Natco Pharma Earns Compulsory License For Nexavar

Hyderabad-based Natco Pharma has won a compulsory license from the Indian patents’ office to manufacture and sell the generic version of cancer drug Nexavar. The patent of the Nexavar lies with German pharma major Bayer. The drug is used in the treatment of kidney and liver cancer. However, it is not a life-saving but a life-extending drug used in terminal cases where life can be extended by 5-6 years. The drug has to be taken until the patient is clinically active. 

Natco has won the case on the basis that Bayer was able to supply the drug to only 2 per cent of the countries’ patient population (in liver and kidney cancer), which is not reasonable. Also, the drug was imported and not manufactured in the country and its price was unaffordable to a larger section of the population. 

The price of Bayer’s Nexavar is as high as Rs 2,80,428 per month, which makes it unaffordable to a major chunk of patients suffering from kidney and liver cancer. Natco earlier had applied for a voluntary license which was not considered by Bayer. The Indian pharma giant Cipla is also selling the same drug at a cost of about Rs 30,000 per month. Bayer however has filed an infringement suit against Cipla which is still pending. 

In recent history, drugs like Glivec, Tarceva or Viread have failed to secure their patent cushion in the domestic market. Natco’s case is the first of its kind wherein an Indian generic company has been allowed to manufacture and sell the generic of an innovator with 6 per cent royalty payment. In the coming days we expect more anti-cancer or HIV drugs to lose their patent cushions. 

The market for Nexavar is about Rs 25-30 crore. The price that Natco has quoted will be at 97 per cent discount to that of Bayer’s Nexavar. With the entry of Natco, Bayer will lose most of its market share. The company has not indicated how much they will gain from the sale of the product. However we expect moderate topline growth from the sale of the product. The license to sell this product is valid till 2021 and hence the company will enjoy exclusivity for about nine years. 

Even though the lower price will shrink the market, we see that the number of prescriptions will go up and this will benefit it over the period of exclusivity. The 6 per cent royalty payment to be paid to Bayer is also in line with the management’s expectations. 

The company in its nine-month results has posted 9 per cent growth in topline and 21 per cent growth in the bottomline. It has a total debt of Rs 270 crore while its debt to equity ratio stands at 0.7x. The company has two key business segments i.e. bulk chemicals and formulations which have shown good growth rates in the nine-month results. The company has a ‘first to file’ status on one drug with a pipeline of seven approved generic drugs to be launched in the US market. 

On the bourses its performance has been very good with the scrip appreciating by 35 per cent in 2012. We advise interested investors to enter the counter with a time horizon of 12 months in which they will see reasonably good capital appreciation.