President Trump's Drug Pricing Policies Could Hurt Drugmakers' Profits. Time to Sell Pharma Stocks?

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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1. Johnson & Johnson

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.

2. Roche

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.

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.