Trump Adds Nine Drugmakers to Pricing Pact; Healthcare Stocks Surge

Healthcare stocks finished their strongest quarter to date, and UBS analysts believe there is still upside. On Monday, President Trump brought nine additional pharmaceutical companies into his drug-pricing agreement.

The rally is driven by a series of significant clinical successes, Michael Yee, UBS's global biotechnology equity research head, said in a CNBC interview. According to Yee, recent pricing agreements have also eased worries about a widespread regulatory clampdown.

Nine New Agreements

At the White House on Monday, President Trump revealed the nine new accords. He stated that the total pricing agreements reached over the last year would result in savings for Americans exceeding $600 billion.

Most of the nine new entrants are midsize pharmaceutical companies, among them Alcon, Astellas Pharma, and Teva Pharmaceuticals. Per a White House fact sheet, the firms committed a total of $19.6 billion to U.S. manufacturing.

Additionally, they will provide their medicines to all state Medicaid programs at reduced prices.

According to the White House, 17 firms had previously entered the pricing framework over the preceding year.

“With today’s announcement, we now have 26 companies representing 90% of the domestic pharmaceutical market, and the other 10% are also coming in. They have no choice.”

President Trump, as quoted by CBS News

Over the past 12 months, the SPDR S&P Biotech ETF (XBI) has gained 80%, surpassing the performance of most other equity sectors.

In Yee's view, the pricing agreements have been less burdensome than anticipated, clearing a key area of uncertainty for the industry.

Merck and Revolution Medicines Lead the Charge

Merck is among Yee's top recommendations. Together with Moderna, Merck developed a melanoma vaccine that achieved its primary endpoints in a large trial. The study, which enrolled over 1,100 participants, released outcomes on August 19.

He also highlighted Merck's antibody-drug conjugate sacituzumab tirumotecan, which produced a favorable lung cancer trial result earlier this year. The drug is currently undergoing evaluation in 17 late-stage trials.

Another stock Yee pointed to is Revolution Medicines. On August 26, the FDA approved its pancreatic cancer drug daraxonrasib. The treatment approximately doubled median survival in a late-stage trial relative to chemotherapy.

Yee also mentioned Bristol Myers Squibb. UBS rates the stock as Buy and anticipates multiple late-stage trial data releases by year-end. These events may counterbalance revenue declines from patent losses.

According to Yee, pharmaceutical firms hold record cash reserves and are channeling more into R&D following years of low valuations. Valuations remain reasonable, and the pricing pressure from Washington is diminishing. He described the current rally as more likely the beginning of an extended re-rating rather than a temporary spike.