Tariffs are just part of pharma's Wall Street tumble

The big picture: Pharmaceutical companies have seen their market values plummet in the wake of Trump's baseline 10% tariff on U.S. imports and steeper duties on goods from Europe, Japan and China.

• In the past five days, Pfizer shares dipped more than 10%, Merck slid more than 9% and Amgen shares fell more than 8%. The Dow Jones Pharmaceutical Index is off more than 12% over the past month.
• The industry has been bracing for expected sector-specific tariffs, though most companies are staying quiet about the threat.
• "No one knows how to characterize that risk," said William Blair analyst Matt Phipps.

Analysts say the picture is complex.

• Concern has been growing that drug reviews and other key functions of the FDA may be slowed in light of cuts at the agency, which could be particularly devastating for small and midsized companies that have just one or a handful of products.
• The markets are also reacting to leadership shakeups, most notably the high-profile ouster of Peter Marks, former director of the FDA's Center for Biologics Evaluation and Research.
• "We think the regulatory uncertainties are actually a much larger risk to the space than the tariff uncertainties," Brian Abrahams, global head of biotechnology research at RBC Capital Markets, told Axios.

Zoom in: Eli Lilly — which produces a material amount of its blockbuster GLP-1 drugs in Ireland — has seen its share price slip more than 9% over the past five days.

• CEO David Ricks told the BBC that drug companies like his would be forced to take on the full burden of tariffs rather than pass the costs to consumers because there are so many controls on the price of medicine.
• But Lilly was likely also impacted by the Trump administration dropping a Biden plan for Medicare to cover the drug class for obesity, Phipps said.
• Others, such as vaccine makers Pfizer and Moderna, may be more affected by questions about vaccine policy under a Health and Human Services agency run by Robert F. Kennedy Jr., he said. Most recently, Kennedy, a vaccine skeptic, offered lukewarm support for the MMR vaccine and promoted unconventional therapies in the face of a measles outbreak in Texas.

What to watch: Trump said on Tuesday night he is planning a "major tariff on pharmaceuticals," complaining that the United States doesn't produce its own pharmaceuticals anymore, per a pool report.

• "Once we do that, they're going to come rushing back," Trump said, speaking at the National Republican Congressional Committee President's Dinner.
• The lingering question is whether there will be carve-outs, and where the duties will be applied, which could make a big difference in how much pain companies sustain.

Reality check: Multiple companies, including Lilly, have said they're moving more manufacturing to the U.S., but it's not fast or easy to onshore drug and medical products made overseas to mitigate the potential impact of tariffs, analysts say.

• Building up that manufacturing capacity would take time, potentially years, they said.
• And the prices of raw materials needed to build them are also expected to be higher due to tariffs, adding to the upfront cost to companies, said Pankit Bhalodia, leader in life science practice at West Monroe.

Drug manufacturing generally costs very little for pharma companies compared to their spending on research and development, which is difficult to put a tariff on.

• "If you had a 25% tariff on a drug that costs several dollars to make, but companies ultimately sell it for thousands of dollars, the relative impact to a company's earnings and their margins is going to be fairly negligible," Abrahams said.
• But products based on intellectual property domiciled outside the U.S. for tax purposes could be particularly hard hit, he said. "The concern is that this could effectively get a tariff applied to a higher value than the production cost."