Pharma: regulatory logjam continues1 min read . Updated: 09 Oct 2016, 11:12 PM IST
Sales growth in the US is slowing due to pricing pressures, slower pace of launches and unresolved compliance issues flagged by the US Food and Drug Administration
If there was any good news for the pharmaceutical sector in the June quarter, it was that things did not get really bad. The BSE Healthcare Index’s returns this fiscal have been below that of the broader market. The problems for pharma firms continue, especially for the large ones.
Sales growth in the US is slowing due to pricing pressures, slower pace of launches and unresolved compliance issues flagged by the US Food and Drug Administration (FDA).
The Indian market also saw slower growth partly because of the problems relating to the ban on certain fixed-dose combinations, the inclusion of more drugs in the price control list and cuts in existing drugs under price control due to negative wholesale price inflation (the benchmark used to determine price changes).
Sun Pharmaceutical Industries Ltd’s sales grew 19% sequentially on sales from generic Gleevec (used to treat cancer) but could have been better but for an 11.6% decline in Taro Pharmaceutical Industries Ltd’s sales. Taro is Sun’s subsidiary which also sells generic drugs in the US and is a key contributor to sales. Lupin Ltd’s sales in the US declined 1% in dollar terms due to pricing pressure, while Dr Reddy’s Laboratories Ltd faced an 8.3% decline.
Some firms did put up a good show. Aurobindo Pharma Ltd reported a 15% increase in the sales of formulations over a year ago, with US growth rising by 20.5%. Its share price rose 7% the day its results were announced. Some of the mid-sized firms posted good results.
If sales growth of large firms was affected due to the aforesaid reasons, their costs such as staff, research and development and other expenses are still increasing. Firms are also making investments to support long-term growth plans.
They are also hoping FDA-related compliance issues will get resolved soon, which will make it easier to absorb rising expenses. It is reasonable to expect that the second half of FY17 should bring some conclusive answers on this for most of the large, affected firms. Investors will be hoping these issues get resolved, approvals get going and revenues perk up.