A Close Look at Pharma Firms With an ESG Lens

An ESG frame helps us bring a better look at valuation within the healthcare sector.

Damien Conover, CFA 17.02.2020 | 9.06
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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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Verdipapirer nevnt i artikkel

Navn på verdipapirPrisEndring (%)Morningstar Rating
Bayer AG26,14 EUR-0,97
Roche Holding AG237,80 CHF-1,98

Om forfatteren

Damien Conover, CFA  Damien Conover, CFA, is an associate director for Morningstar.

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