By Sebastian Hofbeck, fund manager and analyst for the healthcare sector
Political change of course, drug prices, fight against middlemen - the US pharmaceutical sector under pressure
After a remarkably strong first half of 2024 for a US election year, the healthcare sector lost significant value from the end of August (-15% by the end of the year). The negative trend continued even after Donald Trump's election victory. One of the reasons: the nomination of Robert Francis Kennedy Junior (RFK Junior) as Secretary of Health and Human Services.
RFK Junior is an avowed anti-vaccination activist and chairman of the organization "Children's Health Defense". He repeatedly criticized the safety of the vaccine approval process and expressed controversial views during the coronavirus pandemic, including the claim that the vaccine was one of the most dangerous ever produced. He also questioned the threat posed by the virus. In December 2024, 77 Nobel laureates spoke out against his appointment in an unprecedented warning, emphasizing that his position could endanger "the health of the population".
Change of course in US health policy?
His political agenda as the next Secretary of Health and Human Services remains unclear on many points. However, one key point appears to be the fight against obesity. As he is also responsible for nutrition in his role, he is planning stricter regulations against highly industrially processed foods such as frozen meals and breakfast cereals. These are associated with an increased risk of cancer, cardiovascular disease and diabetes. He also wants to take action against certain food additives and colorants that are already banned in other countries. However, his biggest reform plans are likely to concern vaccines, the funding of the US Food and Drug Administration (FDA) and drug prices.
Impending cuts to health authorities
RFK Junior is considered a critic of the FDA and has repeatedly voiced criticism of its structure and funding. The agency, which is responsible for the approval and monitoring of drugs, vaccines, medical devices and food, receives its budget from both government funds and contributions from companies in the healthcare industry.
RFK Junior is particularly critical of the approval system. If there is a reform and the FDA loses a significant proportion of its funding as a result, the approval processes could become longer. This would have a negative impact on pharmaceutical companies and patients waiting for new drugs. A reorganization could also make communication between the FDA and industry more difficult - Donald Trump has already banned the FDA from communicating publicly, for example.
Focus on drug prices in the USA
Another key objective of the new government is to reduce the costs of the healthcare system. The USA has by far the highest drug prices in an international comparison - according to the RAND Corporation, they were 344% higher than the average of other OECD countries in 2021.
To reduce these costs, former President Joe Biden introduced the Inflation Reduction Act (IRA) in August 2022. Among other things, this enables "price negotiations" between the Center for Medicare & Medicaid Services (CMS) and pharmaceutical companies. In practice, this means that Medicare sets the prices for certain drugs and the pharmaceutical companies have to agree.
After the first ten drugs were included in this negotiation process in 2024, the Center for Medicare & Medicaid Services (CMS) published a second list of 15 additional drugs in January 2025. These include two drugs for the treatment of leukemia and prostate cancer as well as drugs for the treatment of diabetes and obesity. In addition, Novo Nordisk's medicines with the starting material Semaglutide have been added to the negotiation list. Semaglutide is the starting material for Novo Nordisk's group of drugs used to treat diabetes and obesity. Accordingly, the prices for the drugs Rybelsus, Ozempic and Wegovy are now being negotiated.
The list contained no surprises. The companies concerned assume that the price reductions will remain within reasonable limits. In addition, discounts are already common in the US system: according to the data portal IQVIA, the actual sales of pharmaceutical companies after deduction of discounts amounted to 435 billion dollars, while the official list prices were 917 billion dollars. This illustrates just how much the US healthcare system relies on rebates.
Trump's plan: abolishing the middleman trade
Another reform plan of the Trump administration concerns the role of Pharmacy Benefit Managers (PBMs). These intermediaries negotiate discounts on medicines between health insurance companies, pharmacies and pharmaceutical companies every year. Their stated aim is to reduce costs - but their practices have been criticized for years.
PBMs decide on the placement of drugs in the reimbursement lists and therefore have a considerable influence on their sales. They also benefit from so-called spread pricing models, in which they buy drugs more cheaply and sell them on to insurers at a higher price. According to an analysis by Nephron Research, around 24% of PBM profits in 2022 were attributable to these mechanisms.
Donald Trump sees considerable savings potential here and wants to force the PBMs out of the system in order to pass on the savings directly to drug recipients. However, he already failed with this plan in his first term of office. Whether it will succeed this time is questionable.
Conclusion: Unloved and underinvested
Following the weak performance in the second half of 2024, the healthcare sector remains under pressure. According to the latest Fund Manager Survey by Bank of America, investors are underinvested in the healthcare sector by historical standards. Nevertheless, European pharmaceutical companies in particular were able to impress with strong figures for 2024 and a solid outlook for 2025. In our view, high-growth pharmaceutical companies with clinical trial results in the near future should remain attractive. At the same time, however, higher volatility in the sector is to be expected - not least due to the uncertainties caused by the new US government.
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