A niche business model with a focus on complex molecules that are either FTF or PARA IV.
What is FTF/ PARA IV?
For that, let’s get the basics cleared.
A generic drug is a copy of the patented molecule which might look different optically, however, works the same way. When the patent expires, generics enter the market. A Para IV/FTF is a way to enter 1st among the generics & also get a 180-day exclusivity.
The 180-day exclusivity is a big deal as you are the only one to compete with the innovator (one with the patent) for the time being. One can gain significant market share just by taking a small price cut before other players enter the market.
What makes Natco Special?
It solely focuses on molecules that are tough to copy. API may not be easily available/ the formulation is challenging/ where the clinical data may need several patient studies/ etc. Not your average pharma company’s cup of tea= Low competition.
They have been doing it in the past
Tamiflu: Exp. to generate 800crs in EBITDA over its lifecycle. Copaxone: Exp. to generate 2000crs in EBITDA over its lifecycle.
Why always choose a partner?
The partner works on the front end distribution while they develop & manufacture. When Natco was a much smaller company, they worked with a 35:65 profit share such that the marketer bore the legal costs. Now, they do it at 50:50 share.
Capacity to suffer is a key ingredient in their business model. You ask how?
The molecules that they launch today, work started on them 10-15 years ago. That’s what their 500 scientists team are currently employed for: “Solving the problems of the future, today”
What does the future hold?
20 PARA-IV molecules pipeline & 40 niche APIs
Seemingly superior settlement for Revlimid ($10B drug in oncology) + Potential few months of exclusivity in FY23 & Higher volume share with no competition until 2026.
Post Revlimid (FY26+)
Pipeline to sustain profitability – Pomalyst: $2B drug in oncology, settled, FY25 expiry – Imbruvica: First filer in tablet form- 80% of the $6B molecule
Domestic business (20% of Rev): Launched latest products in Onco, Cardio + Facing pricing pressure in legacy onto portfolio as a consequence of harsher regulatory oversight & increasing competition USP? Launch the patented molecule & Aggressively litigate.
ROW: A play to diversify geographically
Canada: via a frontend sales team, distribution similar to the USA
Brazil: tender driven business
Growth: dependant on the new launches Scale-up has been slower than expected.
Agrochemicals venture: Challenging niche products while simultaneously entering the markets (Building their own distribution: Hired 100+ people & invested over 100crs)
Target: Enter global markets
CTPR- 2000crs molecule litigation is a key monitorable. More in pipeline.
When will it reflect in the numbers?
The business model works in a step function pattern of growth. Avg. Pat base can go from 500 to 1500crs over 3-4 years. (Observe the change in business economics in FY17). Sustainability needs to be tracked carefully.
Risks to be noted:
- Delay in Revlimid & other approvals
- Higher price erosion than expected
- Inability to gather market share (like in Copaxone, guidance was not achieved)
- The domestic & ROW businesses not being unable to ramp up to the next league. (defeats the diversification strategy)
- Weak return on capital from the Agri venture.
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