Natco Pharma - Imminent Growth Cycle (?)

[T11]

As promised, follow up post on some current exciting opportunities and future pipeline (near, mid and long term horizon) across US and RoW subsidiaries:

Natco Pipeline.xlsx (17.2 KB)

US Pipeline:

• Pomalidomide (Pomalyst) - 1.5B USD market where they do have settlement and expected launch date is 2025. This is an old filing with Breckenridge so margins will be shared between partners. Mylan, Teva, Eugia are other players with US filing in place.

• Carfilzomib (Kyprolis) - 0.8B USD market. Expected launch date of 2027. They have 180 days exclusivity for 10 mg strength. Other key player in the market are Dr. Reddy, Apcotex.

• Eliquis (Apixaban) – Real big size drug (within world top 5) even bigger than Lenalidomide, with ~11B USD. Some estimates suggests that first generic launch is around 2027 or 2028. Bad news is that Mylan (now Viatris) and Micro Labs already have settlement with innovator BMS+Pfizer. Even otherwise, close to 10-12 other players are eyeing this tempting opportunity. Therefore, will be hard to capture meaningful share in US market. Natco has picked the right battles, they have started aggressively on this wonder drug in RoW subsidiaries (Brazil) .

• Ozempic (Semaglutide Pen (8mg/3ml) – Have FTE status. Another BIG and meaningful opportunity however may be riddled with litigation and time delay. US revenue of 5B USD+ for FY’22 for innovator Novo Nordisk. There are no competitors in sight so far. Novo has monopoly position in Semaglutide family of drugs like Ozempic, WEGOVY (solutions) and RYBELSUS (tablets). As a possibility, Natco may look at the other two possibilities as well (there was a very good question around this in Q4’23 concall and management deflected the question smartly).

• Lynparza (Olaparib) – FTF filling with 1B USD+ revenue run rate. No competition in sight so far except innovator AstraZeneca and Merck. Again, may go through litigation and time delay for prolonged period of time.

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RoW subsidiaries:

Canada –

• Natco has launched PrNat-Lenalidomide Capsules, the first generic alternative to Revlimid to be approved by Health Canada in Sep’21 – . Canada sales is $400 - $500 M. (link)

• Natco Canada has launched NAT-Apixaban Tablets in Sep’22 (link)

• Recently (March’23) Natco announced the launch of PrNAT-Pomalidomide capsules, the first generic alternative to Pomalyst. (link)

Australia

• Pomalidomide - Natco Pharma stated that it has launched first generic version of Pomalyst (Pomalidomide) Capsules in 1,2,3,4 mg strengths in the Australian market. Pomalyst registered sales of $35.6 million in the Australian market for the year ending March 31, 2022. (link).

• Also, Natco and its partner Juno Pharmaceutical had arrived at a Patent settlement for Lenalidomide and reached out to Australian Competition and Consumer Commission (ACCC) for approval however same lawsuit was withdrawan after some initial critical adverse observations by ACCC. (Link). Subsequently, looks like they have reached some other format of settlement.

Brazil (websiste):

• Everolimus -Biggest success in Brazilmarket. Monopoly position for fourth consecutive year
• Apixaban – First to launch
• Azacitidine - second generic in the market
• Launched Gefitinib - first to launch and the only generic

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Market success can be confluence of multiple factors however, this company never fails to amaze with big hairy audacious goals (aspiring and delivering on world’s top 3/5 drugs, repeatedly) and long horizon thinking (7-10 years ahead). Only challenge in our part is to find a way to model such moon shot businesses.

Regards,
Tarun

[rohitbalakrish_]

Thanks @T11 for sharing the pipeline and your views.

I feel in the next 6-8 quarters the needle mover is going to be Revlimid. The market seems to not yet believe the story on the drug. So far BMS (Innovator) hasn’t seen a great decline in sales in the US. @T11 also shared that other generic players also don’t feel that pricing pressure is going to be very severe for the drug.

Natco’s market share reset would have happened in March’23 and Q1 FY24 should ideally reflect that shift. Based on the commentary of the management, Q4 and Q1 are going to be the big quarters w.r.t Revlimid.

Below are some tables from a research report on the drug.

[nikhil090]

Dear all,

Though most of the things are covered extensively, I will add one point wrt the REMS program for the drug. Per industry industry sources , this is a very strict REMS program for Lenalidomide. Each tablet has to be counted and dispensed against a valid prescription. This was the reason that generic players could not even obtain RLD for doing bioequivalence itself for the product for many years and there was huge litigation involving this aspect.
The same requirement is still there. Now in the generic environment, it is very difficult to set up this program in a country like US- It may cost upwards of 8-10mn$ to maintain the implement and maintain the same. Therefore all the generic companies, (people with license from innovator) are using innovator REMS program which has been allowed by innovator for some fees. I guess this may be part of the settlement agreement itself.
I heard that TEVA was planning to setup their own system but dont know the progress. This can be one additional factor which will not allow unbridled competition post 2026 also. So this golden goose for Indian pharma may continue even beyond FY 26 given the newer generic companies will have little incentive to setup a costly system (not to mention the wherewithal to handle this).
With many of other things falling in place, this can be significant year for Natco - reasonable domestic growth, Agro opportunity maturing, launch of Lonsurf plus the lenalidomide bonanza continuing. Infact this qtr may be absolute blockbuster with profit in excess of 500 Cr for them.

Thanks.
Nikhli
DISC: Invested in last one month. Also the above estimates are mine. Brokerage estimates are @400 Cr+. So obviously they can be significantly wrong. Take it with Load of salt.

[rohitbalakrish_]

Another F2F, albeit a small opportunity.

40f60e67-7364-43e7-ae2e-99d1367f95a6.pdf

[Mohit_Jariwala]

Concall Summary Date: 28 May 2024 NATCO PHARMA LIMITED

FINANCIAL HIGHLIGHTS

• The company observed a YoY growth across formulations on account of its continued due diligence & efficiency.

• The cash balance and investments as on 31st March 2024 stood at ~₹2,000 crore. Also, the debt was ~₹116 crore during the same period.

BUSINESS HIGHLIGHTS

• Revenue from API (Active Pharmaceutical Ingredient) stood at ~₹50 crore during the quarter as compared to ~₹73 crore in Q4 FY23. The revenue for the year grew by ~19% to ₹249 crore.

• Crop health sciences (CHS) revenue amounted to ~₹-0.4 crore during the quarter as compared to
  ~₹27 crore in Q4 FY23. Due to poor crop season, the stock returns were more than expected at ₹25 crore. In FY24, the revenue stood at ₹108.3 crore v/s ₹41 crore in FY23.

• The provision of assets of the CHS division amounted to ₹30 crore, and this was done due to the non-utilization of certain assets used for the manufacturing of Agro Intermediates.

• During the quarter, the domestic formulation business reported a revenue of ~₹52 crore v/s ~₹92 crore in Q4 FY23. A charge amounting to ₹35 crore during the quarter related to the return of stock from super-stockists due to a change in the distribution model. For the full year, the charge amounted to ~₹90 crore which is reflected in revenue and profitability numbers.

• In Q4 FY24, the formulations exports (including profit share and foreign subsidiary) stood at ~₹955 crore as compared to ~₹709 crore in the same quarter previous year. The growth was driven by robust traction from Canada and Brazil with direct exports of $40 million and $25-$26 million respectively. The revenue for the full year for exports was ₹3,237 crore as compared to ₹2,063.2 crore in the previous year.

• During the quarter, Revlimid contribution to revenue was healthy and the company expects this trajectory to move forward in a steady manner going ahead, which would positively contribute to the company’s growth.

UPDATES

• During the year, it invested $2 million in Cellogen Therapeutics Private Limited, primarily involved in R&D spends involving cell and gene therapy solutions.

FUTURE OUTLOOK

• They expect revenue growth to be ~15%-20% in FY25 with EBITDA as well as PAT growing by ~20% given no price erosion headwinds impact operations.

• The management is expecting some approvals from Brazil and Canada in the next few years. They would further expand into newer markets like Egypt and Saudi Arabia.

• They envisage agro business to achieve ~₹120-₹150 crore of revenue in FY25. By the next 3 years, they anticipate this segment to triple in revenues (~₹300 crore).

• The capex outlay on an annual basis would be ~₹300-₹350 crore majorly for maintenance and capacity expansion.

• They would focus on acquisitions to boost growth majorly in the export & emerging markets.

[chikspat]

Summary of valuation of Pharma companies by I-sec report.
Natco continues to be the cheapest, with 20% PAT growth projected ( by management on concall).
Rerating may happen if revenue or PAT have upside surprise.

13062024%20-14130624.pdf

D: Invested

[Dhananjay_Malhotra]

The cash conversion cycle of the company is 345 days (although it is decreasing YoY but it is still high compared to other pharma companies that I skimmed through). At the same time its CFO has increased to over 1200 crores (roughly 50% more than last year). I am a bit confused about the company because of the aforesaid. Would you be having a logical explanation behind this? With such a high number for the working capital days, how are the cash flows increasing?

[HarshVijay]

So if you see the topline has grown at a much rapid rate, leading to more CFO, that is reason number one. Second, as you yourself pointed out that the company is doing a better job with its receivables and the rec days are going down, that is also contributing to the increasing CFO