INTERVIEW: Natco's CEO, India's price warrior
This article was originally published in Scrip
Natco has set its eyes on the US. Nannapaneni said that while many Indian firms typically target 25-30 ANDA filings annually in the US, Natco prefers to pursue 5-6 Paragraph IV filings per year. "It's a fairly well-thought out strategy. We believe that success in one [product] is equal to doing about 20 me-too products," he said.
Natco Pharmaceuticals made headlines when it was granted India's first ever compulsory license (CL) for Bayer's anticancer Nexavar (sorafenib tosylate) in March this year. It believes that transposing Western pricing models to India won't work. Not least because a large proportion of Indians do not have adequate health insurance coverage [and this isn't going to change dramatically anytime soon, it believes] and therefore have to pay for healthcare out-of-pocket.
The firm's young vice-chairman and CEO, Rajeev Nannapaneni, says that unless multinational companies consider pricing based on factors such as GDP and purchasing power parity, the debate on pricing and access may spin out of control –and then market intervention would follow. He referred to the recent developments in India, where the Supreme Court had taken a tough stance against the Indian government over the delayed drug price control policy for essential medicines.
"You can't charge Rs280, 000 ($5,229) for a drug and say you want to sell it in India. At some level you need to have differential pricing," Nannapaneni, told Scrip. He believes that Merck & Co and GlaxoSmithKline have perhaps got it right in India in terms of their pricing strategy. "Merck has a great strategy for the third world, pricing products as per the purchasing capacity of people and backed by a good patient access program", Nannapaneni said, specifically referring to the antidiabetic Januvia (sitagliptin).
In India, Januvia was priced at a fraction of its US cost, a game-changer according to some experts. Januvia and Janumet (sitagliptin plus metformin) have had a strong run since their 2008 launch. The Januvia family (Januvia plus Janumet) is the top ranking oral antidiabetic agent in India with 5.5% market share in the segment for the 12 months ended August 2012, as per IMS data. In addition, these products are also co-marketed by Merck's partner, Sun Pharmaceutical Industries, as Istavel and Istamet.
more CLs
While Natco's CL application for Nexavar may have made it somewhat less popular among multinationals, the firm is clear that it won't shy away from such action in future.
Natco had earlier sought a voluntary license to Pfizer's HIV entry inhibitor Selzentry/Celsentri (maraviroc), which was seen as a prelude before seeking a CL for the product in India. Celsentri was originally part of Pfizer's portfolio, but rights were acquired by ViiV Healthcare, the 85%-15% specialist HIV joint venture established by GSK and Pfizer in late 2009. Pfizer received marketing authorization for the product in India in November 2009, and ViiV has been in discussions to potentially license out the HIV therapy in India. ViiV had contacted Natco as one of several Indian companies assessed through due diligence to see if they fulfill these criteria.
Natco does not appear to have made it to the next stage of discussions and Nannapaneni confirms that Natco is still weighing up its options on a CL application for Celenstri. More CL action is perhaps in store but the company remains, for now at least, tight-lipped.
Under Indian patent law a CL application can be made, subject to certain conditions, on the grounds that the reasonable requirements of the public with respect to the patented invention have not been satisfied, or the patented invention is not available to the public at a "reasonably" affordable price, or the patented invention is not worked in the territory of India.
As per the terms of the Nexavar CL, the price of Natco's generic is not to exceed Rs8,880 for a pack of 120 tablets for one month's treatment, compared with Bayer's price of about Rs280,000. Natco is also required to pay a 6% royalty on net sales to Bayer, among other conditions that also include a commitment to supply the drug to at least 600 'needy, deserving' patients per year for free. Bayer, which has appealed against the CL decision, has offered to provide Nexavar at Rs30,000 per month under its patient assistance program. The real market situation, though, has turned more complex, with Cipla slashing the price of its sorafenib to Rs6,840 for a pack of 120 tablets. Nannapaneni, however, said that Natco has been able to match Cipla's price through certain discounts offered to patients.
less is more
Natco has also set its eyes on the US, though it clearly believes in a niche approach, focusing on limited competition ANDAs. Nannapaneni, whose early US exposure included a stint in Merrill Lynch as a retirement plans account manager, said that while many Indian firms typically target 25-30 ANDA filings annually in the US, Natco prefers to pursue 5-6 Paragraph IV filings per year. "It's a fairly well-thought out strategy. We believe that success in one [product] is equal to doing about 20 me-too products," he said.
There are uncertainties, he concedes, referring to the recent unfavorable ruling in the generic Copaxone (glatiramer acetate) case. A favorable ruling could have "changed the company's dimensions completely", he believes. "The [glatiramer] launch has been delayed till 2015. So, there are elements of uncertainty," Nannapaneni said, referring to the company's niche strategy.
In June this year, the US district court for the Southern District of New York had upheld Teva's contention that Natco's ANDA for a generic version of Copaxone infringes all its asserted claims. Teva had then said that it believes that the defendants would be enjoined from selling their products until the process patent expires on 1 September 2015. "Furthermore, any purported generic version of Copaxone would need to obtain FDA approval prior to being made available to the public. At this point, it is unclear what the requirements would be for approval of a purported generic synthetic peptide," Teva had then said. Natco has filed about 24 ANDAs in the US so far including about six potential first-to-file and paragraph IV opportunities that include a generic version of Celgene's multiple myeloma treatment, Revlimid (lenalidomide).
Not everyone is convinced about Natco's strategy. The head of a leading corporate advisory, who did not want to be identified, said that Natco was following a "contrarian" strategy, which offers the promise of windfall gains but also comes with its own set of challenges. "As in any strategy, success lies in the ability to be differentiated over a reasonably long period of time. Natco is still relatively mid-sized and would need to build adequate reserves to withstand a series of set-backs. Building a strategy around compulsory licensing is not sustainable," the official said.
The official also added that from a "fairly precarious financial position" caused by large debt, Natco had been able to steady the ship. "It should guard against reckless adventurism," the official cautioned, but added that Natco has the potential to grow to a larger size, provided it remains focused. "There a few domestic players focused on oncology and if it were to build a strong pipeline, it could get ahead of the pack," the official added. Natco, with revenues of Rs4.68 billion in 2011-12, is estimated to have a share of around 8% in the Indian oncology market.
Brazil is another market Natco hopes to make a dent in but is clear that it will do so with its own front-end, unlike in the US, where the firm pursues a partnership-based model. "The regulatory regime there [in Brazil] mirrors the US but the marketing set-up mirrors that of India. We will manufacture our products in India," Nannapaneni confirmed. Natco has set up a small distribution business in Brazil via a subsidiary to handle product registrations and sell the company's products in the region.
biotech and friends
Natco has forayed into the biosimilars space via an alliance with Chemo Sa Lugano of Switzerland. It has purchased four monoclonal antibodies (mAb) drug substances under an exclusive agreement with Chemo's biosimilars arm, Mabxience, and will manufacture the finished dosage formulations. The products covered are trastuzumab, bevacizumab and rituximab, biosimilar versions of Roche's anticancers Herceptin, Avastin and Rituxan respectively and etanercept (Amgen's Enbrel) for autoimmune diseases.
Though modest about the immediate prospects of this business, Nannapaneni appears unperturbed about reports suggesting an unprecedented level of interest in the biosimilars space, with an estimated 277 firms at various stages of developing products and imminent downward pricing pressures. "All those guys can't churn out products like in the case of organic chemistry generics. Many won't deliver. The risk of failure is high, including for us," he noted. He, though, underscored the importance of Roche's tie-up with India's Emcure to launch cut-price versions of Herceptin (trastuzumab) and MabThera (rituximab) in India and its potential impact on the biosimilars space. "Biosimilars is not going to be for everyone. It will be a deep pockets game,'' he added.
But Natco's general unconventional approach appears to have won it some admiration and attention. Sun Pharma's chairman and managing director Dilip Shanghvi, a family friend of the young CEO, had earlier referred to Nannapaneni as one of the "very bright" next generation of leaders in the Indian industry. Shanghvi has since acquired about 3% of the company, in what Sun described as a passive investment. Nannapaneni doesn't see any cause for concern and brushes aside any suggestion of a potential exit at the right valuation.
"A lot of things we're doing now will take five to seven years to pan out," he said, asserting that Natco is looking at the long term and is most certainly not for sale.