Late Thursday, U.S. President Donald Trump unveiled a new tariff plan for pharmaceutical companies. Here, he participates in a July 2020 event about drug pricing during his first term as president.
Friday saw a majority increase in pharmaceutical equities as investors seemed to ignore or even applaud President Donald Trump’s introduction of a new tariff plan for pharmaceutical companies.
Trump stated in a social media post late Thursday that his government will begin levying a 100% duty on any branded or copyrighted pharmaceutical product on Wednesday, unless the producer is building a U.S. facility or has one already in place.
Following that statement, pharmaceutical equities, as measured by the VanEck Pharmaceutical ETF PPH, were up almost 0.6%. On Friday, PJP XPH and other pharmaceutical exchange-traded funds were also rising.
Pharmaceutical companies “have used the past six months to prepare for this moment” by “pulling forward inventories manufactured overseas and the steady cadence of U.S. manufacturing infrastructure announcements,” according to a note from Cantor analysts.
“With that context, we expect this will be viewed neutrally, if not slightly positively as evidence of de-escalating the fight on tariffs,” the analysts stated. Additionally, they stated that while though the move gives the Trump White House headlines about “being tough on Pharma and promoting domestic jobs,” it is “challenging to determine” whether there are companies that do not qualify for an exemption.
Similarly, Citi analysts stated that Trump’s decision is “likely to come as a relief” to many pharmaceutical investors because most key participants in the industry have already made large investments in the last six months and “will therefore not be impacted.”
“In our view, this lifts a significant overhang, as political uncertainties have kept investor interest at bay for most of this year,” the team at Citi wrote in a note.
The variety of pharmaceutical companies that have recently announced investments in new facilities in the United States is displayed in the Cantor figure below.
Chris Krueger, an analyst at TD Cowen, says that another important consideration is that over 90% of prescriptions in the United States are filled with generic medications, which Trump’s announcement did not specifically target. However, Krueger added that the agreements are “not legally binding, so confusion remains the coin of the realm with clarity in short supply.” He also stated that trade agreements with the European Union and Japan have capped U.S. tariffs at 15% and pledged that future tariffs won’t stack on top of that level.
Drug stocks in Europe and Asia saw a decline on Friday. Novo Nordisk (NVO), a Danish company with a significant factory in North Carolina, had a 1% decline. Shares in South Korea’s SK Biopharmaceuticals (KR:326030) sank 3.5%, Hong Kong’s JD Health (HK:6618) down 4%, and Japan’s Chugai Pharmaceutical (JP:4519) fell 5%.
A request for comment from the Pharmaceutical Research and Manufacturers of America, or PhRMA, was not immediately answered. “Most innovative medicines prescribed in America are already made in America,” a PhRMA spokesperson told the Wall Street Journal, but he also said that “every dollar spent on tariffs is a dollar that cannot be invested in American manufacturing or the development of future treatments and cures.”
