Drugmakers brace for Trump tariffs with production shifts
(Reuters) -Several major drugmakers are counting on their manufacturing flexibility to counter potential disruptions from tariffs threatened by President Donald Trump on the sector.
Pharmaceutical imports were initially exempt from Trump’s first set of reciprocal tariffs, although he has since indicated that levies are coming, arguing that the U.S. needs more drug manufacturing so it does not have to rely on other countries for its supply of medicines.
So far, there is little clarity on the rates and timings related to tariffs, but the industry is expecting a big hit if Trump goes ahead with his plans, since the United States is the largest market for drugs in the world, with more than $200 billion in imports.
Last week, the Trump administration announced probes into pharmaceutical imports, setting the stage for levies on the sector and prompting several major drugmakers to consider moving production to sites where the drugs are sold.
Roche, which announced earlier this week that it would invest $50 billion in the United States over five years, said it had already begun to shift production.
"We’ve taken mitigation measures such as building up inventory in the U.S. and in China and shifting manufacturing of key medicines over the last weeks in our existing manufacturing network," Roche CEO Thomas Schinecker said on a media call.
However, Schinecker added that a U.S. drive for all goods used in the country to be produced there would inflate manufacturing costs.
Bristol Myers (NYSE:BMY) has also come up with similar plans to avoid major disruptions from Trump’s tariffs.
"Being a global company, we have significant manufacturing sites here in the US, but as well as we have manufacturing outside the US. So that gives us a lot of flexibility to move our manufacturing appropriately in the best interest of patients and the company," Bristol Myers CFO David Elkins said.
Sanofi (NASDAQ:SNY) said it would consider more investments in the United States.
"We continue to assess our future capacity requirements, and we are considering additional measures, potentially including investments in the United States," Sanofi CFO François-Xavier Roger said.
While companies are pressing for exemptions from tariffs, moving production is a long, time-consuming process and executives have said they are worried about the effect on the sector in the interim.
"The concern for us is anything that would impact innovation ... or would restrict access to medicines for patients," Bristol Myers’ Elkins said.
U.S. drugmakers Bristol Myers and Merck & Co (NYSE:MRK), and their European counterparts Sanofi and Roche all reported first-quarter profits ahead of estimates. However, most said their full-year forecasts did not include a hit from pharmaceutical tariffs as details were yet to be announced.
DISRUPTIONS
Companies have already begun to see a hit from tariffs levied by the U.S. on some countries, particularly China, and from tariffs on the United States by other countries.
Merck (NSE:PROR) said its outlook included the $200 million impact of those tariffs.
The NYSE Arca Pharmaceutical index, a basket of pharmaceutical stocks, is down nearly 2% this year. But the drop is smaller than an 8.6% fall in the broader S&P 500 index.
The manufacturers have said that any sector-wide tariffs on pharmaceutical imports could create supply chain disruptions and eventually hurt patients. They say they have continued talking to the White House to highlight this impact.
"We’re working to ensure that the administration and policy makers really understand the impact of the tariffs and as well as any future potential actions on patients and the industry," Bristol Myers’ Elkins said.
Roche said it was in direct talks for import tariff exemptions, arguing the products it ships into the United States are offset by its exports of U.S.-made drugs and diagnostics.
