Pulse check: The tenuous state of global pharma
If you have been following our commentary over the last year, you will know that our holdings in the healthcare sector – in particular, pharma companies and their suppliers – have experienced challenging performance.
In 2021, these companies were heroes. Thermo Fisher produced more Covid tests than any other company in the world. AstraZeneca manufactured a Covid vaccine that helped get us out of the pandemic’s grip. ICON, a clinical research organisation, partnered with Pfizer to progress their vaccine’s clinical trials at unprecedented speed.
But much like any machine that is driven full throttle for too long, the pharma industry burnt out in 2022 following the enormous disruption from the pandemic.
Five years after our first lockdown, when will this industry find its ‘new normal’?
Health is wealth – or is it the other way around?
The average cost to develop a new drug is over USD$2 billion.1 For this reason, funding for biopharma research is the lifeforce of the industry. The more funding there is, the more work there is for companies like ICON and Thermo Fisher, and the greater the likelihood of a new drug making it to commercialisation.
We saw a massive influx of biopharma funding during the peak of the pandemic. This sharply tapered in 2022 as the world contended with higher interest rates and economic uncertainty, and as large amounts of funding had been brought forward to fight Covid.
In March, clinical research company IQVIA published their annual update on pharma R&D.2 We were strongly encouraged by growth in funding shown in their data, which implies a potential turning point for the industry.
Biopharma funding levels USD$ bn, 2015-2024
Trump’s policies may be a bitter pill to swallow.
While this data is encouraging, we cannot yet give the pharma industry a clean bill of health. Despite the often life-saving impact of many pharmaceutical therapies, these products have not been exempted from recent trade disruptions and the sector’s share prices have whipsawed as we await a likely implementation of US import taxes on pharmaceuticals.
Tariffs are not the only means by which the current administration has targeted pharmaceutical companies, cutting around USD$2 billion in funding to the National Institute of Health (NIH) in just 40 days.3 A ‘Most Favoured Nations’ policy, which aims to cut drug prices for Medicare patients, similarly seeks to cut American spending on healthcare.
Overall, however, the bigger force at play here is President Trump’s trade negotiations – his aim is to force Europe to carry a greater share of global R&D investment, and he hopes to achieve this by cutting US spending.
This has spooked the sector and has been a setback to what had looked like a healthy recovery in 2024.
Portfolio thoughts
Around 20% of our portfolio is in companies that create pharmaceutical therapies or provide services and support to healthcare R&D.
We do not invest directly in small cap biopharma companies, which are most vulnerable to funding cuts. Our larger pharmaceutical companies, such as AstraZeneca, are much better positioned to navigate this difficult geopolitical environment and fund their own R&D from their profits.
AstraZeneca will be able to manufacture most of what it needs on US soil, and the company continues on its mission to launch 20 new medicines by the end of the decade. They believe this will help them reach USD$80 billion in revenue by 2030.
However, our R&D service providers, such as ICON and Thermo Fisher, are experiencing second order effects from the difficult funding and political environment.
That said, the onward march of larger companies like AstraZeneca implies that there will remain healthy demand for these companies’ services in the years to come. AstraZeneca has a massive pipeline of new drugs currently in development, particularly in oncology, where their aim is for 50% of all cancer patients in 2030 to be treated with one of their medications.
While the pharma industry may not yet have found its ‘new normal’, we believe the pressing need for pharmaceutical innovation and the commercial opportunity for companies like Astra will create continued healthy demand and profit growth in this industry over the long term.
1 https://www.deloitte.com/uk/en/about/press-room/global-pharma-rd-returns-rise-as-one-glp-drugs-help-drive-forecast-growth.html
2 https://www.iqvia.com/insights/the-iqvia-institute/reports-and-publications/reports/global-trends-in-r-and-d-2025
3 https://www.reuters.com/business/healthcare-pharmaceuticals/trump-administration-health-research-cuts-total-18-billion-analysis-finds-2025-05-08/
