Natco Pharma corrected a significant 32 per cent last week. The stock declined 20 per cent on Thursday and further corrected 9 per cent on Friday, dragged by the company’s weak Q3FY25 results. The revenues (excluding other income) declined 39 per cent year on year to ₹463 crore. Compared with Q2FY25, the quarter-on-quarter decline is sharper at 66 per cent. The company’s EBITDA margins, around 59 per cent in the first half of the year, declined to 6 per cent. The profits, adjusted for one-time gain on sale of land, declined 59 per cent year on year.
Revlimid sales
The sharp decline can be largely attributed to lower sales of generic Revlimid in the US. The sales agreement with the innovator of the blockbuster product is designed in a peculiar fashion, which led to the current volatility. Under the terms of the agreement, Natco Pharma and Teva, its marketing partner for the product, are allowed to sell a predetermined market share in a given year. This share rises from a single digit in the first year (FY23) and can reach a maximum of 33 per cent by January 2026. A similar agreement was reached with all the generic challengers to the patent, including Sun Pharma, Cipla or Dr. Reddy’s. Since Natco Pharma was the earliest mover, backed by a large generic player Teva, the impact for Natco is higher from Revlimid sales.
The company reported strong sales growth of 10 per cent in 9MFY25, despite the current quarter, owing to the higher market share allotted this year compared to the previous year. As the allotted quota was reached, sales in the third quarter had no contribution from Revlimid.
But the company has been allotted a third of the market share for 2025. The higher proportion of sales are expected to take off from Q4FY25 and expectations for the next quarter and the next year are still strong and revenues will recover. However, how investors will react after the huge negative surprise from Q3 results is a wait and watch.
Stock outlook
Natco Pharma gained prominence based on its ability to challenge patents. Revlimid and Tamiflu were one of the earliest exploits. The company business-case is built on such patent challenges. But such products are given to high volatility. There is a period of exclusivity after which sales drop and the next opportunity has to be explored.
Natco Pharma shareholders should expect a big drop in earnings from FY27 as Revlimid sales will carry the earnings for FY26 after which there will be unrestricted competition leading to a sharp price drop.
The company has stocked up on such strong exploits for the future, but investors may be concerned by the timelines. The next big opportunity should be semaglutide, the molecule behind Ozempic for diabetes and Wegovy for weight loss. The company is the sole-first to file, which may ensure six months of exclusivity, but it is yet to be decided. In the US markets, diabetes opportunity was settled with the innovator (launch date is still undisclosed) and the weight loss version has to be settled. The patent expiries are starting from 2031, but the company can launch the diabetes version in India from March 2026.
The other large opportunities include sole-first to file in Olaparib for breast cancer, and shared-first to file in Risdiplam for spinal muscular atrophy, besides several other small- to medium-sized opportunities. But with uncertainty of launch dates and a looming gap in earnings growth, the stock gave up the gains of the past year.
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