By Katherine Hamilton

Pharmaceutical companies are facing a threat of tariffs after long being exempt that could push import costs higher and prompt them to rethink their footprints outside the U.S.

The tariffs announced by President Trump on Wednesday would add about $46 billion in import costs for the pharmaceutical industry if they are implemented in that sector, Bernstein analyst Courtney Breen estimates.

"Shifting to a world where there may be tariffs on pharmaceuticals is going to require reorganization and new strategies," Breen said. "What we probably will see is earnings contraction for some of these companies."

Shares of Abbvie fell 5%, to $192.71, on Friday. Merck slipped 5%, to $81.77; Eli Lilly declined 5%, to $747.84; and Pfizer was down 4%, to $23.35.

Drug companies do a lot of manufacturing in countries where the corporate-tax rate is low, such as Ireland and Switzerland. They can then import those products to the U.S., where the bulk of their revenue comes from, without paying duties because they are tariff-exempt.

Abbvie and Merck have some of the largest footprints in Ireland of manufacturing sites that are registered to import to the U.S., TD Cowen analyst Steve Scala said. That means those companies are at risk of having to pay tariffs on all the products they import from those plants, adding a cost that could offset the savings from the lower tax rate.

Quickly moving to the U.S. as a response to tariffs will be difficult. Construction timelines for new pharmaceutical manufacturing sites typically run at least four years due to stringent regulations, Ernst & Young's Tracee Fultz, who advises companies in the life sciences space, said. Companies require billions of dollars and a labor pool with specialized skills to build a plant in a new location, plus they have to meet quality standards and gain regulatory approval from that country.

"Both talent and capital are going to weigh heavily on that decision and in some cases that may outweigh the amount of the tariff," Fultz said.

Rather than move existing plants, companies are more likely to choose the U.S. as a location for new sites, Breen said. For example, Eli Lilly said in February it plans to bolster domestic medicine production.

Breen said the pharmaceutical industry body is powerful when it comes to lobbying, so there is a chance it could negotiate with Trump to keep the sector exempt from tariffs. At the same time, the automotive industry also has a strong lobby, but it has so far proved unsuccessful at keeping car makers exempt, she said.

"It still does look like a pretty punitive environment that these industry bodies are negotiating in," she said.

Write to Katherine Hamilton at katherine.hamilton@wsj.com

(END) Dow Jones Newswires

April 04, 2025 14:13 ET (18:13 GMT)

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