Intense price competition in US generics market hits Indian pharma

Players say low prescription, double-digit price erosion are key reasons

The first quarter (Q1) of 2021-22 (FY22) saw most Indian pharmaceutical majors struggling to grow revenues and margins in North America. An unprecedented double-digit price erosion in generics had hit them where it hurt most.

Companies such as Zydus Cadila, Torrent Pharmaceuticals, Alembic, and Strides posted a dip in US revenue. Others like Dr Reddy’s Laboratories (DRL) and Cipla saw low single-digit growth.

Sun Pharmaceutical Industries (Sun Pharma), however, posted a gain in the US market, riding on its specialty drugs. It admitted though that the generics business was facing stiff competition.

R Ananthanarayanan, managing director and chief executive officer (CEO) of Strides Pharma Science, said: “The industry has seen significant price competition. With prescription rates down, the pie is even smaller. Each player is vying for a share of that pie in terms of wallet share.”

He added that when there is inventory in the market, it leads to massive price erosion. “This led to double-digit price erosion,” added Ananthanarayanan.

A spokesperson for DRL said it was indeed an ‘unusual’ quarter in some ways as it faced price-erosion pressure in the US generics business.

DRL’s North America generics business recorded two-per cent year-on-year (YoY) growth, while it declined sequentially by one per cent. Even so, the company launched four products during the quarter.

The company spokesperson reasoned that some of these gains (new launches) were offset by a relatively high price erosion caused by increased intensity of competition and continued impact of fewer elective procedures.

“Timing-wise, Q1 was unfortunate for us. We felt the impact of pricing erosion, but could not see the full realisation of the value of recent big launches,” said the spokesperson.

Price erosion is not a new phenomenon, and is an anticipated part of the business model in the US. However, in recent years, the US Food and Drug Administration’s (FDA's) focus on having more affordable drugs in the market has increased competition.

As Abhay Gandhi, CEO of North America business of Sun Pharma, explained: “Price pressure notwithstanding, a large number of new companies has entered the market in the past four-five years. Competition has intensified further.”

“The US FDA is giving permissions/approvals to products. The competitive environment is actually gaining strength,” he told analysts after the quarterly results.

Sun Pharma has bucked the overall industry trend, riding on its specialty portfolio of Ilumya, Cequa, Levulan, and Absorica sales. Its US revenue grew 35 per cent overall to $380 million. The company, however, admitted to the US generics business continuing to be competitive.

“While doctor clinics have been open in the US during the quarter, the situation is yet to fully normalise. Patient flow to doctor clinics, as well as the frequency of doctor calls by our medical representatives, is still below pre-Covid levels,” said Gandhi.

The price erosion in Q1 is largely being attributed to normalcy returning to the generics market in the US, which had seen supply disruption last year. However, the erstwhile competitive generics market in the US is now limping back to normal, with even China getting back into the game.

"This has led to the US generics market resuming to full competition, which led to price erosion for many players, especially from India with lesser opportunities in the quarter for any price hike. While volumes remain intact, prices have come down," said R K Baheti, chief financial officer (CFO), Alembic Pharmaceuticals.

Alembic’s US generics business fell 38-per cent YoY.

The US market works when there is a steady flow of new launches.

Cipla’s Global CFO Kedar Upadhye told Business Standard, “The US market always works when the flow of new products is good since the existing ones will see price erosion. Right now, the price erosion is not getting offset by new launches.”

Companies are therefore betting on new launches, especially in the specialty segment.

Upadhye said, “We have multiple high-value launches lined up for next year, such as the generic Advair and the generic Revlimid.”

Similarly, Strides has acquired Endo International plc's manufacturing facility at Chestnut Ridge, New York.

“Through the Endo acquisition, we got a large basket of approved abbreviated new drug applications (ANDAs). This doubles our portfolio of approved products in the US. We will be able to launch five to six ANDAs every quarter,” said Ananthanarayanan.  

However, the subsequent quarters may not see as much impact as witnessed in Q1FY22, in terms of US generics sales revenue.

"In the second quarter, prices may not go up, but they may also not see as much erosion as in Q1. We are hoping that once the USFDA inspections resume, our new plants may get approved. This will help us tap into the specialty drugs segment. While the generics market in the US continues to be competitive, one could look at complex and specialty drugs as well," said Baheti.

Analysts feel the revenue pick-up will hinge on pipeline execution.

Kunal Randeria, analyst with Edelweiss, said that Lupin, which has one of the best pipelines comprising 18 exclusive first-to-file opportunities and high-value launches, will continue to see near-term revenue being impacted from famotidine (antacid) price erosion and competition in some other products.