Shares of Pfizer (PFE) are falling after Citi analyst Andrew Baum downgraded the stock to Sell from Neutral and lowered his target price to $31 from $38, saying the drugmaker will have to make a deal to achieve the EPS forecast that Wall Street analysts are expecting.

UNDERAPPRECIATED RISK TO ONCOLOGY DRUGS: Baum said he is concerned over the "rising risk" to the company's "high price Medicare Part D covered oncology drugs," including Xtandi, Ibrance and Xalkori, as he anticipates the introduction of superior agents and a steeper rebating due to increased competition. Baum wrote he also expects "diminished patient affordability" through a reduction of independent patient assistance programs. The analyst prefers owning Eli Lilly (LLY) and Bristol-Myers (BMY) among the major U.S. Pharmaceuticals.

ASSISTANCE PROGRAM PROBE: Pfizer is in the midst of an investigation after receiving two subpoenas from the U.S. Attorney's office related to charities that help Medicare patients afford co-payments for medication. The company said that it received subpoenas in December 2015 and July 2016 asking for documents linked to the Patient Access Network Foundation and other organizations that provide financial assistance to those on Medicare.

MAJOR TRANSACTION RISK: Baum said he believes transaction risk for Pfizer will remain high, as the company will need to do a deal to meet the earnings targets that the Street has set for it. The company will look to turn to an M&A deal, with Bristol-Myers and Allergan (AGN) as the most probable targets, according to Baum.

PRICE ACTION: Shares of Pfizer fell 1.75% to $32.55 in early trading, while Bristol-Myers slipped 0.5% and Allergan dropped about 1%.