Natco Pharma, Beats estimates; all eyes on Copaxone approval • :: ICICI Securities, PDF link

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Beats estimates; all eyes on Copaxone approval
• Revenues grew 22% YoY to | 219.2 crore, higher than I-direct
estimate of | 194.7 crore driven by 33% growth in the bulk chemicals
segment to | 74.3 crore (I-direct estimate: | 54 crore) and 24%
growth in the formulations segment to | 118.8 crore (I-direct
estimate: | 102 crore)
• EBITDA margins improved ~257.4 bps to 26.8% compared to I-direct
estimate of 26%. EBITDA in absolute term grew 35% YoY to | 58.8
crore, higher than I-direct estimate of | 50.6 crore
• Net profit witnessed relatively lower growth of 20% YoY to | 32.4
crore, on account of higher interest and taxation
Focussed approach to take on biggies in the US generics space
Despite being a late entrant in the US market, it has carved out its own
identity via tie-ups to tap limited but niche products pipeline including five
Para IVs and two limited competition products. Natco had earlier tried to
pursue the route of retail pharmacies as a gateway for entry into the US
market. Later on, it revisited the strategy and sold two pharmacies and
currently owns and operates a single store. As per the revised and more
feasible game plan, it plans to market products via tie-ups with
established players in the generic space. We believe this is a bold step to
make inroads in the Big Brother club. Till date the company has filed 31
ANDAs which include FTF opportunities such as 1) Lenalidomide
Capsules (anticancer), 2) Lanthanum Carbonate chewable tablets
(hyperphosphatemia), 3) Oseltamivir Phosphate Capsules (anti-infectives),
4) Lapatinib Ditosylate tablets (anti-cancer). Besides these, it has also filed
ANDAs for limited competition products such as 1) Glatiramer Acetate
injection (multiple sclerosis) 2) Lansoprazole (anti-ulcerant; launched post
approval) and 3) Budesonide (Crohn’s disease). There are even more such
products in the pipeline. To market these products in the US market,
Natco has signed agreements with MNCs as well as domestic players.
Leading oncology player in domestic market
Natco is a leading player in the domestic oncology segment with a
product basket of ~18 products. Despite the product range, the growth
has been flattish in this space as most of the sales are through
institutional channels. However going ahead we expect good traction in
Oncology segment on account of incremental launches. The recent
judgment for compulsory licensing can be considered a new avenue for
more potential launches.
Future bodes well due to niche fillings but fairly priced; maintain HOLD
We continue to value the stock on SoTP basis to capture the emerging
FTF/limited competition opportunities in the US. We value the base
business separately and have assigned NPV for some of the future
launches as the FTF/Para IV status to some of them warrants future
pipeline recognition. Similarly, we have calculated gCopaxone (Glatiramer
Acetate) separately considering the likelihood of its launch somewhere
between March - September 2015, post the approval from the USFDA.
The hearing has already started and the verdict is expected in Q4FY15.
Our target revised target price of | 1388 includes base business value of
| 1030 (16x FY16E EPS of | 64.4) + | 146 for NPV of other FTF/Para IVs +
| 214 for gCopaxone.

LINK

http://content.icicidirect.com/mailimages/IDirect_NatcoPharma_Q2FY15.pdf