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As part of his plan to Make America Great Again, President Trump established the Make America Healthy Again (MAHA) Commission, chaired by Health Secretary Robert F Kennedy Jr. For investors in healthcare equities, however, it was a difficult year up to the end of September, with healthcare being the worst-performing sector in the first three quarters of 2025. This followed a tough 2024, when healthcare was the second worst performing sector.
The good news is the outlook started to change in September, when the Trump administration started to announce agreements with major pharma companies. The deals broadly involved an exemption from pharma tariffs for up to three years in exchange for the companies committing to price discounts for drugs sold in the U.S., increasing investments in U.S. manufacturing and launching new innovative products at reasonable prices. More than anything, the deals offered clarity and the way forward for the sector. As companies understood what they were facing, investors regained the confidence to revisit the sector.
The art of the deal
The improving outlook for the sector is a sharp turnaround from the start of the year, when the U.S. healthcare sector faced uncertainty on tariffs, drug pricing policies and regulations pertaining to vaccines. As President Trump returned to power, proposals of up to 200% import tariffs led pharma companies in the U.S. to stockpile record amounts of drugs in the first quarter of the year, to front-run potential tariffs.
At the same time, an overhaul of the U.S. Medicare and Medicaid programmes presented uncertainty for the healthcare service providers, who also had to contend with rising costs. Of the five sub-sectors in the U.S. healthcare sector, namely pharmaceuticals, health care equipment & suppliers, biotechnology, health care providers & services and life sciences tools & services, life sciences (-10%) and health care providers (-5%) were the worst performers in the year to September, against the broad S&P 500 benchmark, which was up by 13%.
The Trump administration’s deals since September have reversed the outlook for the sector. For one, the deals secured a win for the Trump administration by lowering medicine prices. They also helped the U.S. take a small step towards the greater ‘self-reliance’ in domestic manufacturing, although full ‘self-reliance’ is unlikely, given the integrated global supply chain for manufacturing complex drugs.
Meanwhile, pharma companies gained clarity and greater confidence about future investments. In some cases, the companies obtained greater distribution capabilities for certain medicines and expedited regulatory reviews of certain drugs.
We all need some medicine
The pharma industry’s operating results have been remarkably stable, despite all the policy and regulatory uncertainty. In fact, consensus earnings growth estimates for 2025 and 2026 for the U.S. pharma sector have been nudged up by 5-8% since the start of the year to 27% and 16%, respectively, according to Bloomberg data. This is understandable, as demand for medicines is non-cyclical. Meanwhile, valuation remains attractive, with consensus 12-month forward price-earnings ratio of 15x at a 33% discount to the broader S&P 500 index. Indeed, this discount is at the wider end of range over the last five years.
The receding regulatory uncertainty, combined with defensive earnings growth and attractive valuation, led us to turn tactically bullish on U.S. pharmaceuticals at the end of October. The idea has done well so far, with some technical indicators showing it may be overbought in the near-term. This could imply a near-term consolidation. Nevertheless, we would see any consolidation as an opportunity to add exposure to the sector. The risk of course is that regulatory and policy uncertainty could rear its head again, which is a possibility given the Administration’s deal-making style. Nonetheless, we like the risk-reward balance in this sector.
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Global Market Outlook H2 2025: Positioning for a weak dollar
We are Overweight global equities. Policy easing worldwide, strong chances of a US soft landing and a weaker USD are supportive of risky assets. We favour diversified global equity exposure, within which we upgrade Asia ex-Japan equities to Overweight.
