US Generics Market Isn't Stabilizing Yet, Sandoz Says
Executive Summary
Novartis's Sandoz unit is the first of the big generics players to report second quarter financials, and its outlook for the US market remains pessimistic.
Sandoz International GMBH set a pessimistic tone for the US generics market when its parent, Novartis AG, reported second quarter financial results on 18 July. The company said it does not expect a stabilization in US generic price erosion, contrary to what some other generic drug makers have indicated recently.
Sandoz is the first of the big generic drug players to report second quarter results, and with the business segment under pressure for several years now investors in drug companies like Teva Pharmaceutical Industries Ltd. and Mylan NV are anxious to see the US market deterioration stabilize. Higher annual price erosion in the US – in the double-digits – has been a persistent challenge for the generic drug industry since 2015. (Also see "Generic Manufacturers Try To Up Their Game As US Pressure Persists" - Scrip, 16 Jun, 2017.)
Generic drug makers have tried to pivot to complex products and biosimilars, branded products or geographic expansion to offset the US declines, but those efforts have had minimal success, particularly as the near-term commercial prospects for biosimilars in the US have dampened.
Mylan's board of directors kicked off a strategic review a year ago and has yet to report back to investors with the results. (Also see "Mylan To Explore Strategic Options, Claiming Investors Have Failed To Appreciate The Value " - Scrip, 8 Aug, 2018.) Meanwhile, Teva is in the midst of a two-year restructuring program to reduce spending by $3bn by the end of 2019 while paying down on a mountain of debt. (Also see "A Trough Year For Teva, With A Turning Point Targeted For 2020" - Scrip, 13 Feb, 2019.)
Investors in Mylan and Teva will be keen to hear positive mid-year updates from both. Mylan is preparing to outline its long-term strategic plan to investors during a meeting in New York on 31 July.
Sandoz – buffered by the shelter of Novartis and a steady ex-US business – has held up better than some in the generics sector. But Novartis is still trying to revamp the business, with an emphasis on complex products. The company reached a deal with Aurobindo Pharma Ltd. to sell its US solid-dose generics and dermatology franchise for up to $1bn. The deal remains on track to close in 2019, pending regulatory approvals, Novartis said.
Richard Francis, the CEO of Sandoz for five years, stepped down earlier this year amid the ongoing changes. SC124908 The company recruited
GlaxoSmithKline PLC's established products senior VP Richard Saynor to succeed Francis, and he joined the quarterly call for the first time.
Sandoz reported second quarter sales of $2.4bn, a decline of 1% over the prior-year quarter, with volume growth of 10% offset by 7% price erosion mainly in the US. Excluding the US, net sales grew 7%. Biosimilars helped drive that growth, with 16% growth in biopharmaceuticals stemming from sales of Sandoz's biosimilar versions of Rituxan, Humira and Enbrel in Europe: Rixathon (rituximab); Hyrimoz (adalimumab); and Erelzi (etanercept), respectively.
The launch of several biosimilar versions of AbbVie's Humira last year in Europe are being closely watched. (Also see "Biosimilar Infliximab Success Paves The Way For Adalimumab In Europe" - Scrip, 16 Aug, 2018.) Hyrimoz has about a 22% share of the adalimumab market in Europe and is the number three biosimilar in the category, Sandoz reported.
US Price Erosion Continues
Sandoz management said it was pleased with the second quarter results, driven by strong ex-US sales, and raised 2019 sales guidance to low single-digit growth. Nonetheless, Saynor said the company expects the US environment to remain challenging and the decision to raise guidance was based on momentum outside the US.
"We're very proud of how Sandoz is performing ex-US," Saynor said. "Within the US, our team continues to work hard in what is a challenging environment."
The US base business is continuing to decline in the mid-teens, consistent with historical declines, Saynor added. "We haven't seen yet a stabilization in the core generics business in the US."
That outlook is more pessimistic than guidance provided by Teva and Mylan earlier this year. Teva CEO Kare Schultz indicated at the J.P. Morgan Healthcare Conference and again when reporting fourth quarter financial results that US price erosion appears to be abating. He said at the J.P. Morgan meeting that there has been a "dramatic change" in the pricing "death spiral." (Also see "J.P. Morgan Notebook Day 4: US Generics Steady, UroGen, REGENXBIO, Dr. Reddy's In China, And Investor Sentiment Shifts" - Scrip, 10 Jan, 2019.)
SVB Leerink analyst Ami Fadia also said in a same-day note that Sandoz's outlook did not match with recent National Average Drug Acquisition Cost (NADAC) data, where price erosion has fallen to around 4% in recent quarters. NADAC estimates the national average drug invoice price paid by independent and retail chain pharmacies.
"As such, we remain cautious that the NADAC trends we've seen recently will translate to base business improvement across our generics coverage," Fadia said.