Several major drugmakers said on Thursday they are counting on manufacturing flexibility to mitigate the impact of tariffs, as they wait on tenterhooks for import duties to be imposed by President Donald Trump on the pharmaceutical sector.
Unlike companies in other sectors, such as airlines, that have cut profit forecasts and warned of growing uncertainty from tariffs, drugmakers have suggested they would be largely unaffected, at least in the short term.
Bristol Myers Squibb (BMY.N), Merck & Co (MRK.N), Sanofi (SASY.PA) and Roche (ROG.S) reported first-quarter earnings that beat estimates on Thursday, and Bristol raised its profit forecast.
Pharmaceutical imports have so far been exempt from Trump's reciprocal tariffs, but he has since indicated that levies are coming, arguing that the U.S. needs more drug manufacturing so it does not have to rely on other countries for its supply of medicines.
The Trump administration last week announced probes into pharmaceutical imports, setting the stage for levies on the sector and prompting several major drugmakers to consider moving production to sites where the drugs are sold.
So far, there is little clarity on the rates and timings of any pharmaceutical tariffs. But the industry could be in for a big hit if Trump goes ahead with his plans, since the U.S. is the largest market for prescription drugs in the world, with more than $200 billion in imports.
Several drugmakers have pledged to pump billions of dollars in U.S. manufacturing, with Roche earlier this week saying it would invest $50 billion over the next five years, and that it had already begun to shift production.
"We've taken mitigation measures such as building up inventory in the U.S. and in China and shifting manufacturing of key medicines over the last weeks in our existing manufacturing network," Roche CEO Thomas Schinecker said on Thursday during a media call.
Schinecker noted that the drive to manufacture all goods in the U.S. that are used there would inflate manufacturing costs.
The CEO said Roche was in direct talks for import tariff exemptions, arguing the products it ships into the U.S. are offset by its exports of U.S.-made drugs and diagnostics.
Merck said its biggest exposure to tariffs was through blockbuster cancer drug Keytruda. It said it had already built enough inventory in the U.S. for this year and was working to expand domestic manufacturing for future years.
Sanofi said it would consider more investments in the United States. "We continue to assess our future capacity requirements, and we are considering additional measures, potentially including investments in the United States," Sanofi CFO Francois-Xavier Roger told reporters on Thursday.
In the longer term, companies would need to increase their investments in the U.S., said Stephen Farrelly, healthcare analyst for ING.
"There is a clear distinction on whether you transition existing capacity, which is difficult, disruptive, costly and takes time, or rather you position future investment into the U.S., which is more realizable, and more realistic," Farrelly said.
DIGESTIBLE HIT, FOR NOW
Most of the companies reporting financial results on Thursday did not provide details on any hit they might take from pharma sector tariffs, as details are yet to be announced. But some, like Merck, have begun to see an impact from tariffs levied by the U.S. on some countries, particularly China, and from tariffs imposed on the U.S. by other countries.
Merck said its forecast included a $200 million impact from such tariffs.
Johnson & Johnson (JNJ.N) earlier this month accounted for a $400 million hit from tariff-related costs in its full-year forecast, mostly related to its devices business.
"These are all very digestible numbers. They're not significant in terms of the financial power of these organizations," said Farrelly.
The manufacturers have said that any sector-wide tariffs on pharmaceutical imports could create supply chain disruptions and eventually hurt patients. They say they have continued talking to the White House to highlight this impact.
"The concern for us is anything that would impact innovation," said Bristol Myers Chief Financial Officer David Elkins, "or would restrict access to medicines for patients."
