Biotech, in particular companies that are pre-commercial with a longer-duration risk profile, could be great investments as Operation Epic Fury rolls on, according to a Truist Securities analysis.
Biopharma could be a place for investors to duck volatility as the U.S.-Israel war in the Middle East roils global markets, according to analysts at Truist Securities.
“We view commercial biopharma as a relative outperformer to the broader market in like periods of geopolitical conflict,” Truist wrote in a Friday morning note analyzing geopolitical risk.
Truist considered a number of global events in the past six years that have sent the markets into chaos, including the Ukraine war escalation, Middle East conflict fatigue in general and the Iran ballistic missile attack in 2024.
The firm compared the performance of multiple biopharma indexes, the S&P Biotech XBI and State Street Health Care Select Sector (XLV), which comprises pharma as well as healthcare companies, to the broader S&P 500 (SPX) during such events. Truist found that the XLV does better on performance and volatility, while the XBI and SPX have been shakier.
Nevertheless, biotech, in particular companies that are pre-commercial with a longer-duration risk profile, could be great investments in this time period, Truist said. The XBI tends to be “more sensitive to periods of risk rotation” as compared to the XLV, providing investors a chance to jump in and buy at low points.
The XLV, meanwhile, has been a haven for risk-averse investors, leading to relatively low share price volatility.
“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 has noted “fading volatility across biotech relative to the broader market.”
“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,” Truist continued.
In terms of more immediate impacts from the Middle East conflict, Truist sees exposure as limited for large-cap pharmas. The Middle East market segment is small for most companies, with GSK and Takeda having the highest exposure at 6%. But all the companies should be able to lean on their main U.S. and EU markets “as a strong buoy,” the analysts said.
Some companies, such as Amgen, could benefit from a prolonged conflict thanks to government contracts. Amgen manufactures Nplate and Neulasta, which are included in the government stockpile for radiological or nuclear emergencies, Truist noted.
“While current deployment likelihood remains low, government stockpiling could increase if radiological-exposure threats rise,” Truist said.
Gilead and Regeneron also have procurement eligibility and manufacturing collaborations with the government.
