Why is Indian pharma so blasé about tackling disease within?
Indian pharma still seems to be having difficulty putting to bed doubts on whether it can meet US FDA scrutiny
Pharmaceutical companies could have been better off, if they had paid closer attention to regulatory compliance for the US generic market. While this is seen as just one problem affecting their US generic sales among others such as competition, consolidation in the distribution channel, leading to price erosion and delayed approvals, it is an internal one.
Consider how Dr. Reddy’s Laboratories Ltd’s share behaved after it disclosed it got clearance for an API plant from the US Food and Drug Adminstration (US FDA). It has gained by 2.7% since Tuesday, this when the approval may not lead to material benefits, according to a Nomura Research note. The reaction is more to what Nomura alludes to, that it is likely to get clearance at Srikakulam, a crucial API site which had got two observations in an earlier inspection. Dr. Reddy’s has more problems though, with two formulation sites with pending issues that may take time to resolve. API is active pharmaceutical ingredient, the main ingredient in a formulation.
Take another example. On 2 June, Cadila Healthcare Ltd departed from the normal format of announcing US generic drug approvals. The final approval for generic levofloxacin injection, it said, was significant as it marked the resumption of approvals from Moraiya, Ahmedabad. This crucial site passed its inspection in February, ending its woes that began in December 2015. Since 1 June, Cadila’s share has gained by 13% with three more final approvals from this site. Another site at Baddi too got a clearance. Of course, the bigger gain was in February, when Moraiya cleared the inspection; its share gained 25% in just two days after the announcement.
Why do these examples matter? External problems affect all companies and are uncontrollable. Internal problems could have been avoided altogether. Not all companies have faced compliance problems, or to this extent. Where problems have been severe or their resolution prolonged, a fair part of the blame surely lies with the management.
The generic opportunity leaves little room for mistakes. If you miss your approval, you have lost revenue and profits. The base business in the US generic market may no doubt suffer from price erosion, but new approvals can yield additional sales and profits.
Large companies earn hundreds of millions of dollars in revenue in the US generic market but have failed to ensure compliance level of a different magnitude. Ranbaxy Laboratories Ltd’s sorry tryst with the US FDA began in 2006. More than a decade later, the industry still seems to be having difficulty putting to bed doubts on whether it can meet US FDA scrutiny.
The silver lining is that once companies get a clearance, and later approvals start, their revenues will get a lift.
Investors also have a short memory and may flock back to these shares, as is evident in Cadila’s case. Company managements, hopefully, will not forget and return to being complacent. The stakes are high.
Editor's Picks »
- Karnataka Congress MLA Siddu Nyamagouda dies in road accident
- People troubled by petrol, diesel price hike, Modi govt should act: Mamata Banerjee
- Italy falls into political chaos as populists slam President Sergio Mattarella
- GDP data, auto sales, earnings, F&O expiry to drive markets this week
- Monsoon to hit Kerala coast in the next 24 hours, says IMD