Why pharma stocks lost their safe haven appeal this year

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26 Aug, 2025 12:21

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Viswanath Pilla Moneycontrol

Pharmaceutical stocks have traditionally been considered defensive safe havens because demand for medicines doesn’t depend on the economic cycle. But their reputation has taken a battering this year. Until Tuesday, the S&P BSE Healthcare Index had lost about 11 percent in 2016, compared with a 0.8-percent gain for the Sensex. This is sharp contrast to the previous year, where the sectoral index jumped 15 percent as against a 5 percent fall in the broad benchmark.

Of the top 10 Indian drug makers by sales, only two companies -- Glenmark Pharmaceuticals and Cadila Healthcare -- are trading above the price they were quoted at when the year began. Three of them, including India’s largest drugmaker Sun Pharmaceuticals, Lupin and Aurobindo Pharma shed a fifth of their value in the same period and pulled down the sectoral index.

So what went wrong?

Plenty. First, regulatory issues --Indian companies continued to face the heat from the US Food and Drug Administration (FDA), which shot off warning letters and made adverse observations. Second, pricing pressure in the US market, the world’s largest for generics, due to channel consolidation and intensifying competition with more generic entrants. Third, the US election year didn’t help matters as generic drug pricing attracted greater scrutiny of lawmakers and government. Fourth, currency weakness across emerging markets, particularly oil exporters such as Venezuela, Russia and Nigeria, making Indian exports less attractive.

Last but certainly not least was the turbulence in the domestic market, with the government banning hundreds of fixed dose combinations and capping the prices of hundreds of formulations listed under National List of Essential Medicines (NLEM) in order to make life-saving drugs affordable in a country where health care is largely paid for by the patient, out-of-pocket. 

Some large cap stocks, of course, had run up too much last year and underwent a correction in 2016.

The top five performing pharma stocks in 2016.

Interestingly, none of the large cap pharma stocks figure in top-5 pharma stocks of the year. Here is the list of top-5 pharmaceutical stocks of 2016.

Biocon: The Bengaluru-based bio-pharmaceutical firm is the top performing stock in 2016 with its shares appreciating by as much as 86 percent since January. Biocon, which has been investing heavily on developing biosimilars and novel biologics and ramping up its manufacturing capabilities, is beginning to see some of those initiatives crossing important milestones this year. The company launched its long acting insulin glargine in the highly regulated Japanese market in partnership with FUJIFILM Pharma. The company, in partnership with Mylan, is developing four biosimilars—pegfilgrastim, trastuzumab, adalimumab and the insulin, glargine, for regulated markets such as Europe and the United States. Two of Biocon’s biosimilars -- trastuzumab and pegfilgrastim -- are under review by European drug regulator the European Medicines Agency (EMA), while trastuzumab is under US FDA review. A biosimilar is a drug that has active properties similar to the original biological product. The company’s new insulin facility in Malaysia has come on stream, which will address the supply side bottle necks of the company’s flagship insulin products.

“The next wave of growth for Indian drugmakers will be coming from biosimilars. Unlike generics, the entry barriers for biosimilars are quite high, here is where Biocon is ahead of competition,” said Afzaal Mohammed, pharma analyst at KarvyStock Broking.

 “A potential Europe approval of the company’s biosimilar could be the next trigger for the company in 2017,” he said.

Biocon’s contract research arm Syngene International, which went for an initial public offering (IPO) in August 2015 – is also one of the top performing stocks in 2016 with an around 35 percent increase.

RPG Life Sciences: RPG Life Sciences, part of Rs 25,000 crore RPG Enterprises, rose by 55% in 2016.

The Mumbai headquartered company derived about 61 percent of its FY16 revenues from domestic formulations, 13 percent from active pharmaceutical ingredients or APIs, 9 percent from export formulations, 9 percent from the biotech business and 6 percent from others. Now the company has offloaded its biotech business it is solely focusing on domestic and export formulations. The company acquired 7 brands in therapy areas like cardiovascular diseases, respiratory and urological disorders from Sun Pharma in October to give a further push to its domestic branded formulations business. For export formulations the company is working on products to get into high margin regulated markets like Europe and US.

“RPG Life Sciences has demonstrated sustained above-industry growth in the last four quarters. The company intends to focus on product innovation and development through continuous investment in R&D efforts,” said Kushal Rughani, research analyst at HDFC Securities Ltd in his recent report on the company.

Jubilant Life Sciences: Jubilant Life Sciences is another stock that appreciated by close to 50% this year. The company hit an important milestone in October with its radiopharmaceutical drug Ruby-Fill getting USFDA approval. Ruby-Fill will be a player in a market estimated at $76 million annually, with the potential to grow to $250 million annually in the next five years. The company has also initiated measures to cut debt and improve operational efficiency.

“With sustainable limited competition in Radiology products (unlike peers) in US and better visibility of utilisation of CMO plants, Jubilant’s EBITDA margin (30‐34%) in US generics is currently highest among all Indian peers,” said Surajit Pal, an analyst covering Indian pharmaceutical stocks at Prabhudas Lilladher in his October report on the company.

Analysts expect the launch of Rubyfill and other generic drugs in US, efforts to cut debt and increase prices to give the company the boost in the year ahead.    

Shilpa Medicare: Shilpa Medicare, the Raichur, Karnataka-based maker of oncology APIs and intermediates – has delivered investors a close to 50% returns this year. So what has suddenly changed in this company that was in existence since 1987? In 2016 - the company got a toehold in the US generics market with the USFDA clearing its formulation plant and giving the nod to two of its abbreviated new drug applications (ANDAs) for anti-cancer drugs capecitabine and azacitidine injection in the last quarter of 2016. The company is lining up more launches in the US market as it aims to catapult into the big league of Indian generics players.

Ajanta Pharma: For Ajanta Pharma, the Aurangabad, Maharashtra-based drug maker that’s largely focused on domestic branded formulations, 2016 was a big year. Its shares rose as much as 35%. Formulations constituted around a third of company’s revenues of Rs.1728 crore, but this has grown despite NLEM and pricing pressures. The company, which has largely focused on domestic and semi-regulated markets, is making a quiet foray into the U.S. generic market, with newly constructed Dahej plant and with 15 approvals in place already. Two-thirds of those approvals came this year.

“The company is currently passing through a stretched phase of capex across two to three years to bolster the domestic business as well as exports franchise especially the US. With a strong balance sheet and high return ratios, we believe the time is ripe for the company to enter the capex cycle, the benefits of which are likely to pan out beyond FY18,” said ICICI Direct in its research report about the company.