Dash Acquisition: Natco hopes tweaked business model will help add girth to growth

The $ 18 million deal expected to be concluded by January 2022, gives Natco a front-end to engage with its customers directly in the USA, the largest pharmaceutical market in the world and with it make a fundamental change in Natco’s business model.

Natco Pharma
From being a backend research partner relying on a de-risked profit sharing model, it is now in some sense becoming like most other generic companies. (Representational image)

Hyderabad-headquartered Natco Pharma on Tuesday announced to the bourses that the company through its affiliates was proposing to enter into an agreement to acquire Dash Pharmaceuticals LLC (“Dash”), a front-end pharmaceutical sales, marketing and distribution entity based in New Jersey, USA with net sales of USD 15 million expected for the year ending December 2021.

The $ 18 million deal expected to be concluded by January 2022, gives Natco a front-end to engage with its customers directly in the USA, the largest pharmaceutical market in the world and with it make a fundamental change in Natco’s business model.

From being a backend research partner relying on a de-risked profit sharing model, it is now in some sense becoming like most other generic companies. Rajeev Nannapaneni, vice chairman and CEO, Natco Pharma however says, ‘It is not a complete change of the model. There is some pivot as we will continue to partner for complex generics but for plain vanilla generics we will do it ourselves (leverage the frontend presence in the US market and directly sell to the major generic drug wholesalers). He explains: “Let us say, we do 10 product that include two or three complex generics, here we will continue to partner but for the remaining vanilla generics, we will do it ourselves.”

Analysts feel this move will mean more capital commitment from Natco towards US market in times to come but then Nannapaneni says that is the future. Apparently, the company is also expecting good cash flow coming in over the next three to four years so seems confident of being able to handle it all.

On what triggered the need now? Nannapaneni says: “How do we evolve from the size that we are at today? The company ended March 31, 2021 with total income of Rs 2155 crore. The argument seems to be that from this level, if it were able to launch a new product or two in a year, it may still take the revenues to may be a little over Rs 3000 crore but if it were to seek to double the revenues and achieve rapid scale up then a tweak in the model was needed. Or as Nannapaneni says: “you cannot be at the same model that you had when you were a Rs 500 crore company.” The move is apparently also triggered by the severe price erosion in the US market which some argue “is really leaving companies with no surplus” and is largely on account of the nature of the hyper competitive generic drugs business.

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