Logic would suggest that in periods of economic turmoil, the pharmaceutical industry might offer a safe haven for investors. When consumers feel burdened by inflationary pressures, they will first look to cut spending on discretionary items, such as new clothes or electronics. Prescription drugs, on the other hand, are not luxuries that can so easily be done away with.
- Earnings forecast to rocket
- No imminent patent-expiry concerns
- Pipeline focused on high-growth areas
- Above-industry growth
- Rich forward multiple
- Drug trial risks
But while demand for medicines may prove resilient in a recession, the risk profile of the sector’s largest names is decidedly mixed. In fact, many are grappling with the imminent loss of patent exclusivity on some of their best-selling drugs. This means that cheaper, generic versions will soon become widely available and erode profits. Future revenue growth wholly depends on bringing new products to market via the notoriously rigorous and expensive three-stage clinical trial process.