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The US generics sales growth of major Indian pharma companies is expected to be on an upward movement with 13 per cent Compound Annual Growth Rate (CAGR) forecasted over financial year 2023-25, with market share gains and new launches, said a thematic report by Motilal Oswal Financial Services on Healthcare.
The major listed companies which are under MOFSL's coverage had been registering aggregate US sales of $7 billion over FY16-22, but these companies witnessed a health recovery with seven per cent year on year growth to $6.7 billion at an aggregate level, it added.
"We expect sales of Indian pharma companies under our coverage to record 13% CAGR over FY23-25 and reach $10 billion aided by new launches, normalisation of conditions (post-Covid), products going off-patent and moderating price erosion," said the report.
The prospect of the US generics market has experienced a revival in the recent past, driven by price stability in the base portfolio and lesser competition due to financial and/or regulatory constraints of some companies. However, it added that MOFSL's analysis of industry-level approvals showcases a cautious stance on this optimism.
The US Food and Drug Administration (FDA) has approved around 420 products in seven months of the calendar year (CY) 2023 (around 725 annualised), as against pre-Covid annual run-rate of 670 (CY 2017-2019). The pace of inspection – while yet to reach pre-Covid levels – is on the rise, implying mounting regulatory risk.
"We believe that the US generics market remains a product-specific play from the incremental business perspective. This would not only offset the erosion in base portfolio but also deliver growth effectively," it added.
Abbreviated New Drug Application (ANDA) approval rate has been on a steady rise post-Covid, from the low of 540 in CY21 to approximately over 700 annual approvals in CY23E, backed by a reduction in approval timeline and clearance of the backlog.
Particularly, the tablets/ capsules have witnessed the highest number of approvals (dosage-wise). Despite stringency in compliance requirements and gradual moderation in travelling for inspection, approvals of injectable products have been steady at around 100 on an annual basis. In fact, approvals have already reached 83 in the current calendar year till date. Even inhalers have seen a healthy increase in annual approvals to 14 over CY21-23 from average 10 approvals over CY17-19, it said.
Over the past seven years, filings by pharma companies under its coverage have decreased to 183 in FY23 from 295 in FY17, as companies revisited the economic viability for certain products due to intensified competition as well as high cost of filings.
Sun Pharma, Dr Reddy's Laboratories, Alkem Laboratories and Ajanta Pharma have reduced filings in the US generics space over the past two years. However, Aurobindo Pharma, Zydus Lifesciences, Lupin Ltd and Cipla have witnessed a stable-to-increasing filing pace during the same period. Aurobindo Pharma has the highest filings in the US among pharma companies under its coverage with ~50 filings per year, it added.
"Interestingly, the approval rates have improved to 191 in FY23 from 115 in FY22, partly due to clearance of backlog by the US FDA. With reduced aggregate filings, we expect subsequent aggregate approvals to be on a downtrend eventually," it elaborated.
Zydus Lifesciences and Aurobindo Pharma have seen a spike in approval rate in FY23 with 58 and 60 final approvals, respectively. With reduction in filings, the approvals have also reduced for Sun Pharma, Dr Reddy's Laboratories, Cipla, and Lupin to five/two/two/two in the seven months of 2023.
From an average of 2,600 global inspections conducted by the US FDA annually during FY13-FY19 (12 months ending September), the number of inspections reduced to around 1,100 only over the past four years. The inspections at India sites reached a peak of 334 (FY19; 12 month ending September) from 112 in FY13. The fiscal year in the US is 12 months from October 1 to September 30, the next year. The approval rates in inhalation/ solution/ cream segments would be stable in CY23E while powder and gel categories would register a decline in approvals during the year, it said.
The inspection declined to eight during Covid period (FY21; 12 month ending September). Post-Covid, however, there has been a healthy revival in inspections at India sites.
"Inspections are likely to reach 139 over the 12 month ending September 2023. With a backlog of inspections from good manufacturing practices and/or pre-approval perspective, we expect the US FDA inspections at India sites to surge over the next 2-3 years. Thus, the inspection related risks remain elevated for the US generics business," it added.
The US sales grew nine per cent YoY in FY23 as against the stable-to-declining trend witnessed over FY13-FY22 at an aggregate level. Company wise, Cipla and Dr Reddy's Laboratories delivered strong 23% to 25% YoY sales growth in the US generics, followed by Zydus Lifesciences with 19% YoY growth in FY23. Revlimid, sorafenib, and pemetrexed injections were the key products driving sales growth during the period. Aurobindo Pharma's sales were almost flat YoY, while Lupin's US generics sales declined 14% YoY owing to price erosion in the base portfolio and delay in potential niche launches.
Going forward, while Cipla and Dr Reddy's are expected to deliver consistent growth, niche launches by Lupin and Aurobindo Pharma are likely to improve the sales growth in the US generics segment at an aggregate level, added the report.
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