On the surface, the U.S. health-care industry is facing a pivotal year in 2025 as President-elect Donald Trump re-enters the White House.
Trump has promised to “knock out” drug-industry middlemen, a potential disaster for pharmacy benefit managers. He named prominent vaccine skeptic Robert F. Kennedy Jr. to run the Department of Health and Human Services, which could wreak havoc on shot developers. And his nomination of celebrity doctor Mehmet Oz to lead the Centers for Medicare and Medicaid Services is considered a boon for companies that offer private versions of government health insurance.
But for all the noise, many Wall Street professionals believe the policy risk in the health-care sector is lower than feared.
“If you combine the fact that Congress is so divided that making policy changes is going to be just incredibly difficult, and the fact that the executive branch just doesn’t have the level of power that they think they have, it’s going be very difficult for them to implement a lot of the policy reforms they’re pushing,” said Spencer Perlman, director of health-care policy research at Veda Partners.
It’s been a tough year for health-care stocks, with the sector essentially unchanged over the last 12 months while the S&P 500 Index rose 25%, making it the benchmark’s worst performing group over that time. For 2025, investment pros recommend looking at individual health-care companies based on fundamentals rather than focusing on the index level.
“Investors will be more interested in picking the right stocks within the index versus playing to the index,” said Arda Ural, EY’s Americas life sciences sector leader.
In particular, some money managers are questioning how much the new administration will affect vaccines and drug approvals.
“We know the health-care mechanism, in terms of approving of drugs and looking at vaccines, is very evidence-based,” said Jason Kritzer, a portfolio manager at Morgan Stanley. “I don’t see that changing.”
What’s more, the uncertainty surrounding health care and the possibility for short-term panics based on vague pronouncements could create market opportunities. “If the stocks sell off because of fears that I think are unwarranted, if you have this one- to three-year time horizon or longer, you can make a lot of money,” Kritzer said.
Here are the key themes to watch in 2025:
Mergers and acquisitions
One of the Trump administration’s goals is to ease regulations around mergers & acquisitions and speed the time it takes deals to get done.
The president-elect nominated Andrew Ferguson to serve as chair of the Federal Trade Commission. A current commissioner at the FTC, he’s seen as someone who could “loosen the belt” on approving transactions in ways that his predecessor, Lina Khan, would not, according to Lance Beder, a principal and co-leader of healthcare M&A at Grant Thornton Advisors in Stamford, Connecticut.
For health-care investors, that should “spur better returns as well as expand investor interest beyond just sector-specific analysts,” according to Jared Holz, a health-care specialist at Mizuho.
The recent acquisitions of Inari Medical, Inc. by Stryker Corp. and Intra-Cellular Therapies Inc. by Johnson & Johnson are already giving investors hope of a comeback in larger deal activity in 2025 after a series of smaller, bolt-on acquisitions in 2024.
Government and insurers
Managed care companies typically outperform the S&P 500 in the year following an election, which sets up an encouraging environment for the group this year, according to Michael Ha, an analyst at Baird. But investors will have to be picky to generate returns.
“It’s not really a situation where you can just buy any name in the group and you’re gonna get that performance,” Ha said. “It’s a much more complicated environment, particularly depending on what the new Trump administration plans to do.”
For example, health insurers in the Medicare market are expected to benefit from Trump’s proposals to ease regulations on private health plans for seniors. However, looking broadly, there are real questions about how much the new administration will actually be able to change in Medicare or Medicaid, which is aimed at lower-income Americans.
“Given the slim majority of control that Republicans have in Congress and uncertainty around Republican priorities in health care, we suspect more moderate reforms are likely than the market appears to be pricing into shares,” said Julie Utterback, an analyst at Morningstar.
The same goes for pharmacy benefit managers, which are a target of the Trump administration, as Baird’s Ha sees them navigating any policy changes and preserving their earnings growth. And looking more broadly, managed care companies should be able to improve their profitability this year, as 2024’s medical cost pressures “turn into tailwinds” in 2025, Ha said.
Volatile hospitals
The fundamental outlook for hospitals is favorable heading into 2025, according to UBS Securities analyst AJ Rice. Hospital stocks could experience volatility early in the year as lawmakers discuss a variety of proposals to address health-care costs, but that should create buying opportunities for high-quality names that deliver strong underlying growth, he added.
Overall, Rice doesn’t expect to see major policy changes that will hurt hospitals, as “policymakers typically avoid pushing through too many negative changes at once to a particular industry,” he wrote in a Jan. 8 note.
The Trump administration’s major expected change for health-care providers is the expiration of enhanced subsidies, which are provided to Americans who get health insurance through the individual marketplace. They’re scheduled to expire in 2025, and if they aren’t renewed it will reduce the number of patients with insurance in 2026.
“While the subsidies have been a positive for the hospital group, the impact of expiration should be manageable,” Rice said.
Leave drugmakers alone
Policy should continue to dominate the narrative in biopharma, which is an issue because drugmaker stocks typically put up a choppy performance when that happens, according to Citigroup analyst Geoff Meacham. “We wouldn’t be surprised to see this also play out in early 2025,” he wrote in a note on Jan. 6.
However, if the Trump administration leaves the biotech industry alone, the group should outperform, according Hartaj Singh, founding partner at Tecumseh Partners. “I actually think we’re going to have a really good year,” he said.
For example, Meacham thinks approvals from the Food and Drug Administration could bounce back to normalized levels in 2025 after a slowdown in 2024.
In particular, obesity drugmakers aren’t likely to experience any disruption under the Trump administration, according to Jeff Jonas, a portfolio manager at Gabelli Funds. Seniors should continue to get access to GLP-1s like Ozempic, and Medicare is likely to cover the drugs to treat different co-morbidities once the medications get the go-ahead beyond their existing approvals for type 2 diabetes and sleep apnea.
“They’re still going to continue to grow at a very solid rate,” Jonas said. “I just don’t think they’re gonna be able to restrict access or really limit it too much.”
