The tariff war the U.S. is waging against most of the world stabilized somewhat earlier this month. But let's face facts -- it could easily flare up again. President Donald Trump appears quite committed to the idea of leveraging America's economic dominance, and no industry is immune to this dynamic.
One could argue, however, that the pharmaceutical industry is especially vulnerable. Although the 25% import tariff rate the White House has threatened on foreign-made drugs and drug components is neither sky-high nor a guaranteed figure (and may only be a means of forcing negotiations), this administration has voiced clear concerns about any American dependence on overseas suppliers of medicines.
Higher import tariffs could, in theory, encourage domestic drug companies to move more of their production here.
The problem is that the construction of more U.S. drug-manufacturing facilities could prove incredibly expensive, not to mention time-consuming. With little wiggle room between their costs and the prices of their drugs, this leaves pharmaceutical makers vulnerable -- as well as their stocks.
But which pharma stocks are most vulnerable? Here's a closer look at three companies that face more than their fair share of potential tariff headaches.
Image source: Getty Images.
1. Amgen
Higher import costs work against all drugmakers. But they're especially challenging for companies like Amgen (AMGN 0.08%), due to its significant exposure to the generics segment of the drug business.
Generic drugs can be manufactured by any company willing to replicate a medicinal molecule that's no longer patent-protected, and that often ultimately leads to a profit-pinching price war. Therefore, as a means of keeping generic drug-production costs as low as possible, pharma companies often establish manufacturing sites overseas.
Amgen is no exception to this dynamic. Although 2017's Tax Cuts and Jobs Act spurred the company to build a handful of new manufacturing sites within the U.S., it's still heavily reliant on its production facilities in Singapore and Ireland to make many of its drugs, including generics.
Its deep dependence on Ireland, however, could become a serious liability.
Contrary to a common assumption, the United States' biggest drug import/export disparity isn't between it and China (China is actually a net buyer of U.S. pharmaceuticals). Rather, it's with Ireland. As the Motley Fool's own in-house research arm points out, despite the country's relatively tiny size, in 2024 alone Ireland exported $45.5 billion more worth of drugs to the U.S. than it imported from the U.S.
Don't misread this data, however -- it's a purely technical matter. There's simply a significant tax benefit for domiciling certain pharma operations in Ireland, so much so that several other drugmakers have done the same. Now this tax-reducing strategy appears to be a specific target of President Trump's, in that he's called out the country by name in several public comments about his drug-tariff plans.
The path Amgen will need to navigate isn't yet clear. But it is clear that shareholders can expect to see rising costs chip away at what are already rather thin profit margins for the drug industry.
2. Pfizer
Speaking of Ireland, pharmaceutical giant Pfizer (PFE 1.28%) is also highly vulnerable for the same basic reason as Amgen. That is, several of its top-selling drugs including the pneumonia vaccine Prevnar, the meningitis vaccine Penbraya, and some of the COVID-19 vaccine Comirnaty are made in Ireland. This could soon prove to be an expensive arrangement.
Trump's impending tariffs aren't just targeting Ireland, though. Plenty of drugs delivered to the United States are manufactured in other parts of Europe, which has also prompted tariff-raising moves from the U.S. president. Some of Comirnaty's components are also manufactured in Germany, for instance, while the blood thinner Eliquis is made in the Netherlands by Bristol Myers Squibb as part of a partnership with Pfizer that's been in place since 2007.
For perspective, the four drugs mentioned above account for about 10% of Pfizer's total top line. That's not even considering the potential added cost of drug ingredients needed to manufacture pharmaceuticals inside the U.S.
Pfizer is capable of making at least some of these drugs elsewhere, to be clear. Indeed, with almost a hint of acceptance, Pfizer's CEO Albert Bourla explained last month: "We have all the capabilities here and the manufacturing sites are operating in good capacity right now." He added that the company doesn't "have to build the network" if import tariffs end up being locked in at untenable levels.
Nevertheless, not all of Pfizer's foreign-made pharmaceuticals can simply shift their production here. For some of them, the company would need to build new facilities, at a cost in the billions of dollars. Given that it recently shelled out $43 billion to acquire Seagen -- to own a promising but not yet completely proven oncology drug portfolio, as its large COVID business continues to deteriorate -- that's not another prospective expenditure the market's likely to cheer.
3. AbbVie
Last but not least, add AbbVie (ABBV 0.55%) to the list of pharmaceutical stocks that could get hit particularly hard should the worst of drug-tariff fears be realized.
This company is mostly shrugging off the potential effects of Trump's suggested tariffs on imported pharmaceuticals. As CEO Rob Michael commented during the first-quarter earnings conference call, before raising the organization's fiscal full-year revenue and earnings outlook, "any related impact from these tariffs, as well as other potential new or reciprocal tariffs, [has] not been contemplated in our guidance." But he optimistically went on to say: "To the extent there is an impact, we believe it would be in line with our peers, given that AbbVie has an extensive manufacturing presence in the United States."
Other less biased observers aren't so sure, though. Analysts with Bernstein, for instance, put AbbVie in their "highest risk category" of pharmaceutical companies that could feel the impact of newly imposed tariffs, suggesting they could cost the drugmaker hundreds of millions of dollars per year.
These analysts are likely keying in on imports of some of the company's bestsellers into the U.S., where it does the bulk of its business. Some of these top-selling drugs include the arthritis drug Rinvoq (made in Ireland, Canada, and Germany), and the immunosuppressant Humira (manufactured in Germany as well as Puerto Rico). Although U.S. residents don't necessarily use the foreign-made versions of either drug, these foreign-made drugs still become part of AbbVie's worldwide supply.
And while the company may not be concerned enough about looming tariffs to include their potential impact in its 2025 guidance, it's curious that AbbVie is still earmarking $10 billion to expand its domestic manufacturing capabilities over the next 10 years. That's hardly chump change for a pharmaceutical outfit that's been fighting not one but two ongoing patent wars for two of its top-selling drugs -- the aforementioned Humira and Rinvoq.
In the meantime, AbbVie's best-selling Skyrizi (for the treatment of psoriasis, arthritis, and certain intestinal conditions) may be selling well, but it's being assisted by a very expensive ad campaign. In fact, the company's now spending more to promote the drug on American TV than is being spent to advertise any other drug made by any manufacturer.
Connect the dots: AbbVie isn't exactly entering potential tariff turbulence from a position of tremendous strength. There's even chatter about the company being unable to maintain its dividend.
