① Most of the interviewed listed pharmaceutical companies are not in a panic, with some stating that if drug tariffs are implemented, they will raise prices to ensure product gross margins; ② Some companies indicated that their products are hard to replace in the USA and are closely monitoring the developments; ③ Industry experts mentioned that if drug tariffs are implemented, compared to Active Pharmaceutical Ingredients and generic drugs, Innovative Drugs may be the least affected.
On April 9, Caixin reported (reporters Lu Aifeng and He Fan) that last night, U.S. President Trump announced that the USA would impose tariffs on pharmaceuticals. This marks that categories originally exempt from this round of trade war may not be able to "escape".
Caixin reporters contacted several listed companies today to understand the impact once drug tariffs are implemented. Most of the interviewed companies stated that "the impact is not significant," with insiders from listed companies saying that 80-90% of generic drugs in the USA rely on imports, and if drug tariffs are implemented, related products will be priced higher to protect gross margins.
Industry experts also told Caixin reporters that since pharmaceuticals are a special commodity and due to the limited domestic production capacity of drugs in the USA, the existing mature supply chains cannot be replaced in the short term. "Therefore, this tariff plan is more of a threat, forcing U.S. pharmaceutical companies to bring their operations back." When detailed to specific sectors, Active Pharmaceutical Ingredients and generic drugs will be more affected after the implementation of drug tariffs, but Innovative Drugs may face the least impact.
Pharmaceuticals may no longer be a "protected zone".
On April 8, local time, Trump gave a speech stating that the USA would impose tariffs on pharmaceuticals.
According to CCTV News, Trump stated that the USA does not produce its own pharmaceuticals or other health-improving products. The prices paid for pharmaceuticals in the USA are often multiple times higher than those in countries that produce drugs. Trump believes that once tariffs are imposed on pharmaceuticals, pharmaceutical companies will set up factories in the USA, as the USA is "the largest market."
As the main force in the U.S. pharmaceutical market, Europe reacted very quickly. According to CCTV reports, on April 8, European pharmaceutical companies warned during a meeting with the President of the European Commission that U.S. tariffs will accelerate the trend of the industry shifting from Europe to the USA. The pharmaceutical industry trade lobbying organization EFPIA (whose members include European pharmaceutical giants Bayer, Novartis, Novo-Nordisk A/S, etc.) stated that it has called on the EU President to promote "rapid and fundamental action" to mitigate the risk of outflow to the USA.
In fact, pharmaceuticals were a "reserved area" for Trump's initiation of this round of trade war. Last week, the wide-ranging tariffs announced by Trump on US imports did not involve pharmaceuticals, but he stated that drugs will face separate tariffs.
Recently, the European Commission proposed legislative proposals for the "Critical Medicines Act," aimed at incentivizing supply chain diversification and promoting the development of the EU pharmaceutical industry. According to reports, the "Critical Medicines Act" proposes a set of "industrial toolkits" to address these issues. For example, the act stipulates that if EU companies can establish or expand the production of critical pharmaceuticals or modernize the production capacity of EU critical pharmaceuticals, they may be recognized as "strategic projects." Such projects are more likely to receive funding support and expedited administrative, regulatory, and scientific support.
According to CCTV News, due to concerns that the reciprocal tariffs announced by President Trump on April 2 may involve pharmaceuticals produced in Europe, some European pharmaceutical companies are transporting more drugs to the USA through various transportation methods. An executive from a pharmaceutical company revealed that their company is building inventory buffers in the US market to alleviate the immediate impact of potential tariffs.
Many pharmaceutical companies are not in a panic.
Data from the China Chamber of Commerce for Import and Export of Medicines and Health Products show that in 2024, China's export volume of pharmaceutical products is expected to grow by 12.7% year-on-year, but the export unit price is expected to decline by 6.1%, reflecting the dual pressure of intensified market competition and compressed profit margins. In 2024, out of 107.964 billion USD in pharmaceutical exports, the export of Western medicine products amounts to 53.956 billion USD, accounting for nearly half. Among them, raw materials for Western medicine account for nearly 80% of the total export value of Western medicine products, totaling 42.992 billion USD.
Specifically, among the active pharmaceutical ingredients required for major drug production in the USA (such as anti-cancer drugs and antibiotics), about 30% relies on imports from China. For example, the supply of raw materials for antibiotics like amoxicillin is almost dominated by China; in terms of formulations, the exports of Western medicine formulations (such as cardiovascular medication and anti-tumor drugs) from China to the USA account for 16.55% of total formulations exported, with an estimated export value of about 1.15 billion USD in 2024; regarding innovative drugs, the relevant transaction value is expected to reach 52.2 billion USD in 2024.
How do domestic companies perceive the impact of the USA’s planned tariffs on pharmaceuticals?
A reporter from Caixin News called Nanjing King-Friend Biochemical Pharmaceutical (603707.SH) today as an investor, and the company responded, "We have not yet received specific details. According to messages released by the White House, we have also consulted experts. The USA's plan to impose tariffs on pharmaceuticals is not targeted at specific countries. The company’s products sold in the USA mainly consist of shortage drugs, and the situation of some drug shortages in the USA is continuously emerging. Market demand will not disappear, and the likelihood of our products being replaced is relatively low, giving us strong bargaining power. Moreover, we have already made some preparations through diversified market layouts, such as expanding sales in Europe and Emerging Markets."
The staff of Zhejiang Huahai Pharmaceutical (600521.SH) stated to a reporter from Caixin that if the USA implements additional tariffs on pharmaceuticals, it would definitely have an impact on the company, but it depends on the specifics of the situation. The products exported to the USA are mainly formulations, most are exported from China, and a portion is produced locally in the USA, with revenue in the USA accounting for about 13% of the company's total revenue in 2023.
When asked about countermeasures, the staff of Zhejiang Huahai Pharmaceutical mentioned that since the USA has a market-oriented price competition, the company may need to find compensatory solutions in manufacturing processes, and will also assess whether there are alternative production methods at the USA production base. Shifting production bases could be one direction, but it depends on whether it meets overall product production requirements. Additionally, the company has been expanding into global markets, but currently the formulation sector in the USA looks more profitable.
Hybio Pharmaceutical (300199.SZ) responded to a reporter from Caixin posing as an investor, stating, "Currently, the products sold in the USA are mainly liraglutide and some active pharmaceutical ingredients. We are closely monitoring the relevant developments with our partners, and any countermeasures will be studied after the specific conditions of the proposed drug tariffs in the USA become clear. The company has also been planning to expand into the European or Southeast Asian markets to reduce dependence on the USA market."
Companies with relatively small operations in the USA further stated that the impact on their performance is limited. Jiangsu Hengrui Pharmaceuticals (600276) recently responded during an investor interaction that the proportion of overseas sales income to total revenue is very small, at only 2.56% in 2024, and the impact of US tariffs on the company's business is very limited. The company will continue to closely monitor changes in the international environment and flexibly respond to the complicated external environment to ensure the long-term stability of the company's development. Beijing Wantai Biological Pharmacy Enterprise (603392.SH) also directly stated in an investor interaction that its overseas income accounts for a low percentage, and tariff adjustments have limited overall operational performance impact.
Haoyuan Pharmaceutical (688131.SH) indicated that apart from the USA, the company has established business warehousing centers in Europe and India in 2023, and is currently actively expanding into the Japan and South Korea markets. The company has already stockpiled a certain amount of products overseas and can ensure timely supply.
The industry expresses a need to 'let the bullets fly a little longer.'
Nanjing King-Friend Biochemical Pharmaceutical's securities department also emphasized that 80-90% of generic drugs in the USA rely on imports, and if drug tariffs are implemented, related products will increase in price to ensure gross margins.
This is also a common view among many industry insiders. Wang Heng, general manager of Beijing Baishi Marketing Planning Co., Ltd, told Caixin reporters that most domestic pharmaceuticals in the USA depend on imports, with the most widely used generic drugs primarily sourced from India, China, and other third-world countries. If drug tariffs are implemented, the medical expenditure for American citizens will surge sharply, an action that would be 'killing a thousand enemies while losing a lot of one’s own.'
Yang Tao, a senior expert in the biomedical industry and Company Executive of a certain publicly listed biomedical company, also told the reporters from Cai Lian She that Trump's decision to impose tariffs on pharmaceuticals is likely a strategy of "game playing", and there may ultimately be some flexible measures, such as a longer implementation time for drug tariffs or granting tariff exemptions to certain countries and regions, indicating that the situation might need to "let the bullets fly for a while".
Yang Tao further told the reporters from Cai Lian She that among the pharmaceuticals exported to the USA from China, the main classifications are Active Pharmaceutical Ingredient, generic drugs, and Innovative Drugs. In terms of Active Pharmaceutical Ingredient, the USA's reliance on China and India is very high, and it is quite challenging for the USA to localize production in the short term. It is expected that the FDA and related associations will lobby, as the price increase of imported Active Pharmaceutical Ingredient will put huge pressure on American pharmaceutical companies, raising drug prices. Regarding generic drugs, there may be a relatively significant impact, as China's generic drug exports have been continuously growing in recent years; if tariffs are implemented, it will severely affect the expansion of Chinese generics in the US market. For Innovative Drugs, as many have been launched overseas in recent years, the majority of which adopt a License-out approach and the recently emerging NEWCO model, this falls under the "royalty fees for intellectual property use" in service trade. Moreover, many overseas companies collaborate with local CDMO firms, and their production may not necessarily be in China, so the impact on Innovative Drugs from pharmaceutical tariffs might be the smallest.
On April 6, Zhu Yi, Chairman of Baili Tianheng (688506.SH), when responding to the impact of "reciprocal tariffs", stated: Currently, "reciprocal tariffs" target commodity trade directions and have not yet focused on the intellectual property aspects such as Innovative Drug licensing transactions. The domestic biomedical industry mainly exports generic drugs to the USA, while the export volume of domestic Innovative Drugs is relatively small, and the transaction volume of licensing agreements is larger, which is temporarily unaffected by tariffs.
According to a recent survey by the well-known American biomedical organization BIO, nearly 90% of American biopharmaceutical companies rely on imported Active Pharmaceutical Ingredient to produce FDA-approved products. If tariffs are imposed on Europe, half of the companies will have to seek new R&D and manufacturing partners; if high tariffs are imposed on China, 79% of companies that have contracts with China will be significantly affected.
However, even if tariffs are implemented, the USA's demand for drugs will not decrease, and it will be challenging for the USA to produce alternatives in the short term. The establishment of related industrial chains will also take a long time, so it may shrink trade volume but will not suddenly drop to zero, Wang Heng told the reporters from Cai Lian She.
Wang Heng suggested that for companies with a high volume of Business in the USA, especially those with exclusive supply of patented drugs and key Active Pharmaceutical Ingredient, it is crucial to closely monitor the rapid changes in American policies and actively expand markets outside the USA, such as Europe and Belt and Road Initiative Concept markets. Additionally, changing the production model by seeking local production with American CDMO companies or directly establishing production bases in the USA is advised.
In recent years, the acceptance and demand for Chinese pharmaceutical products in countries along the Belt and Road Initiative Concept have been increasing year by year, with the export ratio reaching 41.4% in 2024, an increase of 4 percentage points compared to 2023. A diversified market layout can significantly reduce the risks of a single market.
