Competitors Within

Big Pharma is not going to have it easy. US President Joe Biden’s executive order in July aimed at tackling high prescription drug prices by promoting generic and biosimilar competition could well mean that the pain for Indian pharma players in the world’s biggest market — $370 billion — is not going to end anytime soon.

Following the order, in the first week of September, the US Department of Health and Human Services presented a report to the White House Competition Council, stating that Americans were being ripped off through prescription drugs. “We pay the highest prices in the world, which leads to higher spending. Higher spending puts pressure on private and government payers to raise premiums or make benefits less generous. Lack of affordable access to prescription drugs and other healthcare services leads to worse health outcomes,” according to the report.

Of the $370-billion US drug market, generics account for $127.8 billion, with 9 out of 10 prescriptions comprising generic drugs, says IMARC, a market research agency.

The growing chorus around affordability means Indian pharma players, who have been battling severe erosion in generic prices since FY14, will continue to do so in the near future as well. “Generic drug prices in the US have dropped year-on-year for the past five years and the pressure continues. This is already having an impact on the margins of generic pharma companies operating in the US,” says Ranjit Shahani, chairman, JB Chemicals and Pharmaceuticals, and president emeritus, Organisation of Pharmaceutical Producers of India (OPPI).

The fact that managements of top pharma companies are fobbing off pointed questions on pricing in the US is only indicative of the cut-throat competition. “In terms of the value of price erosion, we are not sharing these kinds of numbers… it’s not an unusual situation. And naturally this will continue to be also in the future... It’s a normal business model in this country [North America],” Erez Israeli, CEO, Dr Reddy’s Laboratories, told analysts during the Q1 earnings call.

Competition in the US has intensified with more and more generic products being approved by the US FDA. The US had passed the Generic Drug User Fee Amendments in 2012, paving the way for faster FDA approvals — within 10 months versus 26 months — for abbreviated new drug applications (ANDAs) filed by generic companies. As a result, over the past decade, of the 5,768 ANDAs and 1,351 tentative approvals, companies from India cornered a chunk of the approvals with a 35% share. In 2020, the US tentatively approved 948 generic drug applications. On a financial year basis, the total number of approvals for ANDAs of Indian companies has increased from 409 in FY14 to a high of 935 in FY19. Though FY20 and FY21 saw lower approvals, overall applications stood at 1,276. Shahani believes bigger players will continue to see their businesses shrink. “Overall, the generics market has been declining at a CAGR of 5.5% over the last five years and the market share of the top 10 players has slipped, which is reflected in the filing of abbreviated ANDA approvals by the American regulator. New and smaller players account for half the ANDA clearances and this trend is likely to continue.”