Biopharma caught in the crosshairs of U.S.-China trade tussle

A long list of biopharma materials and medical devices from China have become targets of additional U.S. tariffs proposed by the U.S. Trade Representative. (Glenn Fawcett/DoD)

Just a week after Johnson & Johnson chief Alex Gorsky and Novartis CEO Vasant Narasimhan expressed longing for stable and fair trade, biopharmaceuticals and medical devices have been dragged into the $100 billion trade war between the U.S. and China, the world’s two largest economies.

The Office of the U.S. Trade Representative (USTR) on Tuesday proposed to place an additional 25% tariff on a list (PDF) of more than 1,300 Chinese products worth about $50 billion each year. Apart from some products from the IT, automobile, aerospace and other machinery industries, scores of biopharma materials and medical devices from China have also become targets.

Antidepressants, epinephrine, vaccines, insulin, antibiotics and immunological products, as well as medical dressings, defibrillators, medical imaging apparatus and certain electronics for surgical purposes are all among those hit.

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China immediately returned fire with what it calls “corresponding measures of equal scale and strength against U.S. products,” releasing its own $50 billion list of 25% tariff hikes on American products. The Chinese list doesn’t include any biopharma products other than a few chemicals for industrial use.

The U.S. action against Chinese medical products isn’t unexpected. Testifying in front of the Senate Committee on Finance on Mar. 22, U.S. Trade Representative Robert Lighthizer said his agency would pursue tariffs on 10 industries, which the Chinese government had laid out in “Made in China 2025,” its 10-year plan aimed at transforming China into a world tech leader. Biopharmaceuticals and advanced medical devices are included.

Biopharma executives have recently voiced their concerns over a potential trade war between the two countries. Talking to CNBC while attending the China Development Forum in Beijing last week, J&J's Gorsky said China’s 1.4 billion population and increasing middle class represent “significant potential” for his company.

“We think that having first of all, fair equitable trade around the world is in everyone's best interest,” he said. “It's certainly our hope that we're going to be able to work with government officials both in the U.S. and China to find again, the right path forward to work our way through the current issues.”

In a separate CNBC interview at the same event, Novartis' Narasimhan also said he hoped the situation wouldn't escalate.

“I think it would only damage the global economy and obviously impact companies like us—we have manufacturing sites around the world, including in China and in the United States. And we need to be able to run our global supply chains in a stable way,” he said.

Concerns over a potential trade war were alleviated when reports emerged a few days ago that the two countries were talking behind the scenes to avoid a trade war. It was also suspected that U.S. President Donald Trump was only using the “carrot and stick” tactic to gain leverage in scoring a better deal with China, but that the approach apparently hadn’t gone well.

Both countries are dependent on each other’s biopharma products. A large proportion of the APIs necessary for the U.S. to produce finished dosage forms come from China and India. Last year, China exported $29.1 billion worth of APIs, of which 14.5% were sent to North America, according to customs data calculated by the China Chamber of Commerce for Import & Export of Medicines & Health Products. Levying additional tariffs on such imports, as the USTR proposes, would inevitably increase the costs of final products.

On the flip side, finished pharmaceuticals are the U.S.’ second-largest consumer goods export to China, according to a January report by the U.S.-China Economic and Security Review Commission. Exports of drugs to China jumped from $402 million in 2007 to $2.2 billion in 2016, but the report also noted China only accounted for 4% of such exports in 2016.

Slow regulatory processes have been blamed for the low level of foreign drug introduction in China. Chinese authorities have lately proposed a slew of policies aimed at speeding up approvals for foreign innovative drugs, including allowing foreign data to be directly used in NDAs in China. But the U.S. report remains skeptical, saying the efficacy of these changes will depend on implementation.

Although no extra tariffs on U.S. drugs are on the table for now, in retaliation, China could—not that it will—target U.S. Big Pharmas like J&J, Pfizer, Eli Lilly, Merck and Bristol-Myers Squibb, which all have strong presences there. Its moves might include further drug price crackdowns, unfavorable patent rulings or even a bribery probe similar to the one it used to make an example of GlaxoSmithKline years ago.

In a statement sent to FiercePharma, U.S. pharma industry group PhRMA said it is reviewing the USTR list “to determine the potential impact of the proposed tariffs on the innovative biopharmaceutical industry.” It will also work with the administration “to ensure that American innovation is protected and valued.”

The U.S. administration is seeking public comment on the USTR list until May 11 and will hold a public hearing on May 15 in Washington, D.C. After that, companies will have until May 22 to file rebuttals.