US, a bitter pill for major pharma companies

With challenges in the US, companies are focusing more on their domestic business

Many Indian pharma majors have continued to show tepid earnings in the fourth quarter of 2017-18 — a trend that has persisted for six quarters in a row.

While sales growth from the domestic and other markets have been reasonable in the fourth quarter, a stubbornly tough climate for the generic business in the US market has weighed on the overall performance of many Indian large-cap pharma companies.

Muted growth in the US

Companies focussed on the US market have been hit hard due to stringent actions by the US drug regulator FDA (Food and Drug Administration), coupled with the structural headwinds in the US market.

Factors such as rising competition due to new ANDA (abbreviated new drug application) approvals, consolidation of channel partners, leading to lower bargaining power, price erosion and lack of new opportunities have been plaguing Indian pharma companies.

The US continues to be a major market for pharma companies, with a sizeable portion of the revenues coming from the region for companies such as Aurobindo (44 per cent), Dr Reddy’s (42 per cent), Lupin (38 per cent), Sun Pharma (32 per cent), Cadila (50 per cent) and Glenmark (31 per cent). During FY-18, large-cap pharma companies — Sun Pharma, Lupin, Dr Reddy’s and Cipla — registered decline in their US business to the tune of 2-39 per cent Y-o-Y.

Meanwhile, the other major players — Aurobindo Pharma and Cadila — witnessed increases in their US business by 13 per cent and 57 per cent, respectively.

 

Price erosion in the existing products has impacted revenue growth in the US during the fourth quarter, as did the high base.

For instance, Glenmark registered a Y-o-Y decline of 30 per cent in the fourth quarter in the US due to a high base in the same quarter last year as a result of windfall gains from the exclusive sale of the Zetia generic.

Sustained price erosion due to increased competition in Renvela and Toprol XL generic drugs has led Dr Reddy’s to register sub-par profitability in the US business during the quarter. Lupin registered de-growth in the US due to the challenging environment for its key Methergine and Metformin franchises.

 

 

A decline in Taro’s (US subsidiary) sales, coupled with lower revenue from Absorica dented the US revenue of Sun Pharma. For Cipla, the slow pick-up in the recently-launched products such as Dacogen and Pulmicort led to lower growth in US revenue.

However, Cadila registered strong growth in the US in the fourth quarter, driven by one-time sales of Lialda due to exclusivity and the seasonal Tamiflu sales. Subsiding pricing pressure in the base portfolio sequentially helped Aurobindo register positive growth in the US.

Delay in approvals and lack of meaningful launches also slowed down the sales growth in the US. Regulatory firmness on the part of the USFDA in complying with cGMP norms has led to a delay in product approvals for most of the pharma companies.

 

 

The recent FDA actions, including the warning letter for Lupin’s Goa & Indore Unit II facilities, repeat OAI status (Official Action Initiated) for Dr Reddy’s Srikakulam facility and serious Form 483 for Glenmark’s Baddi, Aurobindo Pharma’s Unit IV, Sun’s Halol and Biocon’s Malaysia facilities have dented business opportunities in the US for the Indian pharma companies.

There were very few approvals with limited competition in the fourth quarter of FY-18 in the US. Treximet Tabs (Aurobindo), Toprol XL (Cadila), Truvada (Aurobindo), Viread (Aurobindo, Mcleods) are among a few in the list.

While the structural challenges in the US are unlikely to subside in the near term, large-sized pharma players are confident about better prospects in FY-19.

 

 

Sun Pharma has guided for positive growth in its US business in FY-19, driven by key speciality product launches (Illumya, Seciera and Yonsa) and pending clearance for its Halol plant.

There may be niche launches in the US for Dr Reddy’s in the generics space, including Nuvaring, Suboxone and Copaxone. Lupin expects to launch Ranexa and Levothyroxine in FY-19, while much complex injectables and biosimilars are work-in-progress.

Domestic sales

The sales growth in the domestic market has shown signs of recovery, post implementation of the GST. Companies that focus on the chronic ailment segment have benefited more, while the businesses of the acute dependent companies have been impacted due to unseasonality.

Cadila reported a moderate growth of 5 per cent (Y-o-Y) in Indian formulations in the fourth quarter, boosted by new product launches. Cipla, which is targeting $1 billion revenues in India in FY-19, grew 13 per cent (Y-o-Y) in the fourth quarter on better performance in cardiac, respiratory and urology therapeutic areas. Dr Reddy’s domestic revenue growth was up by 7.5 per cent.

 

 

Glenmark’s India business grew 5.5 per cent in the fourth quarter. Lupin’s India business has increased by 10 per cent Y-o-Y. Sun Pharma’s India business increased by a mild 2 per cent Y-o-Y due to growth challenges in its consumer healthcare division.

Companies are now focusing on domestic business which is expected to offset the slump in the US.

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