Investing Glossary

ANDA (Abbreviated New Drug Application)

The FDA filing used by generic drug companies to get approval without repeating full clinical trials — they only need to prove their drug behaves the same in the body.

API (Active Pharmaceutical Ingredient)

The chemical in a drug that actually does the therapeutic work. Everything else in the pill (binders, coatings) is inactive filler called excipients.

Biosimilar

A near-copy of a biologic drug (made from living cells, like insulin or Herceptin). Unlike chemical generics, biosimilars cannot be chemically identical — they must prove 'similar' efficacy, making them harder and more expensive to develop.

Branded Generics

A generic drug sold under a proprietary brand name. Doctors prescribe by brand, not molecule name — this doctor-brand loyalty is a durable competitive moat.

CDMO (Contract Development and Manufacturing Organisation)

An outsourced pill factory that makes drugs for pharma companies. CDMOs earn stable, long-term contract revenue without the patent risk of a branded drug company.

CRO (Contract Research Organisation)

A specialist company that runs clinical trials, lab experiments, and R&D work on behalf of pharma clients. Asset-light, fee-based business model. Indian example: Syngene International.

Day-1 Price Erosion

When a generic drug launches in the US, multiple competitors often enter on the same day. Prices can drop 60–80% within months as companies undercut each other. A blockbuster generic that earns 40% margins in year 1 may earn only 15% by year 3 — so US generics revenue must be constantly refreshed with new launches.

EBITDA

Earnings Before Interest, Taxes, Depreciation and Amortisation. A measure of a company's core operating profitability, stripping out financing and accounting effects. Useful for comparing companies across industries.

EBITDA Margin

EBITDA expressed as a percentage of revenue. A 25% EBITDA margin means Rs 25 of operating profit for every Rs 100 of sales. Higher margins mean more pricing power or lower costs than competitors.

Economic Moat

A sustainable competitive advantage that protects a company's profits from rivals — like a castle's moat. Types include brand loyalty, network effects, switching costs, scale advantages, and regulatory barriers. Warren Buffett's core investing concept.

FDA Warning Letter

A formal FDA notice that a company is seriously non-compliant with manufacturing standards. It blocks new drug approvals from that plant until resolved — and typically wipes 15–20% off the stock price.

Form 483

A list of 'observations' issued by FDA inspectors after visiting a manufacturing plant. Not a ban, but a formal warning that must be addressed. Unresolved 483s escalate to Warning Letters.

Generic Drug

A copy of a brand-name drug with the same active ingredient, dosage form, and effectiveness, sold at a much lower price after the original patent expires.

Import Alert

The most severe FDA action: blocks all shipments from a specific plant into the US market. Companies can take 12–36 months to get an Import Alert lifted.

Market Capitalisation

The total market value of a company: share price multiplied by total shares outstanding. A Rs 1,00,000 Cr market cap means the market values the entire business at that amount today.

MR Network (Medical Representatives)

A pharma company's field salesforce that visits doctors to promote branded drugs. MR count is a proxy for prescription market reach — 10,000+ MRs is a moat that takes decades to build.

NDA (New Drug Application)

The full FDA application for a new, original drug. Requires complete clinical trial data proving safety and efficacy. Costs $1–2 billion and takes 10–15 years.

NLEM (National List of Essential Medicines)

India's list of ~360 medicines deemed essential to public health, all subject to NPPA price controls. Pharma companies with heavy NLEM exposure face more pricing risk than those focused on chronic or specialty drugs.

NPPA (National Pharmaceutical Pricing Authority)

India's government regulator that sets maximum price caps on essential medicines. Sudden NPPA price cuts can reduce a pharma company's domestic revenue by 3–8% overnight.

P/E Ratio (Price to Earnings)

Tells you how many years of current earnings you're paying for when you buy a stock. A P/E of 25 means you pay 25 years of today's profits upfront. High P/E = market expects strong growth; low P/E = slow growth or high risk.

Para IV Filing

A type of ANDA that challenges an existing patent, claiming it is invalid or won't be infringed. The first company to successfully file gets 180 days of exclusive generic sales — a temporary monopoly.

PAT (Profit After Tax)

The 'bottom line' — what's left for shareholders after paying all expenses, interest, and taxes. Also called net profit. This is the number used in P/E ratio calculations.

Patent Cliff

The sharp revenue drop an innovator drug company faces when a blockbuster drug's patent expires and generic competitors flood in. Example: Pfizer lost $10B+ in annual Lipitor sales within two years of patent expiry.

ROCE (Return on Capital Employed)

Measures how efficiently a company generates profit from all the capital it uses — both equity and debt. ROCE above 20% is generally excellent. The best businesses compound ROCE above 25% for decades.

ROE (Return on Equity)

Profit generated for every rupee or dollar of shareholders' money invested. ROE above 15% is generally good. Watch out: high ROE driven by heavy debt is misleading — check ROCE alongside it.

ROIC (Return on Invested Capital)

The most rigorous measure of capital efficiency — profit generated on every rupee of capital deployed, after tax. ROIC consistently above the cost of capital (typically 10–12%) means the business is creating shareholder value.

Working Capital

The money tied up in day-to-day operations: raw materials, work-in-progress inventory, finished goods, and receivables (money customers owe you). High working capital businesses need more cash to grow.