Aniket PujariShares of Natco Pharma Ltd have dropped 38% from the 52-week high of ₹1,505 (December 2024), as the Street grows cautious about its high-risk, high-reward business model.
Natco focuses on extremely complex, niche drugs, mainly in cancer treatment, injectables, peptides, and legally challenged patents in the US market. Natco doesn’t wait for patents to expire; it challenges them through a legal process called Para-IV.
If Natco wins or settles, it gets permission to launch the generic version early. This strategy brings big rewards when it works, but the advantage lasts only for a limited period, creating significant earnings volatility. For example, revenue fell from around ₹1,371 crore in Q2FY25 to just ₹475 crore in Q3FY25, and margins collapsed from nearly 59% to 8%.
Revlimid rush fades
That’s exactly what happened with Natco’s blockbuster drug Revlimid. When Natco launched its generic version in the US toward FY22-end, revenue more than doubled in just two years, and margins surged from around 14% in FY22 to almost 50% in FY25.
In Q2FY26 alone, formulation exports contributed around 84% of Natco’s total revenue, and Revlimid formed a significant part of that contribution. However, this was a time-bound opportunity.
As per Natco’s agreement with the original innovator (BMS/Celgene), Natco could initially sell only restricted volumes. Over time, those restrictions began easing, allowing other companies to enter the market—resulting in price cuts, reduced share, and lower profitability.
In the Q2FY26 earnings call, the management said most of the Revlimid earnings have already been realized in H1FY26. After that, earnings from this drug will decline steeply due to competition and price erosion. Natco expects quarterly revenue of ₹750–800 crore and PAT of ₹135–150 crore in the second half—a steep sequential decline of ~41% and ~71%, respectively.
Nirmal Bang Institutional Securities cautions that Natco’s near-to-medium-term growth remains highly dependent on the performance of Revlimid, CTPR (insecticide Chlorantraniliprole), and key upcoming launches such as Risdiplam and Semaglutide, both of which are contingent on regulatory or court outcomes. Plus, the stock trades at an unappealing 25x FY27 price-to-earnings, showed Bloomberg data.
Building the next growth engine
Natco is now trying to broaden its platform. Several complex, high-entry-barrier drugs are advancing through the pipeline—peptides, oncology molecules, injectables, and differentiated generics such as Ibrutinib and Semaglutide. It is also expanding beyond the US. The acquisition of Adcock Ingram in South Africa strengthens its presence in emerging markets and reduces its dependence on a single geography. However, these measures will deliver results only gradually.
These strategic moves should steady growth—but only over time. For now, the market remains unconvinced until new products meaningfully replace the fading Revlimid windfall.
