Endpoints News: Trump’s tariff impact likely ‘minimal’ for brand-name drugmakers, manufacturing partners

Endpoints News recently featured Abzena’s CEO, Matt Stober, in a piece focused on the impact that the planned tariff may have on drug manufacturers.

Several brand-name drugmakers believe they will withstand any drug pricing impacts from President Donald Trump’s tariffs — and manufacturers that contract with pharma companies will likely be unaffected, analysts say.

Trump’s tariff plans were met with immediate concern from some pharmaceutical industry groups that drug prices in the US would rise and shortages would deepen. But companies like GSK and Novo Nordisk insisted last week they’re well-positioned to absorb any increases in cost, should the tariffs be imposed.

And contract development and manufacturing organizations (CDMOs) like Abzena and Lonza are likely too downstream in the supply chain from tariffs, William Blair analyst Max Smock said in an interview with Endpoints News. Any costs would be passed to their pharma company customers to handle.

‘Immaterial impact’
Tariffs on imports from Mexico and Canada were delayed by one month after Trump reached deals with both countries’ leaders. Trump on Monday announced additional tariffs on aluminum and steel imports into the US.

Meanwhile, tariffs are underway in China, which is a big supplier of APIs. Trump has delayed potential tariffs on small packages under $800 from China.

The tariffs will hit generic drugmakers the hardest and could force them out of the market due to low profit margins, Association for Accessible Medicines CEO John Murphy warned. The Trump administration needs to work on incentives for generic manufacturers, Murphy told Endpoints News in an interview.

But brand-name heavy hitters like GSK will have “no exposure or minimal exposure” to Trump’s tariffs and can absorb any changes, GSK CEO Emma Walmsley told reporters in a call last week. Merck CFO Caroline Litchfield said during an investor call that she expects “immaterial impact.” Novo Nordisk CEO Lars Fruergaard Jørgensen said Novo is “well-positioned” to handle any impact, but said the company is not “immune,” Reuters reported.

Meanwhile, Twist Bioscience said it could use the tariffs to its advantage. The taxes will likely be a headwind for foreign competitors, CEO Emily Leproust said during the company’s earnings call.

CDMOs downstream 
Compared to generic drug companies, brand-name drugmakers have much higher profit margins, around 70% to 90%, so many will be able to absorb the cost of tariffs, Abzena CEO Matthew Stober told Endpoints.

CDMOs are contracted by pharmaceutical companies to manufacture all, or parts of, their drug products in factories. Any increases in cost for manufacturers are likely to be passed onto their pharmaceutical customers, RBC Capital senior healthcare analyst Charles Weston said. He likened this to the rising cost of goods during the pandemic. CDMOs “pretty much all were successful in passing on the cost to customers,” he said.

Smock said the tariffs feel like an extension of the Biosecure Act, which benefited some CDMOs. Biosecure is a draft bill that would ban US pharmaceutical companies from working with certain Chinese suppliers, causing pharma companies to look for alternatives. Despite Biosecure being left out of the end-of-year must-pass defense legislation, Stober said his CDMO was still feeling the tailwinds from the bill.

Yet some foreign CDMOs are still looking to minimize any potential risks from the tariffs. Korean CDMO Celltrion said it’s planning to buy US-based factories as a means to sidestep the tariffs. The only issue with this is there are limited available sites in the US for CDMOs to absorb, Smock said.

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