Pharma firms to thrive in the US market boosted by new products and drug demand

Pharmaceutical companies are expected to maintain their growth momentum and profitability in regulated markets, with the United States playing a pivotal role, according to India Ratings and Research (Ind-Ra).

The industry’s expansion is set to be driven by product launches, ongoing drug shortages, and promising opportunities in the domestic formulation business, according to Ind-Ra. The normalisation of drug prices in the US and a decline in raw material costs are expected to underpin revenue growth of approximately 10 per cent and an EBITDA margin of about 21 per cent for the financial year 2023-24 (FY24). This trend, evident in the first-quarter results, is likely to persist through the year, contingent on the performance of the companies’ US generics business. Ind-Ra added that despite expectations of increased US FDA inspections during this period, any disruptions are predicted to be minimal.

Pharmaceutical companies rated by Ind-Ra have already reported strong revenue growth in Q1. This has been attributed to product launches and robust demand from both the US and European markets. Overall, their top line expanded by 16.5 per cent year-on-year (YoY) in Q1.

In particular, the US business of the rated companies continued to exhibit remarkable growth, surging by 26.6 per cent YoY. Domestically, formulations, active pharmaceutical ingredients (API), Europe, and the rest of the world (RoW) businesses also experienced significant growth, with respective year-on-year increases of 6.2 per cent, 8.7 per cent, 19.9 per cent, and 8.5 per cent in Q1.

Ind-Ra noted a significant improvement in EBITDA margins for the rated companies. These margins surged by 518 basis points YoY to reach 23.4 per cent in Q1, driven by lower raw material and freight costs, contributions from high-margin niche launches (such as the generic Revlimid), reduced pricing pressure in the US market, and more favourable raw material prices.

Ind-Ra projected a 10–11 per cent YoY growth in the Indian formulations business for the FY24, with price growth and new product launches as key drivers. Despite challenges in the acute therapy segment and price impacts, companies in this sector reported a 6.2 per cent YoY revenue growth on an aggregate basis during the first quarter, driven by price growth and strong performance in the chronic segment.

The US generic business, the agency noted in its report, continued its robust growth trajectory, expanding by 26.6% year-on-year during the first quarter. This growth was attributed to the launch of the generic niche product Revlimid (drug that inhibits cancer cell growth), drug shortages, and moderated pricing pressure. Ind-Ra said that it is expecting some stabilisation in price erosion (mid-to-high single-digit) in the US business for the remainder of the fiscal year.

Additionally, revenue growth for API manufacturing companies moderated to 8.7 per cent YoY during the first quarter, compared to 15.2 per cent YoY in the preceding quarter. EBITDA margins remained healthy and are expected to remain so due to a moderation in API prices. Performance among Ind-Ra rated API companies varied during the quarter.

Ind-Ra rated pharmaceutical companies recorded an 8.5 per cent YoY revenue growth in their RoW business during the first quarter. Performance among these companies was mixed. Further, the European business segment continued to demonstrate strong growth momentum during the first quarter. 

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