PFE, MRK, LLY & Other Drug Stocks Down Amid Tariff Jitters

Stocks of several pharmaceutical companies slipped on Tuesday due to uncertainty surrounding Trump’s proposed tariffs on imported pharmaceutical products that were expected to be implemented from April 2, dubbed “Liberation Day.”

Trump has threatened to impose tariffs on imports of medicines and active pharmaceutical ingredients (“API”) in a bid to shift drug manufacturing to the United States, mostly from European and Asian countries. Though the exact number is not known, reports suggest a tariff of 25%. Currently, the United States does not impose any significant duties on pharmaceutical imports. Until market close on Tuesday, it was still unclear how much tariff would be levied on drug imports.

Stocks of PFE, MRK, LLY & Others Decline

Stocks of companies that rely more on overseas manufacturing took the maximum hit. Pfizer PFE, Merck MRK, Eli Lilly LLY and AbbVie ABBV declined 3.2%, 2.9%, 2.5% and 1.6%, respectively. J&J JNJ was down 7.6%, primarily because a district court in Texas rejected its proposed bankruptcy plan to settle claims related to its talc lawsuits for the third time. Stocks of several other drugmakers, both big and small, declined on Tuesday.

Drugmakers Trying to Increase Domestic Production: Will it Help?

Drugmakers are looking to ramp up U.S. investments to boost domestic production, which had shifted to lower-cost markets outside the United States for years.

Last month, J&J announced plans to invest more than $55 billion in the United States over the next four years to boost manufacturing, R&D and technology in the country. In February, Lilly announced plans to invest $27 billion in building four new manufacturing sites in the United States by 2025, bringing its total domestic manufacturing expansion commitments since 2020 to over $50 billion. Pfizer may also move some of its overseas manufacturing to the United States amid the tariff threats.

However, drug production in the United States is costly which will drive up drug prices for U.S. consumers. Higher costs will affect drugmakers’ profit margins. Companies making generic and biosimilar products, which already operate on thin profit margins, will be more severely impacted. Some countries that export drugs or APIs to the United States may avoid the American market altogether, which can create supply shortages and hurt the global supply chain.

Biotech stocks have been under pressure this week following the announcement of the resignation of a key FDA official, Dr. Peter Marks, amid issues with the newly appointed Health and Human Services Secretary Robert F. Kennedy Jr.  The uncertainty and concern surrounding potential tariffs on pharmaceutical imports can cause further disruption for the pharmaceutical sector.

PFE, MRK, ABBV, LLY and JNJ have a Zacks Rank #3 (Hold), each. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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

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