Pricing pressures and regulatory scrutiny persist in US generics pharma industry: ICRA

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

The US has always been a key market for Indian pharmaceutical companies, accounting for ~29 per cent of FY2022 revenues of ICRA’s sample set of eight leading pharmaceutical 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, Vice President and Co-Group Head at ICRA says, “Off-late, Indian pharmaceutical 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 pharma companies remain exposed to regulatory risks arising out of regular scrutiny by regulatory agencies including the United States Food and Drug Administration (US FDA), 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 pharmaceutical market for our sample of leading pharmaceutical 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 pharma companies, both from a 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 pharmaceutical companies from the US generics market in FY2023. Further, the 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 monitorable.”

With considerable consolidation of the supply chain, the US generic market has been witnessing significant pricing pressure. Consequently, leading Indian pharmaceutical companies rationalised launches from the existing approved product basket to focus on profitability and ease the burden on manufacturing and supply chain infrastructure. This led to the 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 a deriving majority of their revenues from the oral solids segment are relatively more vulnerable to heightened competitive intensity in the segment. With a 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 the discontinuation of some products or segments due to lower earnings potential.