Pharma Stocks Under Fire: Merck's Resilience Shines Amid Tariff Turbulence

The U.S. pharmaceutical industry is navigating a perfect storm of tariffs, supply chain disruptions, and regulatory overhauls. With Beijing-Washington trade tensions spiking and the FDA pushing for domestic manufacturing, investors face a quandary: Which pharma stocks can weather the storm? The answer lies in companies that blend strategic U.S. manufacturing investments, diversified pipelines, and cost discipline—qualities that make Merck & Co. (MRK) a standout compared to Pfizer (PFE), which struggles with tariff exposure and a weakening drug pipeline.

The Tariff Tsunami: A New Reality for Pharma

The U.S. has imposed a 10% global tariff on imported goods since April 2025, with China's APIs—the lifeblood of 40% of generic drugs—hit by a staggering 245% levy. Meanwhile, the FDA's Executive Order on Domestic Manufacturing (May 2025) mandates stricter scrutiny of foreign facilities and faster approvals for U.S. plants. This has forced companies to choose: reshore production or face rising costs and supply chain fragility.

The risks are existential. Pfizer, which derives nearly half its APIs from China, faces a $13.7B revenue drop in Q1 2024 (8% YoY) due to waning Paxlovid sales—a drug now subject to Chinese retaliatory tariffs. By contrast, Merck has doubled down on domestic production, investing $5B in U.S. facilities since 2020 and securing exemptions from Section 232 tariffs through compliance with FDA reforms.

Merck: The Defensive Value Play

Merck's strategy is a masterclass in resilience:

1. Diversified Portfolio:
2. Its diabetes drug Januvia and cancer therapies Keytruda (a $22B/year franchise) provide stable cash flows.

3. New pipeline assets, including an Alzheimer's drug in late-stage trials, offer growth beyond its core markets.

4. U.S. Manufacturing Edge:

5. Merck's North Carolina API plant and New Jersey vaccine facility insulate it from Chinese tariff risks. These investments align with the FDA's “buy American” push, shielding margins from API cost spikes.

6. 
   .

7. Cost Discipline:

8. Merck's adjusted operating margin hit 38% in 2024, outpacing Pfizer's 26%, thanks to lean operations and reduced R&D redundancies.
9. .

Pfizer: Pipeline Void Meets Tariff Headwinds

Pfizer's vulnerabilities are stark:

• Overreliance on Paxlovid: The drug's $18B in 2022 sales collapsed to $2.5B in 2024, with no replacement on the horizon. Its pipeline has only two Phase 3 candidates, compared to Merck's six.
• Tariff Exposure: Pfizer sources 35% of its APIs from China, leaving it exposed to both U.S. tariffs and Chinese retaliatory duties (125% on U.S. exports).
• Margin Squeeze: While Merck's gross margin rose 2% in 2024, Pfizer's fell 5%, as it scrambles to relocate production to Vietnam and India—a process that will take years and billions.

Data-Driven Investing: Merck's Turnaround vs. Pfizer's Stagnation

Merck's stock price has outperformed Pfizer by 25% since 2020, even as both face macro headwinds.

.

• Valuation: Merck trades at 16x forward earnings, a discount to Pfizer's 21x—despite superior margins and growth prospects.
• Debt Management: Merck's net debt/EBITDA ratio is 0.8x, versus Pfizer's 1.2x, giving it flexibility to invest in R&D or dividends.

Conclusion: Merck's Defensive Profile Wins in Volatility

In an industry where supply chains and pipelines define survival, Merck's U.S. manufacturing moat, diversified revenue streams, and cost controls make it a defensive value play. Investors seeking stability should overweight Merck, while Pfizer's reliance on volatile foreign supply chains and anemic pipeline growth warrant caution.

Investment Thesis:
- Buy Merck: Target $100 (current: $88), with upside from margin expansion and pipeline wins.
- Avoid Pfizer: Until it diversifies its API sourcing and revitalizes its drug pipeline.

The tariff wars are reshaping pharma's winners. Merck's resilience isn't just about tariffs—it's about outthinking them.