Best ASX pharmaceutical stocks | How to invest

Pharmaceutical stocks are companies that research and produce pharmaceutical drugs and medical equipment.

While the industry is dominated by big names like Pfizer, Johnson & Johnson and GlaxoSmithKline — famous for blockbuster drugs netting over $US1 billion in annual sales, like Advair, Lipitor and Zoloft - there's plenty of competition.

There's numerous up-and-comers in the industry offering a spectrum of entry points for Australian investors, like livestock medicine manufacturer Zoetis or Neoleukin Therapeutics, a biopharmaceutical company that targets immunological disorders.

Best ASX pharmaceutical stocks

This is a list of the top pharmaceutical and health technology stocks on the Australian Stock Exchange (ASX), based on their performance so far in 2024 (and over the last 5 years). This list was last updated on 14 June 2024 using TradingView data.

1. Cynata Therapeutics Limited (ASX: CYP)

Year-to-date performance: 138.46%
5-year performance: -74.93%

2. LTR Pharma Limited (ASX: LTP)

Year-to-date performance: 123.19%
5-year performance: 120.00%

3. Cleo Diagnostics Limited (ASX: COV)

Year-to-date performance: 122.86%
5-year performance: 69.57%

4. Race Oncology Limited (ASX: RAC)

Year-to-date performance: 113.10%
5-year performance: 2,834.43%

5. Pharmaust Limited (ASX: PAA)

Year-to-date performance: 95.65%
5-year performance: 462.50%

How to invest in pharmaceutical stocks

There are a few main ways you can invest in or trade pharma stocks:

1. Buy pharmaceutical stocks directly
2. Invest in an ETF that includes pharma companies
3. Trade futures or options

Regardless of how you choose to invest, you'll need to sign up with a broker or trading platform first:

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Pharma ETFs

If you'd prefer to invest in an index of pharma companies instead of individual shares, you have a couple of local and international options:

ASX pharma ETFs

• iShares Global Healthcare ETF (ASX: IXJ)
• Vaneck Vectors Global Healthcare Leaders ETF (ASX: HLTH)
• Betashares Digital Health and Telemedicine ETF (ASX: EDOC)

Global pharma ETFs

• iShares Healthcare Innovation UCITS ETF (LON: HEAL)
• VanEck Pharmaceutical ETF (NASDAQ: PPH)
• iShares US Pharmacueticals ETF (NYSEARCA: IHE)
• Invesco Dynamic Pharmaceuticals ETF (NYSEARCA: PJP)

Why invest in pharmaceutical stocks?

The global pharmaceutical industry is massive — and the US holds the largest slice of the market.

Pharma stocks also have the potential to outperform the broader market. For example, the SPDR S&P Pharmaceuticals ETF has outperformed the S&P 500 since its 2006 inception.

And if the potential for profit isn’t incentive enough, investors also have the opportunity to back potentially groundbreaking, life-saving medicine — medicine that they or a loved one may one day rely on.

Risks of investing in pharmaceuticals

Pharmaceutical stocks present a potentially lucrative investment opportunity but carry significant risks, including competition from generic drugmakers, product patent expirations and the substantial cost of research and development (R&D).

It’s estimated that pharmaceutical companies spend approximately 20% of their revenue on research and development.

Pharma companies also face steep competition from generic drugmakers attempting to undercut brand-name products with cheaper alternatives — especially for drugs with patent expirations on the horizon.

The industry is far from foolproof, and while pharma stocks could be a potentially profitable addition to your portfolio, make sure you understand the risks involved before you invest.

Bottom line

Pharma stocks offer Australian investors the opportunity to back groundbreaking drug research, but competition in this industry has the potential to threaten profits.

To invest in pharmaceutical companies, you’ll need a brokerage account. Compare your platform options to find the brokerage that fits your budget and investment goals needs.

Frequently asked questions

• What factors influence the share price of pharmaceutical companies?

  Pharmaceutical share prices are largely driven by key events such as clinical trial results, regulatory approvals, patent expiries and the success of new drug launches. Broader factors like mergers and acquisitions, global health trends and government policy changes on healthcare can also impact valuations.

• How do pharmaceutical stocks perform during economic downturns?

  Pharmaceutical stocks are often viewed as defensive because healthcare demand tends to remain stable regardless of economic conditions. However, performance can still vary depending on a company’s product pipeline, debt levels and exposure to discretionary areas like elective treatments.

• Are Australian pharmaceutical stocks different from global pharma companies?

  Yes. Australian pharmaceutical stocks tend to be smaller and more research-focused, often specialising in biotech innovation or medical devices. Global giants are usually more diversified, with established revenue streams across multiple therapeutic areas and regions.

• What are the risks of investing in pharmaceutical shares?

  Key risks include clinical trial failures, regulatory setbacks, patent disputes and competition from generic drugs. Investors should also consider cash flow risk, as research and development is costly and can take years to produce results.

• How can beginners invest in pharmaceutical stocks?

  Beginners can buy shares directly through a share trading platform or gain exposure via exchange-traded funds (ETFs) that focus on healthcare or biotechnology. Researching the company’s fundamentals and understanding the sector’s volatility are essential before investing.

• Do pharmaceutical companies pay dividends?

  Some larger pharmaceutical firms with consistent earnings pay regular dividends, while early-stage biotech or research-driven companies often reinvest profits into development instead. It’s best to review each company’s dividend history and payout policy before investing.

• How are biotech stocks different from pharmaceutical stocks?

  Biotech stocks focus on developing therapies using biological processes, often at earlier research stages. Pharmaceutical stocks typically belong to companies producing chemically synthesised drugs with established commercial operations. Biotech shares can be more volatile but also offer higher growth potential.

• What should I look for when analysing a pharmaceutical company?

  Investors often assess the company’s drug pipeline, stages of clinical trials, patent portfolio, financial health and partnerships. Regulatory milestones and upcoming product launches can also signal future growth prospects.

• Can I invest in global pharmaceutical stocks from Australia?

  Yes. Many Australian brokers offer access to international exchanges, allowing investors to buy shares in major pharmaceutical firms listed in the US, UK or Europe. Be mindful of currency fluctuations and brokerage fees when trading overseas.

Written by

Shannon Terrell

Writer

Shannon Terrell is a writer for Finder who studied communications and English literature at the University of Toronto. On any given day, you can find her researching everything from equine financing and business loans to student debt refinancing and how to start a trust. She loves hot coffee, the smell of fresh books and discovering new ways to save her pennies. See full bio