Differentiated approach to US market
Natco management remains convinced as ever of its approach in building a niche but difficult to replicate generics portfolio with added focus on first to file which translate in to lower competition; it does not subscribe to the view of a two-tier US business comprising a base portfolio which is prone to erosion and a specialty layer on top. Unless one has a technology advantage or a favourable patent position, management believes it is now very difficult to make money in US market. Afinitor, Nexavar, Imbruvica, Bosentan oral suspension and Kyprolis (exclusivity for 1 strength) are several key filings of which some would be launched over next 2-3 years. Management guided to PAT of Rs6.5-7bn in FY20 and intends to double this by FY22. Capex guidance of Rs4bn includes Rs1bn on agri-related investment. We reckon Natco is well poised for growth in US with its niche filings especially Copaxone which would support earnings in current fiscal. In the domestic business, oncology with guidance of 15% growth would offset decline in Hep C franchise. We retain BUY with unchanged 1- year PT of Rs640, based on 15x FY21 PE.
Copaxone drives sequential rebound in margin
Natco clocked sequential growth of 8% driven by incremental gain in Copaxone whose market share is now around 30%. In domestic business, Hep C sales have declined sharply from Rs420mn to Rs310mn as company halted billing to some of the old distributors in lieu of receivables situation. Margin jumped ~630bps qoq on decline in other expenses though gross margin stayed flat. Natco remains bullish on domestic business with launch of generic Eliquis as also cardio/diabetes division which has several products under litigation.
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