Indian pharmaceutical companies face strong headwinds in US

Challenges may continue in short to medium term due to USFDA action, likely imposition of Border Adjustment Tax & delay in drug approvals, say experts

POLICY CHANGES

AT A time when US President Donald Trump has stated that pharmaceutical companies will have to cut “astronomical” drug prices and bring manufacturing back to America in order to create jobs, Indian drug companies are facing strong headwinds due to prompt regulatory action of United States Food and Drug Administration (USFDA), likely imposition of Border Adjustment Tax (BAT) and delay in new drug approvals.

“Going forward, headwinds in pharma are likely to continue in the short to medium term with a possibility of policy changes with new government in US. Also, clarity on proposed BAT to boost domestic US manufacturing by taxing imports is awaited. The pricing pressure due to increased competition and consolidation in the supply chain, and regulatory scrutiny of the Indian manufacturing units of drugmakers by the USFDA could continue to remain as hurdles for Indian pharma companies,” said a HDFC Securities report released on March 8.

BAT is the short name for a destinationbased cash flow tax (DBCFT). It is a valueadded tax levied on imported goods. If BAT is implemented, the Indian pharmaceutical industry, which exports around 30 per cent (in volume) and about 10 per cent (in value) of $70-80 billion US generics market, will see their drug prices increase. Currently, the Indian industry is hoping that the US government will impose such taxes on American drug companies only, as this will encourage the latter to start domestic manufacturing plants and create jobs.

Meanwhile, in last few months, various Indian companies — including big companies such as Wockhardt, Dr Reddy’s Laboratories and Sun Pharma — have faced the ire of USFDA for not following drug manufacturing standards.

In its warning letter dated February 17, 2017, the USFDA told Wockhardt: “At this time, seven Wockhardt facilities are considered out of compliance with current good manufacturing practices (CGMP). These repeated failures at multiple sites demonstrate your company’s inadequate oversight and control over the manufacture of drugs... In your responses to the various actions listed (by FDA), including during multiple meetings with FDA, you have repeatedly discussed and promised corporate-wide corrective actions. Yet, when FDA inspects or returns to other Wockhardt facilities, similar violations are shown to persist.”

Similarly, on March 8, the USFDA made 13 observations via Form 483 relating to deviations from CGMP at Dr Reddy’s Laboratories’ cancer formulations facility at Duvvada in Visakhapatnam. Earlier, on February 21, the company’s active pharmaceutical ingredients (API) manufacturing plant at Miryalaguda in Telangana was issued a Form-483 with three observations relating to violation of norms. The FDA issues a Form-483 if its investigators spot any conditions that in their judgment may constitute violations of the US Food Drug and Cosmetic (FD&C) Act and related laws.

Sun Pharma’s Mohali facility, from where the USFDA had banned the import of drugs since 2013, was given the green light few days ago.

However, in December last year, its key manufacturing facility in Halol received nine observations via Form 483, after being re-inspected by USFDA inspectors. This facility is yet to get USFDA clearance. According to an ICRA report dated March 6, “increased regulatory scrutiny and consolidation of supply chain in US market resulting in pricing pressures along with increased research and development (R&D) expenses will have an impact on profitability of Indian pharmaceutical companies”. The USFDA inspected 298 drug facilities in 2015, which is about 3 times the facilities it inspected in 2010.

Moreover, according to the HDFC Securities report, although the drug approvals to Indian companies by the USFDA has gone up from 109 in FY15 to 201 in FY16, there are several cases of delay in new drug approvals. “During Q3FY17, Sun Pharma filled Abbreviated New Drug Applications (ANDAS) for eight products, but received only one approval. Sun now has 149 ANDAS waiting for approval,” it added.

As per ICRA’S sample study, revenue growth from US during FY11-15 period, experienced annual growth of 33 per cent. However, in FY16, growth from US came down to 15 per cent. In three quarters of FY17, there was the annual growth of 12 per cent despite consolidation and currency benefits. “In ICRA’S view, going forward the growth momentum is likely to face further pressure,” it stated.