Event update: Natco Pharma (Outperformer) - Initiates agrochem foray; challenges patent on FMC’s blockbuster product in India
Event
Natco has announced that it has developed a technical product for Chlorantraniliprole (CTPR) – a broad spectrum insecticide used in several crops
Key highlights
- Natco has developed a technical product for CTPR and hopes to bring affordable formulations based on this technical product. It has filed for/ is awaiting technical approval for its CTPR product
- Notably, CTPR is an AI which is used in FMC brands Coragen / Ferterra which combined sales of >Rs15bn in India (as per 2016 declaration)
- Natco has filed a suit to secure rights to commercialize its formulations prior to the patent expiry in 2022; FMC has sued Natco citing patent infringement
- We anticipate the court to likely rule on this litigation by early next year
- If Natco secures the product approval and also prevails in the litigation by mid-2020, it will give potentially give Natco 3 years (seasons) to market this product under limited competition situation in India; could be a fairly meaningful opportunity for the company and will give a strong foundation to its Crop Health Sciences Division
- Notably, Natco had announced plans for CHS business in FY19; it had indicated that it sees significant opportunities for leveraging its R&D capabilities to challenge patents and launch limited competition products as it has successfully done in the pharma vertical. This announcement is in line with that strategy
- Also, a successful launch in mid-CY20 will also enable Natco to boost its FY21 earnings prior to the potential FY22 EPS spike driven by gRevlimid US launch
Valuations & view
Management continues to pursue unconventional growth strategies (agrochemical foray, gErnesto launch in India) to create new medium-term growth engines. Recent big-ticket FTF on gImbruvica tablets further underlines Natco’s capability to generate unexpected winners. Despite near-term earnings softness, the initiatives add comfort on Natco’s ability to create new and meaningful growth drivers in the coming years. While gCopaxone scale-up will drive FY20 earnings, gNexavar and gRevlimid launches, accompanied with scale-up in India and RoW markets, will retain the earnings momentum over next several years. Maintain Outperformer rating with a target price of Rs860. Tentative approval for gRevlimid will be key near-term upside trigger.
Natco Pharma Limited is a pharmaceutical company. The Company is engaged in developing, manufacturing and marketing finished dosage formulations (FDF) and active pharmaceutical ingredients (APIs). The Company's segments include active pharmaceuticals ingredient, finished dosage formulations, job works, pharmacy and others. The Company's product categories include Domestic Formulations, International Formulations, API's and Blockbusters. The Company's products include Alphalan, Bandrone, Bendit, Clokeran, Lenalid, Thioplan, Anastronat, Capnat, Fulvenat, Kabanat, Natdox-LP, Rapact, Temonat, X-Trant, Glatimer, Hepcinat, Natdac, Natzold, Tigi, Alprazolam, Chloroquine Phosphate, Lansoprazole, Letrozole, Granisetron, Rizatriptan IR, Imatinib, Salmeterol Xinafoate, Sertraline Form I, Ibandronate Sodium Monohydrate, Pantoprazole Sodium Sesquihydrate, Ondansetron Hydrochloride (Injectable Grade), Daclatasvir and Glatiramer Acetate. The Company manufactures over 20 products under contract.
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