Consolidation in the US generics market
The US generics market is facing severe competitive pressures, leading to pricing pressures on drugmakers. The FDA has accelerated new generic drug approvals to trigger a decline in drug prices to more nominal levels.
Recently, the FDA has been scrutinizing certain companies related to their exorbitant drug pricing. The market is also facing customer consolidation into larger buying groups, which has led to additional pricing pressures in the US pharmaceuticals market. Thus, government regulations and market structure changes are expected to continue to increase pricing pressures on drugmakers, including big players such as Teva Pharmaceutical (TEVA), Sanofi (SNY), Novartis (NVS), and Mylan (MYL).
Impact on Teva’s performance
In 4Q17, Teva experienced a price erosion of ~13% in its generics business, which was in line with industry expectations. The company recorded a goodwill impairment of ~$11 million related to its US generics business in 4Q17 as it adjusted its assumptions for determining the fair value of the business, which would be used to calculate its cash flow projections.
In 2018, Teva expects to register US generics sales of ~$4 billion, representing a fall of ~20% compared to its 2017 sales. This expectation is the result of continuing pricing pressures in the generics market in the United States. The company expects to register increased pricing pressure for its generic drug Concerta. It also expects generic competition for its ProAir US franchise in 2H18.
However, according to Teva’s CEO, Kåre Schultz, the company is focused on stabilizing its US generics business and has a number of product launches planned in 2018. The company is optimistic about Teva’s US generics business transformation in 2018.
In the next article, we’ll take a look at the recent stock performance of Teva Pharmaceutical.