Why Pharma and Biotech Stocks Got Thrashed on Tuesday

As ever in the often quick-developing biotech and pharmaceutical sectors on Tuesday, companies posted a mix of positive and negative news. Investors clearly took the latter more to heart, as they traded down a wide variety of stocks in both fields. Hanging over these industries were very recent remarks by President Trump concerning potential tariffs that will surely impact them.

Few well-known biotech and pharma names escaped what ended up being something of a rout. Amgen (NASDAQ: AMGN) took it on the chin with a more than 2% decline on the day, while Regeneron Pharmaceuticals (NASDAQ: REGN) and Merck (NYSE: MRK) both fell in excess of 4%. Axsome Therapeutics (NASDAQ: AXSM) was looking sickly, meanwhile, with a nearly 7% drop.

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The dark shadow of tariffs

Investors continued to be worried about Trump's remarks, which took place at the latest meeting of his cabinet on Monday. Among the president's controversial tariffs, which, after a reprieve, look set to start being implemented next Wednesday, are levies that specifically target medicine makers.

He promised that details were coming about these. "We'll be announcing pharmaceuticals at some point, because we have to have pharmaceuticals."

He added without elaboration that his administration will "be announcing some of these things in the very near future, not the long future, the very near future." Presumably, this means before next Wednesday's scheduled kickoff.

Even without the pertinent details of how these industry-focused tariffs would be targeted, it's hardly encouraging when the main official behind them takes pains to single out the pharmaceutical sector (and, by extension, biotechs).

It's easy to imagine levies being imposed not only on drugs themselves but on the many niche products that go into drug production, too. This, in turn, threatens to drive prices up for both developers and incumbent pharmaceuticals. If a bruising and long trade war is ignited, biotechs in particular -- which are often pre-revenue, or at least revenue-light to begin with -- could be especially vulnerable.

Reasons to stay cheerful

While investors were justifiably worried about how this might play out, there were some bright spots of news for companies in the two sectors Tuesday. For example, Merck signed a deal to license a potential blockbuster heart disease drug from its Chinese peer Jiangsu Hengrui Pharmaceuticals. The license is a global one that excludes only the Greater China region.

The deal, which is subject to regulatory approval and anticipated to close in the calendar second quarter of this year, could be worth up to almost $2 billion. It seems like quite a worthy play given the potentially vast patient pool for such a treatment.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amgen, Axsome Therapeutics, Merck, and Regeneron Pharmaceuticals. The Motley Fool has a disclosure policy.