As FTSE 100 pharma firms wait for a tariffs decision, what would drugs levies mean for consumers?
For FTSE 100 businesses navigating the shifting sands of Trump’s trade war, the uncertainty surrounding the tariffs has been almost as painful as the stock market shocks.
The pharmaceutical industry has been left in a particularly agonising limbo: free, for now, from the 10 per cent baseline import tax, but the US President keeps making not-so-veiled threats that the exemption will not hold.
Trump warned that he hopes to slap tariffs on imported pharmaceutical products in the “not too distant future”.
He previously said: “We don’t make our own drugs, our own pharmaceuticals — we don’t make our own drugs any more […] all I have to do is impose a tariff.”
The Department for Health and Social Care has hailed its longstanding arrangements with the pharmaceutical industry: “For over 65 years the government and the pharmaceutical industry have worked together to help manage the affordability of medicines for the NHS and ensure rapid access and uptake of new medicines for patients.”
This came from 2023, when the government announced a new branded medicines deal with the sector to save the NHS £14bn.
Trump openly resents the idea of favourable treatment that does not favour America.
So, could this moment represent both the tangling of supply chains and the untangling of favourable NHS pricing arrangements with pharmaceutical firms?
And, could the end result be that consumers take the brunt of the geopolitical chaos overhead?
Carve-out carnage
The US is a crucial market for FTSE 100 darlings Astrazeneca and GSK, so the stakes are high.
For Astrazeneca, 43 per cent of 2024 revenues came from the American market.
The Cambridge-headquartered firm scored more than $20bn in revenue from the US in 2024 – more than triple the business that the firm did in China.
Each company has major footholds in the US for vaccines, specialist medicines and for biotech research and development.
The sector will be looking to push for an exemption by arguing that the firms develop “essential” medical treatments, for example for treating cancer and HIV.
The art of the deal
Another possible way through the impasse is via a free trade deal with the US.
Over the Easter weekend, Sir Keir Starmer had his first conversation with President Trump since their broadly successful meeting at the Oval Office in February.
A Downing Street spokesperson said that the leaders discussed “free and open trade and the importance of protecting the national interest”.
Trump’s team has promised a wide array of bespoke trading arrangements, with ambitious plans to secure 90 deals in 90 days.
But the clock is rapidly running down on Trump’s 90-day pause tariff pause, with economists looking nervously ahead to what comes next.
And the unpaused tariffs alone – from auto levies to enormous duties on imports on China – could cut global trade by as much as 2.3 per cent by 2028, according to Oxford Economics.
Were these numbers to pan out, they would represent a pandemic-level reduction in global trade.
FTSE 100 pharma giants might hope to be cocooned within the broader protections of a trade agreement, but the politics of a deal are still fraught.
The Liberal Democrat leader Sir Ed Davey, and Labour grandees Emily Thornberry and Liam Byrne, have all called for any deal to be brought before the House of Commons, while Reform UK chief Nigel Farage has backed importing chlorinated chicken into Britain.
Sector shocks?
It could be that the UK’s FTSE 100 pharma behemoths end up perversely rewarding the US for this global trade disruption, moving even more of their manufacturing and administration across the Atlantic.
Martin Frandsen, a portfolio manager at Principal Asset Management, told City AM: “We have already seen several major announcements from multinational pharma companies to expand US investment.
“Given tariff announcements, we would expect branded pharma companies to accelerate capital expenditures into the US in an attempt to align supply chains but also to appease the US administration.”
Frandsen – who works extensively in the healthcare sector – pointed out that although the shape of the tariffs remain “uncertain”, the US government “is likely to focus on historical low-tax jurisdictions like Ireland and Switzerland where many Pharma companies have placed manufacturing and IP.”
He added that the industry would be unlikely to pass added costs on directly to consumers, “given both set contracts for 2025 but also increasingly loud rhetoric on additional drug pricing controls in the US”.
Dr Gillies O’Bryan-Tear, a consultant pharmaceutical physician, told City AM that the existing framework of pricing controls is crucial to understanding Trump’s motivations for pharmaceutical tariffs.
“There are nuggets of validity in what Trump says”, he said, and European controls “can be considered a little unfair on US consumers.”
“Research is very expensive, and a large portion of it is funded by Americans,” he added.
According to Dr O’Bryan-Tear: “If we do not impose reciprocal tariffs, it is unlikely that NHS users will feel a huge impact.”
NHS users are well insulated from the wholesale price of drugs, and fluctuations in pricing are regulated by the National Institute for Health and Care Excellence (NICE).
This value for money watchdog imposes strict national limits on the maximum prices for various drugs, though the pricing limits do curb the availability of some medications in the UK.
“As it stands, pricing controls mean that certain US-made drugs are already not available in the UK.”
However, pricing controls alone cannot fully insulate consumers from the chaos that can result from disrupted supply chains.
As the tech and automotive sectors are beginning to realise, Trump’s tariffs do not account for a globalised manufacturing process – and trade levies could be disruptive.
“One instance in which tariffs could have an impact is for US pharmaceutical companies who manufacture products in Europe to sell in the UK, with tariffs kicking in for each link in the manufacturing chain,” said Dr O’Bryan-Tear.
Though the NHS might be able to shield consumers from the worst of medical sticker shock, there is no guarantee that every drug will continue to be on the table for Brits in a tariff-hit world.