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Drug Companies See US Sales Plunging in Q1FY22 Amidst Pricing Pressure, Lack of New Approvals

Drug Companies See US Sales Plunging in Q1FY22 Amidst Pricing Pressure, Lack of New Approvals

Strides Pharma Science reported a net loss of Rs 21.23 crore in the first quarter of FY22 that ended on June 30, 2021, from a year-ago period.

The company’s revenues dropped 12 percent year-on-year (YoY) to Rs 692 crore in Q1FY22. The company attributed the losses to the sharp decline of sales in the US and other regulated markets. The US business is critical to Strides, as it contributes over 50 percent of revenues, and has been a key growth driver for the company.

Pricing pressure

R Ananthanarayanan, Managing Director & CEO, told Moneycontrol that he has never seen the kind of price erosion that was seen in Q1FY22.

“There has also been a drop in new product approvals across the industry in the US. The prescription rates, too, trended below historical levels. This led to a rise in competitive intensity to capture higher market share for existing products and a few of them began to cut losses clearing their inventory. All this has resulted in significant price erosion, in double digits,” Ananthanarayanan said.

He said that he isn’t expecting things to change overnight in the US.

“We will continue to see pricing pressure. Therefore, we expect Q2 to be still subdued. In the second half (of FY22), we may see a strong rebound,” he said.

Other drug firms also hit

The US pricing pressure isn’t specific to Strides alone. Other Indian drug makers have also seen US sales plunging. Unlike Strides, they were able to offset the decline in US business more effectively because of diversification.

For instance, Lupin’s North America sales for Q1FY22 were down 10.8 percent YoY to Rs 1,333 crore. Cadila Healthcare, too, has seen US revenues fall by 11 percent to Rs 1,451 crore.

The USFDA’s cutback on inspections, especially the overseas facilities, isn’t helping matters in product launches. The agency is only inspecting facilities that are deemed mission-critical for US health needs. For others, it is planning virtual inspections.

But many plants under regulatory scrutiny, such as official action indication (OAI) status, warning letters, and imports are still awaiting re-inspection. Drug companies have complained that they don’t have clarity about when the agency will resume inspections.

New approvals remain key

Cipla Global CFO Kedar Upadhye says that companies with large businesses are under even more pressure to maintain growth.

“If a company has annualized revenues of $1 billion, it will have to grow 10 percent on that. What happens is that if $1 billion goes down, there will be a 5-10 percent price erosion. So $1 billion will become $900 million. If you have to grow 10 percent, it will be $1.1 billion, so you have to add $200 million. So higher the base, higher the difficulty for growth,” Upadhye said.

Upadhye adds adequate high-value launches are there in FY22, which is also making matters challenging. He attributes this to a dry patent expiry calendar.

Upadhye expects things to improve in FY23.

To beat price erosion and maintain growth in the US market, Strides last week announced the acquisition of a basket of ANDAs (abbreviated new drug application) from US drugmaker Endo for $24 million. The acquisition will double approved products in the US market and capacity at its manufacturing site at Chestnut Ridge, New York.

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