Healthcare Sector: Undervalued Amid Policy and Tariff Uncertainty – Strategic Entry Points in Biotech and Medical Devices

The healthcare sector, long a cornerstone of economic resilience, now finds itself at a crossroads. Regulatory shifts, trade policy turbulence, and geopolitical uncertainties have cast a shadow over biotech and medical device valuations. Yet, beneath these headwinds lies a mosaic of undervalued opportunities—innovative sub-sectors poised to redefine the industry's future. For investors with a long-term horizon, the current volatility may represent a rare entry point into companies and technologies that are not only weathering the storm but actively reshaping it.

Navigating the Headwinds: Policy and Tariff Challenges

The U.S. healthcare landscape in 2025 is marked by regulatory unpredictability. The Center for Devices and Radiological Health (CDRH) faces staffing shortages, delaying approvals for critical medical technologies. Meanwhile, tariffs on global supply chains threaten to inflate costs for hospitals and manufacturers alike. A “zero for zero” tariff policy remains aspirational, leaving medtech firms to grapple with pricing pressures and supply chain disruptions.

Biotech companies, too, face a dual challenge: patent cliffs eroding revenue from blockbuster drugs and a shifting regulatory environment. The overturn of the Chevron doctrine and evolving European clinical trial rules add layers of complexity. Yet, these pressures are catalyzing innovation. Nearly 60% of life sciences executives plan to scale generative AI applications, aiming to cut R&D costs and streamline operations—a trend that could yield 12% revenue savings for early adopters within three years.

Strategic Entry Points: Biotech's Hidden Gems

Amid the uncertainty, certain biotech sub-sectors stand out for their resilience and growth potential.

1. Halozyme Therapeutics (HALO): This company's Enhanze™ drug delivery technology is revolutionizing subcutaneous administration, reducing the need for IV treatments. With partnerships with Roche and Johnson & Johnson, Halozyme's Q2 2025 earnings of $1.54 per share on $326 million in revenue underscore its value. A pending patent dispute with Merck over Keytruda's subcutaneous formulation could further amplify its market influence.
   

2. Verona Pharma (VRNA): Acquired by Merck for its COPD drug Ohtuvayre, Verona's $10 billion valuation reflects confidence in its dual PDE3/PDE4 inhibitor. With Q2 earnings forecasts pointing to a 22-cent-per-share turnaround, the stock's IBD Composite Rating (CR) of 99 and RS Rating of 98 signal strong momentum.

3. Rigel Pharmaceuticals (RIGL): Specializing in blood disorders and cancers, Rigel's Q2 earnings of $3.37 per share on $101.7 million in revenue far exceeded expectations. Its collaboration with Eli Lilly on rheumatoid arthritis treatments and a recent breakout from a consolidation pattern make it a compelling play.

4. Eton Pharmaceuticals (ETON): Focused on rare diseases like Wilson disease, Eton's revenue nearly doubled year-over-year to $18.9 million. Its niche market and strong RS Rating of 96 position it as a high-growth candidate.

5. Aurinia Pharmaceuticals (AUPH): With Lupkynis driving lupus nephritis treatment, Aurinia's Q2 revenue of $70 million and a perfect IBD CR of 99 highlight its potential.

Medical Device Innovations: Resilience Through Technology

The medical device sector is equally ripe for strategic investment, with companies leveraging AI and digital transformation to address systemic challenges.

1. TransMedics Group (TMDX): Its Organ Care System (OCS) is redefining organ transport by keeping hearts, lungs, and livers viable during transit. With a 6.24% stock price gain in recent months and a $4 billion market cap, TransMedics is capitalizing on a critical unmet need.
   

   

2. GE Healthcare Technologies (GEHC): As a spinoff from General Electric, GEHC's $32 billion market cap and $1 billion annual R&D investment position it to benefit from aging demographics and rising demand for imaging solutions.

3. Intuitive Surgical (ISRG): The da Vinci surgical platform, used in over 2.7 million procedures in 2024, generates 84% of Intuitive's revenue from recurring instrument sales. Its $173 billion market cap and $0.04 stock price suggest undervaluation amid long-term growth.

Diversified Exposure: ETFs for the Prudent Investor

For those seeking broad exposure, ETFs like the iShares U.S. Medical Devices ETF (IHI) and SPDR S&P Health Care Equipment ETF (XHE) offer diversified access to industry leaders. IHI's 47 holdings include Intuitive Surgical and Boston Scientific, while XHE's 64 companies span equipment and supply chains. Both funds have expense ratios under 0.5%, making them cost-effective for long-term investors.

Long-Term Resilience: The Sector's Adaptive Edge

The healthcare sector's ability to adapt is its greatest strength. Medtech companies are adopting dynamic scenario planning and resilience drills to navigate disruptions, while biotech firms are pivoting to value-based pricing models. For example, modular pricing strategies and partnerships with C-suite stakeholders are enabling firms to align with hospital cost-cutting goals.

Moreover, the aging U.S. population and the rise of GLP-1 receptor agonists for obesity and diabetes are creating tailwinds. These drugs could reduce demand for certain surgical procedures, but they also open new markets for digital health solutions and chronic disease management tools.

Conclusion: A Sector Poised for Rebound

While 2024 saw healthcare underperform due to tech sector outflows and policy uncertainty, 2025 offers a compelling inflection point. The sector's undervalued innovators—whether in biotech's drug delivery breakthroughs or medtech's AI-driven devices—are building the infrastructure for a resilient future. For investors, the key lies in identifying companies with strong fundamentals, regulatory agility, and a clear path to value creation.

The road ahead is not without potholes, but for those willing to look beyond the noise, the healthcare sector's long-term prospects remain robust. As the industry navigates its current challenges, it is also laying the groundwork for a new era of innovation—one that rewards patient capital and strategic foresight.