From the studio

Podcast: CIO's Dirk Effenberger on managing geopolitical risks (10 min)

Thought of the day

US equities notched another record high on Wednesday, led by gains in the health care sector, as investors welcomed the deal between Pfizer and P resident Donald Trump. The S&P 500 rose 0.3%, while the health care index jumped 3%.

The pharma relief rally on Wednesday also benefited the Swiss pharma giants, but investors will likely want to see further developments around other potential drug pricing negotiations.

Earlier this week, Pfizer agreed to lower prescription drug prices in the US’s Medicaid program to the levels it charges in other developed countries. The company would also offer “most favored nation” (MFN) pricing on all new drugs in the US, and has pledged to invest USD 70bn into US manufacturing and research, on top of previous commitments. In exchange, Pfizer will secure a three-year grace period on the planned tariffs on imported pharmaceuticals.

Without taking any single-company views, we have said that additional clarity around US drug pricing and tariff policy could drive improved performance in the health care sector, which has underperformed over the past six months given heightened policy uncertainty.

But while the Pfizer deal is not an outright “all clear” signal for the sector, with key details lacking on the tariffs, a boost in near-term sentiment and robust long-term drivers should support a positive outlook on our Longevity theme.

Some clarity has emerged for drug pricing policy. Trump has repeatedly argued for MFN drug pricing policy, which would tie US branded drug pricing to the lowest price available within a subset of industrialized countries, mainly in Europe. Branded drug prices in Europe are generally lower than in the US, as European governments directly set prices. A broadly enforced MFN policy could reduce US drug pricing and significantly impact pharmaceutical industry earnings. However, the Pfizer deal turned out to be better than feared, as Medicaid pricing is already similar to international levels for most drugs. The MFN pricing provision on new drugs is also likely to have a limited impact for drugmakers, as they may raise their prices for new drugs in other countries.

Pharma tariffs should have limited impact on large companies. The deal with Pfizer also signaled that many drugmakers could strike similar agreements with the Trump administration to mitigate the impact of the pharma tariffs. Indeed, Commerce Secretary Howard Lutnick this week said he will let companies finish their negotiations with the administration before setting pharmaceutical-specific levies, while Trump said more deals with other drugmakers would follow. With many large pharma companies having already increased US manufacturing investments over the past several months—over USD 200bn of long-term commitments have been made—we expect limited impact based on Trump’s announcement last week.

Our Longevity theme is supported by demographic shifts and rapid innovation. As the global population ages, the increasing demand for products and services that can expand healthy lifespans should drive above-average growth for companies exposed to the demographic shift. For example, nearly a billion people worldwide are living with obesity, yet the adoption of GLP-1 therapies is still in its early stages. This underscores the significant scale of opportunities we see within our Longevity theme, which includes innovation in oncology and medical devices.

So, we maintain the view that structural growth trends, including longevity, should deliver attractive returns in the years ahead. We also rate the health care sector as Attractive within US equities as policy risk subsides.