Natco Pharma - Imminent Growth Cycle (?)

Hi Group,

Kick staring the discussion on one of the contenders from Collaboration sheet - Natco Pharma. Evidently, we have multiple evangelists /enthusiasts for this idea (@rajats, @rupeshtatiya, @harsh.beria93) . Think we can initially refine the idea and collaborate over this mail thread before taking this to wider audience. So, here i go…

Natco Pharma (BSE: (NATCOPHARM) is a mid-cap Pharma company (~2400 Cr. MCAP) with a differentiated business model to pursue a concentrated portfolio of low competition, complex generics for US market and niche products for domestic markets – predominantly Oncological therapeutical areas.

They have a well-diversified revenue mix across Domestic FDF (27%), Export FDF (40%), API (18%) and subsidiary (5%).
Historically, this distinct approach of highly concentrated portfolio has resulted into non-liner revenue trajectory for the company – prolonged period of stagnant growth followed by exponential growth - only to repeat the cycle all over again…

At this stage, confluence of multiple factors makes this an interesting prospect:

  1. Strong revenue Growth visibility from couple of significant filings where there is no/minimum competition.
  2. Broad basing the revenue pool by way of ROW subsidiaries thereby de-risking market/regulatory risk.
  3. Pivoting into Crop science segment. Yet again, aspiring for products with significant market potential and Low competition

Key catalysts ahead:

  1. US Market:
    Robust pipeline of para IV filling for US market where company is either FTF or have secured settlement with innovator. I am focusing on pipeline visibility till 2022 for now. (some of the key opportunities (Revlimed, Pomalyst) will unfold to full extent beyond 2022 though).
  • gNexaver (Sorafenib) – US Market size of $255M for FY18. Globally, close to $850M. Was expected to be launched during Q3’20. Management has indicated 180 das exclusivity during the concall. Limited competition as Teva also has settlement with Byer.
    Both for US and Global, the sale peaked out in 2015-16 time.

Is this due to market shifting to alternative formulations?

[Need to establish deep down reason for declining sales and velocity by which it is shifting. Mid to long term implication…]

  • gGilenya (Fingolimod) – Opportunity size of $1700M. Expected launch 2021. Have Para IV with FTF however there are multiple FTF hence crowded space. Management is not factoring in much of value add from this one.
    Competitors: Actavis (Teva), Accord, Intas, Alembic, Alkem, Apotex, S&B, Aurobindo, Biocon
  • gJevtana (Cabazitaxel) – Opportunity size of ~$200M. Expected launch by Q3,2021 in partnership with Breckenridge.
  • gRevlimid (LenalidomideI) - Opportunity size of ~$8000M. Is one of the top ten best selling drugs in the US. Celegene has done has phenomenally well in growth of Revlimid franchise (bit dated but helps to gaze the directional flight).
    As per the 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.
    Another recent update, Celgene has recently settled with Ranbaxy. In one of the concalls, Rajeev has indicated that limited competition is beneficial to them (my interpretation – the volume limited launch date can be preponed to an early date if Celgene settle with competitor).
    Target action date mentioned is for Dec’20.
    **[will help if others can confirm if the understanding is correct]**
  • gTreanda (Bendamustine) – Market size ~$650M. Expected launch by H2’2022. Para-IV FTF / Shared exclusivity with other players
  1. ROW Subsidiary:
    Shaping up well, although from a low base. Strong pipeline particularly for Canada - 20+ fillings across Onco, Cardio, CNS. Guidance for multiple sole/limited competition fillings. Additionally, settlement for Revlimid for Canada geo (though terms of settlement not disclosed).
    Guidance for broad based earning by way of 15%-20% earning from Non-US subs. Implied inference to have significant growth rate for Non-us Subs considering that US business itself is on cusp of strong earning revival on back of launch line-up.

this post is stil WIP… intend to cover following points subsequently:

  1. Crop Health segment prospect and challenges.
  2. Compliance perspective (FDA)
  3. Translating the narratives into numbers.
  4. Sceptical point of view (what can go wrong or at least should be factored-in

Looking forward to your inputs @rajats, @rupeshtatiya, @harsh.beria93 and others. What are the other variables that needs to be baked into the story?



Thanks, Tarun, for initiating this thread. Sharing some of the thoughts I have on Natco:

Differentiated Strategy
Incrementally, Natco focuses largely on building a strong pipeline of complex generics with minimal competition. Management is very good at identifying large complex generics drugs and has a successful track record of challenging the innovator companies. So far, they have successfully launched, gCopaxone, gFosrenol, and gDoxil, etc. All these drugs are very complex for one reason or other and to date have only 2-3 competitors.

  • gCopaxone - Market opportunity USD 4Bn. Gained 35%+ market share despite being second entrant (Sandoz was the first to launch 20mg variant). No more competition to date despite innovator losing the litigation couple of years back.

  • In the case of gFosrenol, even innovator was banned once and out of a total of 12 generic filers, only 2 have remained now.

  • In the case of gDoxil, the drug delivery mechanism is difficult. Natco gained 40% market share within the first year of launch despite being the second entrant after Sun Pharma, who could not keep up because of quality issues.

Large pay-offs
Natco tries to focus on either large market size opportunities lasting for a few years or large one-time payoffs. They try to be the sole FTF (first to file) in the USA market for some of the big molecules, which if successful gets them 180 days of exclusivity (no other generic competitor for 180 days) to sell the drug. They achieved this feat in gTamiflu and gCopaxone 40mg. Both these launches changed the earning profile of Natco starting 2017. gCopaxone is expected to generate 2000-3000Cr of EBITDA during its life cycle while gTamiflu is expected to generate an EBITDA of 700-800Cr over its life cycle. While gTamiflu was a one-time payoff drug, gCopaxone (launched in Fy18) is estimated to contribute 300-400Cr in EBITDA in FY20 & FY21.

Risk-off approach in the USA market
Natco enters into a distributor partnership with some domestic pharma co in the USA that takes care of the front end and the litigation costs. Natco retains 30-50% of the profits and also retains manufacturing margins. In this partnership model, Natco also stays away from any litigation costs arising from challenging the innovator. This profit-sharing arrangement has worked pretty well in the company’s favor so far as costs from such litigation can be huge and Natco did not want to share them given its small balance sheet size. However, going forward, Natco wants to share some of these litigation costs so that it can retain ~50% profit share. Management is willing to take this step as balance sheet is much stronger and there is strong visibility on the next 4-5 years of cash flows.

Clean history of USFDA audits
Till date, Natco has never received any import alert for any of its plant from USFDA. So far, it has been able to resolve all ‘form 483’ obervations within 6 months.

US FDA inspection


  • From 3-4 years perspective, heavy reliance on one drug (gRevlimid) at this point in time

  • One time profits from some of FTF launches - in the case of gTamiflu, Natco raked in huge profits to the extent of 400-500Cr within the first 6 months. Post that other generics entered and earnings from this molecule fell off the cliff.

  • Delay in USFDA approval for manufacturing gRevlimid - Natco will be the first company to launch gRevlimid starting March 2022. To ensure smooth supply starting March 2020, Natco will have to start making this drug starting June-July 2021. Though approval is expected anytime now, (and as per Q2’21 concall, management expects this in Dec 2020), any delay leading to delay in manufacturing may result in permanent loss of revenues/profits for Natco from gRevlimid.

As righly pointed by you @T11, there are multiple triggers in the next 12-18 months and starting FY23, launch of gRevlimid should contribute immensely to the profits. This drug alone is expected to generate, 3000-5000Cr in EBITDA over the next 4-5 years.

On agri segment, what I understand is that they are aggressively preparing for the launch of their first molecule in this segment which is 1500-2000Cr in market size. In addition to this, they have a pipeline of 2 more molecules with the similar market size for each of them.


Thanks Tarun for this, agree on the impressive pipeline in place and expected revenue accretion from the same.

  1. But how does the domestic Formulation business is expected to come back on track? While COVID has disrupted the oncology business in India but overall growth had slowed down in last 2 years.

  2. From Copaxone, currently there is significant revenue concentration. In the concalls they have repeatedly told about no new competition coming. How do we see the competition evolving in this space going ahead atleast for the short time?

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Mar-17 Mar-18 Mar-19 Mar-20 Sep-20
Fixed Assets 833 1,013 1,219 1,576 1,676
CWIP 336 480 638 518 454
Intangibles 6 6 9 9 10
Total 1175 1499 1865 2102 2139

Net block + CWIP has almost doubled. Can anyone help me understand the division wise capex that would have gone apart from the Agri block?

Why have intangibles remained so low? Does it signal company hardly capitalizes any R&D?

Hi @sensaptarishi,

Dont think they provide specific break-up of Capex, however some top of the head numbers that I can think of…

  1. US FDF Facility - Vizag - ~450 Cr. (this one has been ‘in the works’ for couple of years, so actual amount may be higher)
  2. Crop Health Science (Greenfield Project) - Nellor AP - 140 Cr.
  3. Chennai API facility - 100 Crs. (adding Cytotoxic lines) must be for 2017-18 or thereabout.

Further management guidance is for ~350 Cr. per year capex for next couple of years (this was in response to the question as to what are management plans once they have significant improvement in Free cash flow post Revlimed launch by 2022.

Honestly, not too sure what is managements overall approach on accounting treatment of R&D, however, they have been expensing out R&D in the range of 6%-9% via P&L.



Natco Crop Health Science:

Natco commissioned a greenfield project with outlay of 100 Crs at Nellore area, Andhra Pradesh thereby foraying into Agrochemcal space. As per official communication, Natco is 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 in making inroads into the segment.

First product that they have filed under NCHS is for Chlorantraniliprole (CTPR) which is a 9(4) filling. Further, to widen the product basket, they have ~6 other 9(3) registrations.

'The technical grade products registration can be obtained in three ways:
• Provisional Registration u/s 9(3b)
– For the new molecule introduced first time in India. Usually granted for a period of 2 years
• Regular Registration u/s 9(3)
– Subject to the submission of complete data
• "Me-Too” Registration u/s 9(4) – After 9(3) registration of a molecule, any other person can apply for registration'

Product Application context:

Chlorantraniliprole is a new compound developed by DuPont in 2008. This belonging to a new class of selective insecticides (anthranilic diamides) featuring a novel mode of action (group 28 in the IRAC classification).

This is used against a broad spectrum of larvae that bore into and feed on the tender shoots, stems, flower buds and fruits of a variety of crops. These include stem borer and leaf folder in paddy; early shoot borer and top borer in sugarcane; green semilooper in soyabean; heliothis in arhar, chillies and tomato; fruit and shoot borer in brinjal; and diamond back moth in cabbage.

Application scope:
Approximately 30% of the production is used for the rice industry. Soya and vegetable+ fruits accounted for 22% and 24% of the total consumption share in terms of volume.

Two type of compounds based on disposition form:

• Solution form disposition - Dupont/FMC brand ‘Coragen’
• Granule form disposition - Dupont/FMC brand ‘Feterra’

Global Opportunity size:
Has been referred as ‘blockbuster’ AI for DuPont/FMC. Launched in 2008 - Global sales $750M in 2012. $1500M in 2017. $1725M for 2019. Estimated to be $2120M for 2025 at CAGR of 4.4%

Indian Opportunity Size:
India Market Size: Was 650 Crs. as of 2012. Significant growth leading to ~1540 Crs. Sales for 2016. Current run rate of ~ 15% CAGR.

India competition landscape:
As per the PPQS site, Syngeta is the only approved licence holder for combination pesticides based on Chlorantraniliprole AI.

Solution form AI:

*Possibly Chambal fertilizer has product called ‘Onvix’ for Thiamethoxam 1.0% w/w + Chlorantraniliprole 0.5% w/w - GR. Need to confirm if this is true and if ty produce or only market under this brand name.

Granule form AI:

As per the CFE (consent for establishment) report (EMP-Natco-Pharma-Ltd-Crop-Health-Sciences-Division-Technical-plant-Attivaram.pdf (1.6 MB) ) submitted by Natco to AP state pollution control board, one of the other product (besides Chlorantraniliprole (CTPR) is Thiamethoxam . This is the same AI combination going into Virtako brand from Syngenta.

Legal tangle:
Natco has filed a suit for declaration of freedom to use of CTPR, at the City Civil Court, Hyderabad, in the month of September 2019. FMC has counter-sued before the Delhi High Court, in November 2019, claiming patent infringement

P.S - This CFE submission is a good starting point to evaluate Natco’s claim about their process being different than the innovator process hence not falling in the regime of patent infringement.

FMC – Can they protect the golden crop?
Rynaxypyr diamides (CTPR) has truly been a blockbuster for DuPont/FMC. Pleasantly surprised to see amount of effort that FMC has put in the 2019 Annual report and Quarterly presentations to assuage the fear related to territory getting challenged/injuncted or generics coming into fray.

FMC AR2020.pdf (392.8 KB)
FMC 2Q-2019-Earnings-Slides-FINAL-[v9].pdf (1.0 MB)

Patent protection timelines as per Q2’2019 investor presentation and concall (recreated based on presentation inputs to avoid any IP violation):

FMC messaging “No earlier than Q1 2026 (Unless supplied and licensed by FMC)”

Key points of defence perceived by FMC:

1. Patent and trade Secretes:
Chlorantraniliprole is a complex molecule to produce, requiring 16 separate steps; FMC owns granted patents covering many of these 16 process steps and several of the intermediate chemicals, and we protect other aspects of the manufacturing processes by trade secret.

As of December 31, 2019, the Company owned a total of approximately 200 active granted U.S. patents and over 2,500 active granted foreign patents; we also have approximately 1,600 patent applications pending globally.

  1.   Regulatory Data protection (applicable for US, Brazil, EU):

2.a Need to pay the innovator for product safety reference data.
2.b Extended period of exclusive uses of reference data beyond expiration of AI composition of matter patent expiry.

3. Brand Franchise (insert a poison pill):
Commercial agreement like limited patent, data/trademark licenses based on long term commitment for purchase of AI from FMC. Brand name retention (Rynaxypyr® or Cyazypyr®). As of December 31, 2019, we had four global agreements and 41 separate local-country agreements covering 11 countries. We are continuing to explore opportunities with additional companies beyond those with whom we are already engaged.

4. Complexity of manufacturing:
Economics of manufacturing may not work in favor of challenger considering FMC’s scale, long term supply chain supported by ongoing Opex will make it uncompetitive for challenger.

Open items where need help/input from others:

  1. Does anyone has any additional insight about the ‘strategic alliance’ mentioned on website.
  2. Any insight on current status of legal proceeding with FMC?
  3. PPQS website is listing approved license holders for combination formulations, is it possible that we have additional licence holders for stand-alone (non combination) application for Chlorantraniliprole?
  4. Any insight on potential sales value and volume for each of the 4 above listed products from Syngenta and for Cosko from PI Industry.



gCopaxone market size diminishing fast due to novel drugs gaining market share for treating multiple sclerosis with better efficacy and safety.
Below is the sales data for key drugs used in MS.

Sales in Bil $
year Tocfidera( Biogen) Gilenya(Novartis) Ocrevus(Roche) Avonex(Biogen) Copaxone(Teva)
2014 2.9 2.5 3.1 4.2
2015 3.6 2.8 3 4
2016 4 3.1 2.8 4.2
2017 4.2 3.2 0.9 2.6 3.8
2018 4.3 3.3 2.4 2.4 2.4
2019 4.4 3.2 3.7 1.5

As per Nirmal bang report estimate current market size of Copaxone is 1.35 Bn and generic market share is around 40%. With further competition in generic Copaxone market size would contract to $600 to $700 million.
Declining Copaxone volume is due to the following reasons:
1.New therapeutic options with better efficacy: New treatment options include Ocrevus( in 2017), Kesimpta and Zeposia in 2020,Mavenclad and Mayzent in 2019.
2.Increasing oral treatment options leading to decline in use of injectables( Capoxone is through subcutaneous route): Zeposia from Bristol mayor has demonstrated robust efficiency and safety
3.Launch of generic version of Tocfidera which has 23% market share in MS treatment. Drop in Tocfidera price may result in more people shifting from copaxone to oral Tocfidera.
4.Mylan has initiated phase 3 study of Copaxone once a month. If the outcome of study is positive overall volume of Copaxone may come down.

Source: 1.NB pharma update 2.
@rajats Who are other generic players likely to enter. ?Dr Reddy/Biocon


Hi Everyone,

Nice data points above. I don’t have so much of in-depth understanding molecule wise or how the competitive landscape will evolve for the pipeline but having tracked and owned this company for last few years, I’ll try to summarize/share my thoughts/observations.

  1. The management is quite different and an outlier in the industry. The company was one of the early players to have chosen the focused path of complex molecules and got huge success in this area. Though last 2-3 years have been dull but if one hears the concall one can see the same principles/focus in the company.

They were one of the first to say that US generic market is too competitive and will be a commodity.
Another unique thing is that with the windfall from the US success, they try to build very long term annuity businesses in emerging markets (eg - Oncology business in Brazil, India etc) and continue to stay away from what majority of the pharma cos have been doing. So strategically its one the few companies to have a differentiated path.

  1. The quality of earnings is fantastic (demonstrated from cash flows and liberal dividend payouts) and add to that, management has demonstrated knack in doing stock market accretive deals eg - they partnered with some investor earlier (CX partner) and company got the share in upside that the investor made…this is really rare! and later when stock prices were down, they have done buy-backs too! So I feel there are very few management which have the capability + understanding of markets etc.

  2. Its quite interesting to see that they will be extending their expertise of pharma to agro-chemicals and take on MNCs. If they are successful, this expands they potential.

Few things which concern me:

  1. As one never knows contribution from key molecules etc and the price erosion etc is steep in these areas, I do worry if this business is like a treadmill? Its pretty tough to figure out the normalised earnings etc.

  2. There have been highlights around the huge increase in capex cost and delays (there were some insights on twitter) - this is concerning given that management quality is considered very high.

  3. Couple of years back there were huge hope from Copaxone and the company actually did pretty well on capturing the market. But I feel the nos never came the way they were expected to be. I have similar worry about future pipeline

  4. If one looks at the growth in the core domestic business or overall ROEs, they look to be poor


On potential competition in Copaxone, to my understanding, DRL, Amneal, Biocon/Apotex are few other players who were trying to enter. And DRL is very probably much ahead in terms of preparations.

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@sensaptarishi domestic oncology business is hit very hard because of COVID. Cancer patients are the most vulnerable from catching the infection so patients are deferring the treatment wherever possible. Also, oncology drugs are sold through hospitals mostly in top 7-8 metros/tier1 cities where most of cancer hospitals are located. And as COVID is rampant in all large cities that has impacted the sales badly.

@ayushmit given the nature of the business and current pipeline, business is expected to witness lumipness in earnings in the near future. However, overtime that lumpiness should reduce as pipeline builds up but that may take 5-6 years :slight_smile: Ten years back when they decided to focus only complex generics they were starting from scratch and today they have got a pipeline of drugs worth USD 20 Bn+ in sales, half of them being para IV. They plan to file 10-12 new filings in USA every year (equal mix of oncology & non-oncology) with para IV/FTF proportion of more than 50%. Overtime, as pipeline grows and they start to get 1-2 hit products every 1/2 years then this lumpiness may come down.

on return metrics, next 4-5 years should look very different than the last 5. Many product launches are in the pipeline in India, Canada, Brazil, and most importantly USA. Profits/cash flows should grow mush faster than capital employed leading to better return ratios.


Dr. Reddy’s has been trying to get into gCopaxone but has not been able to make breakthrough. At some point this will happen, my hope is this happens after Revlimid starts picking up. Another aspect that was explained to me is - gCopaxone is a difficult to administer and difficult to scale drug. Innovator still has 60% market share in gCopaxone. The administration happens in hospitals in controlled environment and hospitals build annual contracts with the companies. So if you miss the contract cycle (usually Oct), you have to wait one more year to scale up.


Company has shown good strategic thinking by getting into agri business and I would be keenly watching how this business evolves. But from 2-3 years perspective, agri business might not be significant driver of earnings growth.

In one of the conf calls, company had hinted that they can get to PAT of 1400-1500cr if things play out. The key molecules for this to happen are -

  • Revlimid
  • Sorafenib (Nexavar)
  • Everolimus
  • Pomalyst


As previously pointed out, Revlimid is 8bn$ market and it seems like Celgene is “settling” with all the players to manage this decline and buy some time to bring new products. If one reads between the lines, it looks like prices might not crash by 80-90% as they do for other cases.

Assuming market size of 2bn$ and if Natco gets 10% market share, it will be 200mn$ in revenues. It would be a 80% gross margin product and there can be 500cr addition to bottomline. One can do several combinations of price erosion (prices dropping by half, 1/4th etc.) and market share (5-10-20-30%) etc to see potential profits that can be generated. 500cr NP addition is an average case in my opinion.

Revlimid Canada launch would also happen in next 1-2 years.

Broadly if all players “settle” and prices do not drop by more than 1/4th - 500cr base earnings from Revlimid might be sustained for 2-3-4 years. Again this situation is very dynamic.

Unstated price understanding is a “cartel” behavior and there is some lawsuit going on in California court. These kind of things need to be tracked. There also have been precedence where Cipla challenged innovator in court once innovator settled with other platers for generic and they won the case. (TODO - I can find the news article and paste it here).

One can go through Celgene’s AR below (pages 217 to 230), to understand all the challengers for Revlimid and Pomalyst. In both the cases, there are quite a lot of challengers and situation is quite dynamic.


Natco recently settled for Pomalyst with Celgene and US patent is slated to expire in 2025 as per Celgene’s 2019 annual report. It is a 1.4Bn$ size molecule in the US and 2bn$ in total. There are several players who have entered into litigation for Pomalyst (Teva/Hereto/Aurobindo/Mylan).

There are no details of the launch date or any other details available. If pharma experts can figure out that Pomalysts can be sold in next 2-3 years, the would be pretty decent trigger.

@T11 has covered this molecule above.


  • Immunosuppressant to prevent rejection of organ transplants.
  • Used for treating renal cancer
  • Marketed brands
    • Zortress - USA - Novartis
    • Certican - EU - Novartis
    • Afinitor
    • Votubia
    • Evertor - Biocon
  • Competition
    • Natco
    • Dr Reddy’s
    • Glenmark
    • Biocon
    • Hikma
    • Par Pharma
    • Teva Pharma
  • Exclusivity expiration date - Feb 2023
  • Novartis
    • Afinitor/Vitubia had 1.5bn sales in 2019
    • Zortress/Certican has sales of 485mn$ in 2019

Finally, my understanding is that around 250-300cr kind of profits are generated by gCopaxone and they might go down (maybe by half) in next 2/3 years.

FMC has sales of 2000cr for CTPR. I do not know the kind of price erosion that might happen. Assuming 500cr sales for Natco, it would be a 100cr NPAT opportunity.

I went through the court petition (both Delhi and Hyderabad) and the challenge seems to be based on premise that - there are prior patents for CTPR which shall allow manufacturing. There is also challenge to make CTPR as public right. If CTPR becomes public right, can other manufacturers manufacture CTPR? What happens to profit pool?

Disc - Invested


The Edelweiss report shared on the natco thread by Tarun is a must read to understand the pipeline of natco. I will try to give my observations on the company as I have been holding it for the last few years, and also highlight some monitorables.

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

  • Revlimid opportunity maynot turn out to be very bullish given the long list of Para IV filers (Dr Reddy’s, Cipla, Sun Pharma, Hetero, Apotex, ANDA Inc, Lotus Pharma, Natco, Zydus Cadila, Mylan, Aurobindo, Lupin) and the current list of settlements (Natco, Lotus pharma, Reddy, Cipla). Also, the only company which has an approved ANDA for revlimid is Lotus pharma, Natco’s approval date keeps on getting extended (was expected in late 2018, then revised to Q4FY20 then to Q2FY21 then to December 2020, lets see when approval comes).

  • About capital allocation, QIP was done in 2017 at 915/share for 1 cr. shares (~915 cr.) and buyback was done in 2019 at 747.82/share for 30 lakh shares (~224 cr. excluding transaction costs). The QIP was much bigger than the buyback, also buyback quantum was much smaller compared to QIP size. The good thing about buyback was that it was done via the open market route, so they were able to buy shares at 550 levels bringing average price down to ~750.

  • Below are the dividends from 2010, company has maintained 15-20% payout as dividend (which is in-line with other Indian growing companies). There is not out of the ordinary in terms of capital returns (by dividends + buybacks) to shareholders

Year Dividends
2010 0.4
2011 0.4
2012 0.6
2013 0.8
2014 1
2015 1
2016 2
2017 7.25
2018 8.5
2019 7
2020 8.75
  • Management guided doubling of Indian business in FY17 by FY20 which they failed to meet because their bet on Hep-C business didn’t pay off due to pricing controls enforced by government + non-repetitive nature of Hep-C business. Here we see how concentration on a few products/therapies can also lead to higher risk and not always higher returns.

  • Their cash conversion recently has been slightly inferior. Over the last five years, their cumulative CFOs are 2008 cr. vs cumulative PAT of 2444 cr. (reflecting ~84% conversion) and cumulative EBITDA of 3255 cr. (~62%; should be closer to 75% assuming 25% taxes for NATCO).

  • Another monitorable is the large CWIP of >400 cr. sitting on the balance sheet for more than 3 years now, although this number has started coming down recently from >600 cr. to ~450 cr. in Q2FY21.

  • Natco’s base US business sucks. Money is mostly made through profit sharing (link to a valuepickr post computing this)

  • Natco has been regularly investing in OMRV hospitals (PACE hospital) which is a specialty liver and kidney hospital in Hyderabad. Quantum of investments have been low so far (7.5 cr. in 2017; 5 cr. in 2019); Their current holding is 12.8% and the hospital’s FY18 revenue was 25cr. This is a kind of investment which doesn’t fit in with the basic business of natco.

  • Management is very clear in conference calls. They were the first to point out the commoditisation of US generic market, they were the first to talk about opportunities in Chinese pharma market and later also said that China may not be the big opportunity that they had thought, etc. They are good communicators and seem to have a decent plan.


It’s early days for me now at Natco. I did spend considerable time in Jan/ Feb 2020 timeframes on Dhwanil’s prodding as another good example of a strong business model.

My first impressions were (on limited study)
a) Mgmt is clear-headed in what they want to do, and communicates well. They have an exemplary track record; last few years track makes it a mixed bag though
b) There is lot of posturing as well. That era of dominance in Oncology is actually over (lot of others in play, in fact who have invested in skills/competencies more than what Natco has done)
c) what is NOT so well known is that Natco is outsourcing both API/Formulations for some key products (at least 5 on the last count, where others have invested in skills, and Natco has preferred not to; source(s) cannot be named for obvious reasons; the 4-5 molecules can be named)
d) It seems to me there is still lot of HOPE mixed up with actual VISIBILITY in earnings projections - we need to divorce the two - what is in the bag, versus what is clearly not
e) The diversification in Crop chemicals is interesting. But it’s a developing story. Needs to be seen where they go. Again will take time to build even if successful. NOT significant in medium term?

Some of these made me bracket Natco in the 15-20% compounder bracket; there seemed to be better more visible easier to get a grip-on stories. Looking to get these high-level views negated by the bulls in the story - with stronger data-led insights, while I choose to play the devils-advocate role.


Nexavar - Any idea on whats the US market sales of Nexavar in either CY2019 or YTD CY2020? As per Bayer’s latest quarterly, sales in USA are declining because of strong competition (most likely from competing & better efficacy drugs)

Imbruvica - as per latest quarterly of ABBVie, US sales for 9M were $3.14 Bn so annual runrate for US market is ~$4.2 Bn.

as per this article, competition is expected to increase from competing drugs - The top 10 drugs by sales increase in 2020

Revlimid - given volume-limited settlements, efforts from BMS would be to control the price erosion and make price erosion more gradual till 2026. Though, very difficult to predict how this all will play out. here is a snippet from their latest concall.

full transcript - Celgene Nov 2020 cc.pdf (445.7 KB)

In FY23, assuming 8% market share of Natco/Allergan, and 40% fall in prices of the drug from current levels so $4.8Bn market opportunity, no volume increase for Revlimid in next 2 years, and 30% profit share of Natco, Revlimid can add 400Cr in PBT. And the same can increase to ~800Cr by FY25 assuming 60% price erosion and 23% market share of Natco/Allergan by then.

Positive surprises could be - volumes growth of Revlimid which has been growing strong at 10-15% yoy, lesser price erosion, more than 30% profit share of Natco

Risks to this calculation - higher price erosion, the declining market for Revlimid (could be because of newer competing drugs).

However, if price erosion is limited to 20% in the first year, and gradually increase to 40% by 3rd year then PBT contribution from Revlimid could be 500cr in the first year and 1100Cr in the 3rd/FY25 year (could be the peak profit year from Revlimid’s perspective). This is all an excel exercise and reality may be completely different :slight_smile:


Thank you all for putting out interesting data points and observations. I had a look at Natco few months ago and there are still things which are unclear to me

  • They have been talking about steep ramp up in India business and RoW (led by Canada and Brazil) but there is hardly any significant delivery on these two fronts. In fact even before Covid hit oncology, their growth in that segment was patchy at best. How do you guys think about the same? I personally felt that for Natco’s earning profile to smoothen out over time, both India and RoW businesses need to reach a critical scale where it can absorb some “falling off cliff” from next block buster. I do not see much evidence of the same happening

  • Secondly according to Biologic_As_percentage.pdf (356.6 KB) out of top 15 best selling drugs in US, 11 are biologics. Also over a time proportion of biotechnology based drugs in over all NCE market has increased multifold. If this trend continues, the huge pay off -high risk-complex chemistry business model can be at risk. I have not heard them preparing for such kind of change and positioning them for the next growth vista in terms of working on biosimilars etc…How do you guys assess this risk?

  • If we look at the pipeline of filings beyond Revilimid peaking off in FY 26, the only comparable large opportunity is Imbruvica and probably to some extent Pomalyst. Rest all are much smaller to fill in the gap that may be created by Revilimid earning slide. In case if these opportunities become too competitive or is getting disrupted by biologics…what happens to earning going to the next level? I understand that in any company to look beyond 5 years of earning is futile…but these guys always talk about positioning them selves so that they get 4-5-6 such block buster opportunities in a decade…I simply do not see it at least from current pipeline available in public domain.

  • Lastly on Agri business, I think he clearly hinted (of course without confirming) that they may not go with partnership model and will go solo. I feel that establishing a complete supply chain in an industry where one is entering for the first time and there exist credible large players who have a turf to protect and have large product basket is very tough. Any idea why are they not following partnership model that worked so well for US generics business in Agri? Any obvious challenges that is seen in doing partnership model? I feel Agri is more like an experiment at this stage and business model will only evolve over next 4-5 years…I would love to know a variant perception on the same.


Sales breakup:

  • Domestic sales has de-grown because of HepC market collapse (price control by government and shrinking of overall market). The growth in other segments such as cardiology and diabetology has not been enough to make up ~500 cr. of HepC sales in FY17. C&D segment only accounted for <10 cr. in Fy19 and ~45 cr. in FY20.
  • Part of recent de-growth in oncology is structural due to pricing controls from the National Pharmaceutical Pricing Authority (NPPA). Until FY19, oncology sales were growing at 15.7% (8 year CAGR growth)

If we try to look at 3-years down the line and extrapolate previous growth trends (12-15% growth), oncology revenues could be 500-550 cr. C&D segment can double to ~100 cr. from the current 45 cr. Given how HepC revenues have contracted from 513 cr. in FY17 to 209 cr. in FY20, it might be prudent to assume a figure of 150-200cr. Overall Indian formulation business revenues could be 750-850 cr. The peak domestic revenues were 881 cr. in FY17.

Among rest of world markets, Natco has given bullish commentary in their last 3 annual reports. However, real growth has only been seen in Canada business, and a little bit in Brazilian operations. Canada revenues have grown from 74 cr. in FY18 to 128 cr. in FY20 (31.5% growth). Given the revlimid opportunity in Canada, sales can easily double to ~250 cr. in 3 years time (~26% growth).

Brazil is mostly a tender driven business, FY19/FY20 sales were 33/39cr. Management has said that their initial strategy of marketing alone in Brazil was not the best and they have now partnered with local companies (effect is already visible in Q2FY21. Lets say strategy pays off and sales double to 80 cr. This will mean that Canada + Brazil sales can be >300 cr. Do we see this playing out?

In Q1FY21 concall, Rajeev mentioned that rest of world (mostly Canada, Mexico) contributed 12-13% sales (meaning 67-73 cr.). Annualized numbers will be ~200-250 cr. (taking seasonality of flu product into account). So a Brazil + Canada sales of 300 cr. in 3-years is possible.

This makes India + ROW business ~ 1150-1250 cr. (these are mere excel projections, take it with a heavy dose of salt).

API business has managed to grow at 15% since FY16, assuming this forward, API sales can be ~540 cr. in three years.

This means India + ROW formulations + API revenues ~ 1690 - 1790 cr.


Thanks Guys for bringing out great data-points that everyone should pay attention to. I have never spent much time looking at Natco. As I try to catch up with you am looking to crystallise observations on Management Speak/Walking-The-Talk/Strategic Intent & Delivery …

A possible counterpoint is from the multiple combination filings Approvals received by AbbVie to move CLL/MCL patients away from only Imbrutinib to Imbrutininb+X, Imbrutinib+Y?


@harsh.beria93 - thanks for your inputs. Few points:

  1. Will really help if you can share the excel sheet (from where you have pasted the image of sales break-up). always easy to work directly on excel.

  2. Also, the ROW numbers are looking little off to me. For example, FY19, Canada (96)+ Brazil (33) should be 129 Crs. whereas the summation is representing 108 Crs.


The excel sheet is attached. For FY19, I have removed the Brazil sales number as I couldnt find it anywhere in their AR19. About ROW sales, this is the number that was reported as Sales from subsidiaries (net). Numbers that natco has reported consistently over years are sales from India, USA and API. Rest are kind of fuzzy with different numbers in different years and subsequent revisions in previous year sales in future annual reports.

Sales_Breakup.xlsx (10.7 KB)