US generics price pressures ease in Q2, but pharma cos need better product basket

• Price erosion seen in the US generics market has stemmed for now, but it might come back, fear analysts.
• Most analysts see US generics as a pain point, especially for Indian pharmacos that bank on simple generics.
• Companies that manufacture and export inhalers and injectables will see better growth ahead, they insist.

The September quarter saw pharma companies clock double digit revenue growth, even as the sector continues to battle a range of issues in North America, which is their largest export market. Listed pharmaceutical companies reported average revenue growth of between 14 and 15% in the September quarter, thanks to price stabilization in the US generics market. While most analysts expect the trend to sustain for the rest of the financial year, a few also fear that pricing pressures might come back to hit India pharma sector.

“US price erosion is stabilizing due to benefits from drug shortages which are currently at an all-time high. The US sales (for Q2) were robust, aided by new launches comprising gRevlimid, gSpiriva, and gPrezista and increased demand for resilient suppliers amid drug shortages,” said a report by Axis Securities.

The prices of US generics have been eroding for the last three years. On a trailing twelve month (TTM) basis, price fall is as high as around 10%. Even with the recent benign pricing environment, the price erosion is expected to remain in high single digits, says a report by Antique Stock Broking.

Simple vs Complex

The US pricing story is also different for different kinds of generics, with simple generics seeing the most fall. “On the complex generics front, we are seeing improvement in price erosion numbers for injectables and inhalers which have witnessed a price increase to the tune of around 5% on TTM basis as compared to price erosion 2022, mainly due to drug shortage and plant remediation issues,” says Antique Stock Broking.

This is bad news for big pharmacos with most play in simple generics like Cipla, Zydus Life and Dr Reddy’s, analysts say. In the medium to long-term, being in this business of simple generics will continue to be a pain point due to increased competition amongst many other issues.


“USFDA inspections remain an overhang and price erosion in the US is expected to increase once supplies normalize. Therefore, we continue to eye on companies that are focused on launching niche products in the US market,” says Axis Securities.

Where are the new launches?

Pharma companies need to expand their basket, get approval to launch more generics, brokerages insist. In recent times, the approval of cancer drug gRevlimid has netted many companies, mostly Dr Reddy’s. But the momentum of getting a meaningful number of new approvals needs to continue, to generate sustained growth, insist experts.

“Fresh approvals are what would lead to sustained growth outperformance which is missing in most of the players. A look at fresh approvals suggests for most companies, barring Aurobindo and Zydus, approvals are either small in size or fully commoditized,” says a report by Yes Securities.

Dr Reddy’s too has a weak new launch pipeline but its Revlimid approval gives it cushion, experts say. Alembic has received an approval of ophthalmic drug Combigan in August; and Selexipag in October. But it has no oncology drug or general injectable approval so far. Alkem, Ajanta and Aurobindo too have a weak approval pipeline, say brokerages.

Analysts believe that pharma companies need to build a robust pipeline of approvals to launch new products — as it will help them sustain the tough pricing market in the US.