Dr Trump will see you now
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Article Type
Market Updates
Topic
Macro
Published
October 06, 2025
Read time
4 mins
Author
Allan Clarke
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After a bruising year for healthcare stocks, a recent rebound in big pharmaceuticals has offered investors in the sector an injection of optimism. Let’s look at what happened and what it might mean moving forward. 

 

It hasn't been a great time to be an investor in healthcare stocks lately. In fact, the sector has been the worst performer in the MSCI ACWI by some way over the past 12 months (to 30 September). The reasons for its malaise are many. However, the recent rally in big pharma stocks provided cheer and suggested that at least some of the overhang on that particular part of the sector has been lifted. 

 

Prescription from the President

 

As with seemingly most market moves these days, an announcement from the White House was behind the rally. Lower drug pricing has been a bee in President Trump’s bonnet since his return to office, and he promised to slap 100% tariffs on imported pharmaceutical products unless action was taken. 


Pfizer became the first company to come to an agreement with the President, with others expected to follow in the coming weeks. Under the deal, Pfizer will: 

 

  • Provide its drugs to the Medicaid programme, which provides health insurance for people on low income in the US, at Most Favoured Nation (MFN) prices, i.e. the equivalent of the price paid in other large, developed nations
  • Offer certain drugs on a new government online platform dubbed ’TrumpRx’, which will sell direct to consumers (DTC)
  • Sell newly launched drugs in the US at MFN prices
  • Invest in US production. 


In return for its cooperation, Pfizer gets a three-year exemption from the mooted 100% tariffs. 

 

A placebo for pricing?

 

The headlines sound great. Everyone can support lower drug prices for consumers, especially when they help those on lower incomes. In reality, though, this may be another announcement by President Trump that is big on fanfare but light on real-world impact. 

 

Medicaid is not big business for pharma companies. It accounts for an estimated 2% of Pfizer’s earnings and no more than mid-single digits for its other large peers. A reduction of pricing in this channel is therefore eminently manageable for these companies. Commercial insurance and Medicare (the healthcare programme for the elderly and disabled) are much bigger channels and remain untouched by the Pfizer agreement. 

 

The MFN pricing for future launches also sounds attractive, but there is the potential for pharma companies to game the system. As prices for these future products are not yet known, the companies can set them at whatever level they like when they do come to market, ensuring they continue to earn sufficient returns. 

 

Similarly, the promises of access to cheap medicine through TrumpRx may be something of a red herring. Most people in the US are covered by workplace insurance, Medicaid or Medicare, so the proportion that actually use DTC is likely to be small. Again, the impact on pharma companies will probably be minor. That’s because, although the drugs on the platform will be deeply discounted to the list price, the list price is hugely inflated, as it covers the cuts taken by the US healthcare system’s many intermediaries. Therefore, pharma companies will likely still receive the same amount of revenue by missing out the middlemen. 

 

Bouncing back to health?


The sharp bounce in pharma shares following the announcement suggests that investors view the modest scope of the discounts and the avoidance of tariffs as a best-case scenario for the sector. There will likely be more noise over the coming weeks, as other deals are agreed and questions on the specifics of implementation are answered. However, it feels like some of the weight on the sector has eased.  

 

Indeed, we believe the market has become overly bearish on pharma this year. Sure, the sector faces challenges, like many others, but several stocks have been trading at unfairly low valuations. However, selectivity is key. Despite the deal, Pfizer remains in a tough spot, as it struggles to offset the decline in its COVID-19 revenues. Additionally, meaningful growth from its pipeline isn’t likely for another few years. Instead, we prefer names like AstraZeneca, which has a much stronger pipeline, and AbbVie, which has offset the loss of exclusivity on its Humira drug with revenues from other products.

 

So, for now, President Trump gets a “DEAL” and pharma executives get a nice photo opportunity at the White House. However, don’t expect this to be a huge shift for the US healthcare system or the bottom line of large pharma companies. We watch with interest.

 

Disclosures

Author

Allan Clarke
Investment Manager
Allan Clarke, investment manager, is a member of the global equities team, with co-manager responsibilities for a number of our strategies. 
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