President Donald Trump is again getting ready to impose “bigly” tariffs on the drug industry. The administration intends to apply these tariffs “very soon.” This decision would significantly influence the drug makers’ actions and answer the needs of patients across the U.S.
The proposed tariffs couldn’t come at a more important time. That’s the equivalent of 187 billion generic drug tablets and capsules being filled by retail and mail pharmacies in 2024. The generic drug market is characterized by thin margins and by a rapid evolution toward greater complexity. These tariffs will only serve to increase the prices of branded medications and exacerbate the affordability crisis that so many Americans are experiencing.
Major pharmaceutical companies such as Eli Lilly and Johnson & Johnson have recently announced substantial investments in domestic manufacturing, totaling $27 billion and $55 billion, respectively. This announcement marks an important step in the right direction towards supporting U.S. production capabilities as fears over supply chain vulnerabilities continue to grow. Analysts caution that heavyweights such as Novartis and Roche are at risk. Their continued systemic dependence on foreign facilities for active ingredient production places them at a disadvantage.
The introduction of tariffs on those medications imported from Europe is a very real and dire threat. Almost 80 percent of branded drug production occurs there. Analysts point to several barriers that make it difficult to reshore production in the pharmaceutical industry. They cite the entangled nature of global supply chains as the biggest barrier.
Wall Street analysts are more than a little worried. They are worried that drug manufacturers will have to increase prices to accommodate the tariffs. As Mariana Socal, a health policy professor at the Johns Hopkins Bloomberg School of Public Health, stated, “Anything that we change…risks increasing costs to the consumer even further and just worsening the affordability crisis for drugs in America that we’ve had for a long time.”
Realistically, generic medications already have low enough prices that they would be more immune to or simply not raise due to a tariff. The picture is much rosier for makers of generic sterile injectables. These companies may ultimately choose to exit the U.S. market. If they’re unable to absorb the increased costs from tariffs, it will intensify the current shortages plaguing critical drugs.
Patients will feel the impact of these tariffs more acutely. Second, they will disproportionately experience the brunt of higher prices for branded medications versus generics. As Socal emphasized, “With tariffs, the question will become, how much higher prices are we going to pay for these branded products?”
As policymakers debated the cost and impact of these tariffs, one of the loudest critics was Eli Lilly’s CEO, Dave Ricks. He spoke to the internal trade-offs his company would face. “We can’t breach those agreements, so we have to eat the cost of the tariffs and make trade-offs within our own companies,” he explained. Ricks warned that these trade-offs would force, more than likely, cuts in staffing or research and development programs. He called this result “disappointing.”
The U.S. pharmaceutical supply chain is extremely dependent on foreign imports. Only about 50% of their branded products are produced domestically, with around 35% coming from Europe. As Arda Ural from EY pointed out, countries such as China and India have very little production of these essential drugs. He warned that this absence of manufacturing might further complicate bringing production back to the U.S.
Evan Seigerman, an industry analyst at BMO Capital Markets, pointed to the opaque nature of supply chains today. That’s particularly true in the pharmaceutical space. “It’s not as simple as moving where someone screws in little screws to make an iPhone,” he remarked.
The anticipated pharmaceutical tariffs will have the biggest direct effect on drug manufacturers. As a consequence, American patients will face increased costs in an already untenable healthcare environment. Circumstances are changing quickly. As these tariffs continue, many stakeholders are asking how they will alter the dynamics of the pharmaceutical market and improve affordability long-term.