Generic approval for Copaxone can boost Natco Pharma’s earnings

Natco Pharma stock gained as much as 32 per cent over the last two days after its marketing partner Mylan received approval from the US Food and Drug Administration (USFDA) for the generic version of Teva’s top-selling multiple sclerosis (MS) drug Copaxone, for both 20 mg/mL and 40 mg/mL formats.

The much anticipated approval has improved the investors’ sentiment over the stock as the 40 mg/mL generic version of Copaxone may be eligible for 180 days marketing exclusivity.

Post the announcement of its first quarter results for FY18, the shares of Natco pharma witnessed a sharp correction, going down by 25 per cent from the June 2017 high, due to uncertainty over the approval of Copaxone generic version.

Approval for the generic version of Copaxone is expected to add significantly to its earnings in the next couple of years.

Copaxone is the most prescribed treatment for relapsing forms of multiple sclerosis in the US with brand sales for the 20 mg/mL dose of approximately $700 million and for the 40 mg/mL dose of approximately $3.64 billion for the 12 months ending July 31, 2017.

The strategy of partnering with global generics players such as Mylan has paid off well for Natco to expand in the US market while de-risking the regulatory challenges.

As per the partnership agreement, Natco will receive 30 per cent profit share from Mylan for the 20 mg product and 50 per cent share for the 40 mg product. Natco will supply the drug, while Mylan will market it in the US.

The launch of 20 mg product is expected in the following quarters, while the launch of 40 mg product is likely to be delayed due to ongoing patent litigation. The patent for 20 mg/ml has expired on May 2014 while the five patents filed by Teva for the 40 mg/ml strength have expired in 2030.

Teva is earning 96 per cent of the overall MS revenues despite competition from Momenta Pharma and Sandoz on the generic version of Copaxone 20 mg.

Proves its mettle in complex generic pipeline

The approval of Copaxone generics has proved Natco’s capabilities in bringing complex and difficult-to-manufacture products to the market.

As of August 2017, the company holds 43 niche ANDA filings, including 20 of Para-IV filings in the US, of which 22 have been approved. US business has contributed around one-third of the revenue in FY 2017. Compared with peers, Natco’s US portfolio is likely to face relatively lower price risk, given the complexity of its product portfolio and limited competition.

At the current price of Rs 988, the stock now trades at 32 times trailing 12-month earnings, at an almost 41 per cent discount to its three-year average of 55 times.

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