Pharma companies eye US complex generics market

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Updated: April 13, 2015 1:45:21 AM

With the complex generics segment growing at twice the pace of the commoditised generics, Indian drugmakers are investing in R&D to develop complex products

Indian pharmaceutical companies have reaped significant gains from sale of cheaper generic versions of blockbuster drugs in the US market.

Now, the next frontier is the complex generics market to ride the next wave of growth. This high potential segment requires big investments towards research and development (R&D) along with a quick drug approval process to allow companies to unlock the potential in this niche segment.

Analysts say complex generics segment is growing at twice the pace of commoditised generics. “We expect over 40% of sales to emanate from differentiated products or complex generics, which would help Indian companies to grow at a healthy pace and improve their profitability,” say Arvind Bothra and Amey Chalke, pharmaceutical analysts at Motilal Oswal, in a report.

Eyeing the next wave of growth in the complex generics segment, many domestic companies have been looking to tap into niche opportunities such as injectables, oral contraceptives, and transdermals. For example, Lupin has invested in a dedicated facility for ophthalmic and oral contraceptives in Indore, while Dr Reddy’s Laboratories has set up an injectables facility in Vizag.

The complex generics market accounts for around 50% of the US generics market and is valued at $25 billion, with the potential to outperform the growth rate of the overall market by at least two times. However, at present, domestic drugmakers get less than 15% of their US revenue from sales of complex generics in the US.

Competitive intensity in the complex generics segment is relatively low, with four to seven sellers per product. This allows pharmaceutical companies to enjoy higher pricing power. Evidently, domestic companies see the potential in the opportunity and have reinvested their cash flow and raised their R&D expenses towards development of complex products.

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“We would be looking to increase our investment in R&D in excess of $300 million. As we continue to grow our business, we aim to invest 6-7% of the turnover on R&D,” said Dilip Shanghvi, founder and managing director of India’s largest drug firm, Sun Pharma.

However analysts say that the slower pace of abbreviated new drug application (ANDA) approvals by the US food and drug administrator (FDA) has constrained US sales growth and monetisation of first to file opportunities.

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“Product approval timeline has increased to an average of 33 months from an average of 18 months five years ago,” Bothra and Chalke said.

Kamal Sharma, vice chairman of Lupin, says the company witnessed muted sales growth during Q3 of FY15 due to slow review process by the US FDA. “We had hoped to launch 25-30 products this year, but so far we have launched eight and we expect to launch 12 by the end of the year. The business continues to be strong, but new drug launches was muted in this quarter,” Sharma said.

In a bid to hasten the drug approval process, the US FDA has increased its staff strength from 12 to 19 in India. It has offices in Hyderabad, Delhi and Mumbai.

According to a Motilal Oswal research report, under the Generic Drug User Fee Act (GDUFA), the US FDA plans to reduce the average
review or drug approval timeline from 33 months to less than 10 months by the end of 2017.

“Companies under our coverage cumulatively have around 790 ANDAs pending approval and would be well-positioned to scale up their US business aggressively on successful GDUFA implementation,” the report said.

The other potential deterrent is the increase in number of warning letters and import alerts imposed by the US FDA for violation of good manufacturing practices (cGMP) that has also contributed to the slowdown in US market sales.

“The spate of FDA’s regulatory action on Indian companies like Wockhardt, Ranbaxy and Sun Pharma over the last 12 months has raised a question on manufacturing quality standards followed by Indian companies,” Bothra and Chalke add.

Shanghvi says Sun Pharma is committed to work with the US FDA to rectify any cGMP violations. “As a company the most important focus will be to win the confidence of regulators. Ranbaxy has had certain problems in some manufacturing facilities and because of the loss of confidence and trust of the regulator these facilities are under consent decree. We are committed to ensure that we will do whatever it takes to win back confidence of regulators so that they trust what we do and what we say,” Shanghvi said.

Wockhardt’s Chikalthana manufacturing facility is under an import alert. Habil Khorakiwala, chairman of Wockhardt, says he is hopeful that the US FDA will soon visit the Shendra manufacturing facility for review.

“Once our existing facility is in compliance we will be able to resume manufacturing of products approved earlier and we will also start receiving newer approvals for products which we have filed. We also expect to continue supplies from the Shendra facility once it is inspected and approved,” Khorakiwala said.

India has the second highest number of US FDA approved plants after the US. India accounts for 22% of overall US FDA approved facilities.

Between 2010 and 2014, Indian drugmakers accounted for around 20 of the 87 adverse regulatory actions imposed by the US FDA for cGMP violations.

Increasing contribution of US sales from 18% in FY 2009 to 33% in FY 2014 helped companies improve profitability by tapping into first-to-file
opportunities and foray into limited competition products.

Between 2009 and 2014 Indian pharmaceutical companies have monetised opportunities arising from rising healthcare costs and blockbuster drugs going off patent in the US market, registering a growth in sales from $1.4 billion in FY09 to $5 billion in FY14. In fact, Indian generic drug firms have garnered 83% share of the US generics market by strengthening their relationships with distributors and broadening the overall product portfolio.

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