Biopharma could provide a safe option for investors as the U.S.-Israel war in the Middle East causes instability in global markets, according to analysts at Truist Securities on Mar. 20.
Analysts say that commercial biopharma has historically performed better than the broader market during times of geopolitical conflict. This assessment comes as recent events, including the escalation of the Ukraine war and Iran's ballistic missile attack in 2024, have increased market volatility.
Truist compared several indexes, such as the S&P Biotech XBI and State Street Health Care Select Sector (XLV), to the S&P 500 during these periods. The firm found that XLV showed stronger performance and lower volatility, while XBI and SPX were more unstable. "We view commercial biopharma as a relative outperformer to the broader market in like periods of geopolitical conflict," Truist wrote.
The report also noted that biotech companies with longer-term risk profiles could be attractive investments during these times. The XBI index is described as being more sensitive to shifts in risk appetite, which can create opportunities for investors to buy at lower prices. Meanwhile, XLV has served as a haven for those seeking less risk due to its relatively stable share prices.
"We sense investors are more willing to step-in to buy strong commercial franchises and relative value, offering short duration exposure in a non-cyclical sector," Truist wrote. Since President Donald Trump launched Operation Epic Fury on February 28, Truist observed "fading volatility across biotech relative to the broader market." The analysts added: "Our check-in on volatility surface of XLV, XBI, and SPX shows that investors within our sector and the periphery are not anticipating as much downside risk relative to broader market."
Regarding direct impacts from the Middle East conflict, Truist said large pharmaceutical companies have limited exposure because their business in that region is small—GSK and Takeda have the highest exposure at only six percent. Most companies can rely on their main U.S. and European Union markets if needed.
Some firms may benefit from government contracts related to emergencies; Amgen produces Nplate and Neulasta for government stockpiles used in radiological or nuclear incidents. "While current deployment likelihood remains low, government stockpiling could increase if radiological-exposure threats rise," Truist said. Gilead and Regeneron also have agreements with government agencies for procurement and manufacturing.
