Pharmaceutical shares just witnessed their strongest week in 23 years, thanks to Pfizer's (PFE Quick QuotePFE - Free Report) major drug-pricing and tariff deal with the U.S. government that helped ease long-standing pressures on the industry, per a Bloomberg article, as quoted on Yahoo Finance.

The S&P 500 Pharmaceuticals Index jumped 10.8% last week, marking its strongest performance since July 2002. With these gains, the index is now up only 6.6% for the year, still underperforming the S&P 500, which is up 14.4% (as of Oct. 3, 2025).

Pfizer Leads Last Week’s Pharma Surge

Momentum kicked off on Sept. 30, 2025 when Pfizerstruck a deal with the U.S. government to lower prices on certain drugs for Americans enrolled in Medicaid and committed to investing $70 billion in the United States.

In return, the company secured a three-year reprieve from import tariffs under the deal with President Donald Trump, per the abovementioned Bloomberg article. The Pfizer stock gained 15% over the past week (as of Oct. 3, 2025).

While the deal pertains only to Pfizer, many market watchers expect other drugmakers to follow suit, as quoted on the above-mentioned Bloomberg article.

Below, we highlight the factors that can boost the pharma sector in the near term. 

Policy Easing in the Sector

The deal is the latest signal of relief for the pharmaceutical industry after months of uncertainty. Earlier this year, Trump floated talks of possible future tariffs on drug imports in April as well as drug-pricing reforms in May, according to Bloomberg.

Last week, Trump’s administration also exempted U.S.-based drugmakers from pharmaceutical levies, per the above-said Bloomberg article. This favorable policy shift for the pharma sector may cause profit-taking from other lagging areas and open up fresh buying opportunities for pharma.

Cheaper Valuation

Large Cap Pharmaceuticals stocks are trading at a forward P/E of 14.84X versus 20.17X forward P/E offered by the S&P 500. The PEG ratio of the industry is 1.61X versus 2.34X offered by the broader market index. This indicates the sector’s cheaper valuation.

Moreover, projected EPS growth for the large-cap pharma stocks are 15.28% versus the S&P 500’s projected EPS growth of 7.04%. Large-cap pharma stocks hail from a top-ranked Zacks industry (top 13%).

Decent Return Profile

Large Cap Pharmaceuticals’ companies return-on equity ratio stands at 36.77% versus 17.03% ratio offered by the S&P 500. The industry’s return-on-assets ratio stands at 13.32% versus 6.80% offered by the broader index. The industry’s return-on-investment ratio stands at 22.96% versus 11.53% offered by the broader index.

Defensive Sector

In choppy markets, investors often rotate into defensive plays. Pharmaceuticals, long considered as a safe haven in uncertain times, deserves a place in investors’ portfolio. This is especially true given that the sector has recently received a positive Trump bump. The sector is non-cyclical in nature and should see undeterred demand amid aging population.

With Trump’s occasional policy shifts putting markets on the wrong foot and economic slowdown worries making the rounds, investors should not forget the importance of defensive sector investing.

ETFs in Focus

Against this backdrop, pharma ETFs like VanEck Pharmaceutical ETF (PPH Quick QuotePPH - Free Report) , iShares U.S. Pharmaceuticals ETF (IHE Quick QuoteIHE - Free Report) , Invesco Pharmaceuticals ETF (PJP Quick QuotePJP - Free Report) and SPDR S&P Pharmaceuticals ETF (XPH Quick QuoteXPH - Free Report) deserve a special mention.