Shares of Halozyme Therapeutics (HALO) and Jonhson & Johnson (JNJ) are under pressure on Tuesday after Leerink downgraded the stocks to Underperform and Market Perform, respectively. This comes after the Centers for Medicare and Medicaid Services issued draft guidance for 2028 Inflation Reduction Act drug price controls, which the firm says creates risk that hyaluronidase combination products may not be protected from IRA price negotiations for 13 years after combo approval.

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DOWNGRADES ON CMS ACTION: On Tuesday, Leerink analyst David Risinger downgraded Halozyme to Underperform from Market Perform with a price target of $47, down from $63, and Leerink downgraded Johnson & Johnson to Market Perform from Outperform with a price target of $153, down from $169. The firm, however, is not making any changes to its revenue projections this time as it awaits final guidance from CMS in the second half of 2025.

Leerink explains that the catalyst for its downgrades is that CMS issued draft guidance for 2028 IRA drug price controls that creates risk that hyaluronidase combination products may not be protected from IRA price negotiations for 13 years after combo approval. The “surprise” is CMS draft guidance language suggests that combination products, which do not enhance efficacy, may be negotiated 13 years after the original active ingredient was approved, rather than 13 years after combination approval.

The firm notes that Halozyme could face U.S. revenue pressure from Opdivo SC in 2028, Darzalex Faspro in 2029 and Ocrevus SC in 2031. In addition, CMS action may reduce new business opportunities to license ENHANZE. A caveat is that the Street already anticipates the company’s Faspro royalty to decline from 5% to 2.5% in 2029 and go to zero in 2032. Its new investment thesis on Halozyme is that Leerink expects shares to underperform because it will be difficult for investors to assign value to the company’s major growth drivers since they could start to roll over in 3-5 years.

Regarding Johnson & Johnson, the firm notes Darzalex Faspro may be price controlled in 2029 rather than 2034 as it had been assuming. In the case of Darzalex, it was approved in November 2015, and Darzalex Faspro was approved in 2020. Leerink has been modeling that Darzalex Faspro will generate $10.7B in U.S. sales in 2028, or 16% of J&J Worldwide Pharma sales of $66.4B and 10% of total company sales of $96.8B. The firm believes that U.S. Darzalex’s profit contribution could be approximately $8.6B in 2028, or 22% of its total company operating profit estimate of $39.1B. If it is price controlled in 2029, the drug’s U.S. profit contribution could take a meaningful hit, it points out. Leerink’s new investment thesis is that J&J’s 5-year growth prospects are at risk of downward revisions if Darzalex Faspro is price controlled in 2029, and we are not anticipating an upward re-rating of the stock in the near-medium term.

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The firm also highlights that in its 2028 draft guidance, CMS included a new paragraph suggesting a possible reconsideration of its approach to fixedcombination drug negotiations. It believes this development raises concerns for multiple Halozyme’s products and J&J’s Darzalex Faspro.

PRICE ACTION: In Tuesday morning trading, shares of Johnson & Johnson dropped almost 3% to $149.87, while Halozyme’s stock has plunged about 27% and is now trading at $49.02.

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Coinbase, Caterpillar upgraded: Wall Street’s top analyst calls Halozyme downgraded to Underperform from Market Perform at Leerink Cautious Optimism for Halozyme Amid Uncertainties: Hold Rating Maintained Halozyme Therapeutics Reports Strong Earnings and Growth Halozyme’s Strong Financial Performance and Strategic Developments Justify Buy Rating with $75 Price Target

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