Natco Pharma’s generic pipeline delivers a blockbuster
Natco Pharma Ltd’s shares rose by a fifth on Wednesday on news of Mylan NV getting approval to launch generic Copaxone in the US. All that did was take the price back to its early-August level. Its share had then declined after its first quarter results were declared, possibly due to a fall in domestic sales, and this decline accelerated following news of Mylan delaying guidance for the generic Copaxone launch to 2018. Mylan is Natco’s US partner for this drug, prescribed to treat multiple sclerosis, and its launch was a much-anticipated one for both companies.
Mylan’s worry was that the US Food and Drug Administration (FDA) was asking more questions than anticipated from filers, and taking longer to give approvals. This is a common refrain in the industry, and especially so for complex generic drugs. Mylan getting an approval is therefore a pleasant surprise for both sets of shareholders.
What does it imply? The drug has two strengths, the 20mg one which has a market size of $700 million and the 40mg one which has a market size of $3.64 billion (Rs23,800 crore), according to QuintilesIMS data. More importantly, Mylan believes it has a good chance of getting a 180-day exclusivity for the 40mg strength, although this may be shared exclusivity. But that depends on when they get an approval.
In a research note written after the Mylan-Natco announcement, Jefferies India said Mylan/Natco may be the only ones with a generic for six months, as Sandoz has a warning letter on its facility, and while Dr Reddy’s will hear from FDA by end-2017, the brokerage firm believes the regulator may have more queries for it.
Jefferies expects the generic Copaxone approval alone to add 75% to Natco’s projected earnings in FY18 and then another 12% in FY19, assuming no other company enters the fray till March. That is a handsome jump but the note also cites the price target as Rs950 a share, which was reached on Wednesday. That signals further upside from this development may be limited.
Investor attention will turn to whether competition for generic Copaxone can remain limited for longer than expected and of course, the approval flow for Natco’s (along with its partners) pending generic drug filings. The current approval adds more credibility to Natco’s generic drug pipeline, as it is succeeding in getting a significant approval (even if in partnership with Mylan) in a difficult market, where even industry leaders have found the going tough.
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