Money Peak: Healthcare Sector Report

August 14 - August 21, 2025

The healthcare industry experienced a positive trajectory this week with a rise of 0.56% – a glimmer of hope in a mixed market environment. While major pharmaceutical companies are refining strategies to manage patent expirations and pricing pressures, promising innovations are emerging in the fields of biotechnology and medical devices. Money Peak analyzes the key developments and their significance for investors.

🏥 Market Development and Performance

The healthcare sector rose by 0.56% this week, outperforming several other sectors, including technology (-0.65%), energy (-0.64%), and communication services (-0.25%). This relative strength underscores the defensive quality of the sector in a cautious market environment. Notably, AbbVie recorded a rise of 1.44%, positioning it among the leading stocks in the sector.

Valuations in the healthcare sector remain attractive, particularly among established pharmaceutical companies. Merck & Co. is currently trading with a PE ratio of 13.04, while Pfizer has a PE ratio of 13.43 – significantly below the S&P 500 average. These moderate valuations reflect ongoing concerns regarding government price regulations and impending patent expirations, yet also offer appealing entry opportunities for long-term oriented investors.

💊 Pharmaceutical Innovations and Pipeline Developments

This week, several leading pharmaceutical companies achieved significant progress in their development pipelines:

Merck & Co. reported positive results for KEYTRUDA in combination with Padcev in the treatment of bladder cancer. The Phase-3 study KEYNOTE-905 demonstrated a statistically significant improvement in event-free survival, overall survival, and pathological complete response rate in patients with muscle-invasive bladder cancer.

Pfizer experienced a setback as its experimental drug for sickle cell disease failed to meet the primary endpoint in a late-stage clinical phase. Meanwhile, an antibody-drug conjugate (ADC) from Merck received the FDA's "Breakthrough Therapy" designation for the treatment of advanced-stage small cell lung cancer.

Particularly noteworthy is AbbVie's expansion with an announcement of a $195 million investment to enhance active ingredient production in the U.S. This investment is part of the company's previously announced commitment to invest over $10 billion in capital in the U.S. over the next decade. Furthermore, AbbVie completed the acquisition of Capstan Therapeutics, obtaining a potentially first-in-class in-vivo targeted lipid nanoparticle CAR-T therapy for B-cell-mediated autoimmune diseases and a proprietary platform for RNA payload delivery.

🔍 Key Trends and Challenges

Patent Expirations and Succession Strategies

A central issue for the sector remains the impending patent expirations of important drugs. Particularly, Johnson & Johnson and other pharma giants face "significant headwinds" as their drugs lose patent exclusivity, paving the way for cheaper generics or biosimilars to enter the market, eroding their market share.

Companies are pursuing different strategies to tackle this challenge:

• Diversification through acquisitions, like AbbVie's acquisition of Capstan Therapeutics
• Strengthening existing drugs through new indications, such as Merck's expansion of KEYTRUDA applications
• Investments in manufacturing, like AbbVie's expansion of active ingredient production
• Focusing on cost-efficient operations to protect margins

Health Policy and Pricing Pressure

The ongoing political pressure on drug prices remains a significant factor of influence. Both Amgen and Johnson & Johnson recently received a 60-day ultimatum to lower their prices in the U.S. market, underscoring the intensity of this challenge. The varying ability of companies to absorb this pricing pressure is increasingly becoming a differentiating factor for investors.

🏢 Company Reports and Valuations

The following table provides an overview of key metrics of leading companies in the healthcare sector:

Particularly striking is Pfizer's high dividend yield of 6.74%, which is significantly above the sector average. This attractive payout raises questions among some analysts about its sustainability, especially considering the current challenges facing the company.

UnitedHealth Group recorded the sharpest price decline among the observed companies, with a fall of -1.45%, yet continues its expansion in the home healthcare sector through Optum, driven by a $3.3 billion deal with Amedisys to strengthen value-based care growth.

💰 Investment Appetite and the Buffett Effect

A noteworthy development is the growing interest of prominent investors in the healthcare sector. Warren Buffett's Berkshire Hathaway has invested in UnitedHealth Group despite recent turmoil, which is regarded as a strong vote of confidence for the sector. This positioning suggests that value investors perceive current valuations in the healthcare sector as attractive, particularly for companies with a strong dividend history and sustainable business models.

Besides Buffett, other prominent investors like Michael Burry and Jim Simons have also built positions in healthcare stocks, indicating a growing contrarian interest in the sector, which has underperformed in recent months.

📈 Outlook and Actionable Insights

1. Focus on Dividend Strategy

The above-average dividend yields in the healthcare sector, particularly among established pharmaceutical companies like Pfizer (6.74%) and Merck (3.78%), offer attractive income opportunities in an uncertain market environment. Investors should prioritize companies with stable cash flows and sustainable payout ratios, as these can provide relative stability even amidst market volatility.

2. Bet on Innovation Leaders

Companies with strong pipelines and innovative therapeutic approaches like AbbVie and Merck are better positioned to tackle challenges from patent expirations and pricing pressures. Special attention should be given to companies with advancements in the areas of immuno-oncology, cell therapy, and neurodegenerative diseases, as these could represent the next generation of blockbuster treatments.

3. Utilize Defensive Positioning

The healthcare sector has demonstrated its defensive quality with an outperformance compared to more cyclical sectors like technology and energy this week. In an environment of growing economic uncertainty, healthcare stocks could serve as portfolio stabilizers, especially those with strong balance sheets and less dependence on economic cycles.

4. Follow Buffett's Strategy – with Caution

Warren Buffett's engagement in UnitedHealth despite recent turbulence suggests a long-term value perspective. Investors might consider following this example, but should carry out careful due diligence and focus on companies with strong fundamentals and competitive market positions.

5. Monitor Consolidation Trends

The ongoing mergers and expansions, such as AbbVie's acquisition of Capstan Therapeutics, indicate continued consolidation in the sector. Investors should keep an eye on smaller innovation companies with differentiated technologies that could become attractive acquisition targets.

Note: The information contained in this report is for informational purposes only and does not constitute individualized investment advice. Please consider your personal risk tolerance when making investment decisions and consult a financial advisor if necessary.

Source: Financial Modeling Prep, Company Reports, Market Data as of August 21, 2025