Top 5 Indian Pharma Stocks Poised for Growth in the Post-Biosecure Act Era

India, often referred to as the “Pharmacy of the World,” has seen its pharmaceutical sector evolve into a global powerhouse. This transformation reflects the nation’s robust manufacturing capabilities, skilled workforce, and cost-effective operations. The convergence of these factors, alongside new global dynamics, is setting the stage for an unprecedented surge in the industry.

A significant catalyst In this scenario is the US Biosecure Act, designed to minimize reliance on Chinese pharmaceutical supply chains. This shift presents a tremendous opportunity for Indian manufacturers, who are well-positioned to fill the resulting supply gaps. In fiscal year 2023, India’s pharmaceutical exports reached approximately $25 billion, underscoring the sector’s importance to the national economy. With increasing global healthcare demands and the prevalence of chronic diseases, the industry’s future looks promising.

Additionally, the Indian government’s initiatives, such as the Production Linked Incentive (PLI) scheme, are bolstering the sector by attracting investments and promoting domestic manufacturing. These combined efforts are expected to propel the Indian pharmaceutical industry to new heights, establishing it as a global leader in drug production and supply.

Here are five companies that are well-positioned to benefit from these developments.

1. Divis Laboratories

Divis Laboratories stands out as a leader in the Contract Research and Manufacturing Services (CRAMS) sector, known for its expertise in complex Active Pharmaceutical Ingredients (APIs) and intermediates. The company has built a strong global presence, focusing on niche products and robust R&D capabilities, which have been pivotal in its growth.

From 2020 to 2024, Divis Laboratories achieved a compounded annual growth rate (CAGR) of 9.9% in revenue and 3.4% in net profit. The company’s five-year average return on capital employed (RoCE) and return on equity (RoE) are 25.6% and 19.7%, respectively. Despite the competitive landscape, Divis’ established products continue to see steady demand. Strategic investments and expansions over the past two years have bolstered its market share in emerging generic products.

Divis’ custom synthesis business remains robust, with a steady influx of new projects across various clinical stages. The company is also exploring opportunities in the peptide space, aiming to capitalize on existing commercial successes. Additionally, Divis is entering into a long-term supply agreement with a multinational corporation and investing Rs 7 billion in capacity expansion, with the new facility expected to be operational by January 2027. An allocation of Rs 15 billion is planned for FY25.

2. Laurus Labs

Laurus Labs, headquartered in Hyderabad, India, is a leading multinational pharma and biotechnology company. The company focuses on active pharmaceutical ingredients (APIs), lower-cost versions of brand-name drugs, and custom synthesis. Laurus Labs is at the forefront of healthcare innovation, offering groundbreaking and affordable treatments like the ImmunoACT cancer therapy.

Laurus Labs is heavily investing in gene therapy, with a focus on in-licensing and developing innovative solutions. The company’s R&D efforts have led to new product launches and expanded partnerships. Strategic collaborations, such as the joint venture with KRKA and the CDMO contract, are driving growth. To meet the growing demand for cell and gene therapies, Laurus is expanding its manufacturing capabilities. The commercial launch of NexCAR19 and the construction of a new CAR-T facility highlight the company’s dedication to improving patient access to life-saving treatments.

Between 2020 and 2024, Laurus Labs’ revenue grew at a CAGR of 17.2%, while net profit increased by 12.4%. The company’s RoCE and RoE averaged 21.9% and 22.9%, respectively, over the past five years. Capital expenditure reached approximately Rs 7 billion last fiscal year, with continued investment in CDMO and bio divisions planned at a similar level in FY25.

3. Syngene International

Syngene International, Biocon’s global innovation-focused subsidiary, is an integrated service provider offering end-to-end drug discovery, development, and manufacturing services. The company derives almost 95% of its revenues from exports, with a third of its income coming from long-term dedicated contracts.

Syngene International has long-term research contracts with reputed clients like BMS, Baxter, Amgen, and Herbalife. About 25% of its customers have engaged with the company for over five years. In the past five years, Syngene’s revenues and net profit grew at a CAGR of 13.5% and 8.9%, respectively, resulting in a respectable five-year average RoCE and RoE of 15.8% and 15.4%, respectively.

Syngene’s first-quarter performance largely met expectations, with dedicated centers and biologics manufacturing services showing steady growth. To enhance its capabilities, Syngene launched a new protein production platform to accelerate drug development timelines. The company allocated approximately $40 million in capital expenditure to expand research capabilities, including a new automated compound management facility and a DMPK biology lab in Hyderabad. Despite industry challenges, Syngene remains committed to long-term growth, carefully managing investments based on demand and funding expansion internally.

4. Suven Pharma

Suven Pharma, a research-driven company, focuses on drug discovery and development. While its primary strength lies in early-stage research, the company is increasingly offering contract development and manufacturing services (CDMO). Suven Pharma has undergone significant strategic restructuring, aiming to position itself as a preferred partner for pharmaceutical companies.

The company’s commitment to quality and compliance is underscored by successful FDA audits and other regulatory approvals. Despite industry challenges, Suven Pharma remains optimistic about the future, buoyed by the favorable industry environment and increased clinical pipeline activity. The company has witnessed a surge in requests for quotations (RFQs) and inquiries, indicating growing demand for its services.

A strategic shift towards lateral wins and commercial molecules is expected to drive future growth. Suven’s expansion of its specialty chemicals business unit, coupled with investments in technology and infrastructure, positions it for long-term success. Recently, Suven Pharma expanded its CDMO capabilities by acquiring a controlling stake in Sapala Organics, a Hyderabad-based company specializing in oligonucleotide drugs and nucleic acid building blocks. This acquisition aligns with Suven’s goal of building a comprehensive CDMO platform.

The business has seen impressive growth over the past five years, with revenue and profitability more than doubling. The company’s RoCE and RoE averaged 38.3% and 30.9%, respectively, over the last five years.

5. Piramal Pharma

Piramal Pharma is a global pharmaceutical company with a strong presence across the value chain, operating 17 facilities in India, Europe, and North America, and serving customers in over 100 countries. The company derives a significant portion of its revenue from North America, with CDMO services accounting for 58% of total sales.

From 2021 to 2024, Piramal Pharma’s sales reported a CAGR of 5.3%. However, returns have been muted, with the RoCE and RoE averaging 6.8% and 4.6%, respectively, over a five-year period. The CDMO business has been a key growth driver, contributing significantly to the company’s overall performance.

Piramal Pharma’s complex hospital generics business has also demonstrated growth, particularly in products like sevoflurane and isoflurane. However, overall profitability was impacted by price pressures in the US market. The company is strategically expanding production capacity to address growing demand and is focused on building a differentiated product pipeline within the intrathecal and injectable pain management segments.

Additionally, Piramal Pharma’s strategic investment in Yapan Bio, a CDMO specializing in vaccines and biologics, emphasizes its commitment to expanding its offerings in this high-growth segment.

In conclusion, The Indian pharmaceutical industry is on the brink of a golden age. The synergy of the US Biosecure Act, India’s robust manufacturing capabilities, and rising global demand creates a lucrative opportunity for domestic firms. With government support through initiatives like the PLI scheme, the future for top Indian pharma companies looks bright.

Increased government investments and more business inquiries from US companies position Indian CDMOs to capture a larger share of the global market. While competition from countries like Ireland and Singapore is evident, India’s strong pharmaceutical foundation and strategic focus on the CDMO sector provide a competitive edge.

However, the path to success isn’t without challenges. Intense competition within the Indian market and persistent regulatory hurdles are significant factors to consider. Additionally, geopolitical tensions and potential shifts in government policies could influence the industry’s direction.

For investors, meticulous research and due diligence are important. By analyzing individual company strategies, risk profiles, and financial health, investors can make informed decisions and position themselves to benefit from the resurgence of the Indian pharmaceutical industry.