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A Landmark Order
Natco Pharma (Natco) has won the Compulsory License (CL) to manufacture and sell generic version of Bayer’s
Nexavar used in the treatment of advanced stage liver and kidney cancer. Natco would price the drug at Rs8,800
per month (97% discount to the innovator price) and pay 6% royalty to Bayer under the CL. The Controller of
Patent has granted CL to Natco based on all the three grounds 1) Nexavar drug demand was not met by Bayer
2) Nexavar was not manufactured in India in spite getting approval in 2005 3) Nexavar was not available at a
reasonably affordable price. Further, the CL was issued in spite of the fact that Cipla had entered the market
with a generic product priced at 89% discount to the innovator price. Natco expects to clock sales to the tune of
Rs250-300mn from the opportunity. We expect the company to generate OPM of ~20% before any royalty payments.
While the order could be challenged by Bayer in the court of law, it paves the way for domestic pharma
companies to go for CL of costlier drugs (primarily Oncology and ARV) in addition to launching the generic
version of the product. On the other hand, from the innovator pharma companies’ point of view, they could
become more selective in launching and pricing of patented products in India.
What is Compulsory Licensing?: CL under the patent system is an involuntary contract between a willing buyer and an
unwilling seller imposed and enforced by the State. The WTO states that CL is where a government allows the local
industry to produce the patented products or process without the consent of the patent owner. CL are being issued by
developed as well as developing countries even in recent times. Under Section 84 of the Patent Act at any time after
expiration of three years from the date of grant of a patent any person can make an application to the controller for grant of
CL on the patent on any of following grounds:
The reasonable requirements of the public with respect to the patented invention have not been satisfied.
The patented invention is not available to the public at a reasonably affordable price.
The patented invention is not worked in the territory of India.
Background of Nexavar CL: Bayer launched the drug in 2005 for treatment of kidney cancer and received an additional
approval in 2007 for liver cancer. The drug needs to be taken by the patient throughout his lifetime and the cost of therapy
is Rs2,80,428/- per month and Rs3.4mn per year. Natco had approached Bayer with a voluntary license to manufacture and
distribute generic Nexavar in India which was rejected by Bayer. As a result, Natco filed for an application for CL on 29th July
2011. The application for CL was filed after lapse of three years from the grant of patent. Natco under the application
proposed to sell the drug at a price of Rs8,800 per month.
Other Probable CL launches: As per media reports Cipla has applied for voluntary licenses for Raltegravir (ARV drug) to
Merck while Natco has also applied for Maraviroc (ARV drug) to Pfizer/Glaxo. In case the innovator declines the voluntary
license application then the domestic companies could go for CL. Further, few of the patented drugs in India such as
Nilotinib (Novartis), Sunitinib (Pfizer) and Dasatinib (BMS) could be on the domestic player’s radar.
Exhibit 1: Natco's pricing and manufacturing cost of Nexavar
Source: Intellectual Property India, PINC Research; Note: The cost excludes any royalty payment to Bayer
Particulars Amount (Rs)
MRP (inclusive of sales tax) 8,900
Margin to distributor, stockist and retailer (approx 30% on MRP) 2,670
Cost of manufacture of the product Nexavar 4,856
Billing price of company to distributors 6,105
Margin to the company 1,250
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
A Landmark Order
Natco Pharma (Natco) has won the Compulsory License (CL) to manufacture and sell generic version of Bayer’s
Nexavar used in the treatment of advanced stage liver and kidney cancer. Natco would price the drug at Rs8,800
per month (97% discount to the innovator price) and pay 6% royalty to Bayer under the CL. The Controller of
Patent has granted CL to Natco based on all the three grounds 1) Nexavar drug demand was not met by Bayer
2) Nexavar was not manufactured in India in spite getting approval in 2005 3) Nexavar was not available at a
reasonably affordable price. Further, the CL was issued in spite of the fact that Cipla had entered the market
with a generic product priced at 89% discount to the innovator price. Natco expects to clock sales to the tune of
Rs250-300mn from the opportunity. We expect the company to generate OPM of ~20% before any royalty payments.
While the order could be challenged by Bayer in the court of law, it paves the way for domestic pharma
companies to go for CL of costlier drugs (primarily Oncology and ARV) in addition to launching the generic
version of the product. On the other hand, from the innovator pharma companies’ point of view, they could
become more selective in launching and pricing of patented products in India.
What is Compulsory Licensing?: CL under the patent system is an involuntary contract between a willing buyer and an
unwilling seller imposed and enforced by the State. The WTO states that CL is where a government allows the local
industry to produce the patented products or process without the consent of the patent owner. CL are being issued by
developed as well as developing countries even in recent times. Under Section 84 of the Patent Act at any time after
expiration of three years from the date of grant of a patent any person can make an application to the controller for grant of
CL on the patent on any of following grounds:
The reasonable requirements of the public with respect to the patented invention have not been satisfied.
The patented invention is not available to the public at a reasonably affordable price.
The patented invention is not worked in the territory of India.
Background of Nexavar CL: Bayer launched the drug in 2005 for treatment of kidney cancer and received an additional
approval in 2007 for liver cancer. The drug needs to be taken by the patient throughout his lifetime and the cost of therapy
is Rs2,80,428/- per month and Rs3.4mn per year. Natco had approached Bayer with a voluntary license to manufacture and
distribute generic Nexavar in India which was rejected by Bayer. As a result, Natco filed for an application for CL on 29th July
2011. The application for CL was filed after lapse of three years from the grant of patent. Natco under the application
proposed to sell the drug at a price of Rs8,800 per month.
Other Probable CL launches: As per media reports Cipla has applied for voluntary licenses for Raltegravir (ARV drug) to
Merck while Natco has also applied for Maraviroc (ARV drug) to Pfizer/Glaxo. In case the innovator declines the voluntary
license application then the domestic companies could go for CL. Further, few of the patented drugs in India such as
Nilotinib (Novartis), Sunitinib (Pfizer) and Dasatinib (BMS) could be on the domestic player’s radar.
Exhibit 1: Natco's pricing and manufacturing cost of Nexavar
Source: Intellectual Property India, PINC Research; Note: The cost excludes any royalty payment to Bayer
Particulars Amount (Rs)
MRP (inclusive of sales tax) 8,900
Margin to distributor, stockist and retailer (approx 30% on MRP) 2,670
Cost of manufacture of the product Nexavar 4,856
Billing price of company to distributors 6,105
Margin to the company 1,250
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