Pharma Stocks Rebound as Trump Announces a 90-Day Pause on Tariffs

The stock market was on a roller coaster on April 9 amid the ongoing global trade war triggered by a new series of tariffs by the U.S. government. Most of the pharma bigwigs ended the trading session in green after bearing the brunt of investors’ skepticism earlier in the day on a plausible import tariff.

The share prices of Novo Nordisk NVO, AbbVie ABBV, Eli Lilly LLY and AstraZeneca AZN declined on Wednesday morning but gained thereafter, reflecting broader market optimism following President Trump's tweet that there would be a 90-day pause on reciprocal tariffs for non-retaliating countries.

Last week, Trump announced new tariffs on almost all trading partners in a move to reportedly boost domestic manufacturing. The so-called “reciprocal tariffs” included a 34% tax on imports from China and 20% on the European Union, among others, along with a 10% baseline tax on imports from all countries.

The stock markets around the world plunged earlier in the week on a likely slowdown around the corner with new tariffs in place. Nonetheless, a pause on the tariffs has somewhat alleviated these fears, and investors cheered the news.

Pharma Stocks Decline Earlier on Likely Tariff on Imports

The announcement made last week kept pharmaceutical imports free from the "reciprocal tariffs." However, earlier this week, President Trump disclosed plans to impose a new series of tariffs on pharmaceutical imports to encourage pharmaceutical companies to move their operations to the United States. He stated that the United States is a very big market, and the new tariffs will propel pharmaceutical companies to rush back to the country.

Per reports, the United States imports large amounts of finished drugs from other countries, and a significant chunk of this comes from China, which has retaliated with increased tariffs in response to Trump’s announcement.

The imports comprise finished drugs as well as active pharmaceutical ingredients (APIs) used to make drugs.  Per Trump, the tariffs on pharmaceutical imports will force the companies to leave China.

Many big pharma companies have sizeable production units outside the country, and the imposition of tariffs will increase their costs, thereby shrinking margins. The tariffs will likely result in greater price hikes for cheaper generics than branded drugs.

In response, stocks like Novo Nordisk, Roche, Eli Lilly and AstraZeneca declined due to investor skepticism earlier in the day.

We note that companies like Novo Nordisk and Eli Lilly have already expanded their manufacturing capacity in the United States primarily to meet the increased demand for their lucrative obesity drugs.

Nonetheless, pharma companies will face a daunting task if and when the tariffs are formally imposed, as relocating a production process is a complex and expensive affair.

All these stocks currently carry a Zacks Rank #3 (Hold). 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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