(Bloomberg) -- After falling off their perch in the last few months of 2024, European healthcare stocks head into a new year facing the jeopardy of US politics and high-stakes trial results for new drugs.
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Key for investors will be clarity on American healthcare policy after president-elect Donald Trump’s nomination of health officials, including a prominent vaccine skeptic, sparked a selloff that reduced the sector from a top performer to middle-of-the-pack mediocrity.
The Stoxx 600 Health Care Index, as recently as September the year’s best-performing European sector, has tumbled 12% since hitting a record high at the end of August. Key to that has been a partial unwinding of Novo Nordisk A/S’s stratospheric stock gains and a slump in AstraZeneca Plc amid compliance questions in China.
The US political landscape “could have a big impact, at least in terms of sentiment,” Gregoire Biollaz, senior investment manager at Pictet Asset Management, said in an interview. “In terms of fundamental changes, are we going to see something happening through the course of 2025? There is still a lot of uncertainty associated with that, while healthcare systems are inherently challenging to modify.”
The peer-beating runup for health stocks was partly down to their attraction as a defensive shelter from Europe’s gloomy economic backdrop, while the frenzy around weight-loss drugs pushed up valuations. But momentum has since stalled as investors grew concerned about the policy outlook in the US.
Europe’s six biggest pharmaceutical companies by market value generated between roughly 40% and 55% of their revenue from the US last year, according to data compiled by Bloomberg. Emily Field, an analyst at Barclays Plc, sees a “more challenging outlook” for the European pharma sector going into 2025. For HSBC Bank Plc analysts including Rajesh Kumar, “none of the economics of drug development stacks up if one removes the US from the equation.”
Trump’s choice last month of Robert F. Kennedy Jr. to lead the Department of Health and Human Services sparked alarm in the healthcare industry and prompted a slump in vaccine and pharma stocks, both in the US and Europe.
“Investors should brace for continued volatility as we head into 2025,” Andy Acker and Dan Lyons, portfolio managers at Janus Henderson Investors, said on the asset management firm’s website. “We also think now is an opportune time to focus on companies advancing the standard of care for patients or improving outcomes and efficiencies for the healthcare system.”