By Aman Kayal | Edited by Kripa Jalan
The pharmaceutical industry, a highly volatile one, has always attracted investors looking for long-term investing. With the rise in the number of the world’s daily COVID cases, the world’s focus has diverted towards the pharma companies, with the hope that they would come up with a new vaccine or anti-covid drug pill. The recently introduced Covovax and Corbevax by Serum Institute of India have successfully developed a coronavirus vaccine (78% efficacy) that is almost ready to be distributed after getting WHO approval. Molnupiravir is an anti-COVID drug whose efficacy during its MOVe-OUT phase III trial has been largely promising, with a 50% reduction in hospitalization and death. The vaccine by Pfizer has an efficacy of 81% making Pfizer one of the hottest stocks to buy for investors.
With investors pouring in billions of dollars, a lot is at stake. The question is, Is the pharmaceutical industry worth investing In?
For the defensive investor, the industry is quite risky, but for an aggressive investor, the answer is a yes, because whatever the conditions be, the pharmaceutical industry wouldn’t stop functioning altogether. The pharmaceutical industry can become extremely volatile forcing investors to make speculative decisions. Unless you have an appetite for high risk and are extremely patient and calm during bearish markets, this might be the one for you.
The defensive investor might not have such a risk-taking appetite and might react when markets do not perform well. However, a well-experienced and patient investor will be able to wait for profitable returns. Looking at some of the top Pharma stocks like Pfizer, GlaxoSmithKline, Sanofi, Lupin and Cipla have a volatile metric and are subject to price changes daily.
The revenue growth for Investment Information and Credit Rating Agency was estimated at 9-11 percent in FY2022 and FY2023, supported by gradual recovery post the impact of COVID-19.
“The Pfizer-BioNTech vaccine surprises the world with a soaring efficacy of 95%”.
“J&J’s single-dose vaccine might just be the doorway to a much-needed logistical breakthrough.”
Source: Money Control
“The revenue growth for ICRA’s sample of 21 Indian pharmaceutical companies was moderate at 6.4 percent in Q2 FY22, down from 16 percent in Q1 FY22.”
“Sun Pharma to launch Merck’s Covid pill under the brand name ‘Molvir’ in India with 76% efficacy”
Source: Money Control
Headlines like these have become a common part of our morning routines. Some of us read them to keep ourselves informed or to sound smart in those everyday conversations. In any case, the ongoing pandemic has changed our perception of a virus, brought a new outlook on a way of life, and made us medical experts, capable of diagnosing Covid-19 through a person’s cough. As we can see in the graphs above the condition of these pharmaceutical industries has gone up by 15.27% and 12.58%, a clear indication of people investing in the pharmaceuticals. You still don’t believe it? Well, let’s see the efficacy test that the vaccines have brought leading to the upsurge of the pharmaceutical industry.
The most common method to derive efficacy, and the one explained below, is the ‘randomized control trial’. The Pfizer study enrolled 43,660 people who were equally split into two groups: one was given the vaccine and the other was given a placebo. The total number of infected people in the placebo group was 162 whereas people vaccinated but still infected was 8. When we calculate the infection risk of both the categories by dividing the number of infected people upon the total group size we derive the percentage of infection risk. In the placebo group the infected people were 162 when divided by 21,830 it comes upto 0.74%. Similarly when the number of infected people in the vaccinated category that is 8 is divided by the group size viz 21,830, we derive at the infection risk of 0.04%.
|Group||Group Size||Number Infected||Infection Risk||If in U.S. Population|
|Placebo||21,830||162||162 / 21830 = 0.74%||2,427,200 (about 2.5 million)|
|Vaccine||21,830||8||8 / 21830 = 0.04%||131,200 (131 thousand)|
The table clearly indicates that the efficacy derived can be calculated as 0.7% / 0.74% which is approximately 95% efficacy of the vaccines made by the pharmaceutical companies.
These incentives make the investor even more eager to invest in the pharmaceutical industry. If you’re looking for a long-term, say 3-7 years investment, you must look at the pharma stocks. In August 2021, the Indian pharmaceutical market increased at 17.7% annually, up from 13.7% in July 2020. According to India Ratings & Research, the Indian pharmaceutical market revenue is expected to be over 12% Year on Year in FY22. These pharma companies perform throughout the year focussing on coming up with better, cheaper, and more effective cures to solve common problems and find medicines for diseases that impact the world on a large scale. Whether you are at home or at the hospital, the medicines manufactured by a few giants dominate the industry.
In the Budget 2022, presented by Hon Finance Minister, Nirmala Sitharaman, it was declared that an open platform for the National Digital Health Ecosystem will be rolled out. It will consist of digital registries of health providers and health facilities, unique health identity, consent framework, and universal access to health facilities. A total of ₹86200 crore would be spent over the Healthcare sector by the government. It was further declared, there would be non-taxability in the recipient’s hands of the sum received to be spent on COVID-19 related illness and receipt of funds by a family from an employer or any person on death of an individual subject to conditions prescribed. It further stated that the government shall provide sunrise opportunities to pharmaceutical companies to assist sustainable development at scale. For Research & Development in these sunrise opportunities, in addition to efforts of collaboration among academia, industry and public institutions, government contribution will be provided.
This is the reason the pharmaceutical industry blooms and is an evergreen business. Yes, they do have their bad days and there may be a bearish market impacting investors, however with time they tend to rise back up to stronger positions making it bullish.
The world has often been caught in a repetitive dilemma and debate on the use of vaccinations in the many pandemics that have arisen. `From an economic perspective, the advantages of vaccines in countering deadly infectious diseases are indubitable. Of course, no system is completely foolproof and the vaccines are no different. There might be errors, anomalies, and outliers but a vaccine jab is humanity’s ultimate biological weapon against nature’s deadly pathogens. Nevertheless, an investor must look at all opportunities optimistically and should only invest in those that he feels will give him high returns.
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