ICRA has reported that Indian generic players have better opportunity in US generic injectable market with upcoming patent expiries, drug shortages, quality manufacturing and development resources. Indian companies are increasingly focusing on complex generics and some of the leading Indian companies have carved a niche for themselves through the launch of differentiated and complex filings.
The financial profile of ICRA sample of generic injecjtable players in the US is characterised by healthy operating margins, RoCE, working capital intensity and moderate debt-protection metrics. The growth rate in CY2015 and CY2014 improved to 15.7 per cent and 13.3 per cent respectively, compared to approximately over 7 per cent in CY2012 and CY2013 each.
As per ICRA research, during the 2015-19 period injectables drugs worth US$ 16 billion are expected to go off-patent in the US alone. Key patent expiries for the US market would include Alimta (oncology in 2016 with CY2015 revenues of above $1 billion and Levemir (anti-diabetic in 2019 with CY 2015 revenues of above $2 billion. While significant price erosion is normal once the drugs go off-patent, the injectable segment still holds a sizeable opportunity to gain meaningful revenue growth for Indian generic companies on account of the upcoming patent expiries. ICRA expects the US generic injectable market to grow at a CAGR of 10 over the next five years led by significant number of drugs going off-patent as well as supportive price environment in the USA.
There has been a sizeable number of acquisitions in the US generic injectable space over the last few years. The acquisitions were driven by the need to acquire product portfolio, development pipeline and manufacturing capabilities of existing injectable players to consolidate market share or accelerate entry into the promising US sterile injectable market. ICRA expects continuing trend in M&A to acquire development and manufacturing capabilities for complex injectables/novel drug delivery systems.
Among the various factors, the drug shortages for injectables in the US have been fuelled by shifting of old molecules production to low cost countries such as India and China making high cost US facilities cost-inefficient, reduction in the number of players owing to M&A and subsequent closure/consolidation among such facilities in addition to phasing out of low value low margin products. Another key reason for drug shortages has been stringent action by US FDA regarding compliance to GMP led to several warning letters and supply disruptions for injecjtable drugs.
Further, ongoing investment in maintaining quality standards not justified by margins offered by various Government-run programmes such as Medicare, also led to rationalisation of product portfolio for several players. Drug shortages led to improved pricing power for the industry and reflected in the contrasting volume and value growth during the 2008-2013 period.
The injectable generic market value growth during 2008-13 period has been a CAGR of 19.6 per cent, against volume growth during the same period of only 1.6 per cent - implying a health pricing environment. The number of drugs in shortages in the US swelled to 251 in CY2011, of which 73 per cent were for injejctable products. However, due to action taken by the US FDA, there has been a declining trend in drug shortages since 2012. For the nine-month period ending September 2015, 22 new drugs (all forms) were reported to be in shortage, excluding 48 drugs, which continued to be in shortage, taking the total tally to 70. Overall, the injectable space is expected to continue enjoying a supportive pricing environment' albeit at a lower pace, due to the moderating trends in shortages.
Issues with US FDA cGMP norms have led to demand for good quality facilities and called for contract manufacturers based out of low cost countries such as India, China to support large volumes at low cost. Approximately 65 per cent of the 117 drug shortages in 2012 were on account of quality manufacturing/delays or capacity constraints – thereby making it one of the critical success factors.
The complex development and manufacturing process of sterile injectables along with high capital and operational costs involved coupled with high compliance cost has led to relatively consolidated market. The market has seen further consolidation due to M&A activities within the sector over the last few years. Among the key players which have been operating in the generic sterile injectables US market include Pfizer, Fresenius Kabi's APP unit, Sandoz (Novartis), Hikma Pharmaceuticals PLC., Dr Reddy's, Grifols, Baxter, Sagent Pharmaceuticals Inc. and Teva. In 2015, the top five players control 50 per cent of the market share by value and approximately 73 per cent of the market by volume. Players such as Pfizer, Hikma and Mylan have grown their US injectable business through acquisitions, which have led to an increase in their market share.
New entrants such as Dr Reddy's carved a niche through launch of differentiated and complex filings. Overall, the complexities involved in manufacturing of injectables have led to smaller number of players which compared to Oral Solids Generics Industry. Any new player looking to gain entry into the US generic injectable market needs to have a relatively large basket of products and low cost advantage to gain traction with customers.
Complex injectables include lyophilised products, high potent drugs, long-acting suspensions, liposomes, which require complex manufacturing capabilities or use of new drug delivery systems (NDDS). With focus on complex injectables by leading Indian players, DRL acquired Netherland-based injectable player in 2013. Similarly, Lupin has acquired Netherland-based Nanomi and created development pipeline of over 38 products targeting market size of $12.8 billion of branded and generic injecjtables. In July 2014, Sun Pharmaceuticals acquired US-based Pharmlucence Inc with sterile injectable manufacturing supported by R&D capabilities to further enhance its presence in the US injecjtable business.
The financial profile of ICRA sample of generic injecjtable players in the US is characterised by healthy operating margins, RoCE, working capital intensity and moderate debt-protection metrics. The growth rate in CY2015 and CY2014 improved to 15.7 per cent and 13.3 per cent respectively, compared to approximately over 7 per cent in CY2012 and CY2013 each.
As per ICRA research, during the 2015-19 period injectables drugs worth US$ 16 billion are expected to go off-patent in the US alone. Key patent expiries for the US market would include Alimta (oncology in 2016 with CY2015 revenues of above $1 billion and Levemir (anti-diabetic in 2019 with CY 2015 revenues of above $2 billion. While significant price erosion is normal once the drugs go off-patent, the injectable segment still holds a sizeable opportunity to gain meaningful revenue growth for Indian generic companies on account of the upcoming patent expiries. ICRA expects the US generic injectable market to grow at a CAGR of 10 over the next five years led by significant number of drugs going off-patent as well as supportive price environment in the USA.
There has been a sizeable number of acquisitions in the US generic injectable space over the last few years. The acquisitions were driven by the need to acquire product portfolio, development pipeline and manufacturing capabilities of existing injectable players to consolidate market share or accelerate entry into the promising US sterile injectable market. ICRA expects continuing trend in M&A to acquire development and manufacturing capabilities for complex injectables/novel drug delivery systems.
Among the various factors, the drug shortages for injectables in the US have been fuelled by shifting of old molecules production to low cost countries such as India and China making high cost US facilities cost-inefficient, reduction in the number of players owing to M&A and subsequent closure/consolidation among such facilities in addition to phasing out of low value low margin products. Another key reason for drug shortages has been stringent action by US FDA regarding compliance to GMP led to several warning letters and supply disruptions for injecjtable drugs.
Further, ongoing investment in maintaining quality standards not justified by margins offered by various Government-run programmes such as Medicare, also led to rationalisation of product portfolio for several players. Drug shortages led to improved pricing power for the industry and reflected in the contrasting volume and value growth during the 2008-2013 period.
The injectable generic market value growth during 2008-13 period has been a CAGR of 19.6 per cent, against volume growth during the same period of only 1.6 per cent - implying a health pricing environment. The number of drugs in shortages in the US swelled to 251 in CY2011, of which 73 per cent were for injejctable products. However, due to action taken by the US FDA, there has been a declining trend in drug shortages since 2012. For the nine-month period ending September 2015, 22 new drugs (all forms) were reported to be in shortage, excluding 48 drugs, which continued to be in shortage, taking the total tally to 70. Overall, the injectable space is expected to continue enjoying a supportive pricing environment' albeit at a lower pace, due to the moderating trends in shortages.
Issues with US FDA cGMP norms have led to demand for good quality facilities and called for contract manufacturers based out of low cost countries such as India, China to support large volumes at low cost. Approximately 65 per cent of the 117 drug shortages in 2012 were on account of quality manufacturing/delays or capacity constraints – thereby making it one of the critical success factors.
The complex development and manufacturing process of sterile injectables along with high capital and operational costs involved coupled with high compliance cost has led to relatively consolidated market. The market has seen further consolidation due to M&A activities within the sector over the last few years. Among the key players which have been operating in the generic sterile injectables US market include Pfizer, Fresenius Kabi's APP unit, Sandoz (Novartis), Hikma Pharmaceuticals PLC., Dr Reddy's, Grifols, Baxter, Sagent Pharmaceuticals Inc. and Teva. In 2015, the top five players control 50 per cent of the market share by value and approximately 73 per cent of the market by volume. Players such as Pfizer, Hikma and Mylan have grown their US injectable business through acquisitions, which have led to an increase in their market share.
New entrants such as Dr Reddy's carved a niche through launch of differentiated and complex filings. Overall, the complexities involved in manufacturing of injectables have led to smaller number of players which compared to Oral Solids Generics Industry. Any new player looking to gain entry into the US generic injectable market needs to have a relatively large basket of products and low cost advantage to gain traction with customers.
Complex injectables include lyophilised products, high potent drugs, long-acting suspensions, liposomes, which require complex manufacturing capabilities or use of new drug delivery systems (NDDS). With focus on complex injectables by leading Indian players, DRL acquired Netherland-based injectable player in 2013. Similarly, Lupin has acquired Netherland-based Nanomi and created development pipeline of over 38 products targeting market size of $12.8 billion of branded and generic injecjtables. In July 2014, Sun Pharmaceuticals acquired US-based Pharmlucence Inc with sterile injectable manufacturing supported by R&D capabilities to further enhance its presence in the US injecjtable business.