Business Economy

US generic business saw pricing headwinds during 1Q FY22

Mumbai (Maharashtra) [India]: India Ratings and Research (Ind-Ra) has said the decline in US sales of Indian companies was attributed to a high single-digit price erosion in US generic market coupled with a continued weak demand for the acute portfolio of products during 1Q FY22.
The high incidence of price erosion was led by suppliers looking to liquidate large inventories which were undertaken due to Covid-led uncertainties, a lower number of abbreviated new drug application (ANDA) approvals leading to companies bidding aggressively on existing products and 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 low double digit. Companies expect one more quarter of weak performance in US generic market before clarity emerges on the durable growth prospects.
Ind-Ra said it expects a durable growth outlook in 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.
Return on capital employed (ROCE) of Indian companies also improved, aided by improved profitability in the US business, which however may not sustain in the near term.
New product approvals led by United States Food and Drug Administration (US FDA) starting physical inspections and clearances, the pricing discipline will return to the market.
Ind-Ra said most Indian pharma companies have witnessed a decline in US generic business on a quarterly and yearly 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.
As per industry estimates, the US generic market is valued at 40 billion dollars and is expected to grow in low single digits driven by patent expiry.

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