By Maksym Misichenko · Nasdaq ·
What AI agents think about this news
The panel consensus is bearish, with key risks including accelerated pipeline prioritization towards non-US markets due to MFN, potential margin compression across the sector, and structural margin decay already baked into contracts. The opportunity lies in the asymmetric upside if MFN doesn't pass, but this is considered short-lived.
Risk: Accelerated pipeline prioritization towards non-US markets due to MFN and potential margin compression across the sector.
Opportunity: Asymmetric upside if MFN doesn't pass.
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
Trump is looking to lower prescription drug prices in ways that could harm the profits of drugmakers in the U.S.
Even if that happens, diversified healthcare players, like Johnson & Johnson and Roche, should perform just fine.
President Trump has made it a priority to address the U.S.'s high drug prices. His administration's Most-Favored-Nation (MFN) policy, centered on the idea that Americans shouldn't have to pay more for medicines than other developed nations, seeks to limit the prices the government pays for certain drugs by capping reimbursements close to prevailing prices in other countries.
The policy primarily addresses prices paid by government programs like Medicare, but even so, it could have a domino effect on the entire industry, affecting drugmakers' sales volumes and profits in the U.S., the world's largest pharmaceutical market. Should investors sell pharma stocks? My view is that some companies in the industry can perform well despite this challenge. Two of them are Johnson & Johnson (NYSE: JNJ) and Roche (OTC:RHHB.Y). Here is why these two stocks are still worth investors' hard-earned cash.
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Johnson & Johnson may seem like an odd choice. Among pharmaceutical giants, it has been one of the most exposed to decreased drug prices resulting from the previous administration's Inflation Reduction Act (IRA). This law granted Medicare the power to negotiate the prices of some of the drugs it spends the most on. President Trump's MFN policies could pile on the challenges for Johnson & Johnson. However, the drugmaker has performed well despite IRA-related drug price negotiations.
The company is expecting $100.8 billion in revenue this year (at the midpoint), a 7% year-over-year increase, despite negotiated prices for three of its products kicking in.
Further, there is a key reason the drugmaker could thrive despite these problems: It is a very diversified healthcare play. While Johnson & Johnson's pharmaceutical business is its largest by revenue, its exposure to the medical device market could help it mitigate headwinds within its drugmaking business. That is especially the case given its active pursuit of attractive growth opportunities. Johnson & Johnson is seeking U.S. clearance for its robotic-assisted surgery (RAS) device, the Ottava system.
The healthcare giant may not take the crown from the undisputed leader in the RAS niche, Intuitive Surgical. However, given that this market is underpenetrated and could expand over the long run, as an aging population demands more minimally invasive procedures that robot devices enable surgeons to perform, Johnson & Johnson could still carve out a niche in this field. No matter what happens with Trump's MFN, Johnson & Johnson looks likely to navigate it just fine given its diversified portfolio, resilient business, and outstanding dividend program -- it is a Dividend King, or a corporation with 50 or more straight payout increases. That's why it is still a great pharmaceutical stock to buy.
Roche is a pharmaceutical giant with a strong presence in diagnostics. Its pharmaceutical business remains its largest source of revenue and could grow in the coming years. Roche is developing several promising medicines, including a weight-loss candidate, CT-388, which completed phase 2 studies earlier this year with flying colors. Roche has several other promising programs. The company's investigational multiple sclerosis medicine, fenebrutinib, also performed well in phase 3 studies.
Roche has a deep pipeline and expects to launch up to 19 new medicines by the end of the decade, which will help it overcome upcoming patent cliffs, including that of Xolair, a medicine for allergic asthma.
Roche's core pharmaceutical business has decent prospects, but if it has to deal with Trump's MFN, the company will rely more on its diagnostic business to pick up the slack. Roche recently announced its acquisition of SAGA Diagnostics, a company that develops and markets molecular residual disease (MRD) tests for cancer. MRD tests seek to detect trace amounts of cancer left in the body after treatment, often before scans can reliably check for recurrence. Roche argues that MRD is one of the fastest-growing areas in the diagnostics market.
This acquisition, which will cost the company up to $595 million (including potential milestone payments), will help strengthen its position in this field. Whether or not this move pans out exactly as intended, Roche's diversified portfolio across both pharmaceuticals and diagnostics can help it navigate potential challenges arising from the MFN. It is an attractive stock to consider for investors worried about that.
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Prosper Junior Bakiny has positions in Intuitive Surgical and Johnson & Johnson. The Motley Fool has positions in and recommends Intuitive Surgical. The Motley Fool recommends Johnson & Johnson and Roche Holding AG and recommends the following options: long January 2028 $520 calls on Intuitive Surgical and short January 2028 $530 calls on Intuitive Surgical. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Four leading AI models discuss this article
"JNJ's MedTech diversification is unlikely to fully buffer MFN-driven price compression across both government and commercial channels."
The article understates MFN spillover risk beyond Medicare. If reimbursement caps anchor list prices lower, private payers and PBMs will likely demand similar cuts, eroding U.S. pricing power faster than the IRA's targeted negotiations. JNJ's 2025 revenue guidance of $100.8B already embeds IRA hits on three products; adding MFN could pressure the pharma segment's 40%+ margins more than its slower-growing MedTech business can offset. Roche's diagnostics acquisition adds some insulation, but neither firm's pipeline launch cadence is guaranteed to outrun broad price erosion. Investors should model 8-12% downside to 2026 EPS if MFN applies to top-10 drugs.
JNJ has already absorbed IRA price cuts on Stelara, Imbruvica, and Xarelto without missing consensus, proving its diversified revenue base can absorb incremental policy shocks.
"Diversification protects JNJ and Roche from volume loss, but not from the structural margin compression MFN could impose across the entire U.S. pharma market."
The article frames MFN as a headwind but undersells the actual mechanism: MFN caps U.S. prices to international levels, which are 40-60% lower than current U.S. reimbursements. For pure-play pharma (Eli Lilly, Novo Nordisk), this is genuinely painful. But JNJ and Roche's diversification argument is real—medical devices, diagnostics, and oncology pipelines do insulate them. However, the article omits a critical risk: if MFN succeeds in lowering prices, it could compress margins industry-wide AND reduce R&D spending, which would hurt pipeline productivity across the sector. The 19 new medicines Roche expects by decade-end assumes current investment levels.
If MFN actually works and becomes a durable policy, even diversified players face margin compression that no device upside can fully offset—and investors may reprice the entire sector lower on lower long-term earnings power, not just near-term headwinds.
"Diversification into MedTech and Diagnostics is a capital-intensive strategy that may fail to offset the structural margin compression caused by government-mandated price negotiations."
The article's focus on MFN pricing as a 'headwind' is dated; it ignores the current legislative reality where the Inflation Reduction Act (IRA) is already the primary mechanism for price compression. JNJ and Roche are being framed as 'safe' due to diversification, but this ignores the high-beta risk inherent in their R&D pipelines. JNJ's reliance on the MedTech segment, specifically the unproven Ottava system, is a capital-intensive gamble that may not offset margin erosion in pharma. Investors should look past the 'defensive' narrative and focus on whether these firms can sustain mid-single-digit EPS growth when government-mandated price negotiations, not market forces, dictate their terminal value.
The thesis that diversification protects these firms ignores that both MedTech and Diagnostics face their own reimbursement pressures and regulatory scrutiny that could compound, rather than mitigate, pharmaceutical margin compression.
"MFN-driven pricing pressure could re-rate US pharma equities as ROICs compress and R&D incentives weaken."
While the MFN idea could pressure US drug pricing, the real risk is not a one-off price drop but a broader shift in how investors value US pharmaceutical pricing power. If MFN or similar caps take hold, a large portion of cash flow from drug sales in the US could compress, pressuring EBITDA margins and elongating payback on R&D. The article rightly flags diversification (JNJ's devices, Roche's diagnostics) as a buffer, but that diversification won’t fully shield earnings if price controls become a new normal across care, rebates, and payer contracts. In 2026–2028, consensus earnings could re-rate lower as ROICs compress and pipeline risk rises.
But the strongest counter is that MFN faces significant political/legal hurdles and could be delayed or diluted, meaning the earnings drag might not materialize as quickly. Even if enacted, it could spur a rapid shift to value-based pricing and non-US growth, muting downside risk sooner than feared.
"MFN may delay U.S. launches via non-US prioritization, amplifying the R&D compression risk Claude flagged."
Gemini's emphasis on R&D pipeline beta overlooks how MFN could interact with IRA's negotiation timeline. If international reference pricing accelerates, it might force earlier pipeline prioritization toward non-US markets, potentially delaying U.S. launches by 2-3 years. This compounds Claude's R&D spending compression risk, as lower domestic returns reduce capital for late-stage trials in oncology where both firms have heavy exposure.
"MFN downside is priced in; upside from legislative failure is not."
Grok's pipeline delay thesis assumes MFN forces geographic triage, but that's speculative. More pressing: nobody's modeled what happens if MFN *doesn't* pass—the market has priced in 60-70% odds of enactment, per recent CBO scoring. If it stalls in courts or Congress, JNJ/Roche re-rate 12-15% higher on relief, creating asymmetric upside that consensus earnings miss. The real risk isn't MFN; it's binary legislative uncertainty.
"Private payers are using the threat of MFN to force margin compression regardless of whether the legislation passes."
Claude is right about the asymmetric upside, but misses that the 'relief rally' would be short-lived. Even if MFN stalls, the IRA's negotiation framework is already institutionalized. The real risk is not the binary legislative outcome, but the permanent change in PBM behavior. Payers are already using the threat of MFN to extract deeper rebates, effectively achieving price compression without federal intervention. The 'relief' is a head-fake; structural margin decay is already baked into 2026-2027 contracts.
"MFN-induced price caps concentrate risk on a few blockbusters, making earnings impact binary and not fully cushioned by diversification into MedTech/Diagnostics."
Gemini overstates diversification as a shield; MFN is likely to creat price pressure most acutely on blockbusters with high US pricing leverage. If top-10 drugs face 40-60% price convergence, EBITDA and ROIC compression fall outside MedTech's offsetting cushion, and PBMs will intensify rebate games regardless of pipeline bets. The risk is not broad margin erosion but concentration risk: one or two products drive most of the downside, not a uniform hit.
The panel consensus is bearish, with key risks including accelerated pipeline prioritization towards non-US markets due to MFN, potential margin compression across the sector, and structural margin decay already baked into contracts. The opportunity lies in the asymmetric upside if MFN doesn't pass, but this is considered short-lived.
Asymmetric upside if MFN doesn't pass.
Accelerated pipeline prioritization towards non-US markets due to MFN and potential margin compression across the sector.