Manchanda believes most large-cap pharma stocks are fairly valued after the pharma index gained around 18%, but sees more potential in Sun Pharma and Cipla. He also expects smaller pharma companies, particularly contract development and manufacturing organisation (CDMO) players, to deliver stronger returns as new contracts and opportunities emerge.
Chinese pharma partnerships could become a bigger trend, with companies such as Cipla, Dr Reddy’s Laboratories and Glenmark Pharmaceuticals already pursuing such deals. Manchanda expects Chinese innovation to put pressure on oncology drug prices as drugmakers focus on scale and volumes. “China companies are known for commoditising everything,” he said.
He believes greater access to Chinese-developed medicines could benefit Indian patients by making innovative oncology treatments more affordable. However, the opportunity for individual drugs will depend on their performance against competing therapies and the pricing at which they are introduced in India.
On Sun Pharma, Manchanda said the US government deal has largely removed the tariff uncertainty surrounding the company. While there could be some earnings impact, he estimates it would be limited to around 1% of earnings before interest, taxes, depreciation and amortisation (EBITDA) margin, based on Sun Pharma’s Medicaid exposure.
“We haven’t really seen a very significant impact on their earnings,” Manchanda said, referring to similar agreements signed by global innovators. He believes the removal of the tariff overhang should be supportive for Sun Pharma going forward.
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While he does not see another Indian pharma company with a meaningful enough innovative portfolio to sign a similar deal with the US government currently, he expects the broader pharma sector to remain active, with smaller CDMO names potentialjly offering greater upside through new contracts and growth opportunities.
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