As the US drug shortages hit a decade-high of 323 drugs across 22 therapies in the January-March quarter of the 2024 calendar year, analysts feel this presents an opportunity for Indian pharma exporters.
US active drug shortages have further increased, after stabilising at 300-310 drugs in calendar year 2023, to 323 drugs in the first quarter of 2024 (according to American Society of Health-System Pharmacists data).
While analysts were not able to give the market size estimates of these 323 drugs spread across categories like anti-infectives, hormones, oncology, etc, the overall exports to the US have already risen sharply in 2023-24.
Udaya Bhaskar, director general of the Pharmaceutical Exports Promotion Council (Pharmexcil), told Business Standard that shortages helped Indian pharma exports to grow not only in the US but also contributed to overall growth. “We exported $8.72 billion with 15.6 per cent growth. Total pharma exports from India grew by 9.6 per cent to $27.8 billion.”
India Ratings and Research (Ind-Ra) analysts felt that this will not only provide potential for volume growth but also limit price erosion to single digits over the next 12-18 months, leading to improved returns.
“The price erosion in the US generics market is expected to remain in single digits in the near future, primarily due to drug shortages. US-catering Indian generic players have seen a strong financial performance during FY24, due to lower raw material cost and stability in pricing,” said Vivek Jain, director, corporate ratings, Ind-Ra.
Jayesh Bhanushali, AVP, research and products, IIFL Securities, said last month that export-focused Indian generic companies would likely benefit from this situation.
“Our analysis suggests that among the Indian generic players, Aurobindo Pharma, Sun Pharmaceutical Industries, and Gland Pharma have the highest exposure to products under shortage in the US.”
IIFL added that Aurobindo’s US injectables sales (generic and branded) account for 25-26 per cent of its US sales and 12-13 per cent of its overall sales. Thirty-six injectable products of Aurobindo are currently under short supply in the US and Aurobindo is currently supplying 15 of these products. Gland’s US revenue accounts for around 50 per cent of its overall sales. Out of the 14 short-supply products that Gland is currently supplying to the US, 10 products are under the essential products list for hospitals. Sun Pharma’s nine products, out of the 15 short-supply products which Sun is currently supplying, are under the essential products list for hospitals.
Generic pharma manufacturing is a competitive industry with low margins. Price erosion on account of purchase concentration, increasing regulatory costs, and limited commercial viability in some cases has led to many US-based generic pharma manufacturers halting the production of financially unsustainable products. Large generic players have exited non-profitable molecules, contributing to increasing shortages.
Players like Teva halted the production of around two dozen critical injectables in mid-2022 at their California facility.
“A broken US pharma supply chain has made it difficult for generic drug manufacturers to make profits in commoditised oral-solids portfolio and stay in the business. As a consequence, few US-based drug manufacturers have shut down the business,” said IIFL. USFDA plant crackdowns have led to increased shortages.
IIFL further noted that such high shortages were last seen almost a decade back in Q3 2014, when the active drug shortages in the US were at 320 drugs. Although US drug shortages have persisted for several years, the situation has worsened over the past 2-3 years with active drug shortages steadily increasing from 271 drugs in Q1 2021 to 323 drugs in Q1 2024.
In a recent analysis, Shrikant Akolkar and Aashita Jain of Nuvama Institutional Equities noted: “As per our analysis, the active shortages continue to trend at the high level while annual shortages list shows shortages have not abated in 2023. Injectables contribute 65 per cent and 42 per cent of the drugs from ‘Currently in shortages’ and annual shortages list, respectively.”
As a silver lining for Indian drug companies, there has been an improvement in USFDA approvals of the abbreviated new drug applications (ANDAs), taking note of the drug shortages. Meanwhile, analysts also note that ANDA filings have slowed down which would benefit the pricing scenario further amid decreasing competition.
Players, however, are cautiously optimistic. Abhay Gandhi, CEO, North America business of Sun Pharma, told Business Standard, “The structure of the US market is not going to change. Depending on the product, the pricing pressure will always be there. In the last five years, the total generics market has not moved – it remains at $50 billion or so. This tells you the story.”
Why the shortage?
The Covid-19 lockdown restricted the spread of seasonal illnesses and led to the weakening of the immune system. A surge in outbreaks was reported. The uptick in demand for medicines to cure these illnesses exceeded the typical annual averages since then. The pharmaceutical companies, which are typically constrained by limited excess capacity to control costs, struggled to meet the unforeseen demand. The Russia-Ukraine crisis continues to affect supply chains. This has hit the generic drug manufacturers hard. Also, when a drug shortage is announced, consumers tend to stockpile the drug for future consumption.
First Published: May 27 2024 | 7:59 PM IST
