Natco stands out with its niche portfolio

Complex product pipeline for US and specialty focus in domestic biz will drive growth for many years

Natco Pharma has been a big outperformer on the bourses compared to its larger peers, which have faced headwinds due to drug price erosion in the US or due to regulatory issues. Natco’s strength lies in its limited competition complex products’ portfolio for US and specialty-led domestic portfolio. These continue to drive earnings and, importantly, provide good growth visibility. Not surprising then that after surging almost 15 times in the past five years and nearly doubling in the past one year, the stock still has more room for upside.

The company derives almost 40 per cent revenue from the US and 40 per cent from the domestic market, and the rest from active pharma ingredients (API) and emerging markets.

The approach to the US market has been challenging large and complex product patents with small but effective portfolio of complex molecules that face limited competition. The company’s current portfolio comprises filings for 43 niche ANDA (complex generics), including 20 Para IV filings where it can get exclusive launch.

 In FY17, Natco monetised exclusivity launch of Roche’s Flu treatment brand, Tamiflu generics. The product is likely to have contributed about $100 million during the exclusivity period, starting December 2016. Though competition is intensifying now, the company may get approvals for generic Tamiflu suspension launch, too, which may partially offset competitive pressures in capsules/tablets.

As Tamiflu launch has increased its revenue base in FY17, the launch of multiple-sclerosis drug generics of Copaxone remains crucial for near- to mid-term growth prospects. Though some delays in approval from the expected October launch may lead to the stock consolidating or correcting slightly, it will be a buying opportunity for investors, say analysts. Copaxone, once approved, can drive growth in next three-four years without much competition and there are many more products to drive growth.

Antique Stock Broking’s analysts say that Natco has strong visibility of more generic launches where it is likely to be either among the initial launchers (kidney drug Fosrenol, oncology treatment Revlimid, hypertension drug Tracleer, etc) or mature molecules, which are complex in nature and have limited competition such as oncology drug Vidaza injections generics (Natco received approval recently) and Doxil generics. Overall, while FY18 earnings growth may depend on approval timeline for Copaxone generics, the product line up from FY19 is strong and will driving earnings growth.

In India, Natco has seen business grow over four-folds in the past 3 years, led by the Hepatitis-C segment and oncology business. To counter price control in Hepatitis-C segment (a fourth of domestic revenues), the company has launched some more products and the growth momentum should continue, says Ranveer Singh at Systematix Shares. For oncology segment (a fifth of domestic revenues), expansion of market and new launches will drive growth.

Natco is also expanding its emerging markets’ presence and has partnership to enter about 90 more countries over time.