BW Exclusive | Price Erosion In US Hurting Generic Pharma Industry Says RK Baheti, CFO, Alembic Pharma

The Indian pharmaceuticals industry is dominated by the generics and the vaccines business so much that its generics and vaccine exports are often called as a soft power, as India is the biggest supplier of generic medicines and vaccines holding 20 per cent of the generics supply globally and delivering over 60 per cent of the world’s vaccines. But lately the generics industry is reeling under headwinds due to oversupply in some prominent markets like the US. 

R.K Baheti, Chief Financial Officer, Alembic Pharmaceuticals in an interaction with BW Healthcare World said that as far as the generics business is concerned in the US, everyone knows that this has been facing headwinds almost for the entire industry except for people who are in specialty branded business. “So except for companies like Sun Pharma, Dr Reddys, which are riding on a couple of branded products, I think the entire generic industry is suffering,” Baheti said. Baheti further adds that the industry is not suffering due to volumes but due to the price erosion.

Excerpts:

Why do you think the price erosion has occurred and which products do you think are most affected?

See US is a very open market. So it always depends on demand and supply and the supply and suppliers are too many, probably for the demand. So they have been pushing the prices down and it happened because for three years there was COVID and US FDA was not inspecting plants, less inspection means fewer 483s, and fewer import warnings hence there was oversupply.

Now, I think in the last six months or so USFDA restarted their visits. These visits invariably keep the plants occupied for meeting the demands or for giving responses. So that will again probably push down the supply a bit and that will create better pricing. As far as the products are concerned it is the maximum in general OSD, it is in injectable products also but not to that extent. So injectables and Oncology products are still slightly better. 

Are there any updates on the recent USFDA inspections at Alembic Pharmaceuticals?

All three facilities which were inspected in the last six months or so, the general injectable facility, the F2 which is an Oncology facility, and F4 which is the Jarod facility got few observations from the US FDA. I believe none of them were serious enough and our responses have gone. We are yet to receive the EIR, and we are expecting it to come any moment.

But a good part is we have started getting approvals for the products. We have received a communication from the FDA which says we can start commercial production and start supplying to the market, which is a positive sign. It is not a substitute for an EIR and we still need to get it but receiving product approvals at all three facilities gives me an indication that probably my responses have been found complete and acceptable by FDA.

How would you rate the progress of PLI schemes in making the Indian pharma sector independent in APIs?

So we are also enrolled in the PLI (Production Linked Incentive) scheme and I think it's a good scheme, though probably too late for the day. Because I think from 2002, we have been crying with the government and unfortunately it did not reach their ears. So it started just a few years back now. India had a very strong fermentation industry. So we had penicillin g facilities, we had large erythromycin thiocyanate facilities which are all fermentation based. But between 2003 to 2010, China dominated the market so badly, including dumping the products in India that most of the Indian facilities got closed down, our products could no longer compete with China’s prices.

Now to reestablish fermentation based production is not easy. I mean, the government has been pushing us but we have not got into the fermentation base and we do not wish to get into this market. But otherwise PLI is working. I mean for many sectors like medical devices, and currently our objective is to produce all export oriented APIs. So we are not looking at even our captive consumption for the domestic market which we are outsourcing but largely it is for either our captive international generic business or for export.

This year a boost was given to the pharma industry in terms of allocation in the budget among other announcements. What are your key takeaways from this year’s budget?

We are not so enthused by the pharma push. I mean, the government is giving some lip service. They are talking about giving allocation for creating some dedicated research centres, but that will be largely either government-owned or public-private kind of relationship.

We are not partners in that. Two things which the industry was expecting. One was the revival of exemptions for R&D, which has not happened and the second was giving the pharma companies some kind of export incentives, which also was taken away some time back and now it's reinitiated but with a very minuscule amount. I do not see an increase in that. So as far as pharma is concerned I think the government seems to be of the view that we are now self-dependent and we have to fend for ourselves and compete with the world, but other than that this budget, I think has been pretty positive. As taxes have been reduced. I think people will save some taxes and it will spur investment, including on healthcare.

How do you see the financial year 2023-24 for Alembic?

Going forward, I think we will continue to do new launches. We will continue to try and get more market share. But at the same time, we keep profits always on our mind implying we do not sell recklessly at any price just to gain market share. I think one major positive for the company will be that all three new plants, which were lying idle in a way will get into the operations and will start supplying products to the market.

From a pure financial point of view here will be a hit also because some of the expenses which were getting capitalised as pre-operation expenses will start hitting the P&L but cash flow wise it does not make a difference. And we are happy that we are now getting the opportunity to scale up the production and as we get more product approvals, the volumes should go up and that will take care of our overheads.