Bayer’s Petition Against Natco’s Compulsory License Dismissed

In yet another historic legal fight, the Intellectual Property Appellate Board (IPAB) of Chennai has upheld the decision to grant compulsory license of Bayer’s Nexavar to Indian drug maker Natco Pharma. Following this decision, shares of Natco are trading up 1.77% while that of Bayer are currently trading down 0.15%.

This court ruling has disappointed Bayer which is determined to defend its other patents. The good news is for the Indian cancer patients who are seeing 97% drop in the Generic Nexavar prices. Natco has brought this drug in the market by July 2012 according to article in The Hindu Business Line.

Earlier in March 2012, Natco won the historic case against the Bayer to sell the generic version of Bayer’s anticancer drug Nexavar. This case has given an upward fillip to the Indian generic drug makers. According to the court, Natco has to pay 6% royalty to Bayer.

Bayer sells this drug in India at huge price i.e. Rs 280,000 for a month's dose. Natco will sell this drug at Rs 8,800 per month which is just 3% of Bayer’s price for the drug.

The ruling, though positive for the generic drug makers, may potentially keep the big ticket life saving drugs away from domestic market. Due to this Indian firms will have to in-license such drugs.

In future we may see rise in the cases requiring innovator companies to defend their patents especially in therapeutic areas like Cancer and HIV. In the domestic market, few drugs like Glivec, Tarceva or Viread have already failed to defend their patents.

Natco’s version of Nexavar has already hit the markets. While the low drug price will significantly shrink the market size, Natco is looking to expand the market by targeting those who could not afford the high priced version of Nexavar. Natco expects to add Rs 15 crore from the sale of this drug in FY13 which will be just 2% of its total FY12 sales.

The long term view however will be very robust as India is moving towards the lifestyle like diseases. As we expect the expansion of the Nexavar market, we also expect handsome numbers to be added in Natco’s top line in future.

Natco’s core business is doing well as for FY12 it reported 15% rise in the top line to Rs 559 crore and 12% rise in the net profit to Rs 59 crore.

We have already recommended this stock in our story dated 3^rd March 2012 and the stock from the date has surged by 18%. We expect the stock to further gain on the Nexavar momentum.

We advice our readers to enter the counter on dips with the price target of Rs 420.