Pharma and life science tools: A quality growth revival

Pharmaceuticals and life science tools are poised for a quality-growth revival as policy uncertainty eases, innovation remains strong, and valuations still understate the sector’s medium-term earnings potential.

• To the end of August, MSCI World returned 11.3% versus 6.7% for MSCI World Healthcare, largely because capital rotated into hyperscalers and AI infrastructure while healthcare earnings continued to compound.
• Pharmaceuticals reached a 39% discount to the market in August 2025, their deepest underperformance in 35 years, before recovering as tariff and US drug-pricing fears diminished.
• The estimated 2025-30 EPS CAGR gap between the three fastest- and three slowest-growing pharmaceutical companies is 19.3%, more than twice historical levels; the top three growth stories trade at an average forward P/E of 16.9x against 17.2% average five-year EPS growth.
• A patent cliff puts more than USD 200 billion of branded revenue at risk through 2032, peaking in 2028, prompting USD 106 billion of biopharma M&A across 201 deals in the first five months of 2026.
• Life science tools reached an all-time-low relative multiple in May 2026, but a positive Q2 2026 reporting season and recovering pharmaceutical R&D and production investment support a return toward historic mid-single-digit growth.

Takeaway: The authors expect healthcare, especially pharmaceuticals and life science tools, to re-rate as earnings growth accelerates in 2027, but stress that clinical, policy, tariff, and company-specific risks require selective stock-picking.