Eli Lilly's (LLY -1.04%) share price soared during the first Trump administration. That momentum continued with Joe Biden in the White House. However, it's a much different story so far in Trump's second term. The big pharma stock has taken investors on a roller coaster ride that's on a downward swing right now.
Why has Lilly's stock been so volatile? The tariffs on pharmaceutical imports threatened by President Trump stand out as one key factor. Here's how those tariffs could affect Eli Lilly.
Lilly's (bad) luck of the Irish?
The White House hasn't implemented tariffs on imported drugs yet. However, President Trump has publicly stated that pharmaceutical import tariffs are on the way. Earlier this year, he proposed levying 25% tariffs on imported drugs.
Lilly CEO Dave Ricks acknowledged in his company's first-quarter earnings call on May 3 that expanding tariffs "would have a negative effect on Lilly and for our industry." He didn't provide details, though, on how much of an impact tariffs might have on Lilly.
The U.S. imports more pharmaceutical products from Ireland than from any other country -- nearly $50 billion last year. It won't be surprising if the Trump administration especially targets those imports. If so, that could present a big problem for Lilly.
Ricks said in the Q1 call that most of his company's product sourcing outside the U.S. comes from Ireland. Lilly reported roughly $3.2 billion of long-lived assets, such as property and equipment, in Ireland at the end of 2024. Although that figure was less than one-fourth the value of long-lived assets in the U.S., it was greater than the drugmaker's total for the rest of the world combined.
According to the Irish Independent, the active pharmaceutical ingredient (API) used in Lilly's type 2 diabetes drug Mounjaro is "Ireland's biggest pharmaceutical export to the U.S." This API is also used in the company's weight-loss drug, Zepbound. The Irish newspaper believes that the ingredient "would be the hardest hit if US president Donald Trump puts tariffs on the [pharmaceutical] sector."
Image source: Getty Images.
Timing is everything
The Trump administration hasn't provided any specifics about the threatened tariffs on pharmaceutical imports. However, the outlook for Lilly might not be as bad as initially feared.
At a White House meeting with executives from several industries on April 30, President Trump proclaimed he wanted to put up "a tariff wall" for drug imports. But the president said that he planned to "give them a lot of time" to move operations into the U.S. first.
Ricks noted in the Q1 earnings call that Lilly already "has a large U.S. manufacturing footprint." He said the company has 10 active projects underway to build and expand facilities. Ricks predicted, "Upon completion of our manufacturing agenda, we'll be able to supply medicines for the U.S. market entirely from U.S. facilities, as well as increase the volume of medicines we export."
A more worrisome issue for Lilly than tariffs?
President Trump also issued an executive order on May 12 to implement "most-favored nation" (MFN) drug pricing. He directed Secretary of Health and Human Services Robert F. Kennedy Jr. to set price targets for drugs based on prices paid by other developed nations. In the executive order, Trump warned, "[S]hould drug manufacturers fail to offer American consumers the most-favored-nation lowest price, my Administration will take additional aggressive action."
When asked about the possibility of MFN pricing in Lilly's Q1 call, Ricks responded that it presents "a risk for the industry." However, he argued that "it's a nonsensical idea" to only look at the list prices for drugs in the U.S. compared to those in Europe.
Is MFN drug pricing a more worrisome issue for Lilly than tariffs? Maybe, but expect a swift legal challenge that could be successful. In 2021, a federal court blocked a similar executive order signed by President Trump during his first term because it didn't follow required procedures and exceeded the executive branch's authority.
Even if the courts don't prevent MFN drug pricing from being implemented, drugmakers could get creative. For example, they could increase the list prices of drugs in other developed countries while giving discounts and rebates that keep the cost paid the same as before. Another option is to negotiate price increases with other countries that help keep U.S. prices at highly profitable levels.
It remains to be seen how the tariffs and MFN drug pricing stories will play out. I think, though, that Lilly (and other big pharmaceutical companies) will be able to successfully navigate the murky waters regardless of what happens.
