Cos Take Solace from Indian Pharma Market

Pharmaceutical companies in India are passing through a gray period as the US Food and Drug Administration (USFDA) is continuing to issue warnings about quality parameters of drugs amid soaring pricing pressure in US market, which is prompting firms to rumple themselves within the country. While a section of the industry hopes that the pressure would ease this year and lead to better growth, some are still skeptical. However, increasing off-take in the domestic market is a solace for all. “Last fiscal we saw pharma export growth coming back to positive territory after a negative growth in the previous year. In FY17, exports de-grew marginally by 1.5 percent, but managed to grow by 2.3 percent in FY18. In April and May, we have seen around 8 percent growth, so we are hopeful to clock a better growth this year,’ said SV Veeramani, immediate past president of Indian Drugs Manufacturers Association (IDMA).

However, the picture has not been this rosy with some of the large pharma companies. The top eight firms witnessed a 13 percent decline in exports in FY18 as rated by ICRA. “We expect the US generic business to remain challenging in 2018. ICRA expects 10-12 percent pricing pressure on US generic pharma industry to sustain for next 12 months thereby negatively impacting profitability and cash flows before tapering off gradually,” said Gaurav Jain, vice president and co-head, Corporate Ratings of ICRA. In FY15, these companies had recorded 15 percent growth in export revenues, which came down to 14.4 percent in FY16, further down to 4 percent in FY17 and then registered a decline of 13 percent in FY18. Consolidation of the distribution supply chain and the increasing number of Abbreviated New Drug Application (ANDA) approvals given by USFDA has been increasing the pricing pressure on generics sold in the US market. The developments in the US market, which accounts for 35 percent of the total pharma exports and around 45 percent of the shipments of the top companies rated by ICRA, has a deep impact on the Indian export revenues and profits.

According to Jain, the US generic market is known for buying bulk volumes at lower prices and hence the price erosion has been a historical phenomenon. But, this pricing pressure on the US generic business has intensified over the last 12 months. “The yearly price erosion which stood at approximately 5-7 percent during the second quarter of FY2017 for our sample companies has gradually increased to low teens in the second quarter of FY2018 contributed by consolidation of distribution supply chain and faster ANDA approvals by USFDA post implementation of Generic Drug User Fee Act (GDUFA),’ he said. In the past two years two major announcements led to consolidation in the US distribution supply chain. Around 90 percent of the generic pharma drug purchases are now controlled by three large buying consortiums. In May 2016, Mckesson and Walmart announced their joint purchasing arrangement and in May 2017 Walgreen Boots Alliance Development and Econdisc Contracting Solutions announced a tie-up. With majority control of the supply chain, now these consortiums are bringing down prices of generic drugs. If Mckesson-Walmart tie-up started impacting prices in FY2018, the impact of WBAD-Econdisc tie-up will fully reflect in FY2019, which will further lead to pricing pressure and keep the generic drug prices down. Another development was granting of approvals for more number of ANDAs. In 2014, top companies received 385 ANDA approvals. It went up to 598 in 2016 and further to 846 in 2017. ‘More number of ANDAs mean more players competing for the same drug and this puts further pressure on the pricing,’ added Jain.

In order to issue the approvals faster, the US implemented GDUFA. Before the Act, the average approval time used to be 36 months. With completion of GDUFA-I in FY2017, FDA took action on 90  percent of the ANDAs submitted within 10 months. Under GDUFA-II which will run from FY2018-2022, for priority ANDAs the timelines will come down to 8 months. As far as Indian companies are concerned, pricing alone has not been the pain point. They have been increasingly receiving warning letters from USFDA with regard to quality parameters followed by the manufacturing plants and the processes followed by them to keep records of the trials. The industry used to get an average 20 warning letters in a year during 2013, 2014 and 2015. By 2016, these went up to 43. The resolution of the issues identified in the warning letters usually takes around 36 months. The warnings have been impairing growth. If one of the plants gets warning letters, the production would happen from other plants. But on an aggregate level, the growth would get affected. According to Veeramani, USFDA has been finding problem with the processes and not with the products. “The quality of the products is good. But they have apprehensions about the processes we follow. Indian companies also were not recording all the data properly, which is of high importance for USFDA. Now things are changing. Indian companies have started realizing the issues and are making amends,’ he added.

While the US export shares are coming down, efforts are being taken by the industry to grow their presence in other markets. “Among the companies we rate, the share of US exports has come down from 45 percent to 40 percent, But their European exports went up from 11 percent to 13 percent,” said Jain. Indian companies have been joining hands with distribution companies in Europe to increase sales. This also helps them bring down their cost in deploying field staff. Indian companies are also seeing growth in the African continent. On the other hand, the Chinese market is being closely watched. The neighbor-country has relaxed its import norms for generics of cancer drugs recently. While cancer drugs constitute only three to 4 percent of the market, Indian industry is hoping that China would probably open up more for other generics as well. Chinese market is huge but Chinese medicine also accounts for a significant part of this market. China is also a pharmaceutical exporter. But they are mainly into Active Pharmaceutical Ingredients. They are not into formulations as in the case of India, said Veeramani. Despite the growing export concerns, there is something for the industry to cheer. The domestic pharmaceutical consumption has been growing. The domestic market is equally strong as the export market in value terms. The domestic market grew by 5.9 percent last year despite the disruptions like GST. In the previous years, it has been clocking double-digit growth.

“The Indian consumption of medicines is growing with higher procurement from both government and private healthcare institutions. We expect that the domestic market growth will return to double-digit this year. Further, schemes like Ayushman Bharat would give more impetus to the procurement of drugs in the coming years,’ said Veeramani. Currently, branded generics account for 80 percent of the market. Around 10 percent is patented drugs and the remaining 10 percent is generic generics. Higher government spending on healthcare and initiatives like Jan Aushadhi stores run by the central government and similar low-priced pharma stores operated by several state governments is expected to increase the consumption of generic generics and the share of these drugs is expected to go up to 20 percent in the next two to three years. – Deccan Chronicle