Trump's 200% tariff threat leaves pharma firms scrambling with scenario planning

• U.S. President Donald Trump warned again this week that long-awaited industry-wide tariffs would be announced “very soon.”
• That levy, he said, could be up to 200% and may hit in 12 to 18 months.
• Even with a delay, such a rate will have a detrimental effect on drug prices and profit margins, analysts warn.

The pharmaceutical industry is scrambling with scenario planning as U.S. President Donald Trump's 200% tariff proposal threatens to drive up drug prices and rip out corporate profit margins.

The president once again warned on Tuesday that long-awaited industry-wide tariffs would be announced “very soon” after the administration launched a so-called 232 investigation into the sector in April.

Trump suggested that those levies would not go into effect immediately, but get a grace period of “about a year, year and a half to come in.”

Analysts nevertheless warn that such a rate — even with a delay — will have a detrimental effect on drug prices and profit margins.

“A 200% tariff would inflate production costs, compress profit margins, and risk supply chain disruptions, leading to drug shortages and higher prices for U.S. consumers,” Barclays wrote in a note Wednesday.

UBS analysts cited a “significant negative impact” on margins, where goods are manufactured outside of the U.S. Meanwhile, the hit for patients could be “disastrous,” Afsaneh Beschloss, founder and CEO of investment firm RockCreek Group said Tuesday, in reference to an estimated 100% levy.

“That would be potentially disastrous for every person because we need those pharmaceuticals, and it takes those companies a long time to produce them here in the U.S.,” Beschloss told CNBC's “Closing Bell.”

It is estimated that a tariff of just 25% on pharmaceutical imports would drive up U.S. drug prices by almost $51 billion annually, increasing domestic prices by as much as 12.9% if passed on, according to research from industry trade group Pharmaceutical Research and Manufacturers of America (PhRMA), which on Wednesday lambasted the president's proposals as “counterproductive” to health outcomes.

Delay brings little relief

Pharmaceutical products have typically been excluded from trade tariffs due to their critical nature. However, Trump has repeatedly targeted the industry for what he deems unfair pricing practices, and has urged firms to reshore manufacturing to the U.S.

In response, global pharma firms — including Novartis, Sanofi and Roche and U.S.-headquartered Eli Lilly and Johnson & Johnson — have made commitments to invest large sums in the U.S.

UBS dubbed the administration's tariff grace period of 12 to 18 months as “insufficient time” for firms to relocate their manufacturing stateside.

“We would usually think of 4 to 5 years as the timeline to move commercial scale manufacturing to a new site,” the analysts wrote.

The industry is now awaiting further details at the end of this month, when the final Section 232 investigation report is due. But in the meantime, firms have little choice but to plan for various potential outcomes.

A Roche spokesperson said the company was “monitoring the situation closely” and engaging with stakeholders to “advocate for policies that address barriers to patient access” and create “a more equitable and affordable healthcare ecosystem.”

The Swiss pharmaceutical giant had previously said that Trump's drug pricing order could jeopardize its U.S. investment. However, it noted Wednesday that its proposed funding will allow it to continue building out its manufacturing footprint in the U.S.

Bayer similarly said that it was monitoring the “various tariff announcements” and that it was focused on securing its supply chains and “minimizing any potential impact.”

Novartis, meanwhile, said that it continues to work with the U.S. administration and trade association partners, and that it had “no changes” to its planned U.S. investment.

AstraZeneca and Sanofi did not immediately respond to CNBC's request for comment, while Novo Nordisk declined to comment during its pre-earnings quiet period.

Carve-out hopes remain

The pharmaceutical industry had previously sought a sector-wide carve-out from tariffs. But as those hopes have faded, attention is now turning to prospective trade deals as a potential buffer.

The U.S.-U.K. trade deal announced last month, while sparse, states that both sides will negotiate “preferential treatment outcomes for U.K. pharmaceuticals and pharmaceutical ingredients contingent on the findings of a Section 232 investigation.”

Pharma firms in Switzerland and the European Union could be aiming for similar carve-outs in their prospective deals. Yet, without clarity soon, question marks for companies and consumers remain.

“The longer this uncertainty reigns over which sectors are going to be affected and which aren't, it's going to have a continuous negative impact,” Bert Colijn, chief economist at ING, told CNBC's “Europe Early Edition” on Wednesday.