Indian pharmaceutical companies likely to cash in on US drug shortages

US drug shortages hit a decade-high of 323 across 22 therapies in the March quarter of 2024

Even as US drug shortages hit a decade-high of 323 drugs across 22 therapies in the January-March quarter of calendar year 2024 (CY24), analysts feel this presents an opportunity for Indian pharmaceutical (pharma) exporters.

US active drug shortages have further increased, after stabilising at 300-310 drugs in calendar year 2023, to 323 drugs in the first quarter (Q1) of CY24, according to American Society of Health-System Pharmacists data, said IIFL Securities. 

While analysts were not able to give market size estimates of these 323 drugs spread across categories like anti-infectives, hormones, oncology, etc., overall exports to the US have already risen sharply in 2023-24 (FY24).

Udaya Bhaskar, director-general of the Pharmaceutical Export Promotion Council of India (Pharmexcil), told Business Standard that shortages helped Indian pharma exports to grow not only in the US but also contributed to overall growth.

“We exported $8.72 billion with 15.6 per cent growth. Total pharma exports from India grew by 9.6 per cent to $27.8 billion.”

India Ratings and Research (Ind-Ra) analysts feel that this will not only provide the potential for volume growth but also limit price erosion to single digits over the next 12-18 months, leading to improved returns.

“The price erosion in the US generics market is expected to remain in single digits in the near future, primarily due to drug shortages. US catering Indian generic players have seen a strong financial performance during FY24, due to lower raw material costs and stability in pricing,” said Vivek Jain, director, corporate ratings, Ind-Ra.

Jayesh Bhanushali, assistant vice-president, research and products, IIFL Securities, said last month that export-focused Indian generic companies would likely benefit from this situation.

“Our analysis suggests that among the Indian generic players — Aurobindo Pharma, Sun Pharmaceutical Industries, and Gland Pharma have the highest exposure to products under shortage in the US.”

IIFL added that Aurobindo’s US injectables sales (generic and branded) account for 25-26 per cent of its US sales and 12-13 per cent of its overall sales. Thirty-six injectable products of Aurobindo are currently under short supply in the US, and Aurobindo is currently supplying 15 of these products.

Gland’s US revenue accounts for around 50 per cent of its overall sales. Of the 14 short-supply products that Gland is currently supplying to the US, 10 products are under the essential products list for hospitals.

Sun Pharma’s nine products, of the 15 short-supply products which it is currently supplying, are under the essential products list for hospitals.

Generic pharma manufacturing is a competitive industry with low margins. Price erosion on account of purchase concentration, increasing regulatory costs, and limited commercial viability in some cases have led many US-based generic pharma manufacturers to halt the production of financially unsustainable products. Large generic players have exited non-profitable molecules, contributing to increasing shortages.

Players like Teva Pharmaceutical Industries halted production of around two dozen critical injectables in mid-2022 at their California facility.

“A broken US pharma supply chain has made it difficult for generic drug manufacturers to make profits in a commoditised oral-solids portfolio and stay in the business. As a consequence, few US-based drug manufacturers have shut down the business,” said IIFL.

US Food and Drug Administration (FDA) plant crackdowns have led to increased shortages.

IIFL further noted that such high shortages were last seen almost a decade back in the third quarter of calendar year 2014 when the active drug shortages in the US were at 320 drugs. Although US drug shortages have been for several years, the situation has worsened over the past two to three years with active drug shortages steadily increasing from 271 drugs in Q1 of calendar year 2021 to Q1CY24.

In a recent analysis, Shrikant Akolkar and Aashita Jain of Nuvama Institutional Equities noted: “According to our analysis, the active shortages continue to trend at a high level while the annual shortages list shows shortages have not abated in 2023. Injectables contribute 65 per cent and 42 per cent of the drugs from ‘currently in shortage’ and annual shortage list, respectively.”

As a silver line for Indian drug companies, there has been an improvement in USFDA approvals of the abbreviated new drug applications (ANDAs) taking note of the drug shortages. Meanwhile, analysts also note that ANDA filings have slowed down which would benefit the pricing scenario further amid decreasing competition.

Players, however, are cautiously optimistic.

Abhay Gandhi, chief executive officer, North America business of Sun Pharma, told Business Standard, “The structure of the US market is not going to change. Depending on the product, the pricing pressure will always be there. In the last five years, the total generics market has not moved — it remains at $50 billion or so. This tells you the story.”

Why the shortage?

The pandemic lockdown restricted the spread of seasonal illnesses and led to the weakening of the immune system. Surges in outbreaks were reported. The uptick in demand for medicines to cure these illnesses exceeded the typical annual averages since then.

The pharma companies, which are typically constrained by limited excess capacity to control costs, struggled to meet the unforeseen demand. The Russia-Ukraine crisis continues to affect the supply chains. This has hit the generic drug manufacturers hard. Also, when a drug shortage is announced, consumers tend to stockpile the drug for future consumption.