Large Cap Biopharmaceutical Update: Mixed Performance as Tariffs Loom…Update-2…4/29…Good gains in pharma and medtech

Update-2..4/29…3p EDT…Novartis (NVS) stock up over 1% on earnings beat raised guidance. Broad pipeline in four therapeutic areas. Good value with FWD PE of 14.9,PS of 4.3, Div.of 3.5%, RSI trending up. Added to stock today.

• Strong momentum in pharma, medtech, even Pfizer up 4% with 7% dividend despite missed expectations. Guidance affirmed.
• increasing tariffs to 25% in pharmaceuticals will be very difficult because of financial and job losses and worse-possible drug cost increases to consumers. More likely scenario would be a negotiation downward  and movement of non-biological manufacturing to US.

Update-1..4/28…Biopharma stocks rally along with many of our SMID cap trades; Abbvie (ABBV) coming back strong after earnings beat announced Friday up 3.38% to $192 handle. Strong sales of Rinvoq and Skyrizi continues to make up for lost revenues with Humira. Despite risks of tariffs and patent expirations the drug industry still looks good with innovative pipelines and royalties with the oft touted potential of M&A. Another of our top picks Gilead Sciences (GILD) was up over 3%. Both the IBB and the XBI gained over 1%. Look for more biotech gains ahead.

Large Cap Biopharmaceuticals  Update-Before Tariff Policy Reset and Earnings

• Medtech and biopharmaceutical earnings have been good but guidance was hedged on the uncertainty of tariffs.
• Most drug stocks are way off their highs for 2025 and many are losers YTD with considerable volatility.
• For experienced investors we would favor US Medical Devices and SMID Life Science stocks.

Last week the market surged upward on commentary from the Administration that some adjustments would be made on tariff policies. The news from companies and market analysts reached a critical phase because of excessive tariff related costs and in the case of CHINA shipments that have been cancelled or “frozen” at ports in China. This period of uncertainty has caused turbulence and volatility fr markets despite gains last week that retraced losses YTD to about half what they were at the beginning of the week a gain of about 5% for the S&P 500 and 6.5% for the QQQ.  SO suddenly there is optimism that over the next “90 Day period “Trump will be able to conclude a sufficient number of tariff deals to convince the market that the new policies will be accepted. as of this date no major new deals have been implemented.

Last week on late Monday  afternoon we saw a  surge in speculative SMID biotechs which indicates a healthy market. As the week moved forward a broad market rally ensued with gains in major ETFs as follows:  IBB, QQQ, SPY, XBI,XLK undoubtedly with a lot of short covering. As we learn from various companies during Quarterly reports, they are hedging guidance with statements  like,”uncertainty for the coming months on demand in various markets and increasing costs due to tariff negotiations”. So after a nice broad rally we will need some follow-through with tariff deals.

The market situation with pharmaceuticals is even more complicated because we started off with legislation (the IRA) trying to curb rising drug and healthcare costs. When you layer on the model of  the reciprocal tariffs by country and the complexity of a supply chain with a large share of  ingredients made in China and India  you get situation of unfathomable complexity that could take years in the case of major countries. One outcome of big concern is higher drug prices as well as shortages.

Here is a summary of where we are with major healthcare and biotechnology markets as of 4/27/25.

1. The top biopharma stock performance YTD is quite volatile due to individual company issues as well as uncertainty  due to tariffs. The top performers YTD are : VRTX, LLY, GILD, AMGN, AZN and ABBV. All beat the market with plus of dividends.
2. The large cap weighted  biotechnology ETF (IBB) is down 6.8%.The Fidelity Select  Biotechnology Fund (FBIOX)  is down 5.87% YTD.
3. The Healthcare SPDR Healthcare Select ETF(XLV) has lost 5% for the recent month and UNH down 17.4% YTD.
4. The US Medical Device ETF (IHI) is up 1.76% YTD but down 1.33% YTD.
5. The SPDR Biotech ETF (XBI) is down 10.89% YTD but gained 5.89% for the week; with strong gains for select SMID biotechs.

Virtually the whole healthcare and drug market is dependent on the Trump tariff policy. Keep in mind that we are at the early stage of the trade war. .Our last financial review of biopharma was in February 2025.

Long : ABBV GILD, LLY, MRK, PFE, RHHBY, VRTX; FBIOX. Long NVS.