Editor’s (re)View: Pharma dodges Trump’s tariff bullet, but remains a target

President Donald Trump on Wednesday announced sweeping tariffs on about 60 countries, escalating a global trade war and putting many industries in the crosshairs. The breadth of the tariffs means that few sectors will not be impacted — among the exceptions are pharmaceuticals, for now.

A White House fact sheet states that some goods imported into the U.S will not be subject to “reciprocal” tariffs, including pharmaceuticals. While the industry got a reprieve, analysts contend that it is fleeting as drugmakers remain a target for Trump’s protectionist trade policies, noting that he has previously threatened to impose a 25% across-the-board tariff on pharmaceuticals.

Reuters on Friday reported that Trump doubled down on his threat of pharmaceutical tariffs.

“Pharma (tariffs) is going to be starting to come in, I think, at a level that you haven’t really seen before,” Trump told reporters aboard Air Force One, according to Reuters. “That will be announced in the near future, and is under review right now.”

William Blair analyst Max Smock in a Thursday report to investors said that Trump’s “recent threat of 25% or higher pharma-specific tariffs in the very near future suggests the industry’s relief will be short-lived.” For Smock, it’s not a question of if but when.

It’s a sentiment shared by Leerink Partners analyst David Risinger who warned that Trump could announce pharmaceutical tariffs “in the next month or so.”

RBC Capital Markets analyst Brian Abrahams said in a note to investors that pharmaceutical tariffs “could still be implemented in the future — and indeed, we thought that many had expected an announcement specific to pharmaceutical tariffs to be announced later, and/or to be phased in rather than immediate.”

Smock expects that the “brunt” of the impact of pharmaceutical tariffs will likely be felt by Big Pharma but said “it would also add to a large pile of unsettling news creating uncertainty around biotech funding and ultimately demand from smaller innovators.”

While Smock believes there will not be a “material direct” impact on most pharmaceutical outsourcing and services companies, he makes the case that “since tariffs would pressure margins for commercial drugs and likely make developing drugs more expensive, the taxes could potentially discourage investments in research and development, which in turn would lead to a more challenging demand environment for our coverage list.”

When it comes to contract research organizations (CROs), Smock sees Charles River as having the most direct exposure to tariffs, with only approximately 18% of revenue tied to non-pharmaceutical product sales. In the contract development and manufacturing organization (CDMO) sector, Lonza could also be vulnerable to tariffs, according to Smock.

“Similar to CROs and tech-enabled services companies, Lonza would also be negatively impacted by a slowdown in research-and-development spend, but to a lesser extent than the rest of our coverage list, in our view, given it generates 70% of its CDMO revenue from Phase III and commercial drugs,” Smock said. 

However, he noted that Lonza’s Capsules & Health Ingredients (CHI) business also has “some direct exposure” to tariffs, which accounted for 16% of 2024 revenue.

“On the bright side, we believe Lonza is extremely well positioned to benefit from increased demand for U.S. manufacturing capacity following its recent acquisition of Roche’s large-scale mammalian drug substance biologics facility in Vacaville, California,” Smock said.