HSBC cuts biotech stocks: Eli Lilly lowered to Reduce

Investing.com -- HSBC downgraded several major biotech names this week, citing macroeconomic sensitivities, tariff risks, and growing pressure from regulatory changes. Most notably, the bank downgraded Lilly to Reduce from Buy.

The firm said the risk-reward for Eli Lilly (NYSE:LLY) is "not attractive," especially given uncertainties surrounding the future growth of its obesity drug franchise. 

HSBC (LON:HSBA) noted, "We are not certain that is the case for Lilly" regarding continued script momentum as market dynamics shift.

Broader concerns also weighed on HSBC’s view of the sector. The analysts pointed out that "the confluence of first-time US tariffs risks combined with a large patent cliff and Part D/IRA headwind might create some pressure on earnings this time." 

Their proprietary analysis found that "innovative pharma could face earnings headwinds of roughly c6-14% if a 25% US tariff were applied."

HSBC also flagged risks from changes to Medicare’s Part D program, warning, "Part D earnings risk in H2’25 is less well understood, we contend," and that "there is little precedent of manufacturers sharing the cost burden in the catastrophic phase."

While the firm acknowledged that "current sector multiples (growth-adjusted) reflect close to recessionary levels," they remained cautious, emphasizing forensic accounting checks to monitor the situation.

In addition to downgrading Eli Lilly, HSBC cut ratings on Roche (LON:0QQ6) and Biogen (NASDAQ:BIIB) to Hold and maintained Reduce ratings on GSK (LON:GSK) and Novartis (LON:0QLR) (SIX:NOVN). 

They said they prefer "Buy-rated growth names (Novo, Astra, and UCB), GARP ideas (Abbvie, Sanofi (EPA:SASY) (NASDAQ:SNY)), and defensive stocks (J&J (NYSE:JNJ))" in the current environment.