Trump's tariff threat spotlights US factory plans of pharma firms

By Jason Gale, Amber Tong and Kanoko Matsuyama

 

President Donald Trump’s plan to impose a 100 per cent tariff on branded and patented drugs could sharply raise costs for pharmaceutical companies without US manufacturing capacity, raising pressure on firms that have yet to break ground. 

The move threatens to double the cost of global pharma’s blockbuster treatments ranging from cancer immunotherapies to weight-loss shots if construction doesn’t begin by the Oct. 1 deadline. Companies including Novartis AG and Sanofi SA have announced large US investments, though it isn’t clear from public disclosures how far those projects have progressed.

 

Merck & Co., Novo Nordisk A/S and Eli Lilly & Co. are among firms that have started US builds since 2023, with construction sites in Delaware, North Carolina and Texas. The projects are aimed at anchoring supply chains inside US borders and supporting blockbuster medicines in cancer, diabetes and immunology.

   

AbbVie, which co-markets cancer drug Imbruvica and makes the immunology blockbuster Skyrizi, has said it will begin expanding its Illinois facilities this fall.

 

The new duties could hit about $220 billion of US pharmaceutical imports and lift the average tariff rate by 3.3 percentage points, Bloomberg Intelligence economists Nicole Gorton-Caratelli and Maeva Cousin estimate. Still, substantial uncertainty remains, including whether countries or regions that have struck trade deals with the US will avoid the new levy. 

 

For example, the European Union’s trade agreement from late July specified that tariffs on medicines would be 15 per cent, and it’s unclear if that arrangement cancels out the latest levy. 

Operational Impact

The operational impact is likely limited for drugmakers in Asia, said Tony Ren, head of Asia healthcare research at Macquarie Securities Ltd. 

 

“For Japan, it’s more likely to be an impact on sentiment, but less of an impact on fundamentals,” he said, adding that few Chinese, Indian or Korean firms sell branded drugs in the US.

 

Still, shares of major drugmakers slumped across Tokyo, Seoul and Hong Kong after the announcement, as investors weighed the risk to Japanese blockbusters like Chugai Pharmaceutical Co.’s Hemlibra and Daiichi Sankyo Co.’s Enhertu. 

 

Shionogi & Co., meanwhile, is still weighing whether to shift production of its antibiotics used to treat multi-drug resistance bacterial infection to the US, it said in August.

 

Novartis, Sanofi, Chugai, and other Japanese drugmakers didn’t immediately respond to requests for comment.

 

Trump’s latest salvo is likely to set off a race for production capacity in the US, especially in sites run by third-party companies that take on research, development and manufacturing for pharmaceutical brands.

 

Fujifilm Holdings Corp., a biotech contract manufacturer that recently opened a plant in North Carolina, touted as one of the largest cell-culture biomanufacturing sites in North America, rose as much as 5.2 per cent in Tokyo trading on Friday. 

Limited Exposure

Only a handful of Chinese firms sell branded drugs in the US, mostly through multinational partners. 

 

“Most Chinese pharma/biotech companies are immune given the partnership model” with multinational companies, said Cui Cui, head of Asia healthcare research at Jefferies.

 

Only BeOne Medicines, a Chinese-origin company now based in Switzerland, is generating meaningful US sales, said Nomura International HK Ltd. analysts led by Jialin Zhang. Its cancer therapy Brukinsa is partly manufactured by a US contractor, highlighting the difficulty of defining what counts as an import.

 

Tariffs could weigh on Chinese companies’ long-term plans to expand directly in the US, Morgan Stanley analysts wrote in a note. Their “moonshot” pathway to direct US operations, with many aspiring to sell their innovative therapies to American patients, “may face another layer of uncertainties, if the tariff barriers are to stay,” they said.

 

Analysts at Leerink Partners flagged a series of unanswered questions about how the policy will work. Key issues include how “under construction” will be defined, whether the use of US contract manufacturing sites will qualify companies for the exemption, and whether the tariffs would withstand potential legal challenges. Trump had previously suggested giving drugmakers 12 to 18 months to onshore production, raising further uncertainty over the sudden Oct. 1 start date.