Why Natco Pharma Share Price is Falling

After a steep fall witnessed in the past few sessions, the Indian share market rebounded today, thanks to some comments made by US Fed chair Jerome Powell.

Even though there are some inflationary concerns, Fed kept its benchmark interest rate unchanged for the second time in a row when it concludes a two-day meeting on Wednesday.

Tracking US markets, Indian benchmarks had a great start of the session and rose up to 1% in intraday trade.

Broader markets also rallied with BSE smallcap index and the BSE midcap index notching gains exceeding 1%.

Among individual stocks, one of the top buzzing stocks was Natco Pharma.

In the past five days, Natco Pharma share price has declined by 8% while in the past one month, shares of the company are down over 13%.

Let's find out why shares of one of the market leader companies are in a downtrend and what lies ahead.

#1 USFDA Issues Multiple Observations

A couple of weeks back, Natco Pharma was dealt with a blow when the United States Food and Drug Administration (USFDA) issued 8 observations for its Hyderabad unit.

Last month, the USFDA completed the inspection at the company's pharma division located in Kothur in Hyderabad.

When the USFDA inspects a pharma manufacturing facility, it evaluates the facility's compliance with Good Manufacturing Practices (GMP).

If it finds that the facility is not in compliance, it can issue what's known as a "Form 483," which lists its observations of any conditions that, in its judgment, may constitute violations.

So you could see how this development could affect the company's stock price.

While the issuance of a Form 483 is not a final regulatory action, it indicates potential areas of concern that the company must address promptly and effectively to avoid further regulatory complications and to maintain trust with stakeholders.

#2 Antitrust Lawsuit in the US

The other reason why shares of the company are reeling under pressure for some time now is because of an antitrust lawsuit in the US.

In September 2023, Natco Pharma was named as a defendant in an antitrust lawsuit in the United States.

The lawsuit was filed against the company by Louisiana Health Service and Indemnity Company and HMO Louisiana regarding Pomalidomide, a drug used in treating cancer.

There are no developments from the company in regards to this matter since then.

What Next?

In a major relief, Natco Pharma received zero observations from the USFDA today, following the inspection of its pharmacovigilance department.

The company's pharmacovigilance department, at its corporate office in Hyderabad, was inspected from 30 October 2023 to 1 November 2023.

The USFDA inspected pharmacovigilance procedures for its products marketed globally and particularly in the US.

At the end of the inspection, they found it to comply with requirements.

This development comes as a big relief for Natco Pharma, which was bombarded with two negative developments recently.

Once the dark clouds surrounding the observations and the antitrust lawsuits clear, Natco Pharma could be in a better place and could finish FY24 on a strong note.

In its earnings call for Q1, the company's CEO Rajeev Nannapaneni had said Natco is expecting to clock over Rs 10 billion (bn) in annual profit this year.

If it does surpass this feat, it could be the best ever year for Natco Pharma and a jump of approximately 40% on a YoY basis.

The company is expecting strong growth from its newly-started agrochemicals division.

Natco Pharma is yet to post its Q2 results but going by the management commentary, Q2 could be as good as Q1.

There could be a slowdown in Q3 followed by a pick-up in Q4 according to the CEO.

Natco Pharma is currently the market leader in the domestic oncology market. It has a specialised field force of sales representatives and a strong distribution network.

Given its strong R&D capabilities and track record, Natco primarily focuses on complex products with high barriers to entry. That's what gives it an edge.

How Natco Pharma Share Price has Performed Recently

In the past one month, shares of the company have fallen 14%.

In 2023 so far, shares of the company are up 35%.

Natco Pharma has a 52-week high of Rs 928 touched on 7 September 2023 and a 52-week low of Rs 502 touched on 2 February 2023.

At the current price, the company trades at a PE multiple of 16.4x and a price to book value multiple of 2.6x.

Here's a table comparing Natco with its peers.

Comparative Analysis

Company	Natco Pharma	Aarti Drugs	GSK Pharma	JB Chem	Ajanta Pharma
ROE (%)	15.7	14.9	27.6	18.5	17.7
ROCE (%)	18.1	15.5	38.1	22.8	22.6
Latest EPS (Rs)	45.5	19.6	36.8	28.9	52.4
TTM PE (x)	16.3	23.5	38.3	48.4	34.9
TTM Price to book (x)	2.6	3.5	12.7	8.7	6.6
Dividend yield (%)	0.7	0.2	2.3	0.3	0.4
Industry PE	34.6
Industry PB	3.9

Data Source: Ace Equity, Equitymaster

About Natco Pharma

Established in 1981 and headquartered in Hyderabad, Natco Pharma is a vertically integrated R&D-driven pharma company. In India, it is the market leader in oncology and gastro hepatology.

In the US, Natco is focused on niche and difficult-to-make complex generics such as Tamiflu and Copaxone highlighting its R&D capabilities.

It partners with top generic companies such as Mylan and Teva in the US which de-risks its business and allows it to focus on its core R&D and manufacturing strengths while leaving litigation and marketing to its partners.

Natco markets its products in more than 40 countries and operates through its subsidiaries in Brazil, Canada, Singapore and Australia.

To know more, check out Natco Pharma's financial factsheet.

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