Novartis, Roche could be most at risk

President Donald Trump is slated to impose tariffs on pharmaceuticals imported into the U.S. any day now – and the duties may have a bigger impact on some drugmakers than others, according to some analysts. 

Trump told reporters earlier this month that his administration will begin implementing low pharmaceutical levies as early as Aug. 1 and increase the rate in about a year or 18 months. He has threatened to impose up to 200% tariffs on imported drugs.

It is still unclear if he will follow through with that exact plan and tariff rate, which makes it difficult to fully assess how the policy will affect drugmakers and patients. Domestic drug manufacturing operations are also growing, as several companies have recently announced multi-billion-dollar investments in new facilities to build goodwill with the president, but it will likely take several years before those sites are up and running.

Some analysts have estimated the potential tariff risk to different companies based on their current manufacturing networks, among other factors. 

AbbVie, Bristol Myers Squibb and Eli Lilly appear “relatively well-positioned” because their manufacturing footprints in the U.S. are bigger than operations abroad, while Novartis and Roche look more at risk, TD Cowen analyst Steve Scala said in a note on Monday.

In a note in March, Jefferies analyst Michael Yee also called out Amgen and Biogen as having the greatest exposure to tariffs among the biotech companies he covers. Gilead and Vertex Pharmaceuticals will likely be less exposed, he said. 

But Biogen in May clarified during its first-quarter earnings call in May that it expects minimal exposure to Trump’s tariffs, even if pharmaceutical-specific levies are implemented. That’s because a significant proportion of its U.S. revenue is from products that have manufacturing operations in the country, and also due to the company’s current global inventory positions.

Scala said tariffs will likely take a meaningful bite from companies’ free cash flow for at least the first two years after they are implemented. He said that’s based on a conversation with an unnamed expert, who is the former CFO of a pharmaceutical company. 

That expert believes drugmakers will be able to hike some drug prices, but increasing them enough to fully offset tariffs “will be politically untenable” as patients already have trouble affording drugs, Scala said. He said drugmakers may also move to trim research and development spending, but added that the expert said major cuts are unlikely since innovation is key to each company’s long-term growth. 

The expert believes pharmaceutical tariffs of higher than 50% would be “problematic and punitive to the industry,” Scala added.

“In this scenario, companies would need to be very aggressive in moving manufacturing back to the U.S. and substantial cuts to R&D would not be out of the question,” Scala said. 

In recent months, some pharmaceutical CEOs have slammed tariffs on imported drugs, saying they will hurt R&D and could lead to fewer treatments for patients. Some health policy experts also previously told CNBC those levies could disrupt the complex pharmaceutical supply chain, potentially driving up drug prices in the U.S. and exacerbating shortages of critical medicine.

In a statement, Roche said it has a “robust presence” in the U.S. that includes 15 research and development sites and 14 manufacturing facilities. The company also pointed to its recently announced plans to invest $50 billion into the U.S.

Roche said it believes pharmaceuticals and diagnostics should be exempt from tariffs to “protect patient access, supply chains and ultimately future innovation.” But the company said it is prepared for potential levies and confident in its ability to manage any impacts and ensure that access to its products isn’t disrupted, pointing to mitigation efforts like inventory adjustments.

Spokespeople for the other companies analysts mentioned as most at risk from tariffs did not immediately respond to requests for comment.

Drug companies have vast manufacturing networks, get active pharmaceutical ingredients from multiple sources and hold complex intellectual property patents, Scala said in a separate note in April. He said that leads to equally complicated tax and pricing strategies. 

Scala said much of that information is not publicly available, “making analysis of tariffs challenging to say the least.” 

But he estimated which companies appear to be in a better or worse position to weather tariffs based on key metrics, including the number and location of manufacturing plants, the utilization of such facilities, the source of active ingredients and the location of patents.

Scala said AbbVie, AstraZeneca, Eli Lilly, Merck and Pfizer have the largest disclosed U.S. manufacturing networks, with 10 major plants each. 

But AbbVie, Bristol Myers Squibb and Eli Lilly are the only companies with more known major plants in the U.S. than abroad, he said. AbbVie and Eli Lilly have nine of those facilities abroad, while Bristol Myers Squibb has two. 

Those three companies also have the highest percentage of sites registered with the U.S. Food and Drug Administration for the manufacturing of active pharmaceutical ingredients in the U.S., while Daiichi Sankyo, Novartis and Zoetis have the least. Roche and Novo Nordisk also have a low percentage of active ingredient sites in the U.S. relative to the rest of the world, according to the note. 

GSK has the largest drug manufacturing network abroad, with 31 disclosed major plants. But the company has said that it plans to close several of those facilities, Scala said. 

Other companies with large manufacturing footprints abroad include Pfizer with 27 plants, Sanofi with 16, Zoetis with 14 and Elanco with 11. Some drugmakers, including Merck, Roche and Takeda, have not disclosed how many significant plants they have outside the U.S., according to the note.

He said Ireland is one factor to keep in mind as it appears to be a particular target for tariffs. Trump has repeatedly singled out Ireland for “luring away” U.S. drugmakers with decades of low corporate tax rates. 

AbbVie and Merck have the most FDA-registered drug manufacturing sites in Ireland. Those facilities manufacture pharmaceuticals distributed in or imported to the U.S. 

Some drugmakers, including GSK, Novartis and Roche, have no Irish manufacturing sites registered with the FDA. 

Jefferies’ Yee highlighted Amgen and Biogen as companies at risk due to their international tax advantages. He said Amgen has manufacturing operations in Ireland and Singapore, which lowers the amount of taxes it pays by 6%. 

Biogen’s significant manufacturing operations are in North Carolina and Switzerland. Yee said the company gets an 8% tax break thanks to how its profits abroad are taxed. 

In comparison, Vertex and Gilead are less likely to benefit from those international tax advantages, Yee said. Vertex manufactures its drugs in Boston. 

He added that while Gilead has a manufacturing presence in Ireland, it mainly produces its drugs in California and sells a lot of its HIV drugs in the U.S. 

When TD Cowen’s Scala asked companies how they could mitigate cost increases from tariffs, they pointed to several potential options. That includes exploring alternative sources of active ingredients outside of Europe, or exploring alternative contract manufacturing options in non-European locations, such as the U.S. territory Puerto Rico.