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The Equitymaster Research Digest

Would Buffett Ever Consider Investing in Indian Pharma Stocks?
Apr 20, 2016

It is no big secret that Warren Buffett absolutely enjoys moats. Indeed, companies with wide moats are the most resilient businesses and the best shareholder wealth creators. I have talked about how brand power, low-cost advantage, and high switching costs are good quality moats because they equip companies with pricing power even when there is competition. Companies in the FMCG, commodities, and banking sectors come to mind.

Do pharma companies enjoy moats? It depends.

Broadly speaking, there are two kinds of companies in the global pharma market - the innovators and the generic companies.

Classic examples of innovators are the big pharma companies such as Pfizer, Novartis, GlaxoSmithKline (GSK) Plc, Sanofi, and the like. Having said that, innovators aren't necessarily Big Pharma. Many of the small biotech companies that have sprung up in the developed world are also innovators because of new molecules that they have launched in the market.

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