Global Healthcare Outlook 2H26: Selectivity is key as pharma navigates pricing and patent headwinds

• Global healthcare equities have underperformed the broader market year-to-date, as investor enthusiasm rotated toward AI-related stocks, particularly semiconductor companies benefiting from AI infrastructure spending.

• Although US drug pricing reforms are expected to pressure pharmaceutical companies' pricing power, we believe the impact is likely to be manageable, supported by strategic delays to European drug launches, strong GLP-1 demand, and continued innovation.

• As the pharmaceutical industry approaches a significant patent cliff, we favour companies with diversified product portfolios, limited near-term patent expiries and strong balance sheets to replenish their pipelines through acquisitions.

• With earnings growth moderation largely reflected in valuations, we maintain a Neutral stance on the global healthcare sector, with a target price of USD 451 for the MSCI World Health Care Index, implying 11% upside potential from its closing price of USD 407 on 16 July 2026.

Global healthcare equities, as measured by the MSCI World Health Care Index, have underperformed the broader MSCI World Index year-to-date, returning 4.1% versus 10.5%. The underperformance was largely driven by continued investor enthusiasm for AI-related stocks, particularly semiconductor companies that have benefited from robust AI infrastructure spending.

At the same time, the sector is facing policy headwinds in the US. The Most Favoured Nation (MFN) policy seeks to align US prescription drug prices with the lowest prices paid in other developed countries, while the Inflation Reduction Act (IRA) allows Medicare to negotiate prices for selected high-cost drugs. Together, these initiatives have raised concerns over the pharmaceutical industry's pricing power and long-term profitability.

In this article, we examine these key headwinds and explain why we maintain a Neutral stance on the global healthcare sector.

Figure 1: Global healthcare stocks have lagged the broader global market year-to-date

Drug pricing headwinds are real but manageable

In exchange for a three-year exemption from tariffs, 17 leading pharmaceutical companies – representing around 86% of the branded drug market – have signed MFN agreements with the Trump administration. By linking US drug prices more closely to those in other developed markets, the policy is expected to reduce pricing power, placing pressure on margins and earnings growth. Nevertheless, we believe the overall impact is likely to be manageable, supported by several mitigating factors.

First, pharmaceutical companies are adapting their global drug launch strategies to preserve profitability. Drugmakers are delaying product launches in Europe, where medicine prices are significantly lower than in the US. France, for example, pays roughly one-third of US prices for medicine. By postponing European launches, companies aim to preserve higher US pricing for longer, reducing the impact of MFN-linked price referencing. This trend is already evident, with a GlobalData analysis showing that new drug launches in Europe fell 35% in the 10 months following the introduction of MFN pricing in May 2025 compared with the preceding 10 months.

At the same time, pharmaceutical companies are using investment decisions as leverage in pricing negotiations. In June, Pfizer warned that its planned investments in Germany could be at risk if the government tightened pharmaceutical spending, while AstraZeneca indicated that it could withhold new medicines from Europe unless it secured more favourable pricing. We believe European governments may ultimately be willing to pay higher prices for medicines with compelling clinical data and strong demand. Reflecting this view, Roche's management has expressed confidence that therapies with “strong data” —such as its breast cancer drug candidate giredestrant— will be better positioned to secure "the right kind of pricing" from European governments.

Figure 2: Europe drug launches fall under Trump’s MFN policy

Second, the rapid expansion of the GLP-1 market should continue to support sector growth despite lower pricing. Lower prices have already driven more-than-proportional growth in prescription volumes for obesity treatments, highlighting the strong underlying demand in a market where many patients still pay out of pocket.

The launch of oral GLP-1 pills is also expanding the addressable market, with more than 80% of prescriptions filled by Eli Lilly and Novo Nordisk going to patients who are new to GLP-1 therapy, suggesting oral treatments are expanding the market rather than cannibalising demand for injectable drugs. We believe oral and injectable formulations will serve different patient segments, with injectables remaining the preferred option for patients requiring greater weight loss due to their higher efficacy, while oral therapies offer a more convenient option for those seeking moderate weight management.

Demand could strengthen further as patient access improves. Historically, Medicare plans have been prohibited from covering medications prescribed solely for obesity, limiting access for many patients. However, this began to change on 1 July, when eligible Medicare beneficiaries became able to apply for coverage of both oral and injectable obesity drugs through the Medicare GLP-1 Bridge Program. Under the temporary initiative, eligible patients can access certain GLP-1 therapies for USD 50 per month through 31 December 2027, while policymakers evaluate a longer-term reimbursement framework for obesity treatments.

The long-term opportunity for GLP-1 therapies also extends well beyond obesity and diabetes. Growing clinical evidence suggests these drugs may benefit patients with cardiovascular, kidney, liver and sleep-related conditions, significantly expanding their potential addressable market.

More broadly, first-quarter 2026 earnings indicate that pharmaceutical companies are managing the industry's pricing headwinds well. Despite the impact of MFN and IRA pricing, management guidance across the sector remains broadly constructive, with most companies reaffirming or raising their full-year revenue outlooks. AbbVie, for example, increased its 2026 revenue guidance by USD 300 million to USD 67.3 billion, despite IMBRUVICA sales declining 24.7% due to IRA-related pricing pressure and competitive headwinds. In our view, the earnings season demonstrates that diversified product portfolios, continued innovation and new product launches are enabling the industry to deliver earnings growth despite a more challenging pricing environment.

Be selective as the patent cliff approaches

Beyond drug pricing reforms, investors must also contend with the pharmaceutical industry's looming patent cliff. Between 2026 and 2030, prescription drugs generating more than USD 300 billion in annual sales are expected to lose patent protection, paving the way for lower-cost generic competition and putting pressure on revenue growth across the industry.

The impact of these patent expiries is already becoming evident. Novartis, for example, reported a 5% decline in first-quarter sales, driven in part by a 42% fall in sales of its blockbuster heart failure drug, Entresto, after the drug lost patent protection in the US last year.

Figure 3: A substantial patent cliff lies ahead for pharmaceutical companies

To address these headwinds, large pharmaceutical companies are increasingly turning to mergers and acquisitions (M&A) to strengthen their product pipelines. Biotech and pharmaceutical M&A activity rose 47% year-on-year as companies sought to replace revenue that will be lost to patent expiries. We view this as a positive development for both large pharmaceutical and small- and mid-cap biotechnology companies. Large pharmaceutical companies gain access to innovative drug candidates that can support future growth, while biotechnology companies stand to benefit from acquisition premiums as demand for promising assets increases. With many large pharmaceutical companies maintaining strong balance sheets and facing mounting pressure to replace hundreds of billions of dollars in revenue, we expect M&A activity to remain robust.

Against this backdrop, we believe investors should be selective. We favour companies with no near-term patent expirations, diversified product portfolios capable of offsetting loss-of-exclusivity headwinds, and strong balance sheets that provide the financial flexibility to pursue acquisitions. Eli Lilly is a good example. Its blockbuster GLP-1 therapy, tirzepatide, enjoys patent protection until 2036 in the US, providing a long runway for earnings growth. At the same time, the company continues to diversify beyond obesity and diabetes, expanding into vaccines through acquisitions of developers such as Curevo, LimmaTech Biologics and Vaccine Company.

Valuations are undemanding with growth moderations largely priced in

Overall, we expect earnings growth in the global healthcare sector to moderate from the strong pace seen in prior years as companies navigate pricing pressures from MFN and IRA policies, alongside the industry's looming patent cliff. That said, these headwinds should be partly offset by higher adoption of existing therapies, incremental revenue from new product launches and continued innovation.

Importantly, we believe this moderation in growth is already largely reflected in current valuations. Applying a fair PE of 18x to our 2028 earnings forecast, we derive a target price of USD 451 for the MSCI World Health Care Index, implying an upside potential of 11% from the closing price of USD 407 on 16 July 2026.

With valuations appearing fair and the sector's opportunities and risks broadly balanced, we maintain a Neutral stance on the global healthcare sector.

Looking ahead, sector sentiment could improve if several potential catalysts materialise. These include favourable clinical trial results for next-generation therapies and broader acceptance of higher drug prices in Europe as governments seek to maintain access to innovative medicines.

Investors seeking exposure to the sector may consider the Xtrackers MSCI World Health Care UCITS ETF 1C (LSE: XDWH) for passive exposure or the Manulife Global Fund – Healthcare AA USD for an actively managed strategy.

Table 1: Projections for the MSCI World Health Care Index

MXWO0HC Index	2025	2026E	2027E	2028E
Earnings Per Share (EPS)	20.9	20.2	23.2	25.0
Earnings Growth YoY	15.8%	-3.1%	14.8%	7.9%
PE Ratio (X)	19.1	20.1	17.6	16.3
Target Price (based on a fair PE of 18X)				451
Upside Potential				10.7%
Source: Bloomberg Finance L.P., iFAST estimates. Data as of 16 July 2026

Figure 4: Share prices are driven by earnings growth in the long run

Declaration:

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.

Select Country/Region

Global Healthcare Outlook 2H26: Selectivity is key as pharma navigates pricing and patent headwinds

Figure 1: Global healthcare stocks have lagged the broader global market year-to-date

Drug pricing headwinds are real but manageable

Figure 2: Europe drug launches fall under Trump’s MFN policy

Be selective as the patent cliff approaches

Figure 3: A substantial patent cliff lies ahead for pharmaceutical companies

Valuations are undemanding with growth moderations largely priced in

Table 1: Projections for the MSCI World Health Care Index

Figure 4: Share prices are driven by earnings growth in the long run

In this article

LSE: XDWH

Manulife Global Fund - Healthcare AA USD

Global Fixed Income 2H26 Outlook: Finding value in a higher-yield world

Hong Kong Outlook 2H26: From delivery price war to the AI wave, can Hong Kong regain momentum?

Asia and EM Outlook 2H26: AI powers the next leg higher as valuation remains attractive

Home

About Us

Legal

Useful Links

Select Country/Region

FSM Mobile Apps

Follow Us