Chart of the week: not all bad news in US healthcare

Data-driven insights and analysis from our investment team every week.

Just as the US administration is turning softer on its regional tariff policy, it is ratcheting up the noise further around its healthcare policy. Trump signed an executive order on Monday that looks to start negotiations with the pharma industry for lower commercial drug prices comparable to the lowest paid by other nations. This is known as “Most Favoured Nation” pricing, or MFN for short. This would be in addition to any tariffs imposed on the pharma industry as a result of an investigation already underway by the US Department of Commerce on national security grounds. There are still many unanswered questions about how such an order could be implemented and what exactly could be impacted – a prior attempt at MFN in 2020 was blocked by the courts and any changes are likely to need congressional approval.

Nonetheless, the overall US healthcare sector is down 7% since the end of March, with almost all this driven by lower multiples as opposed to lower earnings expectations. It seems investors are shooting first and asking questions later, even after a strong reporting season in which growth and guidance were favourable. However, our chart this week highlights that there is one sub-sector of US healthcare that is up over the same period and beating other defensive sectors. The Medical Devices sector is generally untainted by noise around potential drug price reforms and benefits from easing China-US tensions. So, although US healthcare remains our favourite defensive sector, Medical Devices is the only sub-sector of US healthcare where we hold an overweight position versus the S&P 500.