Take a look at the chart below. It shows the pharmaceuticals sector index compared to the FTSE 100 for the past year. You can see that the FTSE 100 (in blue) tumbled by more than 30% from mid-March 2008 to date. However, the pharma index (in pink) gained by over 6%.
Pharma & Biotech continually outdo the market...
Source: Digital Look Like other defensive sectors, the pharma & biotech sector has been strong as consumers don’t stop purchasing drugs just because times are tough. The sector is also known to be less dependent on capital (assets such as tools and machinery) than other industries such as autos, steel or petroleum. It is more of an income generator, with successful companies sitting on very strong net cash positions.
Big players such as GlaxoSmithKline, AstraZeneca and Pfizer are continuing to invest heavily in R&D activities in the UK. Research is crucial to boost the quality of output and develop new drugs. Strong, effective R&D investment should also mean the sector stays ahead of the game - and the markets.
If the markets continue to show the weakness that we have seen over the past 12 months, expect the drugs sector to continue outperforming as investors seek defensive shares.
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