Natco’s generic version of cancer drug Revlimid driving pharma stocks

Natco Pharma (along with marketing partner Teva) announced the launch of the first generic version of Revlimid (Lenalidomide) used in the various blood cancer treatment such as multiple myeloma, myelodysplastic syndromes, and mantle cell lymphoma. The news is positive for Natco and bears similar importance for other generic majors in the country (Sun Pharma, Cipla, Cadila and Dr. Reddy), who should be in line for an equal opportunity. Nifty Pharma index is up 4 per cent from Monday due to the sector’s broad opportunity.

The highly confidential Revlimid patent settlement with Celgene was agreed by not only Natco (Dec-2015), but also by Dr Reddy’s Laboratories (Sept 2020), Cipla (Dec 2020), Zydus Lifesciences (Cadila Mar 2021), and Sun Pharma (Jun 2021). The agreement provides a volume-limited license for sale from March 2022 and an unlimited quantity from January 2026, with volume allowed for each year subject to the individual agreements. Simply put, the date of launch post March 2022 and the volumes entitled till January 2026 is regulated by respective contracts.

Rather than being restrictive, the agreement can be viewed as highly opportunistic to the generic companies and the innovator. In a normal launch, upon arrival of generics, the price erosion on day one can range anywhere between 80-90 per cent, as generics compete only on price to gain higher volumes. But with clear definition of volumes that can be sold per year in the settlement, the generics need not compete on price. Neither can large consolidated distributors play one supplier against the other.

Bristol-Meyers Squibb, which acquired the innovator Celgene, expects blockbuster sales of USD 9.5 billion worldwide in FY22 owing to the limited treatment options for non-solid cancers (blood cancers are tougher to treat even with monoclonal antibodies or drug conjugates). The generics opportunity should be lucrative as well. For instance, on a rough back of the envelope calculation, each generic player can generate close to USD 200 million (₹1,500 crore) from FY23 to FY26 at the top line. This is assuming market share for each player ramping from single digit in FY23 to mid-teens by FY26 with only 50 per cent probability and price cuts starting from 70 per cent in FY23 to 95 per cent in FY26. BMS also expects the sales to decline by only 70 per cent to USD 2-2.5 billion on the arrival of generics the following year.

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