Major domestic pharma companies are witnessing pricing pressure in the generics segment in the US, their largest export market. Many of them are trying to address this by focusing more on high-value and speciality and innovative products.
Branded and patented products now attract a hefty 100% tariff in the US markets, a segment which is not the mainstay of Indian companies.
Sun Pharma, Dr Reddy’s Labs and Aurobindo Pharma have been reporting flat-to-negative growth in their US revenues over the past few quarters.
Volatile Generics Market
In the case of Sun Pharma, the US revenues, accounting for 32.6% of overall revenues, remained flat in the second quarter of FY26 due to weakness in the generics segment. Dr Reddy’s US performance in Q2 was impacted by price erosion in key products, notably gRevlimid, a generic cancer drug. Aurobindo Pharma too reported flattish US growth in Q2 as a result of weak generics segment.
A recent EY Parthenon report said that the traditional generics market, though continuing to expand in volume, is increasingly constrained by stringent price controls and shrinking margins. “The US generics market has become very volatile with double digit dips in multiple segments. These pressures are being amplified by geopolitical realignments, an evolving global policy environment and rising input and compliance cost,” the report said.
Multiple brokerages have raised concerns on the ability of Indian firms to sustain long-term growth in the US generics market. In a November report, Prabhudas Lilladher said that Sun Pharma’s revenues declined on lower generic sales due to increased competition and lower gRevlimid volumes. In October, Deven Choksey said that “although Dr Reddy’s continues to strengthen its presence through new launches, portfolio expansion, and biosimilar development, persistent pricing pressure in the U.S. generics business and adverse product mix are expected to remain key headwinds to its overall profitability.”
Indian drug companies have a huge dependence on the US market where they cater to over 40% of the generics demand.
Strategic Pivot
To combat the pressure in the generics side, Indian drugmakers are shifting towards the value game. In recent quarters, almost all large pharma companies have turned their focus on high-value products such as complex generics, specialty drugs, innovative therapies, and high-barrier products.
Cipla, for example, is working on a “future fit” strategy that involves investing in complex, differentiated and new-age platforms like peptides, cell therapy and biosimilars. Dr Reddy’s has around 100 products in the US pipeline out of which 20 complex generics are under development. “Pipeline focus is shifting towards biosimilars (Abatacept) and complex peptides (GLP-1 molecules),” said an ICICI Securities report.
EY Parthenon report said that Sun Pharma is working on speciality products and high-entry barrier segments whereas it’s group entity SPARC (Sun Pharma Advanced Research Company) is focussing on innovative therapies such as antibody-drug conjugates (ADC).
Experts said that Indian players are broadly pursuing a three-pronged strategy for the US market that includes tapping into newer segments in addition to working on improving efficiencies and getting into contract development and manufacturing organisation (CDMO) space.
Suresh Subramanian, partner and national lifesciences leader at EY Parthenon India said that even though the larger movement is towards complex generics rather than competing on low-margin generics, drugmakers are also relooking at their processes to find economical ways of manufacturing, and to stay competitive. “Their other response is to create separate entities for CDMOs where they are manufacturing products for global companies. Multiple companies like Aurobindo, Lupin and Alkem have jumped into that bandwagon. Essentially, companies are shifting strategies to kind of stay alive in the markets that they have created,” he said.