MW Why drug stocks are no longer a safe haven from the stock market's turmoil

By Tomi Kilgore

Shares of drugmakers are seeing red after President Trump said he will soon announce a 'major tariff' on pharmaceutical imports

Shares of drugmakers were taking a broad beating Wednesday, after President Donald Trump indicated that pharmaceuticals will no longer be excluded from tariffs.

The pharmaceutical and healthcare sectors were previously viewed as a relative safe haven from the tariff-induced market turmoil. The Health Care Select Sector SPDR exchange-traded fund XLV fell 7.8% over the previous four sessions, but that was better than the S&P 500 index's SPX 12.1% tumble over the same time frame.

But with Trump's announcement late Tuesday at a Republican fundraising dinner that "a major tariff on pharmaceuticals" would be announced very shortly, that's no longer the case.

While Trump's motive is to get drugmakers to move more production to the U.S., that won't be easy, and it won't happen anytime soon. So whatever the impact of tariffs on pharmaceuticals will be, they are likely to last.

"Pharmaceutical production processes are complex, highly regulated, and vary widely from product to product," Eli Lilly & Co. $(LLY)$ said in its latest annual report. "Shifting or adding manufacturing capacity is a very lengthy process requiring significant capital expenditures, process modifications, and regulatory approvals."

The healthcare ETF was shedding 1.7% in morning trading, with 52 of its 60 equity components losing ground, while the S&P 500 was bouncing 0.3%.

The biggest decliners in the Dow Jones Industrial Average DJIA are the stocks of the index's three drugmakers, with Merck & Co. shares $(MRK)$ shedding 2.5%, Johnson & Johnson's stock $(JNJ)$ slumping 2.4% and Amgen Inc.'s stock $(AMGN)$ sliding 3%.

Amgen generated 27.2% of its 2024 revenue from outside the U.S. and has manufacturing, warehouse and distribution facilities in Ireland, the Netherlands and Singapore.

Roughly two-thirds of J&J's manufacturing facilities - 41 out of 64 - were outside of the U.S., and international revenue accounted for 43.4% of its revenue. About half of Merck's revenue was from overseas, and the company said it had "significant" manufacturing operations in China, along with manufacturing plants in Western Europe, Africa and Asia.

Meanwhile, Eli Lilly, the largest drugmaker - with a market capitalization of roughly $658 billion - generated one-third of its revenue from overseas and has "major production sites" in Ireland, France, Spain, Italy, China and Japan.

Elsewhere, the biggest decliners in the S&P 500 are also drugmakers, with AbbVie Inc.'s stock $(ABBV)$ losing 6% and Bristol-Myers Squibb Co. shares $(BMY)$ giving up 5.9% in recent trading.

The iShares Biotechnology ETF IBB was dropping 2.3% toward a three-year low.

Overseas production of pharmaceuticals and of the active ingredients used in them has been a growing concern.

The Active Pharmaceutical Ingredient Innovation Center, which is made up of drugmakers, biotechnology research institutions and government agencies, published a white paper in March to express its concerns about the "overreliance" of the U.S. on the foreign production of essential medicines.

The white paper calls for action to "reshore the domestic manufacturing" of pharmaceuticals, which it said would bolster national health security. The APIIC said the industry wouldn't necessarily have to build new manufacturing plants, but instead could use the "substantial underutilized capacity" that it said already exists in the United States.

-Tomi Kilgore

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April 09, 2025 11:49 ET (15:49 GMT)

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