Top pharmaceutical stock: Zydus Lifesciences vs Rubicon Research

India’s pharma exports crossed $30 billion (bn) in FY25, aided by United States Food and Drug Administration (US FDA) approvals and expanding generics reach.

However, pricing pressures in the US, regulatory scrutiny, and raw-material cost volatility continue to pose global headwinds.

We break down the two pharma players, comparing their business mix, profitability, and growth strategies to determine which one is stronger in India’s evolving healthcare landscape.

Business Overview

Zydus Lifesciences

Zydus Lifesciences Ltd is an integrated, global life sciences company operating across the entire value chain in research, manufacturing, and marketing of pharmaceutical and wellness products.

Its core purpose is empowering people with the freedom to live healthier lives through science and pathbreaking discoveries.

In Q1 FY26, the company demonstrated execution excellence in US formulations and saw its branded India formulations business outpace market growth, supported by robust profitability.

Competitive Advantages

• Strong Innovation Engine: The company is investing 7-8% of annual revenues in R&D across NCEs, biologics, vaccines, and speciality products. This strategy drives differentiation and ensures the availability of novel solutions to address unmet medical needs.
• US Generics Scale: Zydus ranks as thefifth largest generic company in the US by prescription volume. It holds a leadership position (Top 3) in over 55% of product families, sustained by strong customer relationships, versatile manufacturing, and resilient supply chain efforts.
• Market Outperformance India: The branded formulations business consistently outpaces Indian market growth, driven by pillar brands and strategic initiatives. The chronic segment continues to expand at a faster rate, increasing its contribution to 43.7% of the portfolio as of June 2025.
• Integrated Global Reach: The international markets formulation business acts as a reliable third pillar of growth, consistently delivering strong double-digit growth. The company is confident of maintaining high teens to mid-twenties growth across key emerging markets and Europe.
• Robust Manufacturing Base: The company utilises 39 state-of-the-art manufacturing facilities with capabilities across diverse dosage forms, including APIs and biologics. Recent USFDA Establishment Inspection Reports (EIR) for API facilities confirm quality and compliance adherence.

Growth Plans

• Scale Speciality Portfolio: The company is focusing on scaling the speciality portfolio substantially by FY27, with 25 products in the pipeline, 15 of which have been filed. These products offer high profitability and are expected to deliver long-term differentiated value.
• Biologics CDMO Focus: Zydus entered the global biologics CDMO market by acquiring US facilities from Agenus Inc. This marks a strategic investment adding a sustainable growth driver for the future, with significant revenue expected within two-and-a-half to three years.
• Develop MedTech Pillar: Building a new growth pillar in MedTech (medical technology) via the acquisition of Amplitude Surgical (a company specialising in orthopaedic implants and joint replacement surgeries, i.e., bones and joints) and organically constructing a dialyser facility (a plant that makes dialysis machines used to clean the blood of kidney patients) for nephrology (the branch of medicine dealing with kidneys). This business segment is targeting meaningful scale-up after three years.
• Accelerate US Launches: The company is planning 30+ product launches in FY26, focusing on differentiated generics and injectable products to sustain single-digit growth despite anticipated price erosion and major product revenue challenges.
• Expand Vaccine Access: Seeking to penetrate high-volume public markets by securing MR vaccine public tenders in India and achieving WHO pre-qualification for global tenders (UNICEF/PAHO). This leverages a growing and important portfolio.

Rubicon Research

Rubicon Research is an innovation-driven pharmaceutical formulations company specialising in speciality products and drug-device combinations. It maintains a complete focus on regulated markets, particularly the US.

Leveraging intensive R&D, the company had 72 active ANDAs (applications to sell generic drugs in the US) and 9 active NDAs (applications to sell new, original drugs in the US) approved by the USFDA as of June 2025.

Notably, it was the fastest-growing Indian pharmaceutical formulations company among its assessed peers between FY23 and FY25.

Competitive Advantages

• Rapid Growth, US Focus: Rubicon is the fastest-growing Indian pharmaceutical formulations company among its peers (FY23–FY25 CAGR of 75.89%). It is the only Indian player focusing entirely on highly regulated markets, deriving 98.49% revenue in FY25 from the US.
• Data-Driven Product Selection: A rigorous, ROI-centric product selection framework targets complex and low-competition density drugs, helping the company withstand market pricing pressures. This focus resulted in gross margins of 70.26% in FY25.
• Strong R&D Investment: Rubicon is significantly investing in R&D (10.54% of total revenue in FY25) allows the pursuit of complex products, like drug-device combination nasal sprays. R&D is supported by 170 scientists and proprietary technologies backed by patents.
• Robust US Distribution: The company has established US distribution capabilities through AdvaGen Pharma for generic products and Validus for promoting branded speciality products to prescribers. This dual structure expands customer reach and market penetration.
• Compliance & Cost Efficiency: Rubicon maintains a strong compliance record, with no US FDA “Official Action Indicated” (OAI) status since 2013. Manufacturing located in India offers 30-40% lower costs than in the US, enhancing competitiveness.

Growth Plans

• Grow Speciality Portfolio: A key strategy is expanding the portfolio of speciality products and drug-device combination nasal sprays. This includes commercialising pipeline-branded products in CNS and CVS therapy areas promoted through Validus.
• Achieve Generic Leadership: Rubicon intends to continuously develop cost-optimised generic formulations and seek market-share leadership. This leverages scalable and efficient manufacturing alongside established customer relationships to increase market share.
• Deepen US Market Presence: The company aims to increase marketing and sales efforts for branded products in the US through Validus. This involves utilising personal visits and digital promotion to expand the base of prescribers for speciality products.
• Leverage Global Approvals: Plans include capitalising on US approvals to accelerate entry into other regulated markets, such as the UK, Canada, and Australia. Centralised manufacturing supports cost leadership and extends competitive advantage globally.
• Pursue Strategic Acquisitions: The company plans to opportunistically pursue inorganic growth opportunities, including unidentified acquisitions and strategic collaborations for external innovation. This enhances manufacturing capacity and product pipeline strength.

Zydus Lifesciences vs Rubicon Research Financial Performance

Revenue

Revenue Highlights (FY23-Q1FY26)

Source: Company FY25 Report and RHP Filings

Zydus Lifesciences reported a 19% YoY revenue growth in FY25, led by strong performance across all segments.

The US business crossed the $1 bn mark, driven by new launches and volume growth, while India formulations and Consumer Wellness delivered robust double-digit growth.

In Q1FY26, revenue rose 6% YoY, led by international markets (up 37%). Management targets double-digit FY26 growth, driven by India and global markets, with future focus on biologics, vaccines, MedTech, and CDMO expansion.

At the same time, Rubicon Research recorded strong growth over the years, led by new product launches, volume expansion, and higher pricing in the US market.

In FY24, revenue surged 117% YoY, followed by a 50.4% rise in FY25, supported by the addition of new generic and speciality products and the Validus Pharma acquisition. In Q1FY26, revenue grew 11.3% YoY, driven by improved product mix and higher margins.

The management plans to sustain momentum through R&D-led portfolio expansion, speciality product growth, and capacity upgrades for long-term scalability.

Profitability

Profitability (FY23-Q1FY26)

Source: Company FY25 Report and RHP Filings

Zydus Lifesciences’ profitability improved sharply from FY23 to FY25, achieving record Ebitda margins of 30.4% in FY25.

Margin gains were driven by a better product mix, cost efficiencies, and strong growth in India formulations and Consumer Wellness. Net profit rose 23% YoY in FY25, supported by high-margin products like Mirabegron and the Saroglitazar franchise.

In Q1 FY26, margins remained strong at 31.8%. For FY26, management expects margins around 26%, amid pricing pressure, higher R&D spend, and Revlimid competition.

However, Rubicon Research turned profitable in FY24 after posting a net loss of ₹168.88 m in FY23, driven by 117% revenue growth and a shift toward higher-margin speciality products.

Net profit rose 638.9% in FY24 and 47.6% in FY25, supported by improved cost control, product mix, and the Validus Pharma acquisition.

By Q1FY26, profit jumped 69% YoY with EBITDA margin up to 22.3%, reflecting strong speciality portfolio growth, better pricing power, and operational efficiency gains.

Risks of Investing in pharmaceutical stocks

Investing in pharma stocks can be exciting, especially when a single drug approval can move the stock overnight. But it’s also a high-risk, high-reward space, and there are risks every investor should know:

• Regulatory and Compliance Hurdles: Pharma companies operate in one of the most heavily regulated industries in the world. Even a minor compliance issue during a USFDA inspection can lead to product recalls, sales loss, or factory shutdowns. Since drug approvals take years and cost millions, any regulatory delay can quickly derail growth and investor confidence.
• Heavy Dependence on R&D Success: A pharma company’s future depends on its pipeline of new drugs. But not every research project makes it to the market, and failures can burn huge amounts of cash. If R&D disappoints, revenue growth and profitability may take a big hit.
• Pricing Pressure and Intense Competition: Generic drug makers face cutthroat competition, where price wars often eat into margins. Even for branded products, government price controls in key markets can limit profitability. When too many players launch similar drugs, it’s a race to the bottom on pricing, and that’s bad news for long-term investors.
• Patent Expiry and Legal Battles: Once a drug’s patent expires, cheaper generic versions flood the market, leading to a steep revenue decline (often called the “patent cliff”). Add to that frequent IP lawsuits and product liability cases, and investors face real risks that can drain profits and distract management from core growth areas.
• Global and Operational Risks: Pharma supply chains are global, meaning any geopolitical tension, raw material shortage, or currency fluctuation can disrupt operations. Many firms also rely heavily on the US market, so any regulatory or trade change there can shake up earnings.

Which of pharmaceutical stocks are best?

India’s pharmaceutical sector stands at a turning point driven by rising healthcare demand, global generic dominance, and growing R&D capabilities.

With strong export potential and increasing focus on innovation, top Indian pharma companies are well-positioned for long-term growth.

However, investors must closely track regulatory actions, patent cycles, and pricing pressures, as these factors can significantly influence earnings stability. A balanced approach combining growth potential with careful risk assessment remains key to navigating India’s evolving pharma landscape.

It’s important to conduct thorough research on financials and corporate governance before making investment decisions, ensuring they align with your financial goals and risk tolerance.

Happy Investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com