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#NatcoPharma Q1 23 Concall Highlights

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1. Growth in revenue from operations - Q1FY23 vs Q1FY22 : ~115%

2. Growth in export formulations - Q1FY23 vs Q1FY22 : ~400%

3. Growth in domestic formulations - Q1FY23 vs Q1FY22 : ~ -56%

4. Cost of materials was much higher in the corresponding last quarter because of the write off of covid inventory which is why there is a significant difference in COGS

Revlimid :
1. Contributed a major share to revenue in Q1FY23
2. Revenue share is expected to taper off

in Q2&Q3 FY23
3. Sales from Revlimid are expected to recover in Q4 FY23 and Q1FY24
4. The reason for seasonality is due to limited amount of this product’s supply as per the settlement with Celgene
5. When supplies are sent , manufacturing margins are booked and subsequently

the profit share is booked when Teva sells the product.
6. In subsequent quarters when Natco is unable to supply Revlimid, the sales drop
7. When Natco supplies new batches of Revlimid in Q4 and Q1 then most of the manufacturing margin and profit share is booked in

those respective quarters and subsequently when only a little of the product is left to be supplied in Q2 and Q3 the revenues taper off
8. Management expects to gain market share for revlimid going ahead for few quarters

1. If we remove Lenalidomide (Revlimid), the revenue from other products in the US have been stable according to the management.

2. Management acknowledges that the US market is a tough business for generics

3. Regarding Copaxone - Volumes have dropped, as the product

administration has moved to Oral dosage. Yet the management expects it do well for whatever size is left

Natco is unable able to meet PAT guidance because :
1. Domestic business is not doing well.Natco is looking at an acquisition in the domestic business to gain market share.

2. According to the management, the market has become extremely competitive and no one is willing to let go of market share.

3. Mr Rajeev says that the only way to grow in the domestic region is to either acquire market share,

buy an asset or launch complex products that are new.

A good portion of the surplus is used for R&D :
1. With the purpose of developing ‘jackpot’ products to sustain the pipeline in the coming decade

2. Management aims to develop ‘hard to do generics’ and supply exhibit batches

3. The focus of R&D is on complex products like Peptides, Oligopeptides, and Oncology products which are require clinical trials on patients

CnD division in the domestic market :
1. The business is not growing , but witnesses stable revenues

Agrochemicals :
1. Is a miniscule part of the business.
2. Natco is looking at acquisitions in this space as well. Management expects the business to be 10-15% of the business

3. Natco is sued on the product manufacturing process patent of CTPR.

4. As per management comments, the patent on the product goes off on 13th August 2022

5. But the patent on the manufacturing process of CTPR expires on December 2025

6. The court has allocated third party

experts to study the case and determine if Natco has infringed the process patent

7. Until then the product launch has been halted

Natco’s competitor AstraZeneca in the Oncology has done well in the domestic market but management claims the model is different than theirs

Conclusion

1. Although Natco has seen significant growth in revenues in Q1FY23, the question is whether it will be able to maintain this growth rate for a longer term.

2. Natco’s growth in revenues have been driven solely by Revlimid which makes the future highly uncertain

with respect to how the product sales pans out in the future.

2. Coupled with the fact that products excluding Revlimid have witnessed flat sales in the US.

3. The domestic business is already witnessing a lot of competition and has unsurprisingly witnessed

degrowth in formulation revenues

4. Management acknowledged the importance of being able to launch ‘Jackpot Products’ as a result of which, the company has started investing heavily in R&D.

5. Overall the business’ success is dependent on a lot of external factors and is highly risky.

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