Healthcare stocks wrapped up their best quarter yet, and UBS says the rally still has room to run. President Trump added nine more pharmaceutical firms to his drug-pricing deal on Monday.
Michael Yee, UBS’s global head of biotechnology equity research, told CNBC the advance reflects a stack of major clinical wins. He said new pricing deals have also calmed fears of a broader industry crackdown.
Nine New Agreements
Trump announced the nine new agreements at the White House on Monday. He said the combined pricing deals struck over the past year would save Americans more than $600 billion.
The nine additional firms are mostly midsize drugmakers, including Alcon, Astellas Pharma, and Teva Pharmaceuticals. The companies pledged $19.6 billion combined toward U.S. manufacturing, according to a White House fact sheet.
They also agreed to offer their drugs to every state Medicaid program at discounted prices.
The White House said 17 companies had already joined the pricing framework over the past 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, via CBS News
The SPDR S&P Biotech ETF, XBI, has climbed 80% in the last 12 months. That run has outpaced most other equity sectors.
Yee said the pricing deals have proven less onerous than feared, and that they have removed a major source of uncertainty for the sector.
Merck and Revolution Medicines Lead the Charge
Yee named Merck as one of his top picks. The company’s melanoma vaccine, developed with Moderna, met its main trial goals in a large trial. The study included more than 1,100 patients and reported results on August 19.
He also flagged Merck’s antibody-drug conjugate sacituzumab tirumotecan. The drug posted a positive lung cancer trial readout earlier this year. It is now being tested across 17 late-stage studies.
Revolution Medicines was another name Yee highlighted. The Food and Drug Administration approved its pancreatic cancer drug daraxonrasib on August 26. The therapy nearly doubled median survival in a late-stage trial compared with chemotherapy.
Yee also named Bristol Myers Squibb. UBS carries a Buy rating on the stock and expects several late-stage trial readouts before year-end. Those catalysts could help offset revenue lost to patent expirations.
Yee said pharmaceutical companies are sitting on record cash piles. They are pushing more of it into research and development after a multiyear stretch of cheap valuations. Valuations are still not stretched, and Washington’s pricing overhang is easing. Yee said the current move looks more like the start of a longer re-rating than a short-lived bounce.
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