Date: 21-Jan-2020

Pain for big Indian pharma companies continue warns CRISIL, as FDA woes remains unresolved

Rating agency CRISIL has warned that woes of Indian generic companies will continue as the regulatory action by the US Food and Drug Administration (USFDA) will delay product launches of pharma companies in US markets. CRISIL predicts that 18% of new product launches by Indian companies will be delayed in the US market. The warning letter issued by the USFDA to large pharma companies more than doubled in the first 10 months of 2019 compared to 2018, CRISIl said. The impact of this is that close to 180 generic drug launches will be pushed out from its intended launch date. "A substantial delay in resolution of regulatory issues and/or heightened scrutiny could derail the US growth story,” said Sameer Charania, Director, CRISIL Ratings Charania also added that growing regulatory action in the US could bring down the US growth of Indian companies to 10-11 percent from the current 16 percent growth in the next two years. Indian companies total sales from the US market is estimated to be Rs 55 thousand crore.Indian drug makers in the last few years have diversified their portfolio towards complex generics in an attempt to insulate themselves from pricing pressure in the US. The complex generic pipeline of Indian generic makers stands at 25%, it is this pipeline that is expected to pump up the sales numbers for Indian companies. Brokerage firm Jefferies too in its January report has said that approvals for Indian drug companies in Q32020 has remained muted. CRISIL said that a similar trend of slow approvals was seen in 2015, when FDA had intensified its scrutiny of Indian drug makers citing data integrity issues. The result of this action was that the US revenue growth had dropped to 6 percent. The relief this time is that the regulatory observations this time are less severe and largely to do with hygiene issues in manufacturing facilities. This is however going to increase the remediation costs for companies. "This is expected to shave off operating profitability by 100-150 basis points over the next two fiscals from the current 19%. Therefore, cost optimisation and rationalisation of research and development expenses will be critical to arrest further decline in operating profitability of these players", said Tanvi Shah, Associate Director, CRISIL Ratings, “The players are, however, taking steps to contain the impact of regulatory scrutiny and moderate its impact on exports to the US, Shah added. The BSE Healthcare index since September 2018 has seen a sharp erosion, losing Rs 1000 crores until January 2020. On Monday's trade BSE Healthcare index closed at Rs 14008 cr.