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Drug price erosion in the US market, a major export destination for Indian companies, has hit manufacturers here.
As per the data available with the industry, price erosion in the fourth quarter of the last fiscal was around 8-10 per cent and this is expected to continue in the current financial year.
The pricing pressure is the result of customer consolidation and recent measures by the US government to lower drug prices for customers.
An analysis of the industry numbers will give a sense of the scale of the price erosion and the adverse impact it has had on the businesses.
The overall sales in the US were down 3.3 per cent at $368 million for Sun Pharmaceutical Industries, accounting for approximately 35 per cent of overall sales in the fourth quarter.
According to Abhay Gandhi, Chief Executive Officer (North American Business), the main reasons for the year-on-year decline in the US revenues include pricing pressure, among other factors.
The revenue from global generics segment of Dr Reddy’s Laboratories in North America declined 6 per cent at the end of the fourth quarter last fiscal. The company had attributed this to “higher price erosions due to channel consolidation’’ apart from increased competition in some of its key molecules.
It’s Chairman K Satish Reddy hinted that it was not possible to predict how long the pressure will continue.
For Aurobindo Pharma, US formulations contributed 43 per cent of the overall revenues in Q4 FY2017-18 against 45 per cent in the corresponding quarter of last year.
According to N Goindarjan, Managing Director, Aurobindo Pharma, the price erosion was around 8 per cent year-on-year for the fourth quarter of last year. It expects price erosion of about 5 per cent give or take a couple of percentage points for the next one or two quarters, especially in the base products.
Steps taken
Pharma companies are adopting a slew of measures to tackle pricing pressure. Dr Reddy’s plans to step up launches of value added products.
Some others including Aurobindo plan to diversify market presence beyond the US, though this may take a long time.
According to the Pharmaceutical Export Promotion Council (Pharmexcil) data, pharma exports is witnessing a turnaround. Though the cumulative data for 2017-18 shows a modest 2.91 per cent growth to $17.27 billion against $16.78 billion in 2016-17, the annualised shipments have shown a sharper increase of 7-14 per cent since November 2017.
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