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Few good approvals amidst many routine ones

We take a look at US approvals data between June to August 2023 to better assess traction in US business amidst a generally positive and benign pricing environment. Overall, companies have netted about 8-9 good approvals mostly shared between Alembic, Aurobindo and Zydus. Alkem and Ajanta do have a decent approval each in last few months which should support their US growth QoQ. More broadly, FDA approvals continue to be of fairly commoditized variety for many companies as has been the trend. Some players like Torrent continue to struggle due to lack of any major approvals on back of facility issue. Alembic, despite large R&D programs of past few years and good quantity of approvals, has at best one decent ophthalmic approval in 3 months. Highlighted approvals data would support assessment of US business on back of new launches over and above the swings in existing market shares. Continue to prefer Ajanta, Indoco and a cautious stance on Alembic is warranted given the lack of quality in injectables approvals.

? Aurobindo – As always garners large quantum of approvals but 2 stand out – an injectable opportunity and an ophthalmic OTC where Auro is the first generic. Reckon US business would get support from these launches

? Alembic – After decent approvals in H2 FY23, company faces lack of quality approvals in Q2 FY24. Barring an ophthalmic approval, Alembic has not managed any decent approval and Q2 US performance might depend wholly on volume gains in existing products.

? Alkem, Ajanta – Each got an approval for Topiramate; Ajanta has a settlement, and it would be a decent opportunity though timeline is not known

? Lupin – Apart from Spiriva, vitamin B12 spray approval should support US business

? Zydus – Chantix and Plerixafor injection should support Q2 while a niche oncology first generic approval (gLonsurf) should aid Natco US business

US business – benign pricing might cover up for lack of approvals

Q1 FY24 had seen the full benefit of a benign US pricing environment and we expect a similar scenario to prevail in Q2. This would ensure that relative lack of approvals across several players may be hidden as volumes inch up coupled with select shortage opportunity especially in oncology injections. Such an outcome may augur well particularly for Alembic where meaningful new approvals would have been otherwise been expected to play a key role in driving US business.

Ajanta, Indoco preferred names, caution warranted on Alembic; stay neutral on Dr Reddys

We continue to prefer Ajanta on few triggers like faster growth in branded business in Asia and Africa, 10-11% growth in domestic business and US turnaround after 2 tough years (ex-forex and flu-related sales in Q3 FY23). Indoco continues on its journey of healthy growth on a small base in US and new launches adding to domestic business coupled with attractive valuation. On the other hand, Alembic is not getting support from large approvals that can propel US business onto the next leg of growth and continues to rely on benign nature of market to eke out volume expansion. Within the large names, stick to our neutral stance on Dr Reddys’ as lack of growth in exRevlimid US base might be offset by continued Revlimid-led traction.

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