The drug and biotech sector is facing multiple headwinds. President Trump has warned of heavy tariffs, as high as 250%, on pharmaceutical imports. Trump’s repeated threats to impose tariffs on pharmaceutical imports are aimed at pushing American pharma companies to shift pharmaceutical production back to the United States, primarily from European and Asian countries. Trump has said that drugmakers have about one to one and a half years to bring production back to the United States before the new tariffs are imposed.

Regular pipeline setbacks, slow ramp-up of newer drugs, patent cliffs and regulatory risks are some of the headwinds for the sector. Despite the headwinds, the industry’s focus on innovation and positive pipeline/regulatory developments signals a favourable long-term outlook. The drug and biotech sector also had a better-than-expected second quarter, with most large drugmakers announcing strong quarterly results and sounding optimistic for continued growth in the second half of 2025.

Overall, large drugmakers have several robust revenue streams and are mostly profitable companies, making them safe havens for long-term investments.
Among the large drugmakers, Eli Lilly (LLY Quick QuoteLLY - Free Report) , Johnson & Johnson (JNJ Quick QuoteJNJ - Free Report) , Novartis (NVS Quick QuoteNVS - Free Report) , Pfizer (PFE Quick QuotePFE - Free Report) and Bayer (BAYRY Quick QuoteBAYRY - Free Report) are worth retaining in one’s portfolio.

Industry Description

The Zacks Large Cap Pharmaceuticals industry comprises some of the largest global companies that develop multi-million-dollar drugs for a broad range of therapeutic areas, like neuroscience, cardiovascular and metabolism, rare diseases, immunology and oncology. Some of these companies also make vaccines, animal health products, medical devices and consumer-related healthcare products. They invest millions of dollars in their product pipelines and line extensions of their already-marketed drugs. Continuous innovation is a defining characteristic of pharma companies, and these large drugmakers are constantly investing in drug development and the discovery of new medicines. Regular mergers and acquisitions, and collaboration deals are other key features of large drugmakers.

What's Shaping the Future of the Large-Cap Pharma Industry?

Innovation and Pipeline Success: For big drugmakers, an innovative pipeline is a competitive necessity and key to top-line growth. Pharma companies are continually striving to ramp up innovation and allocate a significant portion of their revenues to R&D. Drugmakers are embracing AI technology and machine learning to accelerate the drug discovery process for delivering more effective therapies. New technologies, such as gene editing, mRNA vaccines, precision medicine and next-generation sequencing, are revolutionizing the drug and biotech industries.

Innovation is at its peak with key spaces like rare diseases, next-generation oncology treatments, obesity, immunology and neuroscience attracting investor attention. M&A activity also remains healthy.

Successful innovation and product line extensions in key therapeutic areas, along with strong clinical study results, may serve as important catalysts for these stocks.

Aggressive M&A & Collaboration Activity: The sector is characterized by aggressive M&A activities. Given that it takes several years and millions ofdollars to develop new therapeutics from scratch, large pharmaceutical companies, sitting on substantial cash reserves, regularly acquire innovative small and mid-cap biotech companies to expand their pipelines.

Also, sloppy sales of mature drugs, dwindling in-house pipelines, government scrutiny of drug prices and the growing use of AI for drug discovery whet the M&A appetite of large drugmakers.Moreover, collaborations and partnerships with smaller companies are in full swing.Fast-growing and lucrative markets such as oncology, rare disease and gene therapy are focus areas for M&A activities. Recently, areas such as obesity and inflammatory bowel disease have been attracting buyout interest.

An important recent M&A deal was Sanofi’s acquisition of Blueprint Medicines for approximately $9.5 billion in July. Merck offered to acquire Verona Pharma for around $10 billion in July, with the deal expected to be closed later this year. M&A activity is expected to remain rampant through the rest of the year.

Pipeline Setbacks & Other Headwinds: Thefailure of key pipeline candidates in pivotal studies and regulatory and pipeline delays can be setbacks for large drug companies and significantly hurt their share prices. Other headwinds for the industry include pricing and competitive pressure, generic competition for blockbuster treatments, a slowdown in sales of some of the most high-profile older drugs, Medicare drug price negotiations and increasing FTC scrutiny of M&A deals.

Macroeconomic Uncertainty: Uncertain macroeconomic conditions, including the risk of tariff-led inflation, a softer labor market and escalating geopolitical tensions in various parts of the world, have increased broader economic woes.

The uncertainty around tariffs and trade production measures has also muted broader economic growth. President Trump is also trying to implement the Most Favored Nation (MFN) pricing policy. The goal of this proposed policy is to ensure that U.S. consumers pay the same price for some prescription drugs as the developed nation that pays the lowest price for that drug. Such a policy, if implemented, could hurt prices and reimbursement of some drugs.

Zacks Industry Rank Indicates a Dull Outlook

The Zacks Large Cap Pharmaceuticals industry is a 10-stock group within the broader Medical sector.  The group’s Zacks Industry Rank is basically the average of the Zacks Rank of all the member stocks.

The Zacks Large Cap Pharmaceuticals industry currently carries a Zacks Industry Rank #157, which places it in the bottom 36% of 245 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

Before we present a few large drug stocks that are well-positioned to outperform the market based on a strong earnings outlook, let’s take a look at the industry’s performance and its current valuation.

Industry Versus S&P 500 & Sector

The industry has outpaced the Zacks Medical Sector but underperformed the S&P 500 year to date.

Stocks in this industry have collectively risen 1.1% so far this year against the Zacks Medical Sector’s decline of 0.5%. The Zacks S&P 500 composite has risen 12.0% in the said time frame.

YTD Price Performance

Industry's Current Valuation

Based on the forward 12-month price-to-earnings (P/E), a commonly used multiple for valuing large pharma companies, the industry is currently trading at 14.71X compared with the S&P 500’s 22.95X and the Zacks Medical Sector's 19.36X.

Over the last five years, the industry has traded as high as 20.80X, as low as 12.92X and at a median of 15.23X, as the chart below shows.

Forward 12-Month Price-to-Earnings (P/E) Ratio

5 Large Drugmakers to Watch

J&J:  Its Innovative Medicine unit is showing a growth trend. The segment’s sales rose 2.4% in the first half of 2025 on an organic basis despite the loss of exclusivity (LOE) of Stelara and the negative impact of the Part D redesign. J&J expects continued growth in the second half of 2025 to be driven by its key products such as Darzalex, Tremfya, Spravato and Erleada, as well as new drugs like Carvykti, Tecvayli and Talvey and new indications for Tremfya and Rybrevant. J&J’s MedTech segment sales also improved in the second quarter from the first-quarter levels, driven by Cardiovascular, Surgery and Vision, which is likely to drive growth in the second half too.

J&J is also rapidly advancing its pipeline, attaining significant clinical and regulatory milestones that will help accelerate growth through the back half of the decade. J&J has also been on an acquisition spree, with the latest acquisition of Intra-Cellular Therapies strengthening its presence in the neurological and psychiatric drug market.

J&J expects operational sales growth in both the Innovative Medicine and MedTech segments to be higher in the second half than in the first. However, weak sales of MedTech in China, the Stelara patent cliff and the potential impact of Part D redesign are significant headwinds in 2025.

J&J has a Zacks Rank #2 (Buy) at present.

The stock has risen 25.3% year to date. The Zacks Consensus Estimate for 2025 earnings has risen from $10.64 per share to $10.86 per share over the past 60 days.

Price and Consensus: JNJ

 

Bayer: The company’s key drugs, Nubeqa for cancer and Kerendia for chronic kidney disease associated with type II diabetes, are fueling growth in its Pharmaceuticals division, making up for the decline in sales of oral anticoagulant Xarelto. Bayer is also working to expand the labels of Nubeqa and Kerendia, which, if successful, can further drive growth.

The company also plans to launch two new drugs in 2025 — elinzanetant, a hormone-free treatment for menopause symptoms, and acoramidis, a drug for the treatment of a specific form of heart disease. The company is also progressing well with the launch of Eylea 8 mg, which enables extended treatment intervals in retinal diseases.

However, sales in the Crop Science division declined significantly in the past couple of years due to lower volumes and prices for glyphosate-based products. The Consumer Health segment was also soft in the first half of 2025.

This Zacks Rank #2 company’s shares have risen 69.8% so far this year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Estimates for its 2025 earnings per share have increased from $1.27 to $1.30 over the past 60 days.
 

Price and Consensus: BAYRY

 

Pfizer: It is one of the largest and most successful drugmakers in oncology. The addition of Seagen in 2023 strengthened its position in oncology.

Pfizer’s non-COVID operational revenues are improving, driven by its key in-line products like Vyndaqel, Padcev and Eliquis, new launches and newly acquired products like Nurtec and those from Seagen.

Pfizer faces its share of challenges, including COVID-19 product-related uncertainty, U.S. Medicare Part D headwinds, the upcoming LOE cliff in the 2026-2030 period, uncertainties around tariffs and a volatile macro environment. However, with COVID-related uncertainties diminishing, its revenue volatility is declining. Pfizer’s key drugs like Vyndaqel, Padcev and its recently launched and acquired products should help the company largely offset its LOEs over the next several years.

Pfizer expects cost cuts and internal restructuring to deliver savings of $7.7 billion by the end of 2027. Pfizer’s significant cost reduction and efforts to improve R&D productivity measures should drive profit growth. Though Pfizer does not expect strong top-line growth over the next three years due to the LOEs, it expects EPS growth.

Pfizer has a Zacks Rank #3 (Hold) at present. The Zacks Consensus Estimate for 2025 EPS has risen from $3.05to $3.13 per share over the past 60 days. The stock has lost 1.9% year to date.

Price and Consensus: PFE

 

Novartis: With the separation of Sandoz, Novartis has become a pure-play pharmaceutical company.  Novartis maintains strong momentum on the back of a strong and diverse portfolio with drugs like Kisqali, Kesimpta, Pluvicto and Leqvio. The uptake of Pluvicto and Scemblix has been outstanding and should propel top-line growth. Approval of new drugs and label expansion of existing drugs should enable Novartis to offset the adverse impacts of the generic competition of key drugs. Novartis is also looking to solidify its presence in the promising gene therapy space. The recent spate of acquisitions and collaborations has strengthened its pipeline. However, generic erosion of some drugs and recent pipeline setbacks are a concern. One of its top drugs, Entresto, is likely to lose patent protection. 

Novartis has a Zacks Rank #3 at present. The Zacks Consensus Estimate for this Swiss drugmaker’s 2025 EPS has risen from $8.92 to $9.00 over the past 60 days. The stock has risen 34.6% so far this year.

Price and Consensus: NVS

Eli Lilly:  It has seen tremendous success with its popular tirzepatide medicines, diabetes drug Mounjaro and weight loss medicine, Zepbound.

Despite being on the market for only around three years, Mounjaro and Zepbound have become key top-line drivers for Lilly, with demand rising rapidly. Launches of these drugs in new international markets and improved supply from ramped-up production led to strong sales in the first half of 2025. Lilly’s other new drugs, like Kisunla, Omvoh and Jaypirca, are also contributing to its top-line growth.

Lilly is also making rapid pipeline progress in obesity, diabetes and cancer, with several key mid- and late-stage data readouts expected this year. Lilly is investing broadly in obesity and has several next-generation candidates currently in clinical development, like orforglipron, an oral GLP-1 small molecule, and retatrutide, a GGG tri-agonist. Lilly has announced mixed data from two studies on orforglipron and is now set to file global regulatory applications for this much-awaited oral once-daily pill by the end of this year. However, the mixed data on orforglipron has slightly lowered investor confidence in its weight-loss drugs.

LLY is also working to diversify beyond GLP-1 drugs by expanding into cardiovascular, oncology and neuroscience areas. In 2025, it has already announced three M&A deals.

Lilly has its share of problems. Prices of most of Lilly’s products are declining in the United States, including Mounjaro and Zepbound, primarily due to changes to estimates for rebates and discounts. Rising competition in the GLP-1 diabetes/obesity market is another headwind.

Lilly has a Zacks Rank #3 at present.

The stock has declined 2.2% year to date. Estimates for Eli Lilly’s 2025 earnings have improved from $21.91 to $23.03 per share in the past 60 days.

Price and Consensus: LLY