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Looking for a safe harbor during the Covid-19 pandemic? The biotech and pharmaceutical industries deserve a close look, according to SVB Leerink analyst Geoffrey Porges.

The indexes that track the biotech and pharmaceutical sectors outperformed the market in the 2001, 2008-09, and current recessions, he wrote in a Friday morning note.

On average, the biotechnology Indexes declined -1% during the three economic downturns, compared with the pharmaceutical indexs -10% and the S&P 500 indexs -20%. On a relative basis, biotech and pharmaceutical Indices outperformed the S&P 500 by 18% and 10%, respectively, Porges noted.

One likely explanation: People need their medicine, even in a recession. Porges cited published papers showing that pharmaceutical sales volume stayed steady in the U.S. during the 2008-09 recession.

So far this year, biotech indexes and exchange-traded funds have vastly outperformed the market. While the S&P 500 is down 13.4% since the start of the year, the iShares Nasdaq Biotechnology ETF (ticker: IBB) is up 2.2%. The SPDR S&P Biotechnology ETF (XBI) is down 1.4%, while the Nasdaq Biotechnology Index (NBI) is up 2.3%.

Pharmaceutical indexes have also performed well. The NYSE Arca Pharmaceutical index is down 1.1%, while the S&P 500 Pharmaceuticals index is down 0.5%.

Those performances have been boosted by strong showings from large-cap biotech companies like Gilead Sciences (GILD), which is up 19.7% so far this year on excitement over its experimental Covid-19 therapy remdesivir, and Moderna (MRNA), which is up a startling 142.5% so far this year over its Covid-19 vaccine, which is in clinical trials.

Major pharmaceutical companies have also outperformed. Johnson & Johnson (JNJ) is up 6.6%, while Eli Lilly (LLY) is up 21.7%. The company clocked a new 52-week high on Friday morning.

Porges note suggests that all this tracks with the recent history of recessions.

Our analysis of historical recessions suggested that the biotech and pharma indices (and stocks) significantly outperformed the broad market (S&P 500), despite the greater P/E multiple compressions in the healthcare indices, he wrote.

The iShares Nasdaq Biotechnology ETF was up 0.6% in recent trading, while the S&P 500 was up 0.4%.

Write to Josh Nathan-Kazis at josh.nathan-kazis@barrons.com

Link:
Biotech and Pharmaceutical Stocks Beat the Market in Recessions - Barron's