USFDA has set a new record in generic drug approvals this year-- but Indian drug makers have a lot to gain and little to lose

  • The American drug regulator approved 953 new generic drugs between October 2018 and June 2019.
  • This is the highest number of approvals in the first nine months of any fiscal year from the USFDA, according to a report.
  • While the new approvals will put pressure on existing drugs to be cheaper, the silver lining for companies is that new applications have slowed down.
The United States Food and Drug Administration (USFDA) has generously doled out approvals for new drugs and that is likely to show in the profits of Indian drug makers like Sun Pharma, Lupin, Dr Redddy's Laboratories, and Aurobindo Pharma when the earnings start tumbling out this month.

The American drug regulator approved 953 new generic drugs between October 2018 and June 2019. This is the highest number of approvals in the first nine months of any fiscal year from the USFDA, according to a report from Ashika Institutional Research.

Companies have been battling the pricing pressure in US for a while now and the profit squeeze has taken a lot out of stock prices in recent years. On one hand, there is a two-pronged pressure consistently squeezing drug prices-- one from the Donald Trump administration and the other from the rising competition in generic drugs. Over the past three years, sales per marketed product (in US) have declined by about 30%, according to a report by global investment bank Nomura in March 2019.

At the same time, seven Indian companies -- Sun Pharma, Dr Reddy’s Laboratories, Glenmark Pharma, Lupin, Wockhardt, Zydus Pharma and Aurobindo Pharma-- are facing a lawsuit in over 40 American states for acting like a cartel to keep drug prices up. "However, given intensifying competition due to faster generic approvals and regulatory headwinds, the litigation raises the risk associated with the US generics business for companies involved in the litigation," a report from an Indian brokerage, Motilal Oswal, on May 14 said.

At rock bottom

While the new approvals will put pressure on existing drugs to be cheaper, the silver lining for companies is that new applications have slowed down. "We are seeing mild slowdown with total 696 ANDAs submitted in the first 9 months of the fiscal year, down 8% (YoY). As major generic companies continue to exit unattractive products, ANDA (generic drug) submissions are seeing this slowdown," the report said.

In terms of profit margins, Indian drug makers, who rely a lot on the US market for their revenue, have little to lose and a lot to gain from the low base of previous years. According to estimates from Karvy, the margin for most companies is expected to have widened significantly in the three months ended June 2019, compared to the same period a year earlier.

CompanyProfit Margin
Lupin+732 basis points
Sun Pharma-253 basis points
Torrent Pharma+118 basis points
Cadila Health-45 basis points
Dr Reddy's Labs+217 basis points
Source: Karvy Stock Broking
100 basis points make 1%

SEE ALSO:
The man who brought Ranbaxy to its knees is pushing for ‘Made in India’ tag on drugs sold in US

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