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Pharmaceutical stocks have had a record year so far with drugmakers hitting fresh highs in August, as investors have sought to diversify away from AI and positive clinical trial data has boosted the sector.
Shares in drugmakers from Johnson & Johnson to Merck have significantly outperformed the market, with the S&P 500 Pharmaceutical index rising 18 per cent in the first eight months of the year. That compares with a 13 per cent rise in the wider S&P 500.
The industry has been on a bull run as a result of deals struck with the Trump administration to lower prices, as well as game-changing clinical trial data that has bolstered biotechs.
Biotech and pharma stocks have had an especially fruitful summer, with shares in the US index soaring 27 and 19 per cent respectively since May. The S&P 500 has risen only 7 per cent during that time.
Drugmakers are expected to receive a further boost on Monday, when Bayer, Takeda, CSL and several mid-size biotechs are expected to announce new pricing deals with the White House, according to two people familiar with the matter.
AstraZeneca, Novo Nordisk, Eli Lilly and other large pharmaceutical companies have already struck similar deals in which they agree to lower prices in exchange for relief from tariffs. Investors have pushed companies to make these deals to provide pricing certainty for drug sales and to stave off harsher pricing regulations.
The White House said details of the agreements “should be regarded as speculation” before they were officially announced, adding that the Trump administration had made progress on lowering drug prices. Bayer, Takeda and CSL declined to comment.
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Pharma and biotech valuations were hurt last year after President Donald Trump threatened to force companies to reduce their US prices and potential tariffs threatened to upend the drugmaking industry.
“There were two big unknowns and it felt like most of 2025 was trying to figure out what that all meant,” said Emily Field, head of US biopharma equity research at Barclays.
But after Pfizer agreed a deal with the White House to lower US drug prices, and other large pharma groups followed with similar US-based manufacturing commitments in exchange for tariff exemptions, the industry has been on a bull run.
“You had a lot of concerns about the risks of price controls in the US, in particular, that has dramatically improved over time with the Trump administration,” said Rick Bradt, a portfolio manager at Neuberger’s growth strategies group in New York.
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The deals have paved the way for pharma’s record run of dealmaking this year, with the number of biotechs acquired for at least $1bn reaching 37 by July, eclipsing last year’s 35, according to US investment firm Stifel.
There have been several megadeals this year, including AbbVie’s $10.9bn deal for Apogee Therapeutics, GSK’s $10.6bn purchase of Nuvalent and Eli Lilly spending $7bn on cancer biotech Kelonia Therapeutics and $7.8bn on Centessa.
Meanwhile, successful clinical trials have helped biotech stocks to rise 86 per cent in the past 12 months, making them the best-performing component of the US stock market during that period.
Cancer drugmaker Revolution Medicines stunned the market earlier this year when its drug daraxonrasib doubled the survival rate of patients living with advanced pancreatic cancer. The FDA approved the drug last week and Revolution’s share price is up by 168 per cent this year.
Shares in Moderna, which shot to prominence during the Covid-19 pandemic, are up by almost 400 per cent this year after the vaccine maker reported successful clinical trial results for a cancer therapy in development, rising 177 per cent in one day alone in August.
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Pharma is also proving to be a shield for investors skittish about turbulence in America’s AI-heavy technology sector.
“It’s truly a combination of hunger to diversify beyond this one-way freight train of generative AI since 2024 driving it, as well as the increasing appeal of healthcare,” Bradt said. “We have increased our biotech and pharmaceutical exposure over the last several months.”
“It’s intuitive that pharma and biotech is going to be an AI winner,” Field from Barclays said. “You cannot displace what they do with AI. Whenever there’s freakouts in tech, pharma has always had a defensive halo around it.”
One London-based investor said the positivity surrounding the sector in the US had inflated share prices to the point they were now struggling to find good value for money. This could be good news for European pharma groups, especially “laggards” that are undervalued, such as French drugmaker Sanofi which replaced its chief executive this year following concerns over its pipeline.
“Pharma is getting expensive because of the broadening out of the market,” the investor said. “Now we’re looking out for the laggards . . . European pharma has room to run and there will be a point where they become attractive.”
