Pharmaceutical Sector Faces Disruption Amid New U.S. Import Tariff Policy

U.S. Imposes 100% Tariff on Imported Branded Drugs

The U.S. Presidential Administration has introduced a new policy imposing a 100% tariff on all imported branded and patented pharmaceutical products, effective October 1, 2025. This significant trade measure aims to incentivize domestic manufacturing and reduce reliance on foreign drug production, potentially reshaping the global pharmaceutical landscape.

Tariff Mechanics and Corporate Exposure

The tariff operates as a 100% levy on the customs value of imported branded and patented drugs. For a foreign-based pharmaceutical company importing products to its U.S. affiliate for sale, this means the entire duty must be paid at the border, directly impacting the Cost of Goods Sold (COGS) and subsequently the profit and loss statement. Any recovery of these increased costs would occur downstream through pricing or rebate adjustments.

Novo Nordisk (NVO), Sanofi (SNY), and AstraZeneca (AZN) are identified as the pharmaceutical companies facing the largest dollar exposure to this new policy. Novo Nordisk, with its heavy reliance on U.S. sales of imported GLP-1 products, is particularly vulnerable, with over 50% of its free cash flow at risk. Similarly, Sanofi's high-margin product Dupixent and AstraZeneca's extensive U.S. portfolio are exposed. A critical exemption in the policy allows companies to avoid the tariff if they are "breaking ground/under construction" on a manufacturing plant in the United States.

Market Reaction and Strategic Repositioning

The announcement of the tariff has triggered a substantial strategic response from the pharmaceutical industry, marked by an unprecedented surge in U.S. manufacturing investment commitments. Major pharmaceutical companies have pledged over $270 billion to expand American manufacturing capacity over the next 5-10 years, signifying one of the largest industrial reshoring movements in U.S. history.

Sanofi has announced plans to invest at least $20 billion into its U.S. manufacturing capacity and research and development over the next five years. Eli Lilly (LLY) has been at the forefront of this shift, committing $50 billion to U.S. manufacturing since 2020, including a recent $27 billion announcement for four new facilities. Amgen (AMGN) is also scaling up its production site in Puerto Rico with a $650 million investment. These investments are largely aimed at securing exemptions from the upcoming tariff.

Market valuations for AstraZeneca (AZN), Sanofi (SNY), and Novo Nordisk (NVO) are believed to already reflect these near-term tariff risks. Analysts suggest these stocks could appreciate as their U.S. manufacturing plans advance and mitigate the financial impact of the tariffs.

Broader Implications and Industry Beneficiaries

This policy carries significant macroeconomic implications beyond individual company balance sheets. The push for domestic manufacturing is expected to enhance U.S. supply chain resilience for essential medicines, addressing a historical dependence on foreign pharmaceutical production. The U.S. currently imports over 828,000 metric tons of pharmaceuticals annually, a sevenfold increase since 2000.

The policy is poised to create distinct beneficiaries and challenged entities within the sector. U.S. Contract Development and Manufacturing Organizations (CDMOs) and equipment providers such as Thermo Fisher Scientific (TMO), Danaher (DHR), West Pharmaceutical Services (WST), and Catalent (CTLT) are expected to benefit. U.S.-heavy innovators actively building capacity, including Eli Lilly (LLY), Regeneron Pharmaceuticals (REGN), and Amgen (AMGN), are also well-positioned.

Conversely, EU-centric exporters with significant U.S. exposure but lacking active U.S. manufacturing builds, such as Novartis (NVS) and Roche (RHHBY), face considerable pressure. Analysts project potential annual losses of $800 million for Novartis and 1 billion Swiss francs for Roche due to tariff impacts. The policy also raises concerns about potential pass-through inflation on non-substitutable branded drugs, which could lead to higher prescription drug costs for U.S. consumers.

Outlook and Key Factors to Watch

The pharmaceutical industry is navigating a complex and evolving regulatory landscape. The implementation of the 100% tariff on October 1, 2025, will necessitate new definitions and an attestation regime from Customs and Border Protection (CBP) and the Food and Drug Administration (FDA). There is also an expectation of challenges from the World Trade Organization (WTO) due to existing "zero-for-zero" Pharma Agreements.

In the coming months, key factors to watch include the progress of U.S. manufacturing investments by affected companies, potential policy refinements or exemptions, and the broader impact on prescription drug pricing and availability. The ultimate success of the policy in stimulating domestic manufacturing while managing healthcare costs will significantly influence the long-term structure and profitability of the global pharmaceutical industry.