Eli Lilly, Amgen among gainers as Pfizer – U.S. drug pricing deal sparks “relief rally”

[Pharmaceuticals Medical Stock Market Industry Sector Wall Street Buildings 3d Illustration]
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Shares of Eli Lilly (NYSE:LLY [https://seekingalpha.com/symbol/LLY]), Amgen (NASDAQ:AMGN [https://seekingalpha.com/symbol/AMGN]), and other leading drugmakers jumped for the second straight session on Wednesday as Wall Street welcomed a drug pricing deal between Pfizer (NYSE:PFE [https://seekingalpha.com/symbol/PFE]) and the U.S., triggering what analysts called a “relief rally” in the beaten-down sector.

The healthcare sector has become a lone bright spot in the S&P 500 (SP500 [https://seekingalpha.com/symbol/SP500]), adding ~2% alongside gains in the VanEck Pharma ETF (NASDAQ:PPH [https://seekingalpha.com/symbol/PPH]), Health Care Select Sector SPDR ETF (XLV [https://seekingalpha.com/symbol/XLV]), and SPDR S&P Biotech ETF (XBI [https://seekingalpha.com/symbol/XBI]). All three ETFs have underperformed compared to the S&P 500 (SP500 [https://seekingalpha.com/symbol/SP500]) over the past twelve months.

Notable gainers included AstraZeneca (AZN [https://seekingalpha.com/symbol/AZN]). Shares of the Anglo-Swedish drugmaker closed ~11% higher in London, while its U.S. peers Eli Lilly (NYSE:LLY [https://seekingalpha.com/symbol/LLY]), Amgen (NASDAQ:AMGN [https://seekingalpha.com/symbol/AMGN]), Merck (MRK [https://seekingalpha.com/symbol/MRK]), and Bristol Myers (BMY [https://seekingalpha.com/symbol/BMY]) continued to post gains, reaching up to ~7%.

As part of the agreement announced on Tuesday, Pfizer (NYSE:PFE [https://seekingalpha.com/symbol/PFE]) has agreed to provide four of its brand-name drugs at sharp discounts to cash-paying customers through a government-run website called TrumpRx and to Medicare.

The New York-based pharma giant concurrently announced a $70B investment in the U.S. over the next few years and added that in exchange, the Trump administration has agreed to grant it a three-year grace period on tariffs. [https://seekingalpha.com/news/4500308-trumprx-unveiled-85-discount-pfizer-drugs]

“We believe a relief rally in developed markets will start,” Macquarie analysts led by Tony Ren wrote in their commentary on the Pfizer (NYSE:PFE [https://seekingalpha.com/symbol/PFE])–U.S. deal, which they said clears a major overhang in the sector.

“This resolves the 12 May MFN Executive Order and the 31 Jul letters to 17 pharmcos that set a deadline of 29 Sep,” the team wrote, referring to a recent executive order on most-favored-nation ((MFN) policy and a 60-day deadline issued to 17 drugmakers to comply with the rule by Sept. 29. [https://seekingalpha.com/news/4475851-trump-issues-60-day-ultimatum-for-big-pharma]

"Due to these overhangs, investors have shunned healthcare. The S&P Healthcare index declined 1.5% and remains the worst performer amongst 11 sectors in the S&P 500," they wrote, adding that "healthcare is also the lone decliner YTD."

JPMorgan analyst Chris Schott agreed, noting that with the broader pharma group hovering near a ~45% - 50% discount to the market, the agreement “may act as a clearing event for the sector.” “We would not be surprised to see a number of similar agreements to help remove uncertainty on MFN/tariffs,” the analyst added, according to Bloomberg News.