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A Close Look at Pharma Firms With an ESG Lens

A Close Look at Pharma Firms With an ESG Lens

Damien Conover: Bringing an ESG lens to valuation work we do in large-cap pharmaceutical stocks is really important. And one of the areas within ESG that we like to focus on when looking at this particular group of stocks is side-effect risk around drug development--so, really the "S" in ESG, and what we found is two really important takeaways.

First off is, in ESG we can see that in certain cases drug development will cause side effects that are really unknown to the prescribing community. However, in certain cases where you're developing drugs for very severe diseases, the side effects are less important. And one company that we think looks very well positioned in this context is Roche. They're developing drugs in oncology and other areas that are very severe. So, if side effects come up, it's probably not going to be overly problematic. On top of that, we think Roche does look undervalued.

One of the other important thematic elements that we see with ESG is looking at litigation concerns. Sometimes when litigations come up, the investment community overly penalizes the firm. Bayer is a good example of this. Bayer currently is going through a lot of litigation around glyophosphate. We think the risks are overdone, and we think the stock looks undervalued.

Overall, ESG really does help us bring a better valuation lens to our outlook within the healthcare sector.

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Damien Conover

Sector Director
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Damien Conover, CFA, is the director of healthcare equity research for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He is also director of equity strategy, responsible for helping to shape, package, and surface research based on Morningstar’s investment philosophy by working closely with the firm’s sector strategists and directors.

Before joining Morningstar in 2007, Conover was an equity research analyst covering the healthcare sector for Raymond James, Bank of Montreal, and Tucker Anthony.

Conover holds bachelor’s and master’s degrees in finance from the University of Wisconsin and was a member of its Applied Security Analysis Program. He also holds the Chartered Financial Analyst® designation.

Damien Conover, CFA, is the director of healthcare equity research for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He is also director of equity strategy, responsible for helping to shape, package, and surface research based on Morningstar’s investment philosophy by working closely with the firm’s sector strategists and directors.

Before joining Morningstar in 2007, Conover was an equity research analyst covering the healthcare sector for Raymond James, Bank of Montreal, and Tucker Anthony.

Conover holds bachelor’s and master’s degrees in finance from the University of Wisconsin and was a member of its Applied Security Analysis Program. He also holds the Chartered Financial Analyst® designation.

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