Natco Pharma Ltd. - Pioneer of Indian Oncology Market

Natco Pharma - Pioneer of Indian Oncology Market - Company Overview

Twitter Handle: @shuchi_nahar

1. Company Profile

Natco Pharma (NPL) is a vertically integrated pharmaceutical company having presence in multiple speciality therapeutic segments. Over the years, the Company has developed an innate ability to deliver molecules, which are complex and hard to manufacture. The Company has constantly innovated and manufactured speciality medicines and niche pharmaceutical products.

The company also has a US retail business. It owns 8 manufacturing facilities including 6 formulations facilities and 2 API facilities. Overall revenues grew at a CAGR of 15.4% in FY16-20. Natco is a leading domestic player in the oncology space. NPL’s product pipeline consists of drugs, which are used for various types of cancer like blood cancer, breast cancer, brain cancer, ovarian cancer, lung cancer and prostate cancer. Currently, Natco is marketing 33 oncology products in the Indian market (FY20).

2. Management Guidance

The management has charted a new growth roadmap with recent entrance in  the agrochemical business. Subsequently the company filed a broad-spectrum insecticide, Chlorantraniliprole (CTPR) in India for which it expects approval from agricultural ministry shortly.

The company has invested ~100 crore in this segment till date. Additionally, the company has filed another Agro product (undisclosed) recently. Overall, the management expects this segment to contribute ~10-15% of overall revenues 2-3 years down the line. The Investment is done for following purposes. 

·       Veda - to get insight of agrochemical distribution.

·       OMRV - for getting an understanding of the hospital space.

·       AACT - for oncology drug discovery.

     

      3. Key Products in the Portfolio

     

Para-IV Filing Products in The Pipeline about to get Approvals and Launch in next few Years. 

       

       Focused approach in US Natco has carved out its own identity via tie-ups to tap limited but niche products pipeline including 20 Para IVs filings (FY20). As per the revised and more feasible game plan, it plans to market products via tie-ups with established players in the generic space.

      Till FY19, the company had filed 51 ANDAs, which includes some niche FTF opportunities. Overall, the management expects one or two complex product launches in the US. 

     4. New Launches in CND/Oncology to Drive Domestic Revenues 

     Natco is a leading player in the domestic oncology segment with a product basket of 33 products (FY20). Company expect momentum in oncology segment to continue on the back of incremental launches amid pricing pressure in some products. New launches in cardio/diabetology segment (CND) is also expected to support overall growth. Going ahead, the company is looking to launch six to eight products a year.

     The company has launched around 5 products in Q1FY21 and plans to launch cumulatively 10-12 products in FY21 domestically. R&D productivity is lower amid Covid-related challenges. The company has adequate capacity for Oseltamivir across two sites (one in India, another in US). Good pipeline of oncology products. Focusing on chemistry-based molecules as opposed to monoclonals (mAb).

      5. Products That Will Drive Future Growth

      Driven by 3-4 products such as Copaxone, Doxil, Lanthanum carbonate. Export growth due to stocking of two main Covid products. Oseltamivir + chloroquine (Lower margin products). API growth also led by demand for these APIs. Agrochem – 10-15% of revenues over next two to three years.

      Niche high value – 3 registered (1 being CTPR), some in pipeline (a) CTPR can be launched in the Rabbi season depending on court rulings and approvals. Commodity products – more than 6 filed. Over the next 2-3 years domestic agro business to grow significantly, maybe start exports. Over 30% market share in Copaxone. Non-US subsidiaries contributing ~12-13% to consolidated earnings.

       

     6. Revenue Growth Trend over the Years

      

      

      7. What Makes Natco Face in the Crowd?

       Differentiated model - Natco followed a different path for the US market – targeting select opportunities with limited competition translating into high margins and generating significant cash flows.

The product portfolio is focused on complex products or litigation related opportunities. Natco’s successfully delivered four key opportunities Tamiflu, Doxil, Fosrenol, Copaxone which the company commercalized through its partners over a 11-month period from Dec-2016 to Oct- 2017.

8. US Filings Summary in Brief

Company has mapped 16 product filings. These products fall into three categories:

(a) Opportunities with case settlements and reasonably clear launch timelines - Revlimid March-2022, Kyprolis 2027, Nexavar (likely launch post Jan-2020).

(b) Filings, which in their assessment are not lucrative anymore: Zytiga, Sovaldi, Tarceva. 

(c) Filings which are diffecult to assess, where outcome is dependent on the court verdict - Pomalyst, Tracleer. In terms of timelines, Afinitor and Nexavar should be watched.

Revlimid - The next big US approval will be Revlimid while there are handful of other US approvals and launches lined up. In Canada, the trial for Revlimid commenced in July. Regarding the US filing, the company has responded to all the queries raised by USFDA and incremental inspection is not expected. The management is hoping for a positive news by next quarter.

9. Research and Development – Place where Innovation Happens

Company has over 40 R&D laboratories in 2 research and development facilities with a talent pool of over 500 scientists. Company is having capabilities span synthetic chemistry of small molecules, peptide chemistry, oligonucleotides, nanopharmaceuticals and new drug discovery. R&D productivity was lower in FY20 amid Covid-related challenges. 

10. Segmental Overview for the FY 20

Domestic business: The domestic business was severely impacted as the Oncology and Hep-C businesses were affected due to lower demand from patients. The management has guided for 8-10 product launches in FY21 given the current situation. On a longer-term horizon, the guidance is 10-12 launches per year.

Oncology business -  NATCO’s product portfolio is among the most extensive in the Indian oncology market, with 33 active products as on 31st March, 2020. The business was down as immunosuppressed cancer patients can be highly vulnerable to Covid-19, leading to fewer hospital visits. The oral oncology business (contributing 65-70% to Oncology business) is coming back but chemotherapy business (contributing 30-35% to Oncology business) is yet to be back as the hospital visits are still sparse.

Pricing pressure is seen easing in this year which was there in 2019. EBITDA margin of the Oncology business is higher than consolidated company EBITDA margin. The Company’s revenues from this business segment fell from 3,968 million in FY 2018-19 to 3,078 million in FY 2019-20, primarily due to certain macro pressures.

Export business - The exports (including FDFs and APIs) to the US clocked revenue of 7,834 million in FY 2019-20. NATCO is positioned strongly in its business in the US, which is primarily driven by the continued growth of revenue coming from Glatiramer Acetate and Liposomal Doxorubicin.

The export business is growing and is offsetting the underperformance of the domestic business. The business has grown due to company having Chloroquine and Oseltamivir in portfolio, growth in oral oncology and stocking up due to Covid-19 pandemic.

API - For over two decades, Company has demonstrated technical and operational expertise in developing and commercialising more than 40 niche APIs. Company’s key therapeutic domain is oncology and company is extending  expertise to include CNS and pain management. 49 Cumulative DMFs filed 39 Active DMFs.

Revenues from the API division during FY 2019-20 stood at 3,552 million as compared to 3,019 million in FY 2018-19. As of 31st March, 2020, NATCO has a total of 49 active DMFs with the USFDA for products in the areas of oncology, cardiology and orthopaedic therapies. Company filed for four DMFs for the US market in FY 2019-20.

Agrochemicals business: NATCO has forayed into the agrichemical space through its Crop Health Sciences Division recently. Currently it is in the process to complete the manufacturing facilities for both technical (active ingredient) and formulations.

The company has filed 1 product and approval takes roughly 10-12 months. The company will be adopting a similar business model to what it does in the pharma division and challenging patents will also be a part of business strategy.

China - The company has 4-5 filings under review in China and couple of approvals are expected in the current fiscal year.

11. Capital Expenditure – To Cater the near-Term Demand

During the year, Company incurred capital expenditure of 3,492.85 million, a majority of which was used to enhance capabilities in Company’s manufacturing facilities. A significant portion of this capex was done at their Vizag facility. The remaining part was primarily used in formulation facilities across the country.

12. Key Developments

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Reference: Natco Pharma Annual Report & Investor Presentation

Nirmal Bang Research Report

ICICI Direct Research Report

Edelweiss Research Report

Twitter Handle: @shuchi_nahar