Regulatory And Macroeconomic Uncertainty Hang Over Q1 Earnings Season

Drugmakers were prepared for a chaotic first quarter as Donald Trump became US president, but the first months of the new administration have felt more like a tornado. It’s clear the US government under President Trump isn’t looking to do business as usual – even if pharmaceutical companies would very much like to.

Investors will have the opportunity to hear directly from management teams during first quarter sales and earnings calls about how the tumultuous changes in Washington, DC, might impact performance. Leaders have been hesitant to make any comments that could draw Trump’s ire and spark retaliation, but the economic fallout from tariffs combined with cuts across federal agencies and the loss of valuable expertise at the US Food and Drug Administration have business implications they should address.

Since drug executives last faced investors during the fourth quarter results season, Robert F. Kennedy, Jr. was controversially confirmed to oversee the US Department of Health & Human Services; 10,000 federal workers were laid off from health agencies, including 3,500 from the US Food and Drug Administration; National Institutes of Health (NIH) funding has been cut; and Trump unveiled widespread double-digit tariffs on global trading partners, rocking the stock market and investor confidence.

Any single one of these issues could worry investors, but together they raise questions about how business fundamentals can remain strong if the cost of goods increases, drug approval timelines slip, routine vaccinations or new approvals are threatened, and business development slows.

Economic Disruption

On tariffs, while pharmaceuticals were granted an exemption from broad global tariffs when Trump announced his plan on 2 April, it’s not certain how long the reprieve will last.

The administration is said to be planning to phase in tariffs on pharmaceuticals soon. In a sign of how quickly the situation is moving, the US announced late in the day on 8 April it will increase tariffs on China to 104% in response to retaliatory measures China announced.

Even with the exemption, there are still tariff-related overhangs to consider. Drug companies rely on imported goods for production, so there will be some financial impact; some diversified pharmas may be impacted in areas outside of pharma that aren’t exempt, like medical devices, animal health or consumer health; and tariffs will remain a macroeconomic overhang, increasing uncertainty for investors who crave the opposite, impacting financing and M&A.

On top of all that, drug companies still have Biden-era policies they are navigating this year with the Medicare Part D redesign, which is expected to be a net financial negative for several companies across the sector.

Johnson & Johnson – a company Trump recognized as a “great company” in his tariff announcement because of US manufacturing investments – will be the first to report first quarter earnings on 15 April. J&J may have more immediate exposure to tariffs because roughly 35% of its business comes from medtech, which is not exempt from tariffs. In addition, the company has a financial overhang from unresolved talc litigation; a $9bn settlement proposal was rejected on 31 March by US bankruptcy court.

In a call the same day the talc ruling was announced, CEO Joaquin Duato told investors the update has no impact on the company’s 2025 financial guidance or longer-term projections from 2025-2030. Investors will be eager to hear if the next-day tariffs announcement changes the outlook.

Wells Fargo analyst Larry Biegelsen, in a 4 April note, forecast that tariffs will have minimal impact on J&J unless pharma tariffs are added and that J&J has been a strong stock in periods of uncertainty.

“Medtech has historically been defensive during recessions and J&J shares have outperformed during the past four recessions. J&J stock may provide a defensive position in an uncertain macro environment and amid increased concerns about a potential recession in the US,” he said. “Our analysis of the recent round of tariffs suggests likely minimal impact (1% EPS) for J&J because pharma was exempt. However, we are concerned about future pharma tariffs.”

Regulatory Disruption

Changes at the FDA could be as much of an immediate concern for pharma. While industry appreciates deregulation, drug companies need strong FDA oversight to uphold safety and efficacy standards. As drug development has gotten increasingly complex and moved into new realms like CAR-T therapy, gene therapy and trispecific antibodies, recruiting talent that can keep up with the pace of innovation is a challenge and keeping the agency up to speed on new technologies is essential.

The Trump administration announced sweeping cuts to the FDA on 1 April (about 3,500 workers were cut), a blow that some industry experts said could lead to Europe becoming the home of first approvals instead of the US. The loss of Center for Biologics Evaluation and Research (CBER) director Peter Marks, who resigned citing concerns about Kennedy’s vaccines policies, opens a leadership vacuum in vaccines and gene therapy. He led vaccines through the COVID-19 pandemic, is considered a champion of cell and gene therapy and is respected within industry for efforts to modernize FDA review policies.

Many other high-profile leaders have also departed the FDA.

“The FDA sounds like it may be stretching and at risk of coming apart at the seams and is in a precarious position,” Cantor Fitzgerald analyst Josh Schimmer said in a 3 April note.

So far, drug reviews have remained largely on schedule, but the next few months will be a better barometer for how the agency is keeping pace with applications.

FDA approval of Novavax’s COVID-19 vaccine Nuvaxovid has been delayed, raising concerns about what it might mean for vaccine approvals under the new administration. The company was expecting full licensure of the vaccine on the application’s action date,1 April, but it never came. On 2 April, Novavax said it is continuing to await a decision from the FDA on the application to grant full approval to the vaccine, which was approved under an emergency use authorization.

Other recent action dates have been met, including Amgen’s Uplizna (inebilizumab) for a new indication for the treatment of immunoglobulin G4-related disease (IgG4-RD), which was approved on 3 April. But the impact on review timelines could be greater for deadlines further out.

Drugmakers who work in vaccines like GSK, Sanofi, Merck & Co. and Pfizer could be pressed about how they can push back against growing vaccine misinformation, especially as a measles outbreak continues to spread in the US and questions mount over the status of Novavax’s application.

But despite macroeconomic uncertainties, regulatory upheaval and navigating the Part D redesign, biopharma business appears to be tracking to guidance expectations and drugmakers are expected to hit revenue targets in the quarter.

As for small- to mid-cap pharmas, RBC Capital Markets analyst Brian Abrahams said most sales look to be tracking roughly in line for the year, which could reaffirm the sector’s operational fundamentals.

“Constant policy whiplash makes it difficult to know when and where the bottom will be reached, but with the group down ~25% from the highs of November last year, a lot of uncertainty seems baked in now, and quality stories should still be able to weather the storm.”