Natco Pharma (NATP) announced it has settled the pending Revlimid litigation with Celgene, thereby ensuring a launch in March 2022. Though the launch will happen later than anticipated by us, this development brings important certainty to NATP’s thesis and is one of the many catalysts highlighted in our thesis (refer Pharmaceuticals – Time to Evolve; dated Nov 26, 2015). We recently initiated coverage with ‘buy’ and target price of R640. We maintain estimates and target price. NATP is our top mid–cap pick.
Under the settlement, Celgene has agreed to provide NATP with a licence ensuring it can launch a fixed volume of its generic for Revlimid (USD3.4bn MAT September 2015, expected to be >USD7bn by CY22) starting March 2022. The volume will gradually increase every 12 months until March 2025. Broadly, this fixed volume will represent market share ramp up of 5–30% between FY23 and FY26, following which the volume ceiling will be suspended and NATP can take higher market share. Given that there is a volume ceiling, we expect price erosion to be low. With our assumptions, the opportunity represents ~R140/ share of NPV.
