Pakistan's pharma sector offers a market remedy for volatility

February 18, 2026 (MLN): With margins at record highs, Pakistan’s pharmaceutical sector appear to have found the right formula for sustained market strength.

Pakistan’s pharmaceuticals have surged more than threefold since 2024, yet the rally still has room to run.

Sector profits expanded over four times between FY23 and FY25, driven by deregulation of non-essential drug prices, rising exports, and a steady stream of new product launches.

The momentum is expected to extend into CY26, as several companies recover from a low base in 2025. Pakistan’s pharmaceuticals have returned 225% since 2024, according to a recent Intermarket Securities sector update report.

Yusra B. Farhan, Head of Research at Intermarket Securities, told Mettis Global that the upcoming earnings season will be pivotal in shaping sentiment for Pakistan pharmaceuticals, with meaningful growth in unit sales likely to act as a key catalyst for confidence.

A stable exchange rate, export-focused strategies, and active product pipelines continue to underpin profitability, while a roughly 35% decline in Chinese active pharmaceutical ingredient (API) prices  critical given Pakistan imports the majority of its raw materials  has significantly lifted margins.

Commenting on reliance on China for APIs, she noted that while markets are focused on margin upside from falling API prices, the concentration risk is low probability in the near term. Strong Pakistan-China trade relations also reduce potential geopolitical disruptions.

Several listed names, including OTSU, ABOT, HINOON, GLAXO, HALEON, AGP, and CPHL, still trade below 15x forward earnings, pointing to selective valuation upside.

On a free-float basis, the sector’s CY26 forward P/E of around 16x and price-to-sales ratio of 1.9x remain below their 10-year averages.

Profitability metrics are at historic highs, with gross margins crossing 42% in the third quarter of CY25 as pricing flexibility and cheaper imported inputs reduced cost pressures.

Although domestic API production remains limited  confined to a small number of producers and molecules gradual localization is beginning to cushion margin volatility and improve earnings visibility.

Lower global API prices, particularly from China, are emerging as a structural tailwind. Post-pandemic oversupply and intense price competition have pushed costs of key molecules down 35–40% from peak levels, directly easing input expenses for import-reliant manufacturers.

Exports are also accelerating. Pharmaceutical shipments rose 34% YoY to roughly $457 million in FY25, marking the fastest growth in two decades, while combined therapeutic goods exports approached $900 million.

Despite softer trade flows with Afghanistan, companies are gaining traction in markets across Southeast Asia, Central Asia, and East Africa. The global expiry of blockbuster drug patents is further expanding opportunities in generics, with export-oriented firms increasingly contributing a larger share of sales from overseas markets.

While replying to our question about the biggest risks that could derail the current growth momentum, she highlighted that negative policy changes on price deregulation, large swings in the PKR or FX shocks (though mostly pass-through under the current regime), export disruptions, and a potential rebound in global API prices due to supply consolidation in China are to be monitored as these risks will be crucial for anyone evaluating the sustainability of the rally.

Furthermore, while commenting on R&D connection to future profits, the Research Head said, Pakistan’s pharma sector primarily focuses on generics and formulation innovation rather than breakthrough novel drugs.

However, new launches in specialty therapies, low-competition molecules, and recently off-patent drugs can meaningfully enhance gross margins.

Companies with stronger pipelines, such as AGP and HINOON, are better positioned to extract higher margins from these launches compared to more commoditized portfolios.

With record-high margins, strengthening export momentum, and easing input costs, the sector is being viewed as a relative safe haven in an otherwise volatile equity market.

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