Natco Pharma Ltd Management Discussions.

Economic review

Global economy

Global economic growth slowed in 2018 to 3.6% from 3.8% in 2017 (Source: International Monetary Funds World Economic Outlook). A slowdown in the Eurozone, trade tensions in China and macro-economic stress in developing economies such as Argentina and Turkey led to this slowdown. Escalating trade tensions between the US and China coupled with uncertainty on Brexit added to the volatility in financial markets and delayed investment decisions, putting further brakes on economic activity.

Eurozones economic growth dipped to 1.8% in 2018 from 2.4% in 2017 due to weak export performance and low domestic demand. Chinas growth rate also fell to 6.6% from 6.9% in 2017 as tight monetary policy reduced demand in the domestic market. The US economy, however managed to buck the trend and register a 2.9% growth in 2018. Good employment rates, favourable business conditions and marginal inflation helped the worlds largest economy grow at its strongest pace in nearly a decade.

Global growth pattern

2018 2019 (P) 2020 (P)
World output 3.6 3.3 3.6
USA 2.9 2.3 1.9
Euro Area (Germany, 1.8 1.3 1.5
France, Italy, Spain)
Japan 0.8 1.0 0.5
Canada 1.8 1.5 1.9
UK 1.4 1.2 1.4
Other 2.9 2.6 2.2
advanced economies1
Emerging market and 4.8 4.5 4.4
developing economies
China 6.6 6.3 6.1
Brazil 1.1 2.1 2.5

1Excludes Canada, Japan, the UK, the US and the Euro area countries: P: Projections

IMF expects global economic growth to slow down further to 3.3% in 2019. To address such tepid growth forecasts, central banks of most major economies migrated to a more accommodative policy and the US Federal Reserve has also indicated that it will not hike rates this year. IMF expects growth to pick up in the second half before stabilising at 3.6% in 2020.

Indian economy

In FY 2018-19, the Indian economy recorded a growth of 6.8%, making it one of the fastest growing large economies of the world. This growth was driven by strong capital formation, rising exports and an increase in private consumption. During the year, Indias ranking in the World Banks Ease of Doing Business index improved for second year in a row, moving up 23 places to reach 77th position. This was the outcome of governments focus on structural reforms and improving infrastructure. An upswing in consumption and investment, lower oil prices and a favourable monetary policy are the factors that are likely to help Indias economic growth bounce back to 7.2% in 2019-20.

Indias growth over the next few years is likely to be driven by a number of factors including:

Stable government Foreign Direct Investment (FDI) Encouragement to manufacturing Consumption-driven economy
Given the continuation of a strong and stable government at the centre, the work done in the areas of structural reforms will continue uninterrupted. It will also ensure a steady and sustained policy framework. This stable environment is a key positive for economic growth. India has been ranked 11th in the Global FDI Confidence Index 2018, making it the second highest ranked emerging market for FDI. Indias FDI equity inflows reached US $33.49 billion during FY 2018-19 while the cumulative FDI equity inflows to the country from April 2000 to December 2018 reached US $409.15 billion. FDI is important as the country needs significant investments to upgrade its infrastructure and propel growth. The Make in India programme launched by the government aims to encourage manufacturing in the country which will lead to large-scale job creation and foster economic growth. The unique initiative aims to utilise the existing Indian talent base, creating additional employment opportunities and empowering secondary and tertiary sector Moreover, it represents a complete change of the Governments mindset - a shift from issuing authority to business partner. The fact that almost 60% of Indias economy is fuelled by domestic consumption makes it resilient to the fluctuations in the global economy. Given the accommodative monetary policy and government initiatives such as deductions given in direct tax, people will be left with more money in their hands; this is likely to boost the consumption and investment cycle.

Global pharmaceutical market review

The global spending on medicines reached $1.2 trillion in 2018 and is expected to exceed $1.5 trillion by 2023; growing at a compounded annual growth rate (CAGR) of 3 6% over the next five years (Source: IQVIA: The Global Use of Medicine in 2019 and Outlook to 2023). The growth curve will be driven by factors such as aging populations, longer life expectancy rates, improved purchasing power and prevalence of chronic diseases.


The US pharma spending registered $484.9 billion in 2018 on the back of new product updates and brand pricing. Most drug makers limited their annual price hike to 6% for branded products due to criticism of price hikes by manufacturers on established products.

While there was a move to cap prices of established drugs, the list prices of recently launched specialty, orphan and oncology drugs were still high. The median annual cost for new medicines in these segments rose significantly with oncology and orphan drugs likely to have median prices well above $100,000 per year by 2023.


The US pharma market is seen growing at a CAGR 4-7% to US $625-655 billion in 2023, which is lower compared to the 7.2% CAGR in 2014-18.

While overall invoice spending growth is expected to increase to 6% in 2023, from 1.2% in 2017, net manufacturer revenue growth is likely to be 1-2% lower than invoice growth. Off-invoice statutory payments are expected to keep net revenue growth below inflation levels for the next five

Pharmerging markets

Pharmerging markets are emerging markets in the pharma space; characterised by less than $30,000 GDP/per capita and greater than $1 billion absolute prescription medicines market growth potential between 2014 and 2019.

Spending on medication in pharmerging markets recorded a robust 9.3% CAGR in 2014-18 to register $285.9 billion.

Factors such as governments efforts to make healthcare products accessible to multiple geographies and consumers ability to afford better healthcare products on the back of higher disposable income bolstered overall spending.


Pharmerging markets are expected to grow at CAGR 5-8% over the next five years. This dip from 9.3% in the past five years is ascribed to the absence of growth driving factors encountered in the last five years.

Within the pharmerging markets, China, Brazil and India have the greatest medicine spending. China is the second largest pharmaceutical market globally with total spending of $137 billion in 2018. Government reforms to improve insurance access and recent upgrades in the hospital and primary care infrastructure boosted spend. Chinas pharma market is likely to grow at 3-6% and register $140-170 billion by 2023 vis--vis Brazil which is likely to grow at 5-8% to $30-43 billion.

Pharmaceutical spending growth for pharmerging markets by region (US$ billion)

Region/Country 2018 2014-2018 CAGR 2023 2019-2023 CAGR
China 132.3 7.6 140-170 3-6
Tier II markets 67.7 10.7 91-95 7-10
Brazil 31.8 10.8 39-43 5-8
India 20.4 11.2 28-32 8-11
Russia 15.5 9.9 21-25 7-10
Tier III markets 85.9 11.3 105-135 7-10
Pharmerging markets 285.9 9.3 355-385 5-8

(Source: IQVIA Market Prognosis, September 2018; IQVIA Institute, December 2018)


Pharma spending in India stood at $20.4 billion for 2018 and is expected to grow at a CAGR 8-11% in the next five years to touch $28-32 billion, making India one of the top 10 pharma markets by 2020. The rise in the number of middle-class households, improved medical infrastructure and increased penetration of health insurance will enhance growth. Domestic Active Pharmaceutical Ingredient (API), consumption is expected to reach US $18.8 billion by FY 2021-22.1

Indias research and development competency and efficient production facilities helped it secure a leading rank among global producers of cost-effective generic medicines and vaccines. India supplied 20% of the total global pharma demand by volume. In FY 2017-18, India exported pharma products worth $17.27 billion and by 2020, the industry estimates the exports to grow by 30% to reach $20 billion.

1RNCOS, BMI, Datamonitor, KemwellBiopharma, Chemical Pharmaceutical Generic Association, ICRA Report estimates,, DGCI&S

The Government of India has taken several initiatives to promote healthcare in the country. Targeting more than 500 million beneficiaries, Ayushman Bharat-Pradhan Mantri Jan Arogya Yojana (PMJAY) is the largest government-funded healthcare programme in the world.

Additional benefits such as rural healthcare programmes and extension of comprehensive primary healthcare are expected to augment growth for pharmaceutical sector.

Business overview

NATCO Pharma Ltd. (NATCO) is a vertically integrated pharma company, which manufactures Finished Dosage Formulations (FDF), Active Pharmaceutical Ingredients (API) and Intermediates. NATCO markets its products in India, the US and the rest of the world (ROW) markets. With its niche focus and nimble strategy, NATCO has created a stronghold in oncology and gastro hepatology segments in India.

During recent years, NATCO has launched complex molecules like Glatiramer Acetate Injections (both 20 mg and 40 mg), and Liposomal Doxorubin in US, which are contributing to stable business. During the reporting period the company filed for five ANDAs and three DMFs in unique segments in line with its objective of niche molecule filings in US. The Company is well positioned for growth in emerging markets like Canada and Brazil with launches and approvals in both markets

In India, NATCO has built a strong presence in the oncology and gastro-hepatology segment and is building up its products in the Cardiology and Diabetology (CnD) segment.

The Company has fortified its position further in domestic business through six new product launches, including two in oncology and four, collectively in pharma specialty and CnD.

NATCOs FDF facility in Vishakhapatnam is a part of Special Economic Zone (SEZ) and is intended to cater predominantly to the export market. The Company has completed the manufacturing set-up, and the facility is expected to commence commercial operations during the FY 2019-20.

In the long term, the Company sees its growth driven by multiple markets, products and businesses. NATCO expects good prospects in Canada, Brazil and India, apart from establishing a presence in Singapore and other regions of South East Asia.

Over the past couple of years, the company has made a conscious decision to select products, which could have a potential market in the US, India and other emerging ROW countries by following the global portfolio strategy. This strategy of selecting multiple markets for a single product increases the possibility of better return on investment.

On the emerging markets front, the Company has strengthened its position in Brazil and Canada with good approvals and launches and is positive about its prospects in the region.

The Company is also leveraging its core competency in organic chemistry to foray into the Crop Health Sciences space.

Business segments

NATCOs business can be broadly classified into two categories: FDF and API. Its formulations business caters to the domestic and international markets. In the domestic formulations market, the Company operates in the divisions of oncology, pharma specialties and CnD.

The Companys international formulations business caters to the US and ROW markets predominantly in Brazil and Canada and is currently increasing its footprints in South East Asia. The API manufactured has both captive consumption and is sold to customers.

Domestic formulations

In the domestic market, NATCO Pharma is one of the largest players in the oncology segment and a key player in the pharma specialty space.

During the year FY 2018-19, the domestic business grew with strong support from the oncology segment. The Company believes that it will maintain a strong growth in the domestic segment through both, its existing products and new launches. NATCO plans to launch 6-8 products across all three domestic formulation business divisions in the coming year.

NATCO regularly hosts Continuous Medical Education (CME) programmes for the doctor community, keep them abreast of the latest developments. The Companys endeavour is to bring affordable products in the market.

NATCO is well placed to meet the rigorous regulatory requirements due to the companys strong culture of manufacturing high-quality medicines with strict process controls. This, we believe will help us continue on the path of sustainable growth.


With a portfolio of 29 products, the Company is amongst the largest players in the Indian oncology market. It has six brands- Veenat, Lenalid, Erlonat, Geftinat, Sorafenat and Bortenat- which have recorded sales of over Rs. 100 million in FY 2018-19. During the year, the Company launched Lepatinib and Certinib, contributing to the overall growth in the segment. NATCO has a dedicated sales force of representatives and strategically located network of distributors who are driving the business ahead.

The revenue of the oncology segment has grown from Rs. 3,339 million to Rs. 3,968 million reflecting a growth of 18.84%. This was in spite of competitive pressures and pricing controls during the year.

Oncology revenues

Pharma specialties

NATCOs specialties division caters predominantly to the gastroenterology segment, in addition orthopaedics and critical care. The Company continues to be a market leader in the Hep C segment of drugs, despite the overall decline in the size of the market. While our revenues have fallen from Rs. 3,104 million to Rs. 2,457, we hope to regain the market due to our robust portfolio.

In orthopaedics, the Company currently markets two brands while it has four niche brands in the critical care segment. The Company has strong pipeline of products to be launched under this division in the coming years.

Pharma speciality excluding third party

Cardiology and Diabetology

Since the start of the Cardiology and Diabetology (CnD) division by NATCO, there have been unique first-to-launch products such as Argatroban and Dabigatran injections to treat patients with thrombosis syndrome.

The Company has several other unique molecules in the pipeline some of which have been attempted for launch during the year. Although the net revenue generated by the segment has been less than Rs. 10 crore in the financial year, NATCO confident that the Company will carve out a niche area for itself in this segment. For FY 2019-20, the Company has multiple new product launches planned in the CnD segment.

International formulations

The Company exports its FDF products from India to several international geographies either through its local partners or directly through its subsidiaries such as in Canada and Brazil.

During the year the Company has increased revenue streams from regions beyond the US.

During the year, the total international exports were Rs. 8,791 million. Additionally, the contribution from its subsidiaries stood at Rs. 1,083 million.

International formulation sales: Geography-wise ( in million)

Year FY 2015-16 FY 2016-17 FY 2017-18 FY 2018-19
Export sales to the US, including profit share 1,125.6 7,696.8 9,542.0 8,246.0
Export sales to RoW (all non-US) 1,168.2 673.2 816.0 545.0
Sales from subsidiaries (net) 1,194.4 630.0 937.0 1,083.0


During the financial year, NATCO has seen an increase in market share in both Liposomal Doxorubicin and Glatiramer Acetate, which are well-positioned for increased earnings while we expect Oseltamivir to face competition and decline in revenues.

During the year, the Companys niche focus strategy in the US was further attested with the filingof another high value product - Ibrutinb tablets. We believe this is a potential first-to-file (FTF) blockbuster molecule. TheCompanys strategy is to continuously identify such molecules for its future growth.

In FY 2018-19, the Company filed five ANDAs in the US, which includes three potential first-to-file opportunities.

As of 31 March, 2019, the Company has 36 approved ANDAs and 20 Para IVs yet to be launched. The key products are:

Key Para-IV products in the pipeline
Key Brand Molecule Therapeutic segment /Primary indication
Nexavar Sorafenib Cancer/Kidney and Liver
Tykerb Lapatinib Ditosylate Cancer/Breast
Revlimid Lenalidomide Cancer/Multiple Myeloma
Afinitor Everolimus (higher strength) Cancer/Breast
Zytiga Abiraterone Cancer/Prostate
Aubagio Teriflunomide CNS/Multiple Sclerosis
Tarceva Erlotinib Cancer/NSCLC and Pancreatic
Kyprolis Carfilzomib Cancer/Multiple Myeloma
Pomalyst Pomalidomide Cancer/Multiple Myeloma
Sovaldi Sofosbuvir Anti-Viral / Hep C
Imbruvica Ibrutinib Cancer/Leukemia

ROW markets Canada

The Canadian market is serviced through NATCOs subsidiary, NATCO Pharma Canada Inc. The Companys key product Oseltamivir (all strengths) continues to be in a strong market position even in the third year since its launch. During the year, NATCO Canada also entered the HIV/Hepatitis space with the launch of Tenofovir Disoproxil approvals Fumarate. With these initiatives, the Canadian operations products which recorded revenues of Rs. 960 million, representing a healthy growthof24.3%overrevenuesof737millioninFY2017-18.

In FY 2018-19, the Canadian subsidiary filed seven generic submissions to Health Canada and received approval for three products. As of 31 March, 2019, NATCO Canada obtained a total of 16 approvals with the total number of filings over 20.


It was a landmark year for our subsidiary, NATCO farma do Brazil as it has received approvals for its Everolimus tablet as the first generic in Brazil and Letrozole tablets as the third-generic player. The launch of Everolimus through hospital tenders helped establish its footprints in the country.

The Brazilian market is tender-driven, with government and regional tenders accounting for about 80% of medicine sales in the country. Directionally, the Brazilian market is moving towards generics.

Given the growth prospects that Brazilian markets offers, the subsidiary is investing in upgrading its infrastructure and participating in more government tenders. During the year, NATCO has received two significant is will expecting approvals of two significant drive near-term growth. As on 31 March, 2019, we have . eight filings in Brazil.

Other ROW markets

The Company is taking its range of existing products to markets where it sees a significant potential for them.

Currently, NATCO commenced marketing of its products in Singapore and has received approval for several products. In Singapore, considering the smaller size of the market, it remains optimistic of growth given the diverse portfolio of products being filed.

The Company is also in the process of taking its products to a host of emerging markets such as Taiwan, Indonesia, the Philippines, Commonwealth of Independent States (CIS) Countries and Africa.


The API business is strategically important since it develops APIs for the captive consumption of many of NATCOs critical FDF products in addition to supplying to direct customers. The vertically integrated API facility is one of the core strengths of the Company as it helps in sustaining the business in times of margin pressures or disruption in raw material supply. This division also sells API for its regulatory customers.

Gross API revenues

Revenue (Rs. in Million)

FY 18-19 2,719
FY 17-18 2,854
FY 16-17 1,838
FY 15-16 1,627

3-year CAGR

In FY 2018-19, revenues from the API division stood atRs. 2,719 million. As of 31 March, 2019, NATCO has a total of 45 active DMFs with the USFDA for products in therapeutic areas such as oncology, central nervous system, anti-asthmatic, anti-depressant and gastrointestinal disorders.

Financial overview

In FY 2018-19, NATCOs revenue from operations on a consolidated basis amounted toRs. 22,247 million, recording a 26.9% CAGR over the last 3 years. Profit after tax stood atRs. 6,444 million, representing a CAGR of 60.1% over the last 3 years.

The EBITDA for the year wasRs. 9,250 million, representing an EBITDA margin of 41.6%.

The market capitalisation of the Company as on 31 March 2019,Rs. 97.21 billion.

The Company declared three interim dividends for the FY 2018-19 and the dividend pay-out for the 1st and 2nd interim dividend amounted toRs. 919 million while the dividend distribution tax amounted to rs. 189 million. A third interim dividend payout in 2019 was given out which will amount toRs. 227 million with a dividend distribution tax amounting toRs. 47 million. Collectively, all the three dividends stand to 17.18% of standalone profit (excluding divided distribution tax) .

Threats, risks and concerns

Adverse assessment of a manufacturing facility by any key regulatory body has the potential to significantly change the business prospects of any pharmaceutical company.

Environment, Health and Safety

NATCO constantly strives to provide its employees with a safe and healthy work environment and has taken multiple initiatives to reduce its impact on the environment.

To improve occupational health and safety, the Company motivates its employees to achieve Goal Zero where the aim is to have zero incidents, zero harm to people and zero damage to the environment. In order to achieve this goal, the Company has scheduled training programmes to increase awareness on environment, health and safety for employees across all units.

Reducing carbon footprint is another key priority for NATCO. Towards this aim, during FY 2018-19 the Company undertook multiple clean energy initiatives such as upgrading the solar power plant at Mekaguda to 3 MW from 1 MW and commissioned a windmill at Anantapur that will supply power to the Vishakhapatnam unit.