Pharma ETFs to Gain From Landmark UK-US Zero-Tariff Deal

At the onset of this month, the UK and U.S. governments signed a landmark pharmaceuticals trade deal aimed at rebalancing transatlantic commerce and securing access to innovative medicines. The core of the agreement is a straightforward exchange — in return for the UK committing to pay more for U.S. drugs, the United States will exempt UK-origin pharmaceuticals from all import tariffs for at least three years.

As this deal hikes drug prices substantially, U.S. pharma companies like Eli Lily LLY, Johnson & Johnson JNJ, Pfizer PFE, AbbVie (ABBV, Merck & Co. MRK and Bristol Myers Squibb BMY are expected to benefit immensely, thanks to their strong presence in the UK. 

By extension, pharma exchange-traded funds (ETFs) with significant weightings in these large-cap drug makers are expected to benefit from the ripple effect and should therefore be on your watchlist. But before suggesting a few such ETFs, let us take a closer look at the specifics of this landmark deal and how it is expected to strengthen major pharmaceutical companies.

The Deal in Detail

The agreement, announced as part of the broader US-UK Economic Prosperity Deal, secures tariff-free access for more than £5 billion a year in UK pharmaceutical exports to the United States, as mentioned by the UK Business and Trade Secretary Peter Kyle.

Under the agreement, the UK government has committed to raising the price threshold for new treatments by around 25% and increasing NHS expenditure on innovative medicines, reversing a long period of relatively flat drug spending and signaling a more favorable pricing environment for a range of pharmaceutical products.

In exchange, apart from committing a zero-tariff rate for the UK's pharmaceutical exports, the United States has also committed to exempting UK products from potential "Section 232" tariffs on pharmaceuticals, which President Trump had previously threatened could be as high as 100%.

How Will the Deal Benefit Pharma Stocks?

Following the US-UK pharma deal, the higher NHS spending commitment provides a substantial incentive for large U.S. pharmaceutical companies with substantial UK footprints to expand their market reach in Britain. Therefore, large U.S. pharmaceutical companies with extensive operations and significant drug sales in the UK, as mentioned above, should see improved revenue and profit margins from their UK businesses.

Companies will now prioritize launching their latest, most innovative medicines in the UK sooner, knowing they can secure a better price.

Evidently, U.S. pharmaceutical company, Bristol Myers Squibb, said that it now expects to invest more than $500 million over the next five years in areas including research, development and manufacturing (as per a report by BBC UK). 

While other pharma giants have not yet made any announcement in line with BMY, it is reasonable to expect that they will also increase their investment in the UK pharma market. This comes as a reversal of the trend we had been witnessing over the past few months, wherein many pharma companies, including JNJ, expressed significant concerns about the UK's investment climate in 2025, warning that challenging commercial access is discouraging them from investing in the UK.

The Case for ETFs

Considering the above discussion, for investors looking to capitalize on this policy shift, a strategic approach will be to gain exposure through the following Pharma ETFs, which hold baskets of these leading U.S. pharma companies.

iShares U.S. Pharmaceuticals ETF IHE 

This fund provides exposure to 43 U.S. companies that manufacture prescription or over-the-counter drugs or vaccines. Its top 10 holdings include LLY (25.63%), JNJ (21.99%), MRK (4.54%), BMY (4.24%) and PFE (4.06%).

It has net assets worth $805.9 million and charges 38 basis points (bps) in fees and expenses. It trades in an average daily volume of 130,591 shares. IHE has surged 28.1% year to date.

VanEck Pharmaceutical ETF PPH

This fund provides exposure to 26 companies involved in pharmaceuticals, including pharmaceutical research and development, as well as the production, marketing and sales of pharmaceutical products. Its top 11 holdings include LLY (23.83%), MRK (7.99%), PFE (4.72%), JNJ (4.60%), BMY (4.43%) and ABBV (4.28%). 

It has net assets worth $1.18 billion and charges 36 bps in fees and expenses. It trades in an average daily volume of 481,804 shares. PPH has soared 16.3% year to date.

Invesco Pharmaceuticals ETF PJP

This fund offers exposure to 30 companies that are principally engaged in the research, development, manufacture, sale or distribution of pharmaceuticals and drugs of all types. Its top 10 holdings include PFE (5.21%), MRK (5.01%), JNJ (4.97%), ABBV (4.97%) and LLY (4.77%). 

It has a net asset value of $105.10 per share and charges 57 bps in fees and expenses. It trades in an average daily volume of 13,820 shares. PJP has surged 28.4% year to date. 
 

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This article originally published on Zacks Investment Research (zacks.com).

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