President Trump frequently speaks about confronting large pharmaceutical corporations. However, with the much-anticipated announcement of 100 percent tariffs on imported medicines Thursday night, it seems Mr. Trump has effectively exempted the wealthiest companies.
Many industry giants are poised to avoid these pharma tariffs entirely. They are likely to qualify for an exemption because, in anticipation of these new regulations, they have already begun investing billions into constructing or expanding factories within the United States.
Major players such as Johnson & Johnson, Eli Lilly, Merck, Gilead Sciences, Roche, GSK, AstraZeneca, and Novo Nordisk have recently initiated the building of new manufacturing facilities across North Carolina, Indiana, Delaware, California, Pennsylvania, and Maryland.
“Overall, we think this is a win for Pharma and shouldn’t have a material impact,” analysts at the Wall Street bank Jefferies noted in a report to investors on Friday. Following this news, the stocks of large drugmakers generally saw little change or slight increases on Friday morning.
For months, Mr. Trump’s warnings of drug tariffs sparked concerns that American patients would face higher prices and shortages of essential medications. Yet, with the more limited tariffs revealed Thursday, Americans are likely to experience minimal to no effect on many of the most popular and widely sold drugs.
Some prominent companies, including Novartis, were already projecting on Friday morning that they would be unaffected by the tariffs. “The announced 100 percent tariff should not have an impact on Novartis,” stated Michael Meo, a company spokesman.
Conversely, these tariffs could severely impact a different type of enterprise: specific smaller producers of brand-name drugs. These companies are generally unknown to most Americans and manufacture their medicines in countries like Canada or Mexico. Unlike the industry behemoths, they simply cannot afford to invest billions in establishing new factories in the United States.
In a statement, John Crowley, president of the Biotechnology Innovation Organization—a trade group representing both biotech companies and most pharmaceutical giants—indicated that the new pharma tariffs would specifically harm “small and mid-sized” companies.
Mr. Trump announced on social media Thursday night that a 100 percent tariff would be imposed on all patent-protected brand-name drugs imported into the United States, starting October 1st. Crucially, there was a significant loophole: companies could sidestep these tariffs if they were actively constructing new factories in the United States.
Mr. Trump’s announcement also seemed to include exemptions for manufacturers of older, less expensive generic drugs, which constitute the vast majority of prescriptions filled by Americans. The White House did not respond to inquiries seeking confirmation on this point.
Nevertheless, there remains a potential for disruptions and increased prices for certain lesser-known products from smaller companies that produce overseas and lack the financial capacity to build new American facilities.
“It’s likely that the companies that will be affected are certain smaller companies that are making more niche products,” explained Dr. Aaron Kesselheim, a professor of medicine at Harvard Medical School and Brigham and Women’s Hospital. “That could be problematic for those particular patients.”
Large pharmaceutical corporations often boast substantial profit margins from their blockbuster medications, such as Merck’s Keytruda, the world’s top-selling cancer drug. This isn’t always true for smaller companies. Faced with a 100 percent tariff, a company producing its brand-name product in Canada or Mexico might choose to cease those sales or transfer the drug to another company.
“A smaller, niche brand-name drug that doesn’t generate the same high profits as Keytruda or GLP-1 drugs could face significant pressure,” Dr. Kesselheim remarked, referring to the immensely popular class of weight-loss medications. “There’s a real possibility this could lead to shortages and disruptions in supply.”
For a smaller brand-name company suddenly facing a 100 percent tariff it cannot absorb, the path forward is clear.
“You have to account for these tariffs and raise the price,” said John Maraganore, former chief executive of Alnylam Pharmaceuticals and a past chair of the Biotechnology Innovation Organization. “Especially if it’s a single product company that depends entirely on that one product, that’s the natural course of action, which, of course, does not benefit the American consumer.”
Peter Kolchinsky, a biotechnology investor in Boston, noted that Mr. Trump’s tariffs “might put smaller American biotech companies at a huge disadvantage compared to large multinationals.” He added, “Hopefully, the final regulations will allow them time to arrange for U.S. manufacturing, otherwise we risk losing many American innovation jobs.”
The majority of brand-name drugs consumed by Americans are already manufactured in the United States or Europe. For instance, popular weight-loss drugs like Ozempic and Wegovy are produced in Denmark.
However, earlier in the summer, the European Union secured a trade agreement guaranteeing a much lower tariff rate, capped at 15 percent. Bloc officials confirmed on Friday that this deal would not be impacted by Mr. Trump’s newly announced tariffs. The White House did not respond to requests for clarification on whether any changes had occurred.
It remained uncertain when, or if, a tariff of 15 percent or less would apply to brand-name drugs imported from Europe by companies that are not establishing new plants in the United States. Should this occur, it could lead to relatively modest price increases for those particular brand-name drugs.
The pharmaceutical industry maintains a powerful and influential lobbying presence in Washington. In anticipation of the tariffs, the industry aggressively advocated for exemptions, much like those secured in Mr. Trump’s announcement on Thursday.
Despite their investments in new U.S. factories, the largest drugmakers still have no intention of ceasing overseas production for many of their medicines. Now, they stand to save billions of dollars that they had initially feared they would have to spend on significantly higher pharmaceutical tariffs.