By Elsa Ohlen

Shifts in the pharmaceutical landscape has Citi analysts souring on AbbVie and Merck, as uncertainty around pharma tariffs and pricing policies under the Trump administration has the sector in turmoil. Instead Citi is putting its bets on Regeneron.

The pharma sector has largely missed out on the broader market comeback since President Donald Trump announced sweeping global tariffs on April 2. Since that day, the S&P 500 has recovered and is up 3.8% since while the S&P Pharmaceuticals Industry Index is down 8.6%.

Healthcare, including subsectors pharma and biotech, is traditionally a defensive sector, but it has been impacted by headwinds beyond trade and the effect on the economy. The industry is facing multiple possible threats -- from tariffs to lower drug prices, and changes and layoffs at health agencies including the Food and Drug Administration.

AbbVie has during the recent past stood out with consistent "beat-and-raise" quarters. This has been a core tenet of the bull case for the maker of blockbuster immunosuppressive drug Humira-maker, Citi analysts led by Geoff Meacham say.

But even with solid fundamentals, Meacham suspects the stock rising on expectation of future earnings beats may be limited, especially as investors shift their focus to AbbVie's pipeline.

Even as their best-selling drugs Skyrizi and Rinvoq are long ways off the patent cliff (in 2033 and 2036, respectively) the company has a comparably lighter late-stage pipeline versus peers, Meacham says as he downgrades the stock to Neutral from Buy and lowers the target price to $205 from $210.

Merck has far less time to come up with a way to fill the hole in revenue it will likely face once exclusivity expires for its cancer drug Keytruda in 2026.

"Merck's [loss of exclusivity] cliff continues to approach with perception steepening the impact in absence of a portfolio bolstering deal," Meacham says, downgrading shares to Neutral from Buy and lowering the target price to $84 from $115.

Meacham isn't the only one worried about this, and Merck shares are down 42% over the last 12 months. Catalysts could come, Meacham notes, but they're still far off having a commercial impact.

On Regeneron, however, the analysts see opportunities. The stock has fallen just as much as Merck's over the past year, but the difference is that Regeneron's fundamentals are stabilizing and there are multiple near-term catalysts on the horizon.

Meacham upgrades shares to Buy from Neutral and hikes the target price to $700 from $600. Headwinds around its eye medicine Eylea are now mostly priced in, he says. Regeneron's late-stage pipeline also looks good, with key readouts expected in 2025 for medicines Itepekimab and fianlimab.

That said, it's hard to overestimate the overhanging threats to pharma. The U.S. is a huge market for pharmaceuticals, and most large-cap drugmakers get the majority of revenue from American sales, largely because prices are higher.

President Donald Trump on Monday signed an executive order aimed at lowering costs of prescription drugs in the U.S. How the discounting will be implemented is a major unknown, and it's difficult to predict pricing and volume trends, Meacham says.

Looming pharma tariffs, which Trump has vowed are "coming shortly," could also transform the entire supply chain, impacting companies' intellectual property and tax strategy as well as where manufacturing takes place.

The Citi analysts estimate that Vertex, Eli Lilly, Amgen and Gilead Sciences are less exposed to the tariff risk, based on their relatively higher share of products produced, or IP domiciled, in the U.S.

Bristol Myers Squibb, AbbVie, Pfizer and Merck have the highest risk, "though we'd highlight presence of operational flexibility from having existing U.S. manufacturing capacity."

Write to Elsa Ohlen at elsa.ohlen@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

May 14, 2025 09:55 ET (13:55 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.