U.S. President Trump is set to impose tariffs on imported pharmaceuticals, a policy that could take effect as early as August 1st and gradually increase over the next one to one-and-a-half years.
According to Zhitong Finance, U.S. President Donald Trump is set to impose tariffs on imported drugs, a policy that could take effect as early as August 1st and gradually increase over the next year or one and a half years. According to his own statements, the tariffs could reach up to 200%. Although the final plan has not been fully determined, analysts point out that this move may have a more significant impact on some pharmaceutical companies.
The Trump administration's move aims to encourage the 'reshoring' of drug production to the United States. In recent years, some pharmaceutical companies have announced investments of billions of dollars in new factories in the U.S. in an attempt to win government favor. However, industry insiders believe that these new facilities will not be operational in the short term, making it difficult to alleviate immediate supply chain and cost pressures.
The impact of tariffs on different companies varies, primarily depending on their manufacturing network layouts. According to research by TD Cowen Analyst Steve SCALA,$AbbVie (ABBV.US)$、$Bristol-Myers Squibb (BMY.US)$and$Eli Lilly and Co (LLY.US)$Companies with a larger number of manufacturing bases in the U.S. are generally "relatively stable";$Novartis AG (NVS.US)$and $ROCHE HOLDING AG (RHHBY.US)$ those with a lower proportion of their production capacity in the U.S. carry higher risks.
Jefferies Analyst Michael Yee points out that $Amgen (AMGN.US)$ and $Biogen (BIIB.US)$ are the two most tariff-sensitive biotech companies in his coverage. In comparison, $Gilead Sciences (GILD.US)$and $Vertex (VERX.US)$ The risk is relatively low. Biogen stated in its May earnings call that even if tariffs on pharmaceuticals are imposed, the impact on the company would be limited due to its high production ratio in the U.S. and a certain level of global inventory.
Scala, citing a former Chief Financial Officer of a pharmaceutical company, stated that in the first two years after the implementation of the tariffs, companies' business will be significantly affected. Although pharmaceutical companies may attempt to mitigate the pressure by raising prices, substantial price increases would be 'politically unpalatable' given the current criticism of drug prices.free cash flowAlthough pharmaceutical companies may attempt to mitigate the pressure by raising prices, substantial price increases would be 'politically unpalatable' given the current criticism of drug prices.
He also noted that some companies might reduce research and development (R&D) spending to offset the increased costs, but a comprehensive and significant reduction in R&D is unlikely, as innovation is key to long-term growth for pharmaceutical companies. If the tariff rate exceeds 50%, the impact on the industry would become punitive, prompting companies to accelerate the relocation of production back to the U.S. and consider more aggressive cost-cutting measures.
Executives from several pharmaceutical companies, including Roche, have recently strongly criticized the tariffs on medicines, arguing that such policies will harm research and development investments and ultimately reduce the treatment options available to patients. Health policy experts also point out that the pharmaceutical supply chain is extremely complex, and tariffs could trigger a chain reaction of price increases and shortages of critical medicines.
In a statement, Roche noted that it has 15 R&D sites and 14 manufacturing facilities in the United States and recently announced an additional $50 billion investment in the country. Roche emphasized that medicines and diagnostics should be excluded from tariffs to protect patient access and future medical innovation. However, the company also stated that it is prepared to manage potential tariffs by adjusting inventory and other measures to ensure uninterrupted product supply.
Other companies that analysts have identified as being at higher risk include $Novo-Nordisk A/S (NVO.US)$ 、$Zoetis (ZTS.US)$、$AstraZeneca (AZN.US)$、$GlaxoSmithKline (GSK.US)$did not immediately respond to requests for comment.
Scala pointed out that the manufacturing networks, sources of active pharmaceutical ingredients (APIs), and patent locations of pharmaceutical companies form a complex tax and pricing strategy, making it highly challenging to assess the impact of tariffs.
He estimated which companies have stronger resilience based on publicly available information:
America's Manufacturing Network is the Strongest: $AbbVie (ABBV.US)$ 、 $AstraZeneca (AZN.US)$ 、 $Eli Lilly and Co (LLY.US)$ 、$Merck & Co (MRK.US)$and$Pfizer (PFE.US)$Each has 10 major factories in the United States;
Higher U.S. production capacity: AbbVie, Bristol-Myers Squibb, and Eli Lilly and Co have more factories in the U.S. than overseas;
Most FDA-registered active pharmaceutical ingredient manufacturing sites: AbbVie, Eli Lilly and Co, and Bristol-Myers Squibb;
Fewest FDA-registered sites:$Daiichi Sankyo (4568.JP)$、 $Novo-Nordisk A/S (NVO.US)$ 、 $Zoetis (ZTS.US)$ 、 $ROCHE HOLDING AG (RHHBY.US)$ and$Novo-Nordisk A/S (NVO.US)$The proportion of active pharmaceutical ingredient manufacturing sites in the U.S. is relatively low.
The company with the widest overseas presence:$GlaxoSmithKline (GSK.WI.US)$has the most overseas factories, with 31, $Pfizer (PFE.US)$ 27, $Sanofi (SNY.US)$16, $Zoetis (ZTS.US)$ 14 firms, $Elanco Animal Health (ELAN.US)$ 11 firms.
Additionally, Ireland, which has been repeatedly criticized by Trump for using low corporate tax rates to attract U.S. investments, is a potential target. AbbVie and Merck have the most FDA-registered production sites in Ireland, while Roche, GlaxoSmithKline, and Novartis do not have FDA-registered factories in Ireland.
Jefferies Analysts also noted that Amgen, with its manufacturing facilities in Ireland and Singapore, benefits from a tax reduction of about 6%; Biogen, due to its manufacturing operations in North Carolina and Switzerland, enjoys an approximately 8% advantage in its global tax structure; in contrast, Vertex produces drugs in Boston, and Gilead Sciences primarily manufactures in California, although it has some capacity in Ireland. However, the main market for its HIV drugs is still in the United States, resulting in a lower reliance on overseas taxation.
To address the cost increases brought about by tariffs, several companies have begun evaluating alternative measures, including seeking sources of active pharmaceutical ingredients outside of Europe and exploring new contract manufacturers in non-European countries, such as the U.S. territory of Puerto Rico.
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