Editor’s (re)View: Trump’s tariffs on pharmaceuticals are coming. Now what?

It’s been another nail-biting week for the biopharma industry. President Donald Trump on Tuesday again threatened to impose “major” tariffs on pharmaceuticals, promising that an announcement would be coming “very shortly” from his administration. Meanwhile, Trump on Wednesday authorized a 90-day pause on reciprocal tariffs, while sharply increasing the tariff rate on Chinese imports to the U.S. All of this has created uncertainty for markets.

Trump’s doubling down on his threat to target pharmaceuticals with tariffs, which he says are meant to bring drug manufacturing back to the U.S., has been a source of renewed anxiety for the industry. However, analysts contend it is not a question of if but when the sector will be hit with tariffs.     

“Based on multiple comments by Trump including this week, the market is quickly assuming new pharma tariffs will be announced though details on timing, how much, and how they would even work — are unclear,” Jefferies analyst Michael Yee wrote in a Thursday note to investors.

While it remains to be seen how large Trump’s pharma tariffs could get, Yee said his firm’s base case analysis assumes a 25% to 50% increase to cost of goods sold (COGS) on drugs coming into the U.S. He believes Amgen would be the “most exposed” to tariffs while Gilead Sciences and Vertex Pharmaceuticals have lower exposure. Biogen “would also be relatively less exposed with substantial U.S. manufacturing operations and a meaningful proportion of organic ex-U.S. revenue,” according to Yee.

Eli Lilly CEO David Ricks in an interview last week with the BBC said pharmaceutical companies will “have to eat the cost of the tariffs” and make tradeoffs. “Typically, that will be reduction in staff or reduction in R&D spending. I predict R&D will come first,” Ricks said. At the same time, he said Trump “wants to see industry reshore manufacturing into the United States — I think there’s a good chance that will happen at some scale.”     

In a report to Congress this week, the bipartisan National Security Commission on Emerging Biotechnology (NSCEB) said that building new facilities is expensive and time-consuming, which can cost up to $2 billion and take two to five years. However, according to the trade group Pharmaceutical Research and Manufacturers of America (PhRMA), it can take five to 10 years and $2 billion to bring on a new production facility in the U.S.

As William Blair analyst Max Smock said this week during a webinar on tariffs, reshoring “will not happen overnight” and will take potentially years to build up domestic capacity.

Swiss-based medicines company Novartis on Thursday became the latest large pharmaceutical company to announce a major multi-year manufacturing investment in the U.S. Novartis plans to invest $23 billion over five years on 10 U.S. manufacturing and R&D sites — including seven new facilities.

While Novartis CEO Vas Narasimhan told Reuters that tariffs were a consideration, he indicated that they were not the driving factor behind his company’s manufacturing investment in the U.S. Narasimhan in a statement praised America’s “pro-innovation policy and regulatory environment” which “supports our ability to find the next medical breakthroughs for patients.”

Novartis’ announcement follows Johnson & Johnson’s recent plans to spend more than $55 billion over the next four years on domestic manufacturing, while Eli Lilly says it will lay out $27 billion for four new sites that will begin making medicines within five years.

Despite these sizable investments from Eli Lilly, J&J, and Novartis, Yee contends that it remains unclear how other pharma companies will react to Trump’s push to bring drug manufacturing back to the U.S.

Yee noted that most drugmakers have manufacturing locations outside of the U.S. Among the options, he said, companies could “start new factories in USA, redomicile IP in some cases (expensive), and/or just accept the tariff and try to pass on the cost to mitigate the effect.”