Trump May Impose High Tariffs on Imported Pharmaceuticals: Who Will Be Most Affected?

According to reports, US President Trump is planning to impose tariffs on imported pharmaceuticals, which may start as early as August 1 and gradually increase over the next year or a year and a half. The highest tariff rate could reach 200%. Although the final plan has not been fully determined, analysts point out that this move will likely have a more significant impact on some pharmaceutical companies.

The Trump administration aims to promote "reshoring" of pharmaceutical production in the US. In recent years, some pharmaceutical companies have announced plans to invest tens of billions of dollars in new facilities in the US, hoping to win government favors. However, industry insiders note that these new facilities will not be operational in the short term and thus cannot alleviate short-term supply chain and cost pressures.

The impact of tariffs on different companies varies, depending mainly on their manufacturing networks. According to TD Cowen analyst Steve Scala, AbbVie (ABBV.US), Bristol-Myers Squibb (BMY.US), and Eli Lilly (LLY.US) have a relatively strong presence in the US; conversely, Novartis (NVS.US) and Roche (RHHBY.US) are at higher risk due to their lower production capacity in the US.

Jefferies analyst Michael Yee notes that Amgen (AMGN.US) and Biogen (BIIB.US) are among the most sensitive pharmaceutical companies he covers. In contrast, Gilead Sciences (GILD.US) and Vertex Pharmaceuticals (VERX.US) have lower risk.

According to Scala, citing a former pharmaceutical CEO, after the tariffs take effect, the cash flow of companies will be significantly affected over the next two years. Although pharmaceutical companies may try to offset costs by increasing prices, this could be "politically unacceptable" in light of current high drug prices.

He also notes that some companies may reduce research and development expenditures to offset cost increases, but a significant reduction is unlikely because innovation is the key to long-term growth for pharmaceutical companies. If tariff rates exceed 50%, the impact on the industry will become "punitive," prompting companies to accelerate production back to the US and consider more drastic measures.

Many pharmaceutical company executives, including those at Roche, have recently criticized the tariffs, arguing that they will harm research investments and ultimately lead to a reduction in treatment options for patients. Health policy experts also note that the pharmaceutical supply chain is extremely complex, and tariffs may trigger price increases, shortages of critical drugs, and other ripple effects.

Roche stated in a statement that it has 15 research bases and 14 manufacturing facilities in the US and recently announced an additional $50 billion investment. Roche emphasizes that pharmaceuticals and diagnostics should be excluded from tariffs to protect patient access and future medical innovation, but the company also notes that it is prepared to respond to potential tariffs through inventory adjustments and other measures.

Other companies, such as Novartis, Zoetis (ZTS.US), AstraZeneca (AZN.US), and GlaxoSmithKline (GSK.US), have not responded to requests for comment.

According to Scala, the complex interplay of factors including manufacturing networks, active pharmaceutical ingredient (API) sources, and patent positions makes it challenging to assess the impact of tariffs.

He estimates that some companies are more prepared for this challenge, such as those with a strong US manufacturing presence:

US manufacturing network strength: AbbVie, AstraZeneca, Eli Lilly, Merck (MRK.US), and Pfizer (PFE.US) each have 10 main factories in the US; Higher US production capacity ratio: AbbVie, Bristol-Myers Squibb, and Eli Lilly have more facilities in the US than overseas; Most FDA-registered API manufacturing points: AbbVie, Eli Lilly, and Bristol-Myers Squibb; Fewest FDA-registered points : Daiichi Sankyo (DSNK.US), Novartis, Zoetis, Roche, and Novo Nordisk (NVO.US) have lower API manufacturing capacity in the US; Widest international presence: GlaxoSmithKline has 31 factories overseas, Pfizer has 27, Sanofi Genzyme (SNY.US) has 16, Zoetis has 14, and Elanco (ELAN.US) has 11.

Furthermore, Ireland is a potential target for Trump's criticism of using low corporate tax rates to attract US investments. AbbVie and Merck have the most FDA-registered production points in Ireland, while Roche, GlaxoSmithKline, and Novartis do not have such facilities there.

Jefferies analyst also notes that Amgen has factories in Ireland and Singapore, allowing it to enjoy a 6% tax reduction; Biogen has manufacturing operations in North Carolina and Switzerland, giving it an 8% advantage globally; compared with Vertex, which produces drugs in Boston, Gilead Sciences primarily manufactures in California, although it has some capacity in Ireland but its HIV drug's main market is still the US, making it less dependent on overseas taxes.

To mitigate the cost increase brought about by tariffs, many companies are already evaluating alternative measures, including finding alternative API sources outside of Europe and exploring new contract manufacturers in non-European countries (such as the US territory of Puerto Rico).