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Key Takeaways

• U.S. pharma entered a rebound in 2025, with a $370 billion domestic investment pledge reshaping the industry.
• Tariff threats and MFN pricing deals pushed firms like Eli Lilly to expand U.S. manufacturing capacity.
• ETFs such as the iShares U.S. Pharmaceuticals ETF offer diversified exposure to pharma's growth while reducing single-stock risks.

The U.S. pharmaceutical industry underwent a historic, policy-driven transformation in 2025. After a period of post-pandemic cooling, the industry demonstrated stark improvement, ignited by a complex mix of regulatory incentives and tariff threats, which resulted in a new investment landscape for drugmakers.

Evidently, the Dow Jones U.S. Pharmaceuticals Index has returned roughly 23% year-to-date, outpacing its single-digit return in 2024 and also the broader market’s return, with the Dow Jones Industrial Average up 13.1% so far this year. Such a stark rebound reflects investors’ regained confidence in high-quality drugmakers with visible earnings and rich pipelines. 

As we enter 2026, the industry is moving into an investment ‘super-cycle,’ with major drugmakers pledging a staggering $370 billion toward U.S. projects over the next five years, as per the fourth-quarter market trend report from California-based contractor and construction manager DPR Construction.

This capital influx comes from renowned pharmaceutical heavyweights, such as Eli Lilly (LLY - Free Report), Johnson & Johnson (JNJ - Free Report), Merck (MRK - Free Report), AbbVie (ABBV - Free Report), and Pfizer (PFE - Free Report), who have committed billions of dollars’ worth of investments in the United States this year. Designed to reinforce the domestic drug supply chain, these initiatives should also enhance profitability for the companies involved and for pharmaceutical ETFs with exposure to them.

Before highlighting a few pharma ETFs that could be added to your watchlist for exposure to the U.S. pharmaceutical industry’s expected growth, let us first examine the catalysts behind this massive investment commitment and, in turn, the industry’s growth prospects. The idea is to help you make an informed decision.

Catalysts Supporting the Investment Surge

The monumental wave of corporate investment that the U.S. pharma industry witnessed this year is a direct response to a series of policy actions. The primary driver is the Trump administration's aggressive stance on trade and drug pricing, which has created both a "stick" and a "carrot" for the industry.

The ‘stick’ has been the credible threat of steep tariffs on pharmaceuticals imported into the United States. This risk can be underscored by a Truth Social post on Sept. 25, 2025, in which Trump warned of a 100% tariff on branded drugs beginning Oct. 1, 2025, unless companies invested in U.S.-based manufacturing.

These tariff threats pushed both domestic and foreign drugmakers to invest in U.S. pharmaceutical manufacturing to avoid potential penalties. For instance, British pharmaceutical firm GSK Plc (GSK - Free Report) pledged in mid-September to invest $30 billion in research and manufacturing in the United States over the next five years, while domestic drugmaker Merck announced its investment plan in the United States worth $70 billion through 2030, in October, aimed at expanding domestic manufacturing and R&D.

On the other hand, the U.S. administration offered a "carrot" through negotiated Most-Favored-Nation (“MFN”) pricing agreements. These deals, struck with companies like Eli Lilly and Novartis (NVS - Free Report), offer reduced regulatory pressure and temporary tariff relief in exchange for lower U.S. drug prices and, critically, pledges for massive domestic investment.

For example, Eli Lilly committed to at least $27 billion in new U.S. manufacturing, while Novo Nordisk pledged an additional $10 billion to strengthen its domestic footprint as part of its agreement.

Supporting this shift, the FDA launched the PreCheck program to streamline and accelerate the regulatory review process for new domestic manufacturing facilities, aiming to remove a key bureaucratic hurdle to onshoring. This should ensure the supply chain for critical medicines remains exclusively American.

The Investment Case for U.S. Pharma ETFs

The aforementioned discussion, reflecting a huge investment surge in the U.S. pharma industry, undoubtedly sets a bullish outlook for 2026. To this end, a report from the Precedence Research firm has predicted that the U.S. pharmaceutical market size will grow 6.2% year-over-year to $552.72 billion in 2026.

For investors, this landscape underscores a key challenge in picking individual winners in the pharma market. This is because the success of each massive capital project depends on execution, regulatory approval, and future drug pipelines.

Amid this backdrop, gaining exposure to the market’s growth value through Pharma ETFs offers a prudent strategy. ETFs provide instant diversification across the industry, allowing investors to capture the overall growth from the $370 billion domestic investment while mitigating the volatility associated with any single company's clinical trials or construction delays.

Pharma ETFs to Consider

Presented below is a brief rundown of the previously-mentioned ETFs to consider.

iShares U.S. Pharmaceuticals ETF (IHE - Free Report)

This fund, with assets worth $838.5 million, offers exposure to 43 U.S. companies that manufacture prescription or over-the-counter drugs or vaccines. Its top three holdings include Eli Lilly (26.00%), Johnson & Johnson (22.53%), and Merck (4.45%). 

IHE has surged 30.8% year-to-date. The fund charges 38 basis points (bps) as fees. It traded at a volume of 0.07 million shares in recent trading.

Invesco Pharmaceuticals ETF (PJP - Free Report)

This fund, with a market value worth $318.2 million, offers exposure to 30 US pharmaceutical companies. Its top five holdings include Johnson & Johnson (5.12%), Abbott Laboratories (ABT - Free Report) (5.00%), Merck (5.00%), Pfizer (4.98%), and AbbVie (4.90%).

PJP has soared 29.2% year-to-date. The fund charges 57 bps as fees. It traded at a volume of 0.01 million shares in recent trading.

VanEck Pharmaceutical ETF (PPH - Free Report)

This fund, with total net assets worth $1.19 billion, offers exposure to 26 most liquid pharmaceutical companies. Its top five holdings include Eli Lilly (24.26%), Novartis (9.14%), Merck (7.84%), Novo Nordisk (5.94%), and GSK plc (4.75%). 

PPH has soared 19.6% year-to-date. The fund charges 35 bps as fees. It traded at a volume of 0.54 million shares in recent trading.

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