US generics market to face prolonged price erosion in 2024: Antique Stock Broking
But in complex generics, the report indicates an improvement in prices for injectables and inhalers
- Nov 23, 2023,
- Updated Nov 23, 2023 1:25 PM IST
A wave of extended approvals, reduced product withdrawals, and a downturn in plants marked with Official Action Indicated (OAI) status is expected to usher in a prolonged period of high single-digit price erosion in simple generics in 2024, according to a report from Antique Stock Broking.
The report says price erosion in US generics is set to persist. Recent industry data underscores this in the fiercely competitive Oral Solid Dosage (OSD) segment, which, although slightly alleviated, remains significant at around 10% on a Trailing Twelve Months (TTM) basis as of October—an analysis covering the preceding 12 consecutive months.
However, in complex generics, the report indicated an improvement in prices for injectables and inhalers. This segment has witnessed a price surge of approximately 5% on a TTM basis compared with a price erosion in CY22. The primary drivers of this surge are attributed to drug shortages and plant remediation issues.
Authors Monish Shah and Pranav Chawla maintained a conservative stance on companies heavily reliant on OSDs. This is because they believe that increased competition is set to sustain price erosion in simple generics.
“Our analysis suggests that price erosion for the simple generics basket remains elevated for the third consecutive year, on a TTM October basis. This trend is unlikely to shift significantly for the larger part of CY24. While the trend indicates that erosion numbers are settling at high single digits compared to unprecedented figures in CY22 and CY21, we don’t interpret this improvement as a structural change in the generics environment,” the report stated.
The report sheds light on the current landscape, with the total number of final approvals granted by the USFDA reaching a four-year high. Simultaneously, product withdrawals have hit a five-year low, resulting in expedited launches—a testament to heightened competition across various categories.
Despite expectations of a slowdown, the report highlights an increased number of launches by major Indian generic companies. “As per our channel checks, we understand the inventory levels in the US, although reduced compared to their Covid-19 highs, indicate companies managing their working capital and not a significant uptick in volume,” noted Shah and Chawla in the report.
The report also emphasises the positive shift in complex generics, as companies redirect their new investments in R&D towards this domain. This shift has led to increased filings for extended releases, transdermal, respiratory, inhalation devices (drug-device combinations), and sterile products like injectable and ophthalmic solutions. Due to drug shortages and plant remediation issues, the complex generics category has experienced an improvement in pricing. A decline in plants with Official Action Indicated (OAI) status compared to CY20 signals higher supplies in the market, particularly for sterile units, supporting price increases for dosage forms such as Inhalers and Injectables.
With a significant portion of revenue stemming from simple generics, the report suggests that companies are likely to witness erosion in their base business portfolios in high single digits. However, the high erosion in the base business is somewhat obscured by gRevlimid for most companies.
The report outlined risks in large base business products for Cipla, Zydus, and Dr. Reddy’s, as incremental competition leads to price erosion. Factors like product approvals and new launches point to an escalation in competition, thereby dampening hopes for a meaningful improvement in prices in simple generics, according to the report analysts.
“We continue to hold a conservative view on the US generics space with SELL ratings on Cipla and Dr. Reddy’s, as both companies are unlikely to have large limited competition launches in the next 12–24 months,” said the report.
A wave of extended approvals, reduced product withdrawals, and a downturn in plants marked with Official Action Indicated (OAI) status is expected to usher in a prolonged period of high single-digit price erosion in simple generics in 2024, according to a report from Antique Stock Broking.
The report says price erosion in US generics is set to persist. Recent industry data underscores this in the fiercely competitive Oral Solid Dosage (OSD) segment, which, although slightly alleviated, remains significant at around 10% on a Trailing Twelve Months (TTM) basis as of October—an analysis covering the preceding 12 consecutive months.
However, in complex generics, the report indicated an improvement in prices for injectables and inhalers. This segment has witnessed a price surge of approximately 5% on a TTM basis compared with a price erosion in CY22. The primary drivers of this surge are attributed to drug shortages and plant remediation issues.
Authors Monish Shah and Pranav Chawla maintained a conservative stance on companies heavily reliant on OSDs. This is because they believe that increased competition is set to sustain price erosion in simple generics.
“Our analysis suggests that price erosion for the simple generics basket remains elevated for the third consecutive year, on a TTM October basis. This trend is unlikely to shift significantly for the larger part of CY24. While the trend indicates that erosion numbers are settling at high single digits compared to unprecedented figures in CY22 and CY21, we don’t interpret this improvement as a structural change in the generics environment,” the report stated.
The report sheds light on the current landscape, with the total number of final approvals granted by the USFDA reaching a four-year high. Simultaneously, product withdrawals have hit a five-year low, resulting in expedited launches—a testament to heightened competition across various categories.
Despite expectations of a slowdown, the report highlights an increased number of launches by major Indian generic companies. “As per our channel checks, we understand the inventory levels in the US, although reduced compared to their Covid-19 highs, indicate companies managing their working capital and not a significant uptick in volume,” noted Shah and Chawla in the report.
The report also emphasises the positive shift in complex generics, as companies redirect their new investments in R&D towards this domain. This shift has led to increased filings for extended releases, transdermal, respiratory, inhalation devices (drug-device combinations), and sterile products like injectable and ophthalmic solutions. Due to drug shortages and plant remediation issues, the complex generics category has experienced an improvement in pricing. A decline in plants with Official Action Indicated (OAI) status compared to CY20 signals higher supplies in the market, particularly for sterile units, supporting price increases for dosage forms such as Inhalers and Injectables.
With a significant portion of revenue stemming from simple generics, the report suggests that companies are likely to witness erosion in their base business portfolios in high single digits. However, the high erosion in the base business is somewhat obscured by gRevlimid for most companies.
The report outlined risks in large base business products for Cipla, Zydus, and Dr. Reddy’s, as incremental competition leads to price erosion. Factors like product approvals and new launches point to an escalation in competition, thereby dampening hopes for a meaningful improvement in prices in simple generics, according to the report analysts.
“We continue to hold a conservative view on the US generics space with SELL ratings on Cipla and Dr. Reddy’s, as both companies are unlikely to have large limited competition launches in the next 12–24 months,” said the report.