Natco Pharma (Natco) would be the first company to launch Revlimid (lenalidomide) in Mar'22 as Dr Reddy's (DRL) settlement with Celgene over its patent clears the path for Natco. DRL would launch sometime after Natco (we assume 6 months) and would have market share restrictions lower than Natco in our view. Till date, three companies (Natco, DRL and Alvogen) have settled the litigation with innovator and would launch during this exclusivity period (FY23-FY26). We expect Natco to generate total revenue and PAT of US$1.3bn and US$900mn during the shared exclusivity period over FY23-FY26. This would imply an NPV of Rs302/share for Revlimid for Natco. Upgrade to BUY.
- Certainty emerges on Revlimid launch: After DRL's settlement with Celgene over Revlimid patent litigation, clarity has emerged on Natco's launch. Natco would now launch in Mar'22 and will have ~6months of head start before competitor's (DRL) launch. We also believe that Natco would have superior market share restrictions as compared to other players. As per Natco's settlement with Celgene, it can launch generic Revlimid in Mar'22 with mid-single digit market share constraint in first year which can gradually increase to ~33% in final year of exclusivity (FY26). Post Jan'26, there would not be any market share constraint.
- Value Revlimid opportunity at Rs302/share: The annual market size of this product is ~US$8bn. Teva is the marketing partner for Natco and we assume Natco's share in the opportunity to be around 35%. Considering the factor of market share constraint, we believe pricing pressure would not be significant. We value Revlimid opportunity for Natco at Rs302/share.
- Valuations and risks: We raise FY23 revenue/EPS estimates by 32.7/94.7% to factor in generic Revlimid sales. Considering certainty on Revlimid opportunity and 38.0% EPS CAGR over FY20-FY23E, we upgrade Natco to BUY from Add with a revised SoTP-based target price of Rs954/share (earlier: Rs875/share) including NPV of Rs302/share for Revlimid. Key downside risks: Delay in US launches and earlier-than-anticipated competition in Copaxone.
Shares of NATCO PHARMA LTD. was last trading in BSE at Rs.773.75 as compared to the previous close of Rs. 775. The total number of shares traded during the day was 20686 in over 1464 trades.
The stock hit an intraday high of Rs. 789.9 and intraday low of 765.1. The net turnover during the day was Rs. 16115922.