Impact of US Tariffs on the Healthcare Sector
11 APR, 2025
By: Rune Sand-Holm, Fund Manager of the DNB Fund HealthCare at DNB Asset Management
The healthcare sector has shown remarkable resilience so far this year. Despite a backdrop marked by trade and political tensions, its performance (-2.7%) has outpaced both the MSCI World Index (-10.4%) and the S&P 500 (-13.7%), as of 4 April 2025. However, there are notable divergences within the sector: while Life Sciences Tools and Services (LS Tools) have fallen by 20% and biotechnology is down 10%, healthcare services have seen 7% growth. This heterogeneity highlights the importance of a diversified investment strategy within the sector.
Pharmaceutical products are currently exempt from tariffs, although further measures are anticipated that could directly impact R&D budgets—particularly affecting companies that supply research tools, whose business depends heavily on pharmaceutical industry spending. Meanwhile, biotechnology faces an uncertain regulatory environment under the administration of Robert F. Kennedy Jr., with potential delays in drug approvals introducing further volatility—especially for companies awaiting key authorisations.
Healthcare services companies are proving more stable, due to their limited exposure to international trade flows. Generating the bulk of their revenues and costs within the United States, they are largely unaffected by tariffs. Additionally, the sector continues to trade at a discount of around 10% relative to the broader market, maintaining its appeal in a highly volatile environment.
Although pharmaceutical products are not currently included in Trump’s reciprocal tariffs, there are clear indications that such measures will be implemented soon. The potential disruption to supply chains would particularly affect companies with manufacturing operations outside the US—such as those based in Ireland, a country specifically named by the administration as a tariff target.
Outlook by Subsegment
Large-Cap Biopharmaceuticals
While tariffs are expected to be imposed, many companies have flexible operational structures that allow them to absorb part of the impact. Moreover, demand for essential treatments remains robust—particularly in the US—supporting expectations of sustained sector growth.
Biotechnology (Small and Mid-Cap)
These companies face greater challenges accessing capital in an uncertain regulatory environment. However, attractive valuations may encourage mergers and acquisitions. Investment is focused on firms with solid balance sheets and late-stage development pipelines.
Life Sciences – Tools and Services
Cuts in pharmaceutical R&D have significantly impacted this segment. A selective approach is recommended: although some leading companies are nearing attractive price points, the risk remains high.
Medical Devices
Manufacturing outside the US exposes these firms to tariffs, though large sector players generally possess the operational capacity to adapt. Managing the impact will depend on the size and flexibility of each company.
Healthcare Services
With low tariff risk and stable business models, these remain attractive. Nevertheless, they are not entirely free from political risk, as they could be targeted by cost-containment measures in the US healthcare system.
