JM Financial said in a note that Cipla and Lupin have multiple inhalers in their pipelines, while injectables form a significant portion of the portfolio at Dr. Reddy’s Laboratories, Aurobindo Pharma and Sun Pharmaceutical Industries. Photo: Bloomberg
JM Financial said in a note that Cipla and Lupin have multiple inhalers in their pipelines, while injectables form a significant portion of the portfolio at Dr. Reddy’s Laboratories, Aurobindo Pharma and Sun Pharmaceutical Industries. Photo: Bloomberg

Pharma firms bank on complex generics to push earnings growth

Indian drug makers investing in the development of complex generics are set to benefit as USFDA works to accelerate the entry of such products to lower healthcare costs

Mumbai: Indian drug makers investing in the development of complex generics are set to benefit as the US drug regulator works to accelerate the entry of such products to increase competition and lower healthcare costs.

Complex drugs include high-cost metered dose inhalers used to treat asthma as well as injectable drugs. These generally have at least one feature such as a complex active ingredient or the delivery system that makes it harder to develop their generic versions.

Firms are banking on these complex products to push earnings growth, which has tapered over the past two-three years due to pricing erosion in US in existing drugs, which are largely plain-vanilla generics.

In a 2 October official blog, Scott Gottlieb, commissioner of the US Food and Drug Administration (FDA), announced steps to make it easier to bring generic competition in complex branded drugs by assisting generic makers through meetings at various stages such as product development, pre-submission of applications and review of applications.

“We believe companies, who have increased R&D (research and development) budget significantly to target these complex products over last three years may be the key beneficiaries, subject to execution. Notably, we see the large market cap players from India to have such clear strategy. These include Dr. Reddy’s, Lupin, Sun Pharma and Cipla," broking firm Morgan Stanley, said in a report on 5 October.

Makers of complex generic drugs face a number of challenges in developing products and demonstrating that they meet the approval requirements for abbreviated new drug applications (ANDAs), including establishing that they are bioequivalent to and have the same active ingredient as the brand-name drug. The new policies announced by FDA are aimed at ensuring as much scientific and regulatory clarity as possible, Gottlieb said.

“This would be significant for the Indian generic drug industry. People benefit tremendously from complex generics such as inhalers. These are value added products which can generate higher revenue and margins for industry players. Generally, it is seen that even after years of loss of exclusivity, competition in complex generics remains low due to complex approval process," said Lokesh Sharma, head, public health-Africa, Middle East and South Asia, at QuintilesIMS, a healthcare consulting company.

Broking firm JM Financial said in a note on 2 October that Cipla Ltd and Lupin Ltd have multiple inhalers in their pipelines, while injectables form a significant portion of the portfolio at Dr. Reddy’s Laboratories Ltd, Aurobindo Pharma Ltd and Sun Pharmaceutical Industries Ltd.

“This (US FDA’s new measures on complex generics) will unlock a lot of value in the pipelines of firms which were stuck because of cost of development and cost of commercialization challenges," Rahul Guha, partner and director at the Boston Consulting Group, said.

While FDA’s steps to facilitate entry of complex generics will help firms that have already applied get faster approval for complex products, it will also expedite development and filings by the other entities lagging behind, increasing competition, said an analyst seeking anonymity.

Meanwhile, some analysts say the regulator’s move to increase competition in complex products would mean faster price erosion in such drugs, which could limit the windfall gains that firms get by launching these drugs.

“The move by USFDA by itself is unlikely to change things immediately, but in the longer term, reflects its focus on ensuring accelerated drug approvals, which will translate into intensified pricing pressure even in complex drugs that are hitherto seen as the only secure place in the generics business," brokerage Emkay Global Financial Services said in a report dated 4 October.

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