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A recent report saying the US pharmaceutical tariffs would raise US drug costs by 51 billion dollars annually. That's according Reuters. That report's tied to pharma companies like Amgen, Eli Lilly, and Pfizer and it could affect the stocks going into the second half of the year. We're navigating how to play the pharmaceutical sector with the Yahoo Finance playbook. Joining us now is Tim Anderson, Senior Farmer and Biotech analyst at BVA Securities, and our Anjali Kamlani, Yahoo Finance Senior Health reporter is still with us as well. Tim, thanks for being here. So we were just talking about this cost equation of these companies trying to reassure, but obviously that's going to take time. So let's take a snapshot of what's happening right now, given the tariff landscape. What do you think is going to be the hit to your covered companies and how are they navigating it?

Yeah, so, uh, the companies haven't really quantified this at all yet. Uh, when we do kind of back of the envelope math, I think that if tariffs went through and you really had uh, things like a 25% tariff or a 20% tariff, uh, coming out of Europe where you manufacture commonly in countries like Ireland, you're probably looking at an earnings impact that would be, you know, maybe somewhere in the single digit percent. Uh, no company has quantified it at all. It's not uh, surprising because we don't have any firm specifics on the policy coming out of the administration. Uh, so until you have those, all you can do is really, you know, rough back of envelope math. It is the topic, you know, number one that's coming up on earnings calls and despite incessant questioning, you're just not getting a whole lot of answers.

That's definitely true, Tim. Angela, here. I know that, uh, for Johnson & Johnson specifically, they did talk about the medtech impact. I know that's sort of a carve-out or sort of a different subsector for some of these large-cap companies. I'm curious, you know, they've been talking about working with the administration, a potential carve-out. Could that sort of reign in some of the, uh, you know, the guidance that we're seeing and some of the hits that we're seeing to that subsector?

Uh, yeah. Well, you know, I don't cover the medtech space or the medical device space, so it's really just on the pharma side. In terms of, you know, carve-out for pharma specifically, or, you know, drug producing companies, I really think at this stage everything is potentially negotiable. If you listen to what, uh, Trump, the administration is saying, you know, when they're talking about national security issues, it's really a reference to China. It's not obviously to countries like Ireland. So I just don't honestly know what to expect is going to actually become firm policy. And then from there you'd have to see how the companies adjust. Um, and along the way, uh, you know, how they can kind of negotiate more favorable terms. So, as you probably know, you know, the government started this 232 investigation. There's some time that will lapse on the order of months.

It probably goes faster this time around with Trump. Uh, but during this window, I wouldn't be surprised if industries, uh, you know, in the hallways trying to negotiate the eventual outcome.

Tim, I had a question for you. It seems like every five to seven years in pharma, we get a new hot mechanism of action or class of drugs. Before the GLP1s, it was the immunotherapies and car T's. Where in your mind are we in that phase of the trend with GLP1s? Are we at risk of getting oversaturated, like we saw with Merck's Keytruda where there was, call it 2,000 combination trials underway, or are we still in the early innings of growth and opportunity in the GLP1s?

Yeah, so, you know, obesity is certainly the hot big category. It probably ends up being the biggest category ever. Uh, currently dominated right now, two companies, Eli Lilly and Novo Nordisk. And those companies will have such a moat around them that it will be very difficult for late entrant companies to take much more than just marginal market share. So you're really not looking at anyone else coming in most likely until something like 2028. Uh, and then there will be a flood of products, but they won't really change the market. So where are Lilly and Novo now at the moment? I'd say use the baseball analogy. Still in the first inning, maybe the second inning at most. Uh, so you've got a lot of innovation that's still ahead in terms of new drugs that are being rolled out. Even though we're still early on in rolling out the current products, uh, both companies are already on third generation products,

both injectable and oral, and so it's going to be kind of a constant stream of innovation that, again, I think those two incumbent companies will dominate. Uh, so commercially, we're rolling out. The US is the most advanced market so far in that front. Even there it's early, and then internationally, we're just barely scratching the surface.

And, and Tim, I believe Eli Lilly is one of the stocks that you have as a buy-rated one. It is that is the obesity piece, the main impetus behind that. Uh, we're going to hear from the company, by the way, reporting next week. May 1st is coming out with its numbers. Or are you looking at it more as sort of a well-rounded play?

I'd say, you know, Lilly, absolutely the driver is obesity, right? It's going to dominate the P&L, it's going to dominate the story. It's certainly going to dominate the news flow across biopharma in 2025. Uh, it is more diversified than their incumbent competitor, Novo Nordisk. And so I do think that does give a measure of comfort to investors. And in their other areas where they play, like oncology, they have a good, you know, stable growing performing book of business. But, you know, don't be fooled. Obesity is really what drives the bus. And that, you know, the good thing for Lilly is that they really provides them not only a high level of growth, but a durable, uh, P&L over the course of a decade, really. And the industry, one of the problems the industry faces is you get into the late 2020s, there's so many big patent expirations that start to poke major holes in income statements, and Lilly just sails through that period because of this wave of obesity growth that's ahead of them. So not only is it a high level of growth, it's a durable level of growth. And for the reasons I talked about earlier, uh, it's pretty insulated from competitors.

And I know we're also watching to see if it becomes the first trillion dollar healthcare company. We'll see. We'll see about that. Tim, um, question for you on healthcare broadly as a sector. Tends to be, uh, thought of as safe during, you know, recessionary periods or during volatility in the market. And we're not seeing that anymore, in part because of the drug pricing pressure in the past year, as well as in the on the biotech side, you know, funding cuts, uh, different level of interest waning from investors. So I'm curious, how should we think about healthcare now? And, and does it kind of move away from being sort of a safe sector?

I think it moved away from being a safe sector 15 years ago, 20 years ago. Uh, it's heavily regulated. There's so much binary event risk, uh, with these names. You know, usually what gets people excited about drug stocks is a phase three trial about to report out, or new drug about to make it to market. And that just embeds risk, right? Most of the time, those drugs are going to make it, but you're still left with something like 30% of drugs in phase three that ultimately don't make it. So that sort of thing creates a lot of volatility in the sector. And politically, you know, you've been under attack for drug pricing. So, uh, we see that in the current administration and many prior administrations were that. So it still acts defensively. You know, you don't have to look any further back than two months ago, three months ago when the markets were starting to melt down, and there was this kind of flood of money coming into pharma. Um, but, you know, then Trump starts talking about drug pricing and tariffs on pharma. Um, and I think that it kind of reminded investors it's not the safe sector that it used to be a long time ago.

So I do think it's changed a little bit.

Tim, really interesting and say, thank you so much and thanks Ange.