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Friday, October 8, 2010

Natco Pharma - Strong R & D to Cure Cancer

Natco Pharma is a leader in the Oncology segment and is ranked No.1 amongst Indian companies in the Oncology segment in terms of revenues from the domestic market.

Natco Pharma - a Discovery led pharma company with strong R&D capabilities, with potential for significant increase in revenues on account of the company's entry into retail pharma space in US and its tie-up with Mylan Inc. Company also has a land bank.

Natco Pharma was promoted by Mr V.C. Nannapaneni in the year 1981 as a Private Limited Company to be in the business of Research, Developing, Manufacturing and Marketing of Pharmaceutical Substances and Finished Dosage forms for Indian and International markets. Natco Pharma began operations in 1984 in Andhra Pradesh, India. The company which began operations with one manufacturing plant and 20 employees today has four manufacturing facilities and 1500 employees. Natco also has the credit of being one of the largest contract manufacturers in India. Some of the well-known companies like Ranbaxy, Dr. Reddy's Laboratories, John Wyeth etc. get their products manufactured by Natco. The company's bulk drug and Intermediate facility at Mekaguda, in Andhra Pradesh is certified for its environmental management systems (ISO-14001) and is US-FDA approved plant.

Strong Research Base

The company has a strong research base and has developed various Oncology and non-Oncology drugs. As a recognition of its strong research capabilities, the company has conferred the National Award 2008 by Technology Development Board, Government of India, Ministry of Science and Technology for indigenous technology developed by the company in life saving anti-cancer drugs.

New drug discovery

The company has developed a new molecule NRC 19 for treatment of Chronic Myelogenous Leukemia (CML) which is cancer of the blood in which too many granulocytes, a type of white blood cell, are produced in the marrow. The company has is going through clinical trials. Successful clinical trials and commercialization of the Drug will lead to substantial benefits for the company.

Acquisition of pharma retail companies in US

The company has been increasing its presence in Pharma Retail in US through the inorganic route. The company has over the past year and a half acquired three Pharma Retail chains in the US Savemart Drugs, Nicks Drugs and Newark Drugs. These stores are capable of adding Rs.150 crores towards Sales Revenues for the company in a year. The company is scouting for more acquisitions in this space in the US.

Tie-up with Mylan Inc

The company also entered into a Tie-Up with the Pittsburgh based Mylan Inc., for worldwide marketing and distribution of Glatiramer Acetate. The drug is sold as Copaxone R - a registered trade mark owned by Teva Pharmaceutical, Israel. Natco has signed a license and supply agreement today with Mylan for its (NATCO's) Glatiramer Acetate pre-filled syringes, a generic version of Teva's Copaxone R, which is used to treat multiple sclerosis. The agreement grants Mylan exclusive distribution rights in the United States and all major markets in Europe, Australia, New Zealand, Japan and Canada, and includes an option to expand into additional territories. Teva's market cap and profitability is a function of Copaxone, which, with brand sales of nearly $2 billion officially, returns a profitability of 50%-70%.

Land bank near Hyderabad Airport

The company has substantial land bank near the Hyderabad Airport (close to 300 Acres). As per a few press reports of Dec 2007-Jan 2008, the land is valued at around Rs.350 crores. Factoring a possible decline that might have taken place in land values in view of the recent real estate slowdown, the land may be valued at around Rs.300 crores on a conservative estimates.

Commercial Launch of BENDIT

NATCO Pharma also announced the commercial launch of its brand - BENDIT - Bendamustine - a novel agent in the treatment of Chronic Lymphocytic Leukemia (CLL), mostly seen in the elderly people.

Bendamustine is a unique hybrid cytotoxic, which is mechanistically distinct from the existing options. Response rates to Bendamustine are reported to be high and durable, and the therapy is seen as a superior and tolerable first line option in the treatment of CLL.

Bendit is the generic version of Treanda, the innovator brand, which is priced at around Rs.86,000 per vial of 100mg. Bendit is aggressively priced at Rs.6,950 per vial of 100mg., in accordance with Natco's policy of making available quality medicare at an affordable price. Natco is exploring the possibility of introducing this product in international markets as well.

Natco Pharma to partner US co to mkt generic Revlimid
 
Natco has filed abbreviated new drug application (ANDA) for Revlimid drug in 5-10-15 mg and 25 mg strengths and company's ANDA has been accepted. Natco has got the first-to-file status for the 25mg strength. It is likely that Natco get the FTF status for the other strengths as well, though it is not yet confirmed. Revlimid is a total USD 2.3 billion drug out of which US sales alone are about USD 1.5 billion growing at about 44% compared to last year.
 
Currently Natco stock price is 269 and stock is trading at a PE multiple 15 compared to PE of 25 of peer group. One can invest in Natco at a price of 250, keeping a long term view for returns of 20% to 30% over a period of 12 to 18 month.
 
Note: The stocks discussed in Saral Gyan through posts are not a part of "Hidden Gems" & "Value Picks" issues which we recommend to our paid subscribers only. These are just stock specific views by Saral Gyan Team; one must do the due diligence before doing any investment based on our recommendation.