Pricing pressures, regulatory scrutiny prevail in US generics pharma industry: ICRA

The US has always been a key market for Indian pharma companies, accounting for ~29 per cent of FY2022 revenues of ICRA’s sample set of eight leading pharma companies. However, over the past few years, the revenues from the US market have grown at a relatively modest pace, reflecting a confluence of challenges being faced by companies in the form of consistent pricing pressure, lack of major generic product launches and increased regulatory scrutiny.

Giving further insights on the US market, Kinjal Shah, VP and Co-Group Head at ICRA says, “Off-late, Indian pharma companies have reported sizeable provisioning and settlement pay-outs against some of the ongoing litigations, which have impacted their earnings and balance sheets to an extent. Indian pharmaceutical companies remain exposed to regulatory risks arising out of regular scrutiny by regulatory agencies including the United States Food and Drug Administration (USFDA), the United States Department of Justice and the Securities and Exchange Commission (SEC). Most major companies have various ongoing litigations related to patent claims, anti-trust litigations, etc. and remain vulnerable to any further adverse developments on the same.”

In FY2022, the revenues from the US pharma market for our sample of leading pharma companies declined marginally by 0.2 per cent owing to high single digit to low teens price erosion. Accordingly, the share of revenues from the US for ICRA’s sample set has declined from ~40 per cent earlier over the last few years on account of muted revenue growth in the overall US generics market in FY2021 and FY2022, coupled with an increased focus on other regulated and semi-regulated markets. Nonetheless, the US remains one of the most important markets for Indian pharmaceutical companies, both from growth and earnings perspective. Companies will continue to focus on new product launches and complex generics, including first-to-file opportunities to improve margins for the US business.

On the outlook for the US generics market, Shah adds, “ICRA expects mid to high single-digit price erosion to continue to exert pressure over the near term, resulting in muted revenue growth for the Indian pharma companies from the US generics market in FY2023. Further, impact of elevated raw material prices and packaging costs in addition to relatively higher freight rates and impact of supply chain disruptions, if any, on their margins will remain key monitorables.”

With considerable consolidation of the supply-chain, the US generic market has been witnessing significant pricing pressure. Consequently, leading Indian pharma companies rationalised launches from the existing approved product basket to focus on profitability and ease burden on manufacturing and supply chain infrastructure. This led to a healthy growth of 10.7 per cent in FY2019 and 6.9 per cent in FY2020 in revenues from the US market for the sample set. However, COVID-19 impacted the pace of new ANDA approvals and revenue growth for companies in FY2021, and pricing pressures impacted growth in FY2022.

Companies with a limited basket of products and deriving majority of their revenues from the oral solids segment are relatively more vulnerable to heightened competitive intensity in the segment. With relatively lower number of approvals for new products, the players who had earlier reduced their focus on some molecules re-entered these products, impacting the realisations, and in turn leading to higher pricing pressures in the oral solids segment. Moreover, citing continued pricing pressures and intense competition in the US generics business, in recent quarters, some major Indian pharma companies reported sizeable impairment losses and also announced discontinuation of some products or segments due to lower earnings potential.

The pace of ANDA approvals as well as issuance of warning letters to Indian pharma companies has been lower over the past two years, given USFDA’s inability to conduct physical inspections in the light of the pandemic-induced restrictions. However, the same is likely to pick up over the medium term as inspections gain traction.