Natco Pharma investors are jittery about the stock after lower than expected results in Q3, and today the share price for the company fell after it said that its facility in Mekaguda was undergoing a routine FDA inspection.
Overall: Weaker results, and competition for gCopaxone
The company's weaker earnings in Q3 can be attributed to the lag in profit share booking from generic Copaxone and Tamiflu suspension opportunities in the US. It was also affected by a 25% decline in HCV franchise QoQ. Analysts predict that the gap will be made up in Q4. And growth is likely to continue in FY19, once we take a clear-eyed look at the balance sheet: Copaxone generic will log a full year of sales, and bosentan and imatinib should add to the sales numbers.
Longer-term however, Natco is facing challenges. Competition is building fast in the generics space, aided by FDA policies encouraging more players in each drug to bring down prices for patients. Generic Copaxone is one of those drugs where large players are threatening Natco's revenues.The company is boosting its domestic growth in a bid to counter the potential revenue losses from US competition.
But that is not going to be enough - Natco will have to use its profits and cash flow today to drive more launches, and build a drug platform that is more resistent to competition. It will also have to double down on marketing efforts in the US market as players attempt to take bites of its market share. It is hard to predict how Natco will perform here, since it hasn't faced an aggressive pricing environment previously in its most profitable drugs. Consequently while FY19 looks healthy for the company, its hard to predict what lies further ahead for Natco.