The price erosion in the US generic market coupled with the decline of ANDA approvals is the reason for the decline in the US sales of the Indian pharma companies in Q1FY22.  These are the findings of India Ratings and Research (Ind-Ra), which released a report.

Other factors that contributed to the price erosion, which is in high-single-digit, was led by suppliers (manufacturers/distributors) looking to a) liquidate large inventories which were undertaken due to covid- led uncertainties, b) a lower number of abbreviated new drug application (ANDA) approvals leading to companies bidding aggressively on existing products and c) aggressive pricing by small players to gain market share.

While the impact of the pricing erosion has been a function of the portfolio of molecules, companies have articulated an erosion ranging from a high single-digit to a low double-digit. Companies expect one more quarter of weak performance in the US generic market before clarity emerges on the durable growth prospects.

Ind-Ra expects a durable growth outlook in the US market to emerge over the near to medium term. During FY21, Indian companies calibrated their R&D investments towards complex molecules which are expected to witness a lower impact of price erosion compared to plain vanilla oral solid products. RoCE of Indian companies also improved, aided by improved profitability in the US business, which however may not sustain in the near term.  Ind-Ra expects new product approvals led by the United States Food and Drug Administration (USFDA) to start physical inspections and clearances, the pricing discipline will return to the market.

Strong Decline in US Generic Business during Q1FY22: Ind-Ra notes most of the Indian pharma companies have witnessed a decline in the US generic business on a quarterly (QoQ)/yearly (YoY) basis. While the decline on the yearly basis was anticipated given the covid-induced channel filling done by wholesalers, the QoQ decline was less anticipated, given the tailwinds due to the second covid wave. Few Indian companies have taken inventory write-offs and also tried to liquidate the high inventory carried by them in the US market.

Although some companies have stayed away, small companies have tried to bid contracts at low prices, leading to downward trends in pricing in the US.

The pace of ANDA approvals has halved compared to pre-covid levels:  Given physical facility inspections were not being undertaken and prioritisation of product approvals was based on the requirement, there was a lower amount of newer approvals than pre-covid levels witnessed by Indian companies. During H121, the total ANDA approvals were 137, compared to 176 in H120 and 267 in H119.

Due to the lack of new approvals, Indian companies tried to push the existing basket of products, leading to a downward trend in pricing. 

Lower R&D expenses during FY21: Indian companies have calibrated their R&D spend towards higher complexity molecules since FY21. Lower investments towards R&D coupled with improving profitability in the US business aided RoCE during the year.

However,  Ind-Ra does not expect the RoCE improvement trends to sustain in the near term, as buyer consolidation will continue to negatively impact the generic portfolio of companies.

Higher complexity would reduce price erosion: The strong ANDA pipeline of Indian companies will help maintain their sales growth momentum in the US market. The companies have increased focus on developing complex generic products (injectables, dermatology, patches, inhalants, nasal, ophthalmic) over the last five to six years, which have started coming up for approvals. The competitive landscape in these molecules has been less compared to the plain vanilla oral solid products. Ind-Ra expects the intensity of the price erosion in the portfolio to decline, given the competition per molecule could reduce as these are difficult to develop and commercialise.

Steep pricing erosion may be transitory: As per industry estimates, the US generic market is valued at US $ 40 billion and is expected to grow in low single digits driven by patent expiry.

With USFDA resuming physical inspections through its India office and most of the companies being inspection ready for their facilities, Ind-Ra expects new approvals to aid in the growth of the US business. Also, as the approval cycle begins to improve, Ind-Ra expects Indian players to reduce pricing would start defocusing on non-remunerative molecules and opt-out of bidding contracts at irrational prices.