Big Biopharma's Moats Protect Against Macro Headwinds of Inflation, Recession, and War in Ukraine

We believe the Big Biopharma industry offers protections against mounting macro headwinds, and we don't expect any major changes to our fair value estimates based on macro pressures. The stock market is down close to 20% from its peak on fears of inflation, recession, and the war in Ukraine (along with elevated valuation multiples), but Big Biopharma stocks offer strong protection against these challenging macro headwinds. Additionally, as these headwinds increase, major U.S. drug policy reform is growing more unlikely, removing a key risk to the industry. On inflation, we don't expect as big of an affect on the Big Biopharma group as on most industries, as the cost of goods sold typically represents less than 5% of revenue for key blockbuster drugs. Any inflation in the active pharmaceutical ingredient market should not significantly affect margins. Also, Big Biopharma firms see less than 1% of sales from Ukraine and Russia, making the war less impactful. On a potential recession, prescription drug demand is highly inelastic, which lends stability regardless of potential recessionary pressures. Big Pharma sales were largely unaffected in the last recession. Inflation and recessionary concerns appear to have largely removed the potential for U.S. drug policy reform, eliminating a key uncertainty hanging over the group.