US FDA steps add to pricing woes of pharma firms
The US Food and Drug Administration (FDA) has unveiled new regulations to promote generic drugs with the wider aim of lowering health care costs for US citizens — a move that will enable Indian pharmaceutical companies to launch more products in that country, but will also intensify competition and increase pricing pressure.
On Tuesday, the FDA announced two measures — the publication of a list of offpatent drugs without approved generics and expediting the review of drug applications where there were fewer than three generics in the market. The FDA measures are part of its Drug Competition Action Plan.
Experts believe increased competition will also lead to pricing pressure for drug companies, which will impact revenue and erode profitability. This comes at a time when several generic drug makers are seeing high single-digit price erosion due to consolidation in distribution and increased competition.
Sun Pharmaceutical, Glenmark Pharmaceuticals, and Dr Reddy’s Laboratories are expected to face higher risk because of the new policy. “Our analysis suggests that companies which have high contribution from drugs with less than three generic approvals are Glenmark, Dr Reddy's, and Sun Pharma. As FDA increases competition to three generics, these companies could lose 3050 per cent of profits from these drugs,” said Anubhav Aggarwal and Chunky Shah of Credit Suisse in their report.
In 2016, the FDA granted approvals to 800 generic drug applications - the highest-ever in a single year. While this enabled companies to launch new products, it marked heightened competition.
“The next six quarters will be difficult for pharma companies because of price erosion,” said Sanjiv Kaul, a pharma industry veteran and partner of ChrysCapital, a private equity fund. However, companies with long-term focus need not worry as a new wave of opportunities would come in oncology, controlled substances and new drug delivery systems, he added.
Many domestic drug majors, which earn 40-50 per cent of their revenue from the US, are now stepping up their investments in speciality and complex drugs, which have better margins. Anmol Ganjoo of JM Financial said, “While faster approvals for complex generics and limited competition products will drive a busy launch calendar for most players, pricing pressure should intensify.”