The stock market has been trading down. Fears about intensifying trade wars are growing. Consumer confidence is shaky. Hints of a possible recession are everywhere.
In fact, it’s almost guaranteed. The Trump administration’s policy goals “promise” a recession if fully enacted, UCLA Anderson Forecast recently predicted.
The organization, which has been issuing economic forecasts for over 70 years, pointed to three main areas of concern in a newly launched “recession watch” — tariff policies that could squeeze manufacturing, DOGE-led initiatives that have triggered widespread government layoffs and funding cuts across industries, and mass deportations, which would hit the construction sector’s labor pool.
There are also plenty of signs the country’s economy will withstand the blows. The U.S. added 151,000 jobs last month, UCLA Anderson pointed out. And other economic watchdogs argue that underlying factors, such as the country’s excess liquidity and credit data from banks, are solid indicators of the economy’s health.
Yet, President Donald Trump won’t rule out the possibility of a recession, and leaders in his administration now argue that the short-term pain will be “worth” economic improvements down the road.
So where will pharma stand — or stumble — if a recession sweeps in?
Lessons from recessions past
At its core, the pharma industry is mostly safe from a market downturn, according to Arda Ural, EY-Parthenon Americas life sciences sector leader.
“Underlying fundamentals for the pharmaceutical industry make it relatively less exposed to a recession given the intrinsic nature of its business [such as] long product life cycles, patent protection and the strong cash flow position of the industry,” Ural said.
Analysis going back to the 1990s showed that four individual recessions failed to put a dent in the flow of prescriptions and FDA approvals for new drugs, Ural said. Instead, other industry-related — and perennial — headwinds hit pharma harder.
“There’s the potential for having to curb R&D budgets ... supply chain instability ... and potential job market weakness."
Patrick Finnegan
Senior director, Fitch Ratings
“The only deleterious effect observed on pharma was in 2009 to 2014 with the total employment numbers first decreasing and then returning to its historical normal,” Ural said. “This can be explained probably more by the patent cliff small molecules experienced, which wiped out $125 billion ($185 billion adjusted for inflation) from the aggregate industry revenue, rather than the tail impact of the subprime crisis that started in 2007.”
Although pharma’s past performance in economic downturns has given the impression that it’s “recession proof,” a better description would be “recession resistant,” said Patrick Finnegan, a senior director at Fitch Ratings.
“And [pharma companies] still have to deal with the consequences if one would emerge,” Finnegan said.
For pharma, the pain from a recession will more likely be a matter of smaller hits to the industry from several directions.
How a downturn could impact pharma
The industry already has its hands full with other challenges on the front burner, Finnegan said.
“The bigger issues over the last few years have been inflation, controlling inbound freight, labor and material costs, and supply chain certainty,” Finnegan explained.
In recent days, conversations in pharma have also focused on the need for clarity around trade policies.
“That will influence the way they will decide to direct capital for internal and external investment purposes,” Finnegan said.
And pharma has become more sensitive to pricing pressures, according to Christopher Oshewolo, a senior director at Fitch Ratings — especially in the wake of the Inflation Reduction Act, which triggered Medicare drug price negotiations that went into effect this year.
If there’s a recession, some of these difficulties will likely get worse, Oshewolo said.
While the industry has attempted to thwart the implementation of price negotiations in the courts, the Trump administration has not signaled much interest in changing that aspect of the IRA. And a recession environment could make the government even less likely to disrupt policies that save money.
“In a recession, we have seen governments resort to belt tightening and a more intense focus on budgets,” Oshewolo said.
If an economic downturn in the U.S. ripples across the globe, pharma could also get hit by austerity measures in countries where the government is the largest payer for healthcare.
And while large pharmas typically withstand direct recession impacts, they could feel effects from related industries that are less immune.
“In a potential recessionary environment, the suppliers of the industry may be exposed to financial risk or cash flow challenges, and as a result may no longer be supplying the industry, creating a third-party risk management situation,” Ural said.
A similar challenge could emerge if the biotech market slumps. General volatility that lowers investments in startups could weaken the industry’s dealmaking environment at a time when Big Pharma is looking to fill upcoming revenue gaps brought by patent expirations.
In this death-by-a-thousand cuts situation, the list of potential problems goes on.
“There’s the potential for having to curb R&D budgets … supply chain instability … and potential job market weakness,” Finnegan said. “This is an industry that depends on highly educated people and if you see an unfavorable financial environment in the U.S. it may become harder to attract people to work here. That can’t be discounted.”
Getting recession ready
As pharma braces for a potential recession, Finnegan said leaders will draw on lessons from the pandemic.
“From the standpoint of the pharma CEO, one of the lessons learned over the last few years is around diversification in terms of resources and making sure your business can’t be upended by problems in different parts of the world,” he said.
Companies looking to maintain a favorable credit profile in rocky times have historically relied on “having a bullet-proof balance sheet,” Finnegan said.
Careful planning and sticking to pharma business basics could also be critical to weathering the storm.
“We recommend [companies don’t] react to all the news flow as there is no visible foreseeable future state … [but have] a battery of comprehensive scenario plans — ranging from customs, transfer pricing and supply chain at hand — to respond with agility,” Ural said. “[Also don’t] lose focus on the fundamentals that create value for investors by hitting the key milestones to retain trust.”
But leveraging soft skills could come into play too.
“The impact of the environment on employee morale and focus should be taken as a high priority. Authentic, clear and action-oriented communication will be critical for leaders,” Ural advised. “In times of transformation or change, leadership matters.”
