Coronavirus Has Limited Impact on Big Pharma and Big Biotech

The coronavirus pandemic will affect Big Pharma and Big Biotech companies in two major ways: (1) an economic slowdown, likely causing a 4.6% hit to 2020 global GDP (implying a 1.4% decline in 2020), and (2) a disruption in the use of drugs, vaccines, and consumer healthcare products. However, the highly inelastic demand for most drugs should largely offset any recessionary impact. We also expect overall headwinds to healthcare utilization to largely focus on new and elective drugs and products or less critical drugs and vaccines administered in a hospital or doctor’s office.

We also expect overall headwinds to healthcare utilization to largely focus on new and elective drugs and products or less critical drugs and vaccines administered in a hospital or doctor’s office.

While the coronavirus pandemic has caused some disruption to the drug industry’s cash flows, we believe the market has overreacted regarding healthcare valuations.

Beyond the capital appreciation in this industry, we expect drug companies to continue to support their dividends.

With the need for prescription drugs relatively high irrespective of the economy, we expect patients will continue to demand fairly constant amounts of drugs.

Our economic outlook calls for a global decline in GDP of 1.4% in 2020, followed by a rebound in 2021, with a 0.9% headwind to long-run GDP from the coronavirus outbreak. The large drug and biotechnology companies weathered the 2009 recession without many impacts. With the 2009 global recession showing some similarities to our expectations for 2020, we don’t expect major changes to our valuations in the drug and biotech industry related to the economic pullback. Read More In The Source

We have lowered our Big Pharma and Big Biotech fair value estimates by almost 2% in aggregate, much less than the stocks have declined as a result of disruptions caused by the coronavirus outbreak. The high need for drugs should support continued demand and supply. Also, we expect new treatments and vaccines to reduce the long-term impact of the virus. We don’t expect changes to our economic moat ratings, as innovation should continue with only minor disruptions. Successful coronavirus treatments by the pharmaceutical industry should also remind the world about the social importance of the group (a key environmental, social, and governance factor for the industry), shielding it from the potential pressures of any new drug-pricing policy reforms. Our top undervalued picks in the industry include Bayer, BioMarin, Biogen, Merck, and Pfizer.

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