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Fitch: price erosion to eat into US generic drugmakers' margins

A shift in the industry pricing environment will likely pressure margins and credit metrics for leading U.S. generic drug manufacturers in 2018, Fitch Ratings said in a report.

The report focused on Mylan NV and Teva Pharmaceutical Industries Ltd. who were affected by persistent price erosion during the second quarter of the year in a sign of things to come.

Fitch said the companies' reduced pricing power is a result of increased generic drug supply, delayed new product launches and improved customer purchasing power.

Fewer patent expirations on branded drugs also mean fewer opportunities for generic drugmakers to boost their top line growth and margins, making planned product launches increasingly important.

Mylan recently said it was delaying the launch of its key products given the regulatory issues in the U.S.; the company also lowered its full-year earnings guidance.

Meanwhile, Fitch and Moody's downgraded Teva last week as its debt issues are compounded by a challenging operating environment.

Teva reported an 18% drop in earnings in the second quarter.

According to Fitch Ratings, these challenges are likely to persist in the near term for both Mylan and Teva but should be mitigated by favorable competitive positions due to scale, geographic end-markets and product diversity.