President Donald Trump’s announcement on Wednesday that pharmaceuticals imported to the U.S. would be exempt from tariff payments brought a sigh of relief from major drugmakers.
But at the same time, industry leaders are bracing for the news that they think is inevitable given Trump’s declaration in February to impose “25% or higher” levies on imported drugs.
In an interview with the BBC on Thursday, Eli Lilly CEO David Ricks painted a bleak picture of the effect of tariffs on the biopharma industry.
“I think it’s a pivot point in U.S. policy and it feels like it’ll be hard to come back from here,” Ricks said.
One major goal of Trump’s initiative is to encourage companies in the U.S. to perform manufacturing domestically.
Lilly has been one of the industry leaders in building up its U.S. production capabilities. Since 2020, the Indianapolis drugmaker has earmarked $50 billion to construct and upgrade new plants in the U.S. But Lilly also depends largely on foreign manufacturing, most notably in business-friendly Ireland, where it employs more than 3,000 and is constructing a new $800 million facility.
“We can’t breach those agreements, so we have to eat the cost of the tariffs and make trade-offs within our own companies,” Ricks told BBC. “Typically, that will be in reduction of staff or research and development, and I predict R&D will come first. That’s a disappointing outcome.”
The timeline for tariffs on drugs is uncertain. Section 232 of the Trade Expansion Act allows the President to impose import restrictions based on an investigation and determination by the Department of Commerce that certain imports threaten to impair U.S. national security. During his first term, Trump initiated eight investigations, resulting in levies on two products—steel and aluminum.
Talking on background, an executive from a U.S. drugmaker said on Thursday that his understanding is that an investigation could “take up to 270 days, but that’s a max. They can accelerate that.”
The exec added that his company is watching the development closely, because “we operate a global supply chain and move across borders all the time.”
“Yesterday was uneventful for us in terms of no big changes but obviously that could come,” he added.
In response to Trump’s announcement on Wednesday, French President Emmanuel Macron called the tariffs “brutal and unfounded,” and implored countries in Europe to halt investment in the U.S.
“I think what's important, and that’s all the work that must be done by sector, that the investments to come or investments announced in recent weeks should be suspended until things are clarified,” said Macron in a meeting with French industry leaders.
The biopharma industry is still sorting through Trump’s announcement and accompanying White House fact sheet. Analysts from UBS believe that a 10% baseline tariff will not apply to pharmaceuticals.
“In the language outlined in the fact sheet, we read this 10% tariff as a ‘catch-all’ for countries not outlined in his table of tariffs by country, with pharma also being excluded,” UBS wrote in a note to investors.
UBS outlined options for Trump, which include imposing a wave of tariffs specifically geared to the pharma industry. He could phase them in gradually.
For now, the U.S. companies most benefitting from Trump’s announcement to exclude pharma from the Reciprocal Tariff measure are AbbVie and Merck, UBS said. Pfizer and Amgen also perform lots of manufacturing overseas, according to the analysts.