MNC Pharma Stocks: The Right Dose for Investors?

MNC pharma shares appear to be the right 'prescription' for investors looking to leverage the growth opportunities the pharma sector.

MNC pharma stocks like Sanofi India, Abbott India, GlaxoSmithKline Pharmaceuticals and Procter & Gamble Health, are trading close to their 52-week highs.

The sales of MNC pharma are a small fraction of big generic pharma exporters like Sun Pharma, Cipla and Dr. Reddy's Laboratories.

Big generic pharma exporters like Sun Pharma among others create their own versions of global block-bluster patented drugs.

Once the 7-year patent of a drug expires, they get regulatory approval across the globe and typically, multiply their sales in a few quarters.

However, getting this approval especially, from the US FDA, is a long and complicated process. It is also subject to surprise visits of factories and retaliatory steps if not compliant.

The largest generic exporter from India, Sun Pharma reported consolidated net sales of Rs 12,652.7 crore in the June 2024 quarter, a 6% rise on a year-on-year (YoY) basis. Its consolidated net profit in June 2024 quarter was Rs 28.6 billion (bn), a growth of 42.6% YoY.

However, Sun Pharma has been grappling with US FDA warning letters for its Dadra-based manufacturing plant for several quarters.

In contrast, pharma MNC companies in their operations here are largely 'domestic plays' and with negligible sales in the hyper competitive US market. As a result, these MNC pharma companies do not face high-level regulatory risk, especially from the US FDA, and are viewed by investors as 'safer' pharma stocks.

Also, these pharma MNC companies get access to their overseas parent's blockbuster drug portfolio for sales in the local market, although it often includes payment of royalties to the global head office.

This also eliminates the need for the MNC pharma companies to not incur large R&D costs in their local operations in contrast to the large generic pharma exporters.

June Quarter Results of Pharma MNCs

GlaxoSmithKline Pharmaceuticals reported consolidated net sales of Rs 8,146 million (m) in the June 2024 quarter, a 7% YoY rise. Sales growth was helped by improved demand for pediatric vaccines and the respiratory portfolio.

Its net profit also grew 37.9% YoY to Rs 1,823 m in the June quarter.

Meanwhile, Abbott India reported net sales of Rs 15.6 bn in the first quarter of FY25, a growth of 5.3% YoY.

Net profit improved 12.7% to Rs 3.3 bn. It benefited from improved demand for its portfolio of injections.

How Investors View These Stocks

Abbott India trades at a PE of nearly 53 times FY24 earnings, while GlaxoSmithKline Pharmaceuticals trades at nearly 70 times earnings.

In the case of Sanofi India it trades at 26 times earnings and Procter & Gamble Health trades at 43 times earnings.

Meanwhile, Sun Pharma trades at a PE of 44.8 times consolidated FY24 earnings while Dr. Reddy's Laboratories trades at 20.9 times earnings.

MNC pharma stocks are not cheap. The domestic pharma market is expected to grow on a compounded basis of 8-10% over the next 5 to 10 years.

However, with virtually no regulatory risk from the US FDA, MNC pharma shares appear 'safer' from this perspective.

Happy investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...