Whalesbook
Pharma Sector Faces Margin Pressure in Q3 Amid Revlimid Patent Expiry
India's pharmaceutical industry is set to kick off its earnings season for the quarter ended December with expectations of muted margins. A significant factor contributing to this outlook is the loss of patent exclusivity for the blockbuster blood cancer drug Revlimid in the United States. This development is poised to affect overall US sales for Indian drugmakers, although analysts anticipate that steady domestic growth and continued momentum in their base businesses may soften the blow.
Revlimid's Declining Contribution
Several Indian pharmaceutical giants, including Dr Reddy’s Laboratories, Cipla, Zydus Lifesciences, and Sun Pharma, had previously entered settlements with Revlimid's innovator, Mylan. These agreements allowed them to sell the drug in limited quantities from 2022 until its patent expiry in January 2026. Revlimid, which has generated over $100 billion in global sales since its launch, has been a substantial revenue and margin driver for these companies. As they offload remaining quotas throughout the current fiscal year, sales are projected to decline sequentially.
BNP Paribas analyst Tausif Shaikh noted on January 13 that "Ebitda margin declines for Dr Reddy’s, Cipla and Zydus Lifesciences are expected due to sharp erosion in gRevlimid prices as players look to offload remaining quotas before patent expiry." Kotak Securities analysts anticipate a sector-wide decline in earnings before interest, taxes, depreciation, and amortization (Ebitda) margins by 150 basis points year-on-year.
Broader Margin Pressures
Beyond Revlimid, other factors are expected to weigh on third-quarter margins. These include increased generic price competition in the US market, higher research and development (R&D) expenses, rising selling, general, and administrative (SG&A) costs, and the addition of new medical representatives to bolster domestic operations, according to a January 9 note from HDFC Securities.
Kotak Securities analysts projected a 4% quarter-on-quarter decline in overall US sales for their coverage universe, factoring in lower gRevlimid sales for Dr Reddy’s, Cipla, Sun Pharma, and Aurobindo Pharma.
Domestic Growth Offers Resilience
Despite the challenges in the US market, analysts remain optimistic about the sector's overall revenue growth, with Kotak and HDFC expecting 8% and 11% respectively. "Except for the expected sharp decline in gRevlimid sales, we expect 3QFY26 to be another steady quarter for our pharma coverage, led by continued stability in US generics pricing and decent domestic growth along with traction across most other markets," stated Kotak Securities.
Excluding Revlimid, US generic sales are forecast to grow by 2% quarter-on-quarter, driven by volume expansion in existing products and the benefits from recent launches. For specific companies, Lupin is expected to see continued traction from Tolvaptan and a full-quarter benefit from Glucagon. Sun Pharma's innovative medicines portfolio, including Leqselvi and Cequa, is anticipated to drive sequential growth, while Cipla may see higher sales for its cancer drug, Abraxane. Domestic sales are projected to outpace the broader Indian pharmaceutical market's 10.1% growth seen in October-November 2025, with the chronic segment showing particular strength.