Drug prices likely to rise with tariffs on EU
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The trade deal between the U.S. and the European Union could hit the pharmaceutical industry with billions in new costs and ultimately drive up prices and limit access.
Why it matters: Drugmakers have been heavily reliant on foreign countries' manufacturing and raw materials, most of it duty-free. Those free-trade policies are on the way out as the U.S. prepares to impose a 15% tariff on U.S.-bound imports of branded drugs from Europe.
Driving the news: Wall Street analysts estimated the tariff deal could cost the industry between $13 billion and $19 billion, Reuters reported on Monday.
- "The big picture is: The cost of imported drugs is about to become more expensive for all Americans," Joe Brusuelas, principal and chief economist for RSM US, told Axios.
Europe is among the biggest sources of branded drugs and their ingredients for the U.S. Ireland alone accounted for about $50 billion of U.S. pharma imports last year.
- Pharma giants like Pfizer and Johnson & Johnson have made Ireland a major manufacturing hub and source of cancer drugs, insulin, Viagra and Botox.
- Denmark is home of Novo Nordisk, which makes the blockbuster GLP-1 drugs Ozempic and Wegovy as well as much of the U.S. insulin supply.
- The immunosuppressive drug Humira is made in Germany, while Bavarian Nordic's Jynneos, a vaccine for smallpox and mpox, is largely made in Denmark, per Reuters research.
Between the lines: The details of the trade deal with the EU still are being hammered out. The new tariffs wouldn't apply to certain generic drugs, European Commission President Ursula von der Leyen said on Sunday.
- The announcement left the door open for President Trump to impose even higher tariffs. Trump had recently threatened to impose 200% tariffs on pharma.
- "I think the PBMs are going to start to have conversations with manufacturers about increasing those prices," said Ryan Maizel, senior director of advisory services at Model N.
- But there are too many unknowns for any real action yet.
- "I don't see anyone doing anything until we see that these deals are worth the paper that eventually they're going to be written on," Marc Busch, a Georgetown University authority on international trade policy, told Axios.
Manufacturers will have to game out whether to take on major one-time expenses of moving their production, as well as whether to pass along future higher costs for certain drugs.
- That's a process that will almost certainly take place between industry lobbyists and policymakers in Washington, Brusuelas said.
- "The inside-the-Beltway horse trading is going to go on," he said.
- Industry trade group PhRMA did not return a request for comment.
The new EU tariffs will affect items like packaging or plastics used for bottles or blister packs, which could influence the cost of low-priced generics and over-the-counter products made in the EU, Maizel said.
What to watch: The industry is still closely watching the administration's Section 232 investigation that could end with a recommendation to put a certain tariff rate on drug imports from China and India.
- Oral arguments will also be heard this week in a lawsuit challenging Trump's authority using the International Emergency Economic Powers Act to impose sweeping "reciprocal" tariffs, CNBC reported.
- "If the IEEPA tariffs are taken down then I don't even know what the status of these deals will be," Busch said. "Trump will obviously get very angry, and I don't know how he backfills."
The bottom line: "Tariffs and constant renegotiation of commercial interaction is not a bug but a feature of U.S. trade policy for the foreseeable future," Brusuelas said.
