Trump Announces 100% Tariffs on Branded Pharmaceuticals; Drugmaker Share Prices Unperturbed

On Sept. 25, President Donald Trump announced that 100% tariffs on branded or patented pharmaceuticals will be enacted starting Oct. 1, unless a drugmaker is building its manufacturing plant in the United States. At the time of this writing, share prices for big drugmakers have held steady.

Why it matters: We expect no immediate impact, as we believe drugmakers should maintain a stockpile of anywhere from six to 12 months of inventory for key branded drug products. However, there are not enough details to determine the magnitude of the impact on Big Pharma companies after this inventory is sold.

• All Big Pharma companies have existing US manufacturing facilities and are actively expanding them. This might be enough to exempt the majority of their branded drugs from the new tariff, depending on the specifics of its implementation.
• The US previously agreed to a tariff cap of 15% on drug imports from the EU and Japan, which covers the supply chains outside of the US for most branded drugs. However, a minority of branded drugs have supply chains in the UK, Singapore, Canada, or Switzerland, where caps have not been announced.

The bottom line: Despite the lack of clarity, we believe the new tariff will likely have a minimal impact on US and European Big Pharma companies under our coverage. We leave our moats and fair value estimates unchanged.

• Obesity drugs sold by Eli Lilly and Novo Nordisk have large sales, but based on their labels and regulatory filings, we think their supply chains are mostly contained in the US and EU and should be capped at 15%. Moreover, both companies are expanding US manufacturing for these drugs.
• We think Novartis and GSK have significant supply chains in regions without a tariff cap, including the UK, Switzerland, and Singapore. These companies have announced five-year US investment plans of $23 billion and $30 billion, respectively, which may exempt them from the new tariff.