European healthcare stocks, which experienced a sharp decline in the final months of 2024, are entering the new year facing significant challenges, including political risks in the U.S. and high-stakes clinical trial results for new drugs. The sector, once a standout performer, has fallen from its perch following concerns about U.S. healthcare policy and leadership changes under President-elect Donald Trump, exacerbated by the nomination of a prominent vaccine skeptic.
The Stoxx 600 Health Care Index, which was the best-performing European sector as recently as September 2024, has dropped 12% since its record high in August. A key factor in the downturn has been the unwinding of Novo Nordisk A/S’s exceptional stock gains, along with a slump in AstraZeneca Plc, triggered by compliance issues in China.
According to Gregoire Biollaz, senior investment manager at Pictet Asset Management, the U.S. political landscape could significantly influence market sentiment. However, he cautioned that healthcare systems are difficult to reform, leaving uncertainty around any fundamental policy changes throughout 2025.
For much of 2024, healthcare stocks benefited from their defensive appeal amid Europe’s economic challenges, as well as heightened interest in weight-loss drugs that boosted valuations. However, investor enthusiasm has cooled due to rising concerns over the potential effects of U.S. healthcare policies.
The impact of the U.S. market on European pharmaceutical companies is substantial. Data from Bloomberg reveals that the six largest European pharmaceutical firms generate between 40% and 55% of their revenues from the U.S. Emily Field, an analyst at Barclays, anticipates a “more challenging outlook” for European pharma in 2025. HSBC analysts, including Rajesh Kumar, argue that without the U.S. market, the economics of drug development for European companies may not hold up.
Trump’s controversial appointment of Robert F. Kennedy Jr. to lead the Department of Health and Human Services last month further shook the healthcare sector. Kennedy, a known vaccine skeptic, sparked alarm within the industry, contributing to declines in vaccine and pharmaceutical stocks in both the U.S. and Europe.
Portfolio managers Andy Acker and Dan Lyons from Janus Henderson Investors warned that volatility would likely continue in 2025. They emphasized the importance of focusing on companies advancing patient care or improving healthcare system efficiency.
JPMorgan Chase & Co. analysts predict that the impact of the new U.S. administration on European pharma will gradually subside through 2025, as government actions on vaccine funding and pharmaceutical pricing are expected to be limited. This could, in turn, provide modest support for the sector.
Beyond political uncertainties, the coming year will also be defined by pivotal clinical trial results. As some major drugs lose patent protection, companies like Novo Nordisk, AstraZeneca, and Novartis AG are expected to generate significant news flow, with high probabilities of success. In contrast, GSK Plc is expected to have limited updates, and analysts do not foresee successful trial results for Roche Holding AG’s upcoming medicines.
According to Naresh Chouhan, an analyst at Intron Health, the outcome of these trials, especially those with high sales potential but uncertain results, will determine which companies thrive in 2025. However, he cautioned investors to proceed with caution. Despite the recent market pullback, the Stoxx 600 Health Care Index is trading at about 16 times expected earnings, roughly 20% more expensive than the broader European market, suggesting that any setbacks could lead to significant share price fluctuations.
“Tread carefully,” Chouhan advised. “The sector has become very complex very quickly, mainly due to valuations becoming very full, and any setback could have an outsized impact on share price performance.”
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