"Index weight has fallen to its lowest point in decades"! US pharmaceutical stocks have been "abandoned" by the market

Investor pessimism is rising, and U.S. pharmaceutical stocks are facing the most severe challenges in decades.

Large biopharmaceutical companies experienced significant sell-offs during the recently concluded earnings season, with the sector's overall performance being weak, and the healthcare sector's weight in the S&P 500 index dropping to its lowest point in decades.

Goldman Sachs' analyst team pointed out in a report last Friday that with the earnings season ending last week, healthcare stocks are facing weak sector performance and increasingly rising pessimism. The significant sell-off of two key stocks, Vertex Pharmaceuticals and Eli Lilly, has become a major setback for the earnings season.

Additionally, large healthcare "quality" stocks such as Novo Nordisk, McKesson Corp, and UnitedHealth Group also saw declines of 10% to 20% after their earnings reports. Goldman Sachs stated that during this earnings season, the average volatility of healthcare stocks reached ±6%, setting one of the highest volatility records in history.

The Trump administration's Most Favored Nation pricing proposal and potential pharmaceutical tariffs are becoming major policy clouds suppressing pharmaceutical stock performance. Goldman Sachs expects that as policy dynamics evolve, the biotechnology sector may face further volatility in the second half of the year and beyond, with issues such as tariff policies, drug pricing, and Medicaid cuts continuing to trouble the market.

Earnings Season Devastation, Leading Pharmaceutical Companies Suffer Setbacks

This earnings season has been catastrophic for large biopharmaceutical companies. The team led by Goldman Sachs analyst Asad Haider stated in the report that the earnings season ended with a significant sell-off of two key growth stocks.

Vertex Pharmaceuticals fell sharply due to setbacks in its pain relief drug project, plummeting 20.6% in a single day on August 4. Eli Lilly's performance was even worse, as its oral GLP-1 drug data did not meet expectations, resulting in the largest drop in its stock price since the dot-com bubble.

Previously, Novo Nordisk, McKesson Corp, UnitedHealth Group, Intuitive Surgical, and other large healthcare "quality" companies also experienced declines of 10% to 20% after their earnings reports. This series of declines demonstrates the systemic pressure facing the entire sector.

Despite the overall weak performance, some individual companies stood out during the earnings season. Johnson & Johnson exhibited the strongest follow-up performance in the U.S. pharmaceutical industry after its earnings report, maintaining its position as the best performer year-to-date.

Gilead Sciences rose 6% last week, with a cumulative increase of 30% year-to-date, benefiting from strong growth momentum in its HIV business and the successful launch of its Yeztugo product.

In contrast, weight-loss concept stocks suffered heavy losses Novo Nordisk's profit warning and Eli Lilly's weak oral weight loss drug data led to a loss of $100 billion in Eli Lilly's market value, although Novo Nordisk subsequently experienced a partial rebound. Currently, Wall Street analysts have downgraded forecasts and target stock prices related to weight loss drugs.

Policy Shadows Loom, Tariff Threats Increase Uncertainty

Uncertainty at the policy level is becoming the biggest challenge facing pharmaceutical stocks.

Investor focus remains on the Trump administration's Most Favored Nation pricing proposal for the Medicaid program and the potential tariff threats to the pharmaceutical industry arising from the ongoing Section 232 investigation. According to Goldman Sachs analysts, potential pharmaceutical tariffs may be announced in mid-August.

It is noteworthy that the Trump administration's 100% tariff on chips exempts domestic manufacturing, which is significant for pharmaceutical companies strengthening domestic production in the U.S.

Pfizer has taken the lead in incorporating the Most Favored Nation pricing scenario into its performance guidance, while Eli Lilly has expressed a willingness to accept a gradual rebalancing of prices in the U.S. and EU, starting with new products.

Further Volatility Expected in the Second Half

Goldman Sachs analyst Salveen Ritcher stated in a report that although the biotechnology sector has rebounded along with the broader market since the April lows, it may face further volatility in the second half and beyond, as policy dynamics continue to evolve, including tariffs and tax policies, drug pricing, Medicaid cuts, FDA, and Department of Health regulations.

The analyst team continues to monitor the government's proposal to incorporate Most Favored Nation pricing into the Medicaid program and awaits possible pharmaceutical tariff announcements following the conclusion of the Section 232 investigation. These policy uncertainties are expected to continue affecting investor sentiment and stock performance in the coming months.

However, some analysts believe that the healthcare sector's weight in the S&P 500 has fallen to its lowest point in decades, reflecting market concerns about the industry's long-term prospects. In the context of ongoing policy pressures and regulatory uncertainties, whether pharmaceutical stocks can regain market favor remains in question