7 August 2018
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Gauging gains/losses in US generics post recent approvals
Rating companies based on net gain or net loss in US business
Dr Reddy’ s Labs
We have analyzed incremental ANDA approvals over the past six months and the
competitive intensity in top products for Indian pharma companies to gauge the net
effect on their US generic business, assuming no change in the intensity of bargaining
by pharmacy benefit managers (PBMs) and/or distributors.
For companies like GNP, CIPLA and ARBP, the incremental business from new launches
would be higher and erosion in base business would be lower due to marginal increase
in the number of manufacturers getting approval for products in their base portfolio.
DRRD would see an offset in incremental business by loss due to increase in the
number of manufacturers getting approval for products in their base portfolio.
SUNP and CDH would see marginal decline in US sales, as base business erosion would
be a tad higher than business gain from new approvals.
More headwinds than tailwinds for US generics in the last 12-18 months:
drivers for growth in US generics are the pace and quality of filings/subsequent
approvals. The key impediments to growth are: (1) increase in the number of
manufacturers getting final approvals, resulting in greater competition, and (2)
increase in the bargaining power of PBMs/distributors. The growth impediments
dominated in FY18, resulting in a contraction in revenue from US generics.
Gains from new launches to be higher than losses due to increased competition in
products forming base portfolio for GNP, CIPLA and ARBP:
We have analyzed the
competitive scenario for new launches (company-wise) in the last six months to
understand the scope of incremental business. We have also looked at the increase
in the number of companies getting final approval for products forming the base
portfolios of the companies with new launches. Assuming no change in the intensity
of negotiations by PBMs/distributors, we find ARBP, CIPLA and GNP to be gaining
business from new launches after netting off the loss in business due to increase in
the number of manufacturers for products in their base portfolio.
Losses due to increased competition in products forming base portfolio to be
higher than gains from new launches for SUNP and CDH in the near term:
have been instances – SUNP and CDH – wherein the negative impact on base
business has continued to be higher than the gains in business from new approvals.
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We have excluded specialty portfolio and considered only the generic business of
SUNP. There has been an increase in the number of manufacturers for products that
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had higher economic value and limited competition. Loss of market share and
considerable price erosion in those products has impacted these companies.
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We intend to track meaningful launches and competition in key products company-
wise on a monthly basis for a near-term outlook on US business.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on
Bloomberg, Thomson Reuters, Factset and S&P Capital.
7 August 2018