcement on these observations they had received and you will understand what I mean).

Update 3, Jan 31, 2017: NATCO’s partner Mylan Wins U.S. District Court Ruling Related to Copaxone 40 mg/mL Patents
http://corporates.bseindia.com/xml-data/corpfiling/AttachHis/8F9E30A7_8B05_4A52_B1F6_877DE75C4046_101631.pdf

The clarity on Copaxone 20 mg is still awaited. The Copaxone ruling was long awaited. Copaxone, used in Multiple sclerosis, has a huge market share in the US and had approximate sales on 3.3 billion dollars in the US market, according to IMS Health (as is mentioned in the BSE filing above).

Apart from these three announcements, two more are:
On Jan 02, 2017, Natco launched Velpanat (Sofosbuvir) in Nepal. Sofosbuvir is used in the treatment of Hepatitis C. Drugs for Hepatitis C is, as of now, still a niche play (till more players get into the scene), and Natco has a good market share here.
On Jan 06, 2017, Natco received final approval for generic Bendamustine power for the US market, its marketing power being Breckenridge Pharmaceutical Inc. Bendamustine is used in treatment of CLL (Chronic Lymphocytic Leukemia). The original research molecule of Bendamustine - Treanda (presently marketed by Teva, after having acquired Cephalon, which originally manufactured it) has an annual market sales of approximately 133 million dollars.

Now am awaiting results of Natco on 14th Feb, to see how it shapes up.
See the issues pharma companies are facing presently, due to FDA, due to Trump and due to market competition, it is amply clear that next ten years belong to Onco Pharma. I intend to share a very detailed discussion on routine pharma versus Onco pharma, as the two will behave differently for the next decade (Onco pharma like Natco, Shilpa, Biocon should not be clubbed with General pharma); I shall do that very soon.

Disclosure: Invested

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All these is getting reflected in the phenomenal move in the stock price which is at Rs790 now.

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Natco Pharma had a blowout 3QFY17. The net profit for the period, on a consolidated basis, was INR 194.76 Crore, as against INR 37.04 Crore same quarter last year, showing a growth of 425%. The revenue and profit growth for the company during the quarter was driven predominantly by the sales of Oseltamivir product in the USA market and includes profit sharing from our marketing partner.

Company’s latest PPT available on BSE

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Disclosure: Invested from lower levels

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For FY17, Natco expects revenues of Rs19bn– Rs20bn, with PAT likely between Rs4.3bn – Rs4.4bn. So FY17 PAT will be up 3x that of FY16. This implies EPS of 26.5 in FY17

Tamiflu Generic: 4QFY17 may not be as strong as 3QFY17 as stocking has taken place. Average price erosion of 40% in Tamiflu generic. Company is currently marketing just the oral format of Tamiflu, while it awaits approval for the suspension which is expected next financial year. The sales of Tamiflu suspension are US$250mn-US$300mn.
Entocort and Nuvigil: No significant contribution from these in 3Q in US. Company expecting them to contribute in 4Q. Entocort bigger than Nuvigil.
Vidaza ANDA: Approval expected in the next financial year.
Launch of cardio and diabetes division in India: Looking to launch first-time generics in India. May involve litigation. Could give about Rs1.5bn- Rs2.0bn annually.
HCV: Flat sequentially. Growth is now contingent on approval for Epclusa in India and incremental approvals in emerging markets. 20% YoY growth can be expected in FY18.
Copaxone 20mg: Positive about getting approval for it as it has responded to all queries. Characterization of the API is key hurdle to get approval for Copaxone. Hence the company expects approval for 20mg should raise the prospects an approval for Copaxone 40mg.
ANDA filing: During FY17, the company filed five ANDAs of which four are FTFs.

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Thanks Sumeet for your significant efforts & inputs.
Fabulous & Amazing Results, as you anticipated, posted by Natco.

I have recently started loading it after reading about it alot in the past.
This is just a trailer. A long way to go for Natco.

Appreciate your efforts.

How do you see story unfolding from here?

Regards,
Bharat

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Dear Sumeet,

It’s great to see inputs/feedback from someone from the industry. We look forward to more of your posts. Have you also looked at Shilpa which also has a lot of focus on Oncology? If yes, plz share your thoughts

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@bsahni,
The results got a kick this time because of the numbers from sale of gTamiflu (Oseltamivir). The March results may also get some additional kick because of the same. However, as per the con call discussion, they said the additional gains in March may not be as much as in Dec quarter; but there will be profits reflected nevertheless. I think in the following direction:

  1. When I see Natco as a company, I first consider the routine sales that it has done in India (excluding the sales of drugs in US and elsewhere). As of now, I can see a slow steady growth in the Indian performance and it clearly looks sustainable for next several years.
  2. The promoters are good. Even when there were USFDA Form 483 observations, a few months back and even a year ago, they were quick and transparent in disclosing those observations (Many companies don’t).
  3. Natco’s India market is slowly rising. I see quite a few molecules from Natco available at the stores of Tata Memorial Centre in Mumbai. Of course, it is not a final verdict on quality; but having worked at Tata Memorial Centre for over 5 years, I do know that they are unlikely to pass any molecule which is sub standard; hence it’s acceptance there is like a surrogate marker of quality for me. Of course, there are molecules available from many other companies there as well.
  4. The molecules it is going to launch abroad, in next few years, will surely give a huge boost to bottom line. Like gCopaxone, Revilimid etc.

@ayushmit, I do not track Shilpa regularly, but am planning to do soon. Of course I have read on Shilpa here, that it clearly has been a multibagger for lot of VPers here.

I have one point to make here. The next ten years clearly belong to Oncology, more than any other illness (Diabetes, cardiovascular, or anything else). Just because of the sheer size of our population, and the huge untapped market that has remained. The following are the reasons in my view:

  1. Cancer is rising rapidly, especially in the young. If you see the WHO predictions for breast cancer in India (for example), you wont be able to swallow the reality. 50% of my own breast cancer patients are in 25 to 50 years of age.
  2. Even today, a huge chunk of those diagnosed with cancer still go for alternate therapy and only later come for conventional treatment. As awareness increases, more and more people are likely to come for conventional treatment.
  3. Cost factor is a deterrent even today. Many chemotherapy drugs (especially targeted treatment) are costly and beyond reach for many. But with costs of chemo drugs coming down (and drugs being subsidized by government), more people will come for chemotherapy.
  4. There are many chemotherapy drugs, ‘targeted treatments’ and biosimilars which have very limited competition and have a phenomenal scope.

Points 2 and 3 above will tell you that there is still a huge population, which presently is not taking chemotherapy and which is likely to come for chemotherapy over the next decade.
Now, there are only a handful of companies exclusively doing Oncology (majority of work is Oncology, their research setups are complex and they produce molecules not easily done by others) - Biocon, Natco, Shilpa. And then there are others, which manufacture everything, but also have divisions of Oncology (Sun, Cadila, Dr. Reddys, Torrent etc. ). My intention is to focus on the earlier group, as they have a reasonable number of ‘limited competition’ molecules lined up for next few years, both India and abroad.

So, considering all above, I feel Oncology related companies have a long way to go. All three - Biocon, Natco and Shilpa are good. For Biocon, additional benefit is niche Diabetes insulins. For Natco, additional advantage is the Hepatitis C drugs, which again are niche and with limited competition.

I am very new to stocks. My journey of stocks started only in Feb 2016 (never seen stocks before that, in my life; I was not even aware of 2008 crash, till I read about it last year; as for years 2006 to 2011, I was almost in exile while doing my Oncology at Tata Memorial Centre) and my knowledge is very limited. So you may take all above thoughts keeping this in mind. It is only what I think, may not necessarily be true, and may not pan out the way I think.

Disclosure: Natco amounts to 12% of my portfolio, purchased multiple times between 400 to 550.

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Thanks a lot Sumeet for your detailed reply.

Even I opine the same as far as Natco goes after reading alot about it in the recent past.

Regards,
Bharat

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There are few things going on for Natco in a way that its compelling to dive deep and size-up the opportunity. Here is a quick summary from my working notes:

Historically Natco had a very moderate growth with fluctuations till exit FY’16. Exist FY’16 recorded decent 38% growth with INR ~11,416 M. Going by the most recent published data, the TTM sales stands out to be 18,687 which is significant higher than entire 16.

Pasted image820×41 2.54 KB

Prudent to understand each of the moving parts independently to understand what is propelling the engine.

1. Domestic Finished dosages formulation (FDF): Accounts for approx. INR 6300M (~53% of total revenue). Two specific segments that it operates within domestic FDF.

  • Oncology: With approx INR 2700M this segment accounts for ~23% of total topline. Entered the segment with launch of Veenat (gImatinib) in 2003. Substantial reduction in the treatment cost of Chronic Myeloid Leukemia via launch of gImatinib. Progressively widened its oncology product range from 6 in 2003-04 to 28 as on 31-Dec-2016.

    Broadly, cancer therapies can be classified in several sub-types i.e. 1) Radiation, 2) Chemotherapy, 3) Targeted Therapies, 4) Surgery, and 5) Biologics. Domestic cancer drug market of ~2700 Cr out of which targeted therapies alone accounts for approx 25% (worth ~800 Crs.).

    Call out: Natco has a predominant share of 30% worth 253 Cr. in targeted therapies.. Cancer drug market is growing at 18% and I am made to believe that now targeted therapies are perceived to be more effective than Chemotherapy.

  • Second segment is of Specialty Pharma. With approx. INR 3200M this is accounting for ~32% of total revenue. There was nothing significant about this segment (or was virtually non existent) till 2015. Wheel of fortune changed when Natco entered into an Non-exclusive (along with other 10 Indian pharma co.) licensing agreement with Gilead Sciences for developing Sofosbuvir (Hepatitis C drug) in 101 countries including India. Is one among the generic manufacturers who are first to launch and thus is in pole position of market leadership of this drug.

    Call out: Worldwide, Hepatitis C market is expected ed to grow at a CAGR of 15% to reach ~$27.63bn by 2021. This indicates that Hepatitis C franchisee has a very strong future going ahead. The company believes that the franchisee is likely to be `600cr-700cr in the next two years, implying 2x revenue potential from this segment going ahead.

2. Export FDF (finished dosages formulation): Accounts for approx 20% of total revenue. (~INR 2311M). Portfolio of43 niche ANDA filings in the US with stated target to file 10+ ANDA’s in the US during the next 2 fiscal years. By the number of ANDA/DMF it will have no standing in front of other industry players (Cipla/DRL). However, devil lies in details. Most of the ANDAs are for limited/no competition drugs z + complex molecules (non me-too) with significant huge market size. Call it a real niche, if you like.

Launch Pileline:

  • **Copaxone (glatiramer acetate):** Copaxone is an immunomodulator drug (acts on immune system) used to treat multiple sclerosis. The drug is protected by 5 method of use patents by Teva. Natco and marketing partner Mylan are taking Teva heads-on on the patent fight.

    So far, District Court for the District of Delaware has issued a decision that 3 out of 4 patents on Copaxone 40m are unpatent-able. The ruling on the fourth patent is expected in May 2017. The fifth patent is expected to expire in 2030. If the 4th Patent verdict is favourable then they can market the product in 2018 under the ‘at risk launch’ clause of regulation.

    Call out: Four players including Mylan‐NATP, Sandoz‐Momenta, Dr. Reddy’s and Synthon are believed to be FTF/ PIV ANDA filers for Copaxone 40mg product.

  • Revlimid (Lenalidomide): Revlimid, by its sheer size, is one of the top ten best selling drugs in the US. The drug is expected to clock more than $10bn in its peak revenues Celgene is the innovator with Reference List Drug (RLD) status under application number # 21880. They protected this treasure trove with 168 patents (!) longest having patent expiry date of Mar 8th, 2028 AND 18 exclusivity rights (per FDA site) longest being for 17 Feb, 2022.

    Natco had the audacity to challenge the patent of Celgen. Now as per an arrived settlement they will sell mid-single-digit percentage of the total lenalidomide capsules dispensed in the United States during the first full year of entry i.e. 2022. Gradually, company can increase volumes until March 2025 but should not exceed 1/3rd of the total lenalidomide capsules dispensed in the U.S. in the final year of the volume-limited license under agreement. From January 31st 2026, Natco can sell unlimited quantities of generic Revlimid.

    Natco believes that the drug could be launched early if more companies file for the lenalidomide ANDA. Dr. Reddy’s Laboratories has already filed an ANDA for Revlimid, however, Natco has FTF for this drug.

    Call out: Revlimid is a complex biologic with an orphan drug status. The complex biologic means that making the copy of this drug is very difficult. This is very positive for Natco Pharma, as after losing patents, lenalidomide may still remain a limited competition drug giving strong revenue contribution. Further, Celgene by virtue of pricing power has grown this franchisee significantly.

**

  • Oseltamivir (Tamiflue): HOFFMANN LA ROCHE INC had the exclusivity till 02/23/2017 via patent 5763483 (per Oranage Book). Natco being FTF will have an exclusivity period of 180 days (Aug 22) Marketing partner is Alvogen. This 180 day exclusivity covers the state side flue season very well. So far, approx INR 325 Cr. inventory transfer to Alvogen. Q4 numbers are expected to be strong on account of profit sharing.

  • Other big opportunities. Looking closely they have a decent launches lined up for next few years. 2018 is for Copaxone opportunity (USD 4000M). 2019 year is for Gleevec and Gilenya as they are slated to have patent expiry in 2019. Both put together has approx market size of USD 4000M. Going by Dr. Reddies Lab (DRL) struggle with FDA (3 sites under radar), it seems that DRL will be delayed in Gleevec.

FDA Ghost:

Kothur had 6 observations basis Jan 2017 audit… Per management, those are procedural and not data integrity one. Hence catastrophic surprises are not expected:

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  • Valuation and Margin of safety: Since February 2105 onwards Natco has always been trading above PE of 45. Now, on back of Tami-flue and Hepatitis windfall, Dec’16 reported a diluted TTM EPS of INR 22 as against INR 12.7 for Quarter ending Sep’16. This resulted in sharp drop on the PE ratio for the company (below 30). All of a sudden the stocked started looking cheep (on PE ration) hence price sprint from sub 600 to current 850+.

To me, at this moment the prevailing PE based valuation may not be enough to establish MOS. A more normalized SOTP valuation after factoring-in normalcy in Tamiflue drug (post 180 day exclusivity or Flue season getting over, which ever is earlier) and some sanity check on Heptatitis C euphoria (they are first movers but after all this is a 11 player market) is required.

No doubt, the narrative backed by supporting actions of management suggests that Natco is on cusp of some intresting time. Endeavor to look for right opportunity at right time, ability to deliver (last come first launch in Hepatitis), ability to go for moon shot projects and ability to stand in a David vs. Goliath fights (contesting 100+ patent holder for Revlimed).

(I am not even quoting the eye-poping and jaw dropping calculation of revenue projection for 2026 from Revalmid here, Do it yourself to see if that makes you interested in this stock).:kissing_closed_eyes:

With this I am passing on this discussion to this formidable group called ValuePickr. Lets dive deep into each of the moving parts instead of broad brush - over generalized - painting. How the FDA/US administration/competition can derail the projection. What other aspects are part of unknown here? We at least need to covert those to known-unknowns.

Disc:
1.Recently created a tracking position, may add with right MoS.
2. Have relied heavily on different research reports, FDA site, company artifacts etc. Please do due diligence.

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@snowprince ILBS delhi (for liver) pharma store also has some of their medicines for hepatitis

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As per Mylan website, PTAB ruling on patent #776 is scheduled for May 16th 2017.

So, the Big date is 16th next month.

Excerpt from the same announcment:

Mylan believes it is one of the first companies to have filed a substantially complete abbreviated new drug application containing a Paragraph IV certification for a three times per week Glatiramer Acetate Injection 40 mg/mL

Does that implies that they are ‘one of the first to file’ but not necessarily ‘only first to file’? Will there be shared exclusivity?

@vnktshb, @snowprince -
anyone got some specific info on this.

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Gilenya pentent of novartis rejected by US court. Natco may launch ANDA in early 2019, novartis earned 2.4 B USD as last year sales from Blockbuster drug

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@T11,
I am not sure as to whether Mylan means ‘one’ of the ‘first’ (implying more than one having filed first simultanously) or ‘one of the first’ which we sometimes use to say that we were indeed the first to file. I do remember, in some press releases I have read, related to Mylan, they have mentioned “Mylan expects to be eligible for 180 days of marketing exclusivity in the U.S. upon final FDA approval”.

The companies vying for Copaxone 40 mg, include Mylan, Dr. Reddys, Sandoz - Momenta, Synthon, Amneal and Biocon; according to this website:


I have yet to read on the status of individual lawsuits of these other companies, to get an idea on what are their expected time lines for launching the same. From the little that I know, Mylan definitely seems to be ahead of all as of now, but I will need to review a bit to support my statement.

Of the above, Pfizer (partnership with Momenta) was one of the early contenders for Glatiramer (Copaxone) 40 mg, but in Feb 2017, their facility in Kansas received US FDA warning (details not divulged), which is going to delay their 40 mg ANDA for the same, probably by a year or so, at least.


According to this article, the ‘first to file’ status is shared between several generic forms of Copaxone (companies mentioned above), but the ‘exclusivity’ seems to hinge on the first one to secure US FDA approval. For the moment, Momenta is out of the game. All eyes are now on May 16, when the PTAB is expected to issue it’s ruling.

And now with patent of Gilenya (Fingolimid) by Novartis being rejected, we look forward to an hopeful early launch (target is for the year 2019) of generic of same by Natco. Gilenya has a close to USD 2Bn market.

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gGilenya (fingolimod) although an attractive product is expected to be pretty competitive. Already, more than five players have got tentative approval for the same and many more including Torrent have filed it’s ANDA.
https://www.accessdata.fda.gov/scripts/cder/daf/index.cfm?event=BasicSearch.process

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Pretty much same message concurred by Rajeev during Q3 con call. Excerpt:

Girish Bakhru: Right and you think this could be a possible launch in FY2019?
Rajeev Nannapaneni: Top of my head I do not recollect, but I do not expect much out of the product honestly Girish because there are too many guys in it and I do not see too much of an upside on this product.

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Yes indeed. After @ankitgupta 's post, I did read on FDA site and quite a few companies have got approvals for gGilenya including Aurobindo, Strides, Alkem, etc.

From last concall, I remember them saying that after Feb 27, other generic players could enter market for Tamiflu. But presently, doesn’t look like anyone else has entered yet, according to FDA site. Flu season in US is almost over. Let’s see what revenue from Oseltamivir do we get to see. And looking forward to see its sales in India for this quarter, which has shown a steady growth.

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Actually one Nesher Pharma (Cadila subsidery) got the final approval for gOseltamivir on 02/27. However, what I understand is that by that time Flue in state side was ebbing out.

If you are trying to gauge the Q4 numbers for Oseltamivir than good indication was on the con call again.

In Q3, specifically for Oseltamivir they had:

Cost + Margin = 130 Cr.
Trading Income = 17 Cr.
Profit Sharing = 177Cr
Total = 325 Cr.

However, what has been suggested is that Q4 will have profit sharing numbers only since they shipped and stocked good amount of inventory upfrontly and that was reflected in Q3.

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Little strange to see not much of discussion while couple of interesting updates are just round the corner (should I use the word 'inflection point" to make it more appealing). :slight_smile:

Nevertheless, in continuation to previous write up, have attempted to dive a little deeper into Natco’s near future (till 2020) launch pipeline to weigh Natco’s standing in the race. Key areas being covered are: competition landscape and current progress of Natco on the that particular drug, market potential, management guidelines etc.

FY’18 Launch/Traction (most likely):

.

  • gEntocort: Market Size (in USD):370.58 M

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Competition Landscape:

  1. Mylan approval in 05/16/2011
  2. Barr got approval in 2014.
  3. Myne has already launched in April’16
  4. Natco + Alvogen got approval on 23/11/2016.
  5. Appco got approval on 04/07/2017

Natco Standing:
This his was a Para 3 filling. Got approval in Nov’16 and has been launched in partnership with Alvogen. As per Q3 concall, this was a soft launch per say as they were not able to stock properly. Proper marketing to reflect in Q4,17. Competition catching up as Appco has also joined the party.

  • gNuvigil Market Size (in USD) is 482.11 M.

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Competition Landscape:

  1. Mylan approval on 06/01/2012
  2. Lupin and Natco both got approval on 29th Nov. 2016. (are not marketing partners on this, will compete against each other)

Natco Standing:
Launched with Breckenridge Pharma. Key limitation, Natco has been approved in 50 mg, 150 mg, and 250 mg doses strength only which means missing on 100 mg and 200 mg strength. Likewise, Lupin is also missing approval for some doses strength.

To overcome these missing links Natco has entered in agreement with innovator Cephalon to market 100 mg and 200 mg as well. Per last. concall, Natco had a soft launch. Numbers to kick in the Q4 results.

  • gTracellar: Market Size (in Mil USD): 487.5 M

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Competition Landscape:

  1. Orphan drug wih REMS
  2. No generic approval yet
  3. Alambic has a DMF

Natco Standing:
Para 3 filling. Not launched yet. Sole exclusivity. As per con call, Rajeev mentioned that this is expected to reflect in early FY18 numbers. Alambic has a DMF, worth evaluating if they have any near future plans on this.

Competition Landscape:

  1. DRL approval on 09/16/2013
  2. Mylan approval on 04/28/2016
  3. Shilpa approval on 09/29/2016
  4. Actavis approval on 04/29/2016

Natco Standing:
Para 3 filling. In con call it was mentioned that they have received CRL from FDA which was responded recently, expected to be launched FY2018.

Competition Landscape:

  1. Sun got a compulsory licency under name Lipodox,

Natco Standing:
Not approved for Natco yet. Is a complex generic. High FDA inspection for Injection therapy. Last year one FDA inspection was triggered primarily due to this generic. Will be a limited competition ground.

FY2019 launch projection:

  • gCopaxon 40mg: Market size (USD M): 4349 M

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Real big opportunity for Natco and lot is riding on Copaxon for Natco + Mylan. Interesting to see Tevas safe harbor statements around Copaxon even on any of the press release which may not been even remotely related to Copaxon. :relieved:

Competition Landscape:

  1. Sandoz + Momenta: Sandoz has approval for 20 Mg by the name of GLATOPA since 04/16/2015. This 20 mg makes things comparatively lot easier for any aspirants once the legal issue around patent is shorted out. So, to me they have edge.
  2. DRL + Synthon: Are also aspiring for this opportunity. May face issues with recent FDA issue at DRL Srikakulam facility.

Natco Standing:
Currently waiting for 20 MG approval. Have already answered FDA query which were primarily related to characterization data package. Partner Mylan to decide about at-risk launch in case of favorable verdict on May’17.

FY2020 launch projection:

.

Competition Landscape:

  1. Sun approval on 12/03/2015.
  2. Appotex approval on 08/17/2016
  3. Teva approval on 08/04/2016
    Sun has already launched since Feb’16. Teva & Appotex since Aug’16.

Natco Standing:
Orphan drug status.To be launched in partnership with Lupin. Not approved yet.

Competition Landscape:
This one is going to be little crowded. though the market run rate is good for this drug but glad that management is not pinning too much hope on this.

Natco Standing:
may be shared exclusivity, had received the CRL which was responded recently (to Q3 call).

Competition Landscape:
HOSPIRA, GLENMARK, BRECKENRIDGE ,INNOPHARMA, ACCORD, EAGLE

Natco Standing:
First to file. Pursuant to the settlement of the Paragraph IV litigation, NATCO plans to launch this drug on November 1, 2019, or earlier under certain circumstances.

2020 and beyond (current visibility):

key call out: As per settlement clause with Celgene, this mother of all opportunities Revlimid can be launched much ahead of limited quantity launch commencing 2022. Read somewhere that this could be as early as 2019 depending on other players making a move.

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Overall, my impression is that Natco is not going to be number heavy in terms of ANDA filling/approval etc- unlike other industry players. There seems to be conscious effort of selective launches (limited in numbers) with well chosen areas of no or limited competition with reasonable to huge market potential. Within those selective launches they have couple of real BIG opportunities lined up over next few years which will work as great accelerator for company. Will be interesting to see how this unfolds.

Other word of caution (just in case needed), current valuation may look reasonable on PE multiples as compared to historical PE commanded by Natco. However those are more of optical. Please understand that earning got a booster dose recently due to gTamiflue (oseltamivir phosphate) exclusivity. previous reported trailing 12 months EPS was INR 22. I still hazard a guess to assign ~16 INR to base business (ex Tamiflue).

Will be great if others tracking this counter or pharma sector closely come out to carry this discussion forward. As always, diverse thinking makes for a better decision.

Disc:
Have invested in this stock within last ~2 months.
Please do own due diligence before making any investment decision.

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@T11, thanks for such a detailed and well researched write up on the next few years for Natco Pharma; your efforts are highly appreciated. Indeed, like you say above, Natco has much lower number of ANDA filings compared to others, but most of its filings are niche and high margin molecules, with limited competition; also, there is a slow and steady launch of molecules fairly evenly scattered over the years, to have a steady growth in balance sheet. Apart from these, of course, even the domestic market is also doing good, I am looking forward to its yearly results to understand the split up between the domestic growth and income from outside of India.

I was reviewing this graph on Top Global orphan drugs by revenue, from Statista:


Revlimid, Copaxone and Gleevec feature in the chart; of course, the revenue stated here is global and not only from the US, but nevertheless, it does give us an idea of the sheer market size, and opportunity to earn good even in face of a limited competition.

And this graph gives a global prediction of top 10 orphan drugs in 2022:


Here, only Revlimid is featured, but the market size seems huge. The earlier Natco enters for the same, the better it will be.

To quote your first line, as to not much discussion on this thread, that surprises me as well; but I believe not many still know about this company. Considering the problems, which almost all large cap pharma and many mid cap pharma in the Indian Pharma Industryare undergoing (and it doesnt look like the problems are going to end any time soon and those pharma will recover), Natco and Oncology peers (Biocon, Shilpa) are racing ahead to glory. As I read more and more, I am developing a strong faith in Natco. And I believe, so are you. But you see, we are not alone :). Recently, I read an interview of Ashish Chugh, Investment Analyst, here:


On this above article, jump to the last two questions. He had purchased Natco @70 (before split of face value from 10 to 2), and it has given him returns of 60 to 70 times over last decade. And when asked “Tell me one company which you are most proud of being discovered of in the last 13-15 years of your work experience?”, he says it’s Natco Pharma.

Natco has come a long way, but a lot of steam is still left.

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Thanks to @T11 and @snowprince for your excellent research and it helps lesser-skilled like me who feed these info to confirm or challenge our own findings.

On the PE drop from historical multiple that @T11 mentioned, I was looking if the earnings could drop when exclusivity effect of Tamilfue is removed (in an annual basis). I noticed the following comment from the management in the 3rd quarter conference call transcript:

for next year I think you have to remove Tamiflu from the numbers, so if you remove Tamiflu from the numbers that has to be seen how much of the Tamiflu will able to repeat next year, it all depends on how we do in the local US business and how many competitors come in, so that is something that we cannot determine at this time. Another factor that will play out in next year’s earnings could be, we also file the suspension with our partner, so we are expecting a suspension approval for the next flu season. So that will also play a strong role on how our Tamiflu franchise does

Somewhere in the transcript, it is mentioned that suspension also is fairly large opportunity like capsules.

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