Multiple growth pills for Natco Pharma

The company has a strong product portfolio both in the domestic as well as the US markets

The Natco Pharma stock was up six per cent in two trading sessions on expectations of a strong March quarter performance and near-term triggers such as approval for generics of multiple sclerosis drug Copaxone. For the March quarter, while the pharma sector is expected to report single-digit revenue and flat net profit growth, Natco Pharma could witness a growth of 24 per cent in revenues and 117 per cent rise in its bottom line. The better performance is due to the launch of the generic version of influenza drug Tamiflu in December 2016 in the US. The drug, marketed by its US partner Alvogen, has sales of about $400 million.

In addition to a strong March quarter performance, the next trigger is the approval for generics of Copaxone (40 mg strength) which has annual sales of $3.3 billion. The verdict on a patent case is due in May 2017 and a favourable outcome of this could mean a ~400-500-crore revenue opportunity, according to analysts. Natco, along with its US partner Mylan, believe they are the first-to-file applicants which could translate into a 180-day period of sales amid limited competition. In addition to this, another long-term opportunity is the generics version of multiple myeloma drug Revlimid which has US sales of $4.4 billion. The company, however, will be able to launch the drug only in 2022.

The company’s sales in India, which have grown fivefold over the past four years on the back of its oncology and hepatitis C portfolio, should get an additional boost from new product launches. Edel Investment Research analyst Neha Agarwal says the launch of the latest hepatitis C drug in H1FY18, specialised products in diabetes and cardiology and market expansion would add to the current sales. India sales accounts for about 55 per cent of revenues. The brokerage expects the hepatitis portfolio (30 per cent of domestic sales) to grow at 16 per cent annually over the FY16-19 period while the oncology portfolio (22 per cent of domestic sales) is expected to grow annually at 20 per cent during that period. Its newer businesses (cardiology and diabetes) are expected to touch the ~100-crore mark by the end of FY18.

Strong domestic performance coupled with niche US opportunities should help the company grow its FY17 revenues by 61 per cent to ~1,836 crore.

At the current price, the stock is trading at an expensive 27 times its FY19 estimates. Investors should look at buying the scrip on dips.