The outlook for the US generics’ business of Indian pharmaceutical firms continues to look uncertain. The pressure on prices is continuing even though firms have said it is not as bad as before. The threat of more price erosion is not ruled out, although the extent may decline.

On the regulatory front, firms facing US drugs regulator’s scrutiny did not have any news to report. However, Sun Pharmaceutical Industries Ltd (Sun Pharma) recently reported that the US Food and Drug Administration’s (USFDA’s) inspection of its Halol plant ended with three observations. Though details of these observations are not available, this is not what investors were expecting. The delay on this front may extend further. Subsequently, Dr Reddy’s Laboratories Ltd announced the USFDA closed its inspection of the Srikakulam plant but it has kept open certain pending compliance issues, indicating a delay here as well.

The sector’s sales declined 0.4% sequentially and input costs rose 0.8%. This can be attributed to the pricing pressure in the US. Most firms reported a healthy recovery in domestic sales as the market situation has turned more normal after the initial disruption due to the roll-out of the goods and services tax.

Still, the sector’s profitability declined only slightly, with firms cutting back on costs and also trimming their research and development expenses as a proportion of sales. In response to the changed US market situation, firms are trying to focus their energies and budgets on products that can yield significant returns.

In the near-to-medium term, the ability of big firms such as Lupin Ltd, Sun Pharma and Dr Reddy’s Laboratories Ltd to resolve compliance issues with USFDA is what investors will look out for. That will pave way for their pending generic drug applications to be approved.

Cadila Healthcare Ltd is one example of a firms that cleared regulatory hurdles to achieve better sales growth, as new generic approvals began to add to revenue growth. Policy issues related to drug price control in the domestic market and USFDA’s focus on making drugs—even generic drugs—more affordable are risks to keep a watch on. Investors are keeping expectations low; between early October and now, the S&P BSE Healthcare Index gained 3% against a 7.2% increase in the broader markets.

Close