Streets remain cautiously positive on Natco Pharma‘s prospects
- In the near-term, Natco's prospects hinge on earnings growth in the pharma segment
Pharma major Natco Pharma Ltd has announced its foray into Pheromone-based mating disruption technology for Integrated Pest Management (IPM) solution to farmers in India. Natco, which is diversifying into agrochemicals, is working with ATGC Biotech Pvt. Ltd (ATGC) for the technology through its Crop Health Science (CHS).
The development is positive, but results will accrue over time, say analysts. In the near-term, Natco's prospects hinge on earnings growth in the pharma segment.
The company had reported slightly weak performance during the December quarter. While in the US, the weak flu season impacted sales, the soft oncology product sales in the domestic arena impacted further. The fourth quarter performance remains watched for some positive developments on the new product approvals in the US.
Natco recently announced that its marketing partner, Breckenridge Pharmaceutical Inc. (BPI), has received final approval for its Abbreviated New Drug Application (ANDA) for Everolimus Tablets (generic for Afinitor®) from the US Food and Drug Administration (USFDA). The product indicated in oncology treatment is to be launched as tablets 2.5mg, 5mg, 7.5mg and 10mg. “Afinitor® and its therapeutic equivalents had generated annual sales of $712 million in the US during the 12 months ending December 2020,” said the company release.
Analysts expect generic Everolimus could be $25-35m opportunity for Natco for FY22.
Meanwhile, analysts are expecting another approval of generic Zortress (immunosuppressant indication). It offers a niche $150-million market with Hikma as the only approved generic currently. When approved, Natco / BPI could be the second player to enter this market.
This is to improve FY22 US growth prospects. Meanwhile, the company is likely to launch some more large products in the US is keeping its prospects firm.
The improved revenue visibility in the US is positive. However street will be watchful on rising competition in the domestic oncology space. Further some products in the US as generics of generic Doxil is to see price erosion. A potential third entrant could impact generic Copaxone sales too, say analysts. Even the API business could see some softness if tenders are not renewed point out analysts.
Nevertheless, analysts at Edelweiss Securities Ltd have modelled $700 million in agrochem sales during FY22. “While promising, there is a degree of uncertainty on agrochem and competition in oncology,” they said.
The street, too, will be watchful, though the reasonably large product opportunities in the US could still drive FY22 earnings well.
The stock that has corrected more than 14% since December highs is trading at around 27 times FY22 earnings estimates.
Natco’s strategy for the US has been focused on niche product launches, whose development involves many complex processes. Its ANDA filings, too, include high entry barrier products that are difficult to manufacture and enjoy limited competition. The company, however, has also been de-risking its business model by growing non-US revenues and diversifying in agrochemicals, too.
Catch all the Business News , Corporate news , Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
MoreLess
First Published:16 Mar 2021, 02:18 PM IST
- Top Gainers
- Top Losers
- 52 Week High