By Josh Nathan-Kazis

Healthcare stocks looked like a safe port in a storm on Thursday morning, as markets tumbled amid concerns about the Trump administration's new tariffs on U.S. imports. That apparent safety, however, could prove to be an illusion.

Though pharmaceuticals appear to have been spared in the round of tariffs announced late Wednesday, the president threatened specific tariffs on drug imports that could come later.

And the backdrop of regulatory uncertainty for the sector, and for drugmakers in particular, is only getting grimmer, as massive cuts come for the Food and Drug Administration.

As the S&P 500 plummeted 4.4% early Thursday, and the technology sector index fell more than 6%, healthcare stocks were a notable outlier.

The Health Care Select Sector SPDR exchange-traded fund, which tracks health stocks in the S&P 500, was roughly flat, and the narrower S&P 500 Managed Health Care index, which tracks health insurers, was up 2.8%.

Investors have buoyed healthcare stocks throughout the year as they sought relief from the turbulence that has hit tech stocks. That logic still seemed to be in play on Thursday. For investors worried about industries that are highly dependent on cheap imports, healthcare looks like a relatively U.S.-focused sector that has less reliance on trading partners.

There are limits to that logic, however. Pharmaceuticals have been spared tariffs so far, but there are signs that narrower tariffs could be coming, and a trade war could batter U.S. drugmakers that rely on foreign buyers for as much as half of their revenues.

What's more, the fundamentals of the industry still don't look great. The Trump administration is in the midst of a layoff spree that's decimating the public health agencies and creating major concerns about the future of the Food and Drug Administration, on which the healthcare companies all rely. Threatened cuts to Medicaid, meanwhile, could be disastrous for hospital companies and some insurers.

On Thursday morning, though, investors seemed to be putting those worries out of mind.

The biggest winners in healthcare were the drug distributors and insurers, which have mostly U.S.-focused business. Cencora and McKesson, two large U.S. drug distributors, were up Thursday, Cencora by 3% and McKesson by 3.2%. Health insurer UnitedHealth Group was up 3%, while Cigna Group, another large insurer, was up 2.7%, and Centene was up 4.4%.

For pharmaceutical stocks, the picture was more complex.

The White House said Wednesday that pharmaceuticals are exempt from what it is calling the "reciprocal higher tariff" being imposed on certain countries. It was less clear whether pharmaceuticals are also exempt from the 10% baseline tariff Trump also imposed, though the consensus Thursday appeared to be that they would be exempt from that, too. In a note late Wednesday, analysts at UBS wrote that they had had "some debate" about whether pharma was included in the 10% baseline tariff, but that they expect pharma to be excluded.

In his speech as he unveiled the tariffs, however, Trump seemed to allude to tariffs specifically on pharmaceuticals that could come later. "The pharmaceutical companies are going to come roaring back, they're coming roaring back, they're all coming back to our country, because if they don't they got a big tax to pay," Trump said. "And if they do, I'll be very happy. And you're going to be very happy."

Performance among drug stocks was mixed. Drugmaker supply chains span the globe, though the extent to which companies manufacture their medicines overseas varies widely. Merck was up 1.3%, while Johnson & Johnson, which recently announced big investments in U.S. manufacturing, was up 2.9%. Pfizer was up 0.3%, and Eli Lilly was down 2.3%.

"Pharma [is] holding up very well," Mizuho healthcare equities strategist Jared Holz in an email to investors at mid-morning. "Would tread lightly. Nothing has (actually) been solved for."

If pharmaceutical-specific tariffs do come later, they could lead to retaliatory tariffs from overseas trading partners, which would hit even the drugmakers with manufacturing concentrated in the U.S. According to a U.S. government report from December, the U.S. accounts for about half of worldwide prescription drug sales revenues.

For Pfizer, 39% of revenues came from overseas in 2024. For Eli Lilly, it was 33%, while for Bristol Myers Squibb it was 29%.

While biotech stocks would generally not be impacted by any new tariffs, given that many of those companies don't yet have revenues, the biotech sector was down Thursday. The SPDR S&P Biotech ETF, which tracks biotech stocks, was down 3.4%.

Write to Josh Nathan-Kazis at josh.nathan-kazis@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

April 03, 2025 12:20 ET (16:20 GMT)

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