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The pharmaceutical industry seemingly came out on top when President Donald Trump announced import tariffs on April 2. And while those are currently on a 90-day pause for every country except China, giving a break to industries like auto and steel, it seems the shoe might be on the other foot for pharma now.
Under the original plan, those industries faced at least 10% tariffs for goods imported to the US, kicking off a stock market drop. But pharma had been excluded, and major players’ stocks responded positively.
Companies like Johnson & Johnson and Eli Lilly saw small bumps (1.4% and 1.6%, respectively from April 1 to 2) as the rest of the market suffered. Pharma was exempted because the industry’s supply chain is spread out and complicated, and also because the medication it makes can be lifesaving.
“I was encouraged that they were exempted from tariffs, just given the essential nature of pharmaceuticals and also the complexity of the pharmaceutical supply chain,” Evan Seigerman, biopharma analyst at investment bank BMO Capital Markets, told Healthcare Brew. “You can’t just easily move manufacturing from one jurisdiction to another.”
But when announcing the pause on April 9, Trump also said the grace period for pharma could end “very shortly,” which caused the pharma market to dip. By around noon on April 10, J&J’s stock was down 13% and Lilly’s dropped 5%.
Seigerman and his colleagues wrote in an April 9 report they’re “strongly opposed” to tariffs for pharmaceuticals because the strategy is unlikely to bring manufacturing back to the US. “Shock [to] the pharma supply chain threatens our own public health and access to medicines—from generic antibiotics to complex biologic and peptides,” they wrote. “The ongoing gutting of [the] FDA is bad enough, only now to be compounded by what we believe to be real talk of pharma tariffs.”
Bringing it home
When Trump announced the tariff pause, he said “[pharmaceutical companies] will leave other places because they have to sell—most of their product is sold here and they’re going to be opening up their plants all over the place.”
According to the FDA, the number of manufacturing facilities in China making active pharmaceutical ingredients doubled from 2010 to 2019.
Roche, a pharmaceutical company with more than 25,000 US employees, has an “entire pharma and diagnostics value chain” in the country already, with four R&D, production, and distribution sites in the pharmaceutical division as well as seven R&D and manufacturing sites for diagnostics, according to Nina Maehlitz, the company’s global media spokesperson.
Still, Maehlitz said it’s “considering additional US investments to continue to meet patients’ needs.”
Eric Axel, executive director at American Medical Manufacturers Association, which represents companies that make medical supplies in the US like masks and gloves, agreed that more products should be made domestically.
A 2021 report from the FDA’s Center for Drug Evaluation and Research Side Catalog found that 46% of manufacturing facilities that make medications and 26% that make active pharmaceutical ingredients for drugs taken in the US are made domestically.
“If we rely too much on foreign suppliers, we leave ourselves at the mercy of these foreign countries, which a lot of times do not have our best interests at hand,” he said, adding that there are many domestic manufacturers who want business from companies “complaining” that their supply chain has been disrupted.
Cost concerns
Plus, Seigerman said, costs are likely to rise if other tariffs go back into effect, as the prices of non-drug goods used in research and development—like microscopes, glass bottles, electronic equipment, and raw materials—may go up.
Eli Lilly declined to comment, but CEO David Ricks told the BBC if the company does face rising costs, it may have to make cuts, likely in staff and in R&D research and development spending.
But other experts said there are benefits to making drugs in other countries, namely the environmental impacts. Among these issues is the rise in animal poisonings, contaminated algae, and drug-resistant bacteria, according to the European Environmental Bureau.
“A lot of the processes to make the API, or active pharmaceutical ingredients, are not really environmentally friendly processes,” Seigerman said.
Uncertain future
On Feb. 18, for example, Trump said pharmaceuticals could see tariffs upward of 25% or more that would increase over the year, but he wanted to “give them time to come” back to the US.
Companies like Eli Lilly and Johnson & Johnson have already committed billions of dollars ($50 billion and $55 billion, respectively) to reshoring. J&J plans to open three facilities, including one that is already under construction in North Carolina. Lilly is planning four manufacturing sites in North Carolina and Wisconsin as well as expansions in Indiana.
Pankit Bhalodia, a partner in life sciences at consulting firm West Monroe, said it’s hard for many companies to make decisions amid the uncertainty.
On April 3, West Monroe released the results of a survey across all industries that showed tariffs, geopolitical tensions, and cost of materials were among supply chain executives’ top concerns in Q1.
“Whether it’s large or small pharmaceutical companies, the supply chain is very complex, very distributed, very tangled with a lot of countries,” Bhalodia said. “It’s not truly exempt as it was perceived.”