Stock Fundamentals

Q2 Results: Pharma companies deliver mixed performance in US

Dhuraivel Gunasekaran | Updated on December 01, 2019 Published on December 01, 2019

Scrutiny by the US drug regulator continues to plague many companies

Many Indian pharma majors have witnessed an improvement in their performances in the second quarter of 2019-20.

There were several positive trends. Waning price erosion in the US market, traction in the emerging-market businesses, better performance in the domestic market — driven by seasonal acute therapy products — and low volatility in foreign exchange rates of many currencies against the rupee aided revenue growth. However, higher spend on R&D and speciality businesses and slowdown in the tender-based global businesses weighed on the margins of some companies.

US is not everyone’s favourite

Importantly, increased regulatory scrutiny by the US drug regulator continues to plague the sector. Against this backdrop, we look at how pharma companies have fared, in the US market in particular, to assess the outlook for the sector. The US business of major drug firms Cipla, Aurobindo Pharma, Alkem Laboratories and Lupin grew 25 per cent, 27 per cent, 12 per cent and 6 per cent (y-o-y), respectively, during the quarter. However, Sun Pharmaceutical Industries and Dr Reddy’s Laboratories reported flat growth, while Alkem registered a decline of 3 per cent (y-o-y) in US sales.

Cipla’s US revenue grew strongly, aided by higher sales in the key generic drugs, Sensipar and Voltaren. The recent launch of limited- competition drug Lyrica also helped. Aurobindo’s US formulation business registered a strong growth on the back of new product launches and improvement in volumes of existing products, especially from injectables.

Lupin reported mid-single-digit growth in the US, driven by new launches. However, Lupin’s US business has been under pressure due to persisting price erosion and the recent warning letters (Goa, Indore and Mandideep facilities) and OAI (Official Action Indicated) status for its Gavis plant that stalled new launches.

On the other hand, Sun’s generics business in the US registered a muted growth (excluding its subsidiary Taro sales) due to the absence of new product launches. Dr Reddy’s US sales were also impacted by price erosion, Ranitidine recall and supply disruption.


The US continues to be a major market for pharma companies, with a sizeable portion of the revenues coming from the region for Aurobindo (51 per cent), Dr Reddy’s (30 per cent), Lupin (38 per cent), Sun Pharma (30 per cent), Cadila Healthcare (50 per cent) and Glenmark Pharmaceuticals (31 per cent).

Many companies, including Lupin (Goa, Indore and Mandideep facilities), Cipla (Goa plant), Aurobindo (API and Unit VII), are still facing heat from the regulatory hindrance.

Given that the competition has intensified within the conventional generics space, many pharma majors has shifted their focus to complex generics and biosimilars. Cipla’s US business is likely to be weak in the near term due to increased competition in the key drugs, Sensipar and Lyrica, and lack of meaningful launches.

Delays in launches and increase in speciality spending could weigh on its margins. While Halol clearance and specialty portfolio holds high growth potential for Sun over the long term, the headwinds related to the regulatory investigation and a higher spend in speciality could weigh on the near-term outlook.

Revenue growth of Aurobindo could be weighed by the delay in the Sandoz portfolio acquisition and the USFDA inspection outcome on the three API facilities and the Unit VII formulation facility. For Lupin, resolution of the warning letter and clearance of OAI status on plants are the near-term overhang.

The growth outlook for Dr Reddys seems robust, given the improving launch momentum in the US. Apart from the domestic business, focus on the speciality business and strong growth in Europe and emerging markets should provide a leg-up.

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Published on December 01, 2019
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