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MOSL: HEALTHCARE - Decoding profitability in complex generics - It’s the lead time post final approval that matters

HEALTHCARE: Decoding profitability in complex generics; It’s the lead time post final approval that matters

 

• Pharma companies focusing on US generics have been moving towards complex generics (CG) on expectation of better and more durable profitability compared to simple generics.
• However, instances of considerable price erosion in CG despite low competition raise concerns on this strategy.
• We find that since the approval process for CG is relatively longer, the lead time compared to competition is critical for success.
• In addition to timing of filing, the quality of data and manufacturing robustness are key to shortening the time for approval.
• We remain selectively positive on stocks progressing well on CG like Aurobindo, Cadila Healthcare, Biocon and Cipla.

 Complex generics business presumed to be better than simple generics…

To limit competition and prolong high profitability business, pharma companies focusing on US generics are building complex/specialty generics pipelines. The complexity would be in API/formulation/routes of delivery/drug-device combinations or where approval pathway has changed.

 …but instances of considerable price erosion raise a question mark

Recent instances like g-Renvela, g-Concerta and g-Urocit-K, where there has been significant price erosion within 3-6 months of approval despite relatively low competition, have raised a question mark on this strategy.