As Trumps Ups The Ante On Tariffs, Reactions Are Mixed

Big pharma companies with expansive global manufacturing footprints seemed to feel the impact of President Donald Trump’s latest tariff action on 4 March, while biotech valuations overall rose slightly despite a broad decline in US stock indices following a 10% increase in tariffs on goods entering the US from China and implementation of a 25% tariff on products coming from Mexico and Canada.

Trump signed an executive order in February that established an additional 10% tariff on Chinese goods and in a new order has added another 10% to that, for a weighted average of about 30%, including previously implemented tariffs, according to a 3 March report from Wolfe Research. Separate same-day executive orders implemented the 25% tariffs on goods from Mexico and Canada. Canadian Prime Minister Justin Trudeau responded on 4 March by announcing 25% tariffs on US goods entering Canada.

Pharma executives speaking at the TD Cowen Healthcare Conference on 3 March were asked about their companies’ exposure to potential tariffs based on where their manufacturing sites are located in anticipation of the latest round of tariffs being implemented on 4 March. Pfizer CEO Albert Bourla said generics manufacturers have greater exposure, since most of their products are produced outside of the US, and noted that other drug makers would be in a better position if they are able to quickly move manufacturing from an ex-US site to a US location.

“And [Pfizer] in the US, we have probably the largest manufacturing network of any other company,” Bourla said. “We have 13 manufacturing sites in the US right now up and running.” He noted that some of those are large facilities, particularly sites that manufacture sterile injectables and antibodies, and all of them are operating at good capacity. “But if something happens, we will try to mitigate by transferring from manufacturing sites outside to manufacturing sites here, the things that can be transferred quickly,” Bourla said.

Asked if that means Pfizer would be immune to tariffs if implemented more globally, he hedged a bit, saying that “yes, we are better immune, but I think we need to wait to see what could be the situation here.”

The More The Ex-Us Exposure, The Greater The Fall?

Merck chief financial officer Caroline Litchfield told TD Cowen’s Steve Scala that “like many companies, we have a global supply chain and global manufacturing footprint, and that footprint is largely in the United States, in the Americas, in Europe and in Asia.” Litchfield noted that Merck has invested more than $12bn in US manufacturing facilities since 2018 and it plans to invest $8bn more in the coming years “in support of our current products, but more importantly, the pipeline of products that we’ve got coming.”

She added that a “slight majority of our revenues are outside of the US than in the US. And similarly, our manufacturing footprint is slightly heavier outside of the US than here in the US. So, as we all try to understand what tariffs may come, our company is focused on, no. 1, the investments that we’re making in this country to support our pipeline, but also [to] ensure that we have agility to support production for the United States in the appropriate way.”

Nevertheless, Pfizer closed down 1.9% at $25.75 on 4 March, while Merck closed down 0.6% at $92.56. Among other big pharma companies, Johnson & Johnson dipped 1.1% to $165.42, AbbVie fell 1.8% to $207.76 and Lilly dropped 2% to $911.06.

However, Amgen rose 0.5% to $312.19 and the XBI – the closely watched biotech investment fund that encompasses hundreds of small- to medium-sized biotech firms – closed up 0.6% at $86.13. But since the XBI is down 4.4% year-to-date and -14.5% over the past year, biotech firms that already are struggling in a difficult fundraising environment would be particularly susceptible to any further tariff uncertainty, especially if it were to impact big pharma’s capacity to do deals.

More broadly, the S&P 500 fell 1.2% and the Nasdaq lost 0.3% of its value based on the tariff news, with the Dow Jones Industrial Average down 1.6% as investors worried about the impact on US consumers due to rising costs for everything from food to clothes to automobiles. Uncertainty over how long the higher tariffs on Chinese products and new tariffs on Mexican and Canadian imports will be implemented also weighed on stocks, along with exactly which products are impacted.

“Throughout this process, [Trump] has maximized his flexibility by being vague about exactly what he needs to see to cancel or delay the tariffs – at the cost of also maximizing uncertainty for companies and markets,” the Wolfe Research analysts noted.

Tariffs Could Be Implemented More Broadly In April

Tariffs on products from many more countries are expected early next month as the Trump Administration implements its planned reciprocal tariff policy, which will definitively sweep up pharmaceutical products into the mix – a sector that some pharma executives, including GSK CEO Emma Walmsley, have expected the US to exclude from tariff policy as it has in the past.

“The March 4 tariffs are not only tremendously significant in a vacuum, but also an important signal of how Trump might approach the larger tariff rollout planned for April 2, when he is scheduled to unveil his ‘reciprocal’ tariff policy as well as global sectoral tariffs on autos, semis, pharma, possibly some agricultural goods, and who knows what else,” the Wolfe analysts said.

If Trump sticks to his prior position that value-added taxes (VATs) be included in reciprocal tariff rates, then the average global tariff rate could be around 13%, they estimated, rather than an incremental 1.5%-3% rise without a VAT factored in. And, they added, it remains to be seen if the reciprocal tariffs will be added on top of existing tariffs.

But anchoring manufacturing in the US could keep pharma in Trump’s good graces. At a recent event to unveil Lilly’s planned buildout of $27bn in new US manufacturing facilities, Lilly CEO David Ricks declined to speculate whether the pharma industry would be excluded from US tariff actions, but he noted that Trump’s tariff plans are part of his effort to encourage manufacturing in the US.

Like Lilly, Amgen has built additional US manufacturing facilities since the 2017 Tax Cuts and Job Act, passed during Trump’s first term as president, which the company expects will help it weather any future tariffs.