Natco Pharma - Natco and Teva launch Revlimid in the US - ICICI Securities

Natco Pharma's (Natco) Partner Teva has launched Revlimid (lenalidomide capsules), in 5mg, 10mg, 15mg, and 25mg strengths, in the US. Teva has sole exclusivity for all these strengths. As per BMS (Celgene) quarterly filings, Revlimid annual US total sales were USD8.6bn (USD2.3bn BTC revenues as per IQVIA). Revlimid is used in adults for the treatment of multiple myeloma, certain myelodysplastic syndromes, and mantle cell lymphoma. >15 companies had filed for Revlimid, but Dr Reddy's and Natco are the only ones to receive product approval. Post recent correction, we upgrade Natco to BUY from Add.

• History of approvals: Natco has settled Revlimid litigation with BMS (Celgene) in Dec'15, which stated that Natco would 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. Gradually, other filers also settled for the product. Dr Reddy's will be the second to launch Revlimid in the US with exclusivity for two strengths (2.5mg and 20mg). Till date, more than 15 companies have settled for Revlimid with BMS (Celgene), including Cadila, Cipla, Lotus (Alvogen), Apotex, Sun Pharma, Hetero, Mylan, Aurobindo, Lupin, Hikma, Biocon, Alembi and Torrent.
• NPV calculation: For Revlimid opportunity, we have assigned Rs254/share for Natco, Rs237/share for Dr Reddy's and Rs32/share for Cipla. However, we believe competition would increase post launches of multiple players; hence, we have considered Revlimid opportunity in base business for others.

Valuations

The stock currently trades at valuations of 13.6x FY23E and 8.0x FY24E earnings and EV/EBITDA multiple of 9.8x FY23E and 5.4x FY24E.We remain positive on the long-term outlook driven by its strong US pipeline, including opportunities like Revlimid and Imbruvica, profit share from recently launched limited competition products, expected recovery in domestic business on the back of new launches and incremental sales from the agro-chemical business, and targeted approach in new export markets. Post recent stock price correction, upgrade Natco to BUY from Add with an unchanged SoTP-based target price of Rs1,021/share, including NPV of Rs254/share for Revlimid and Rs77/share for Imbruvica. Key downside risks: Delay in US launches and increasing competition in Copaxone.

Shares of Natco Pharma Limited was last trading in BSE at Rs. 849.80 as compared to the previous close of Rs. 844.30. The total number of shares traded during the day was 65141 in over 2433 trades.

The stock hit an intraday high of Rs. 920.00 and intraday low of 842.15. The net turnover during the day was Rs. 57238845.00.

Source : Equity Bulls

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NatcoPharma INE987B01026 Teva Revlimid Launch US ICICISecurities