Investment in Pharmaceutical stocks is providing high returns in the present days as the need for medicines are increasing and will remain robust. After crossing regulatory hurdles from FDA, pharmaceuticals sector is showing a bright ray of light. Invest in the leading pharmaceutical companies like Sun Pharma, Dr Reddy’s, Lupin, etc. The Indian pharma companies earn a huge sum by exporting common low-cost medicines called generics to the western countries.
Pharma funds are the funds where the investors invest their money in pharmaceutical stocks like sun pharma stocks and others. It is seen that pharma funds have generated 60.03% returns last year, according to value research. But a risk remains associated with this sector. They are bound to invest in a specific sector and have no flexibility in changing investment sectors during bad times. Sophisticated investors are well-suited for these funds as they are knowledgeable and know when the right time for entering and quitting the investment. At the present situation, when corona-virus is declining the health condition of masses around the world, the condition of pharma industries are growing and becoming more promising. This is the best time to invest in pharmaceutical stocks.
Pharma Industry is expected to yield higher profits in the near future as several brands are emerging in the competition. These industries help the population to stay healthy and Investing in these funds means joining hands in contributing good health. The demand for Indian medicines has increased in the international market as they are producing generic that are common medicine at low cost. These medicines are bio-equivalent of patent medicine or drug. They are generally exported to the western countries. Thus it has become a promising and growing sector, accelerating all its operations, yielding higher returns, and therefore attracting a lot of investors.
Benefits of Investing in Pharma Funds
- It provides the advantage of an ever-expanding financial market to the investors. But are associated with risks and return rates become feasible in the long run.
- Being up to date with the current advancements, investors can boost their income corpus.
- Investors should have a long term goal for best returns from these stocks. Short-term investments are not preferred.
- Due to the advancement in medical science, new medicines are getting discovered. Therefore, during the Covid pandemic, this sector has earned a massive fund.
- They have lofty potential growth.
- With the increasing need for medicines and increased production rate, the chances of higher returns for the investors have also increased.
- The pharmaceutical companies responsible for producing Covid vaccines are going to earn huge corpus in the coming years. So Investing in them will be beneficial.
Though there are advantages of Investing in pharmaceutical stocks, there are several disadvantages that the investors must keep in mind. They don’t assure you a fixed amount of gains in the short run. There are chances of incurring a huge loss in the future. These are not for conservative investors. The waiting period of the agreement is at least 7 years only then you can see significant returns. It is suggested to keep only 10% of these funds in your investment portfolio as it does not allow a highly diversified portfolio, and a small loss can be accepted rather than a huge one.
Cipla stocks had seen several tough times and with the current situation and has crossed all its hurdles and made its position at the top of the domestic stock market. It has a strong presence in the respiratory section.
How to invest in Pharmaceutical stocks?
Before investing in pharmaceutical stocks you need to know certain factors.
- The profit margin – Look for the top-performing drug companies that are having higher profit margins. Look into their price-to-earnings ratio, price-to-sales ratio, and price-to-earnings-growth ratio. After checking these, you can include them in your portfolio.
- Performance of the company – Looking into the profit margin is not sufficient for choosing the fund. You may be overlooking some crucial details like management. A company can produce good drugs and earn a huge profit, but poor management can lead to several negative events affecting the stock prices.
- Look into the Regulations – Investing in companies that have passed the first stage of a drug is not at all an intelligent option. Several drugs pass the first stage but fail to get introduced in the market due to problems in the later stages. Invest in companies, whose drugs are approved by the FDA or other regulatory agencies. Don’t get tempted with the news that the media flashes.
- Pipeline Innovation – Don’t invest in companies that have several drugs passed in the initial trials rather invest in those who have made their drugs reach the last trials. Quality is more important than quantity. Look into the quality and innovation of the drugs the company is working on in the pipeline.
- Patents – If you are investing in a company that is having patent drugs, then yes it is a reliable one for you to invest. If a company has a patent drug this means it owns intellectual property rights for the drug. These companies offer higher returns.
Risks associated with pharmaceutical stocks
- Chances of clinical failure – Certain drugs may pass the initial stages but fail in the clinical trials.
- Unable to get regulatory approval – Even if the drug manufactured by the company has passed all clinical testing phases, it may not get approval from regulatory bodies.
- Securing reimbursement is tough – At times the companies producing a particular drug are forced to reduce the drug prices than expected. The companies fail to convince the government, payers, and health insurers.
- Market Competition – When a generic version of the company’s patent drug is launched in the market, a huge loss is incurred by the company in coping up with the competition.
- Product litigations – Some drugs that are already launched in the market are recalled due to certain litigations like public safety concern or a lawsuit.
If you are not okay with taking higher risks, then avoid small pharma companies. Big companies may not provide huge profits but are a stable option for investing. You can also add healthcare real estate and healthcare ETFs in your portfolio. They will diversify your investment within the pharmaceutical sector.