Taxes, Not Tariffs, Influence US Manufacturing, J&J CEO Says

Johnson & Johnson is the first big pharma to report first quarter sales and earnings, and thus the first to outline expectations about the impact of tariffs on its financial outlook. So far, J&J is forecasting a $400m hit from tariffs this year, but that estimate only reflects tariffs on medtech products that have been announced, not potential tariffs on pharmaceuticals, which are under review by the US government.

CEO Joaquin Duato used the first quarter sales and earnings call on 15 April as an opportunity to promote corporate-friendly tax policies over tariffs as a way to encourage US manufacturing.

“There’s a reason … why pharmaceutical tariffs are zero. It’s because tariffs can create disruptions in the supply chain, leading to shortages,” Duato said.

“If what you want is to build manufacturing capacity in the US, both in medtech and pharmaceuticals, the most effective answer is not tariffs, but tax policy,” he added. J&J’s investment in US manufacturing across both businesses has “significantly increased” since President Trump implemented friendlier corporate tax policies in 2017, he said.

In March, J&J announced a $55bn investment in US manufacturing facilities and other infrastructure over four years, including a new $2bn, 500,000-square-foot manufacturing facility in Wilson, NC that will produce biologics for cancer, immune disease and neurological conditions. Other drug makers have also announced multibillion-dollar investments including Merck & Co., Eli Lilly and most recently Novartis.

“At the completion of [J&J’s] investment plan, essentially all our advanced medicines that are used in the US will be manufactured in the US,” Duato said of the $55bn investment plan. “So, tax policy is a very effective tool to be able to build manufacturing capacity here in the US both for medtech and pharmaceuticals.”

Leerink analyst David Risinger, in a same-day note, said J&J’s relatively encouraging outlook on tariffs could be a positive indicator for the sector more broadly.

“J&J management downplayed tariff risks this morning, which we view as an important positive development for perception about the threat to J&J and the branded biopharma industry at large,” he said.

Pharmaceuticals remain exempt from tariffs for now, while medtech products are not, though after Trump announced a 90-day pause on tariffs with most US trading partners, the focus remains largely on China, where tariffs on goods imported to the US are set at 145%. The Trump administration has signaled its intention to announce pharmaceutical sector tariffs eventually, however, keeping pharmaceutical manufacturers under pressure.

Most recently, a notice due to be published in the US Federal Register on 16 April is seeking public comments on an investigation by the Secretary of Commerce to determine the effects on national security of imports of pharmaceuticals and ingredients. The investigation is being launched under Section 232 of the Trade Expansion Act. The announcement isn’t a surprise to industry because the administration already suggested that certain sector tariffs are under consideration, including for pharmaceuticals.

Partnering With US Government

Duato said J&J is analyzing the Section 232 announcement, but he said, “It’s also important that companies in health care partner with the administration to look to mitigate some of the vulnerabilities that exist today in our health care supply chain as to avoid any continuity of supply effect.”

“We plan to do it in this process to make sure that we have enough manufacturing capacity here in the US to be able to address multiple scenarios,” he added.

With tariffs, Trump has talked about a goal of increasing US manufacturing to bring more jobs to the US, but with pharmaceuticals, he has also talked about threats to national security by having manufacturing offshore. The vast majority of drugs prescribed in the US are low-cost generic drugs with already squeezed margins, however, so it would be hard to incentivize US manufacturing through tariffs.

For now, J&J said the $400m impact it forecast coming from tariffs this year is primarily from its medtech business, including steel and aluminum tariffs that impact some of the products it makes, tariffs on goods imported from China and retaliatory tariffs by China on US imports.

China’s retaliatory tariffs on US imports are “probably the most substantial of all the tariffs in terms of the $400m,” chief financial officer Joseph Wolk noted.

The company has little leverage to raise prices on either the medtech business or pharma, he added.

“There’s contractual agreements already in place and certainly very much concluded on the pharmaceutical side on current products that exist in terms of taking price increases,” he said.

Despite added costs from tariffs, the company maintained its full-year 2025 adjusted reported earnings per share forecast of 6.2% growth at the midpoint. The company increased 2025 operational sales guidance from $91.3bn to $92bn at the midpoint to reflect the addition of Caplyta (lumateperone) revenue following completion of the Intra-Cellular acquisition.

J&J announced the $14.6bn acquisition of Intra-Cellular and its schizophrenia and bipolar disorder drug Caplyta in January.

Innovative medicine sales in the first quarter grew 2.3% to $13.87bn, a solid performance for J&J given that the company lost exclusivity for one of its top-selling drugs, the immunology blockbuster Stelara (ustekinumab) in January. Sales of Stelara declined 33.7% in the quarter to $1.63bn.

“No other health care company has delivered growth through the first year of losing exclusivity for a multibillion-dollar product, in our case Stelara, and yet that is exactly what we are doing,” Duato said.