How Pharma Marketers Can Prepare for Trump’s 200% Tariff Threat

If you’re a life sciences commercial executive and are having trouble parsing recent policy pronouncements, you’re not alone.  

The problem stems from what seem like competing stances: The administration is proposing tariffs at the same time as price caps. 

Putting aside the politics of this situation for the moment, let’s explore how some of these policies may actually work in reality and how they may influence industry decision-making. 

A prediction: Prevailing factors are likely to incentivize manufacturers to make cuts to advertising and the field force, lean further into omnichannel audience engagement, and move further down the path of disintermediating payers through direct sales.

Situational analysis

Let’s examine the situation facing drugmakers. In March, President Donald Trump pledged an import tariff on the sector. Since then, he’s floated tariffs on the industry that may escalate as high as 250% over 12 to 18 months. U.S. sector-specific tariffs likely remained “weeks away,” pending results of the government’s Section 232 investigation into pharma imports, Reuters reported last Wednesday.

New levies, if they do come, would hit the following categories: 

• The over 60% of drugs imported as finished goods 

• The nearly 90% of API for branded product coming from overseas, including the E.U., U.K., India, Singapore and Australia 

• Therapeutic areas with concentrated offshore manufacturing and no near-term dual sourcing 

As a result, trade group PhRMA has warned, U.S. drug prices could spike by up to 13%, disrupting patient access. Then again, it’s also possible that any added costs get absorbed elsewhere in the system, such as by co-pay limits or patient assistance programs.

Tariffs are meant to pull manufacturing to America, the logic goes, reducing reliance on other countries for its supply of medicines. Although multiple companies have announced such commitments, it will take years for a new pharma manufacturing plant to be built and FDA-validated.  

Another White House policy with which the industry must contend, Most-Favored-Nation (MFN) drug pricing, was issued via executive order in May. The president said pharma companies have until Sept. 29 to lower medicine prices to align with those in other countries. It’s unclear whether this directive can be enforced, however.

Constraints

There’s still quite a bit of uncertainty surrounding tariffs. Assuming some level of tariff comes to pass, manufacturers would become less profitable, perhaps much less so, as they absorb part of the tariff through lower gross margins and delayed price actions. 

In the past, the natural inclination would have been to raise prices. But such increases are heavily constrained by government regulation (even before MFN) and by the vast majority of commercial payer contracts, which require some amount of price protection. The only unconstrained course of action on price would be for new products, which would have to launch at higher levels than comparable precedent brands.    

In addition to the pricing constraint is a P&L one: Most elements of pharma P&L are fixed in the near term. 

R&D spend, not under control of commercial in any case, stays roughly the same. As for manufacturing, any new plants, even just for packaging, would take at least five years.  

Almost all COGS (cost of goods sold) come from overseas, and are subject to the tariff. The only significant lever left is SG&A (selling, general & administrative expenses). 

Resolutions

SG&A cuts could lead commercial execs to trim sales and marketing headcounts, likely in line with the amount of tariff rates, along with cutting ad buys or field investments. But the best course of action would seem to be leaning more on omnichannel engagement.  

The life sciences sector is shifting to omnichannel engagement — with leaner sales forces and personalization at scale — and that could give pharma marketers a degree of flexibility, given its ability to dial up and down when needed. 

The other area where commercial leaders could deepen their existing commitment involves an increase in “going direct.” A steady stream of pharma majors are already opting to sell their medicines directly to patients.  

Last month, AstraZeneca said it’s weighing such a plan. That followed previous commitments from Pfizer, along with firms such as Eli Lilly and AbbVie.  

For prescription and fulfillment, some companies are striking deals with telehealth companies like Ro and Hims & Hers. They’re also launching their own DTC platforms, such as PfizerForAll and LillyDirect. 

Selling treatments directly to consumers brings down costs. The services do that by bypassing the pharmacy benefit manager (PBM), eliminating price concessions (i.e., rebates, discounts and fees) taken by PBMs and other intermediaries such as insurers, wholesalers and pharmacies. 

The cost of those concessions can account for roughly 20% to 30% of list price for branded drugs. If other areas of pharma company balance sheets become squeezed, this may become a target.

Moreover, drugmakers are feeling political pressure to pursue the direct channel. Letters sent to 17 drugmakers last month by the administration required them to implement direct-to-consumer distribution models for high-volume, high-rebate drugs. 

Next up 

The next drugmaker poised to go the direct route, according to news reports, may be Roche, a company whose Rx drug portfolio is predominantly composed of specialty treatments in areas like multiple sclerosis, eye disease and cancer. These aren’t categories traditionally associated with DTC sales.

Were Roche to adopt direct sales in the U.S., it would be a potentially unprecedented move. But in a constrained environment, where COGS is set to increase with very little price flexibility, pharma CEOs may be willing to set aside precedent if it means capturing 30% average savings.

As the final scope and timing of tariffs come into view, and the administration wraps up its Section 232 probe, look for other pharma companies to begin treading the direct path, reducing fixed costs like sales forces, and increasing use of omnichannel. These will be further proof points to show that what could happen already is.

Editor’s note: Neither the author nor her company have any relationship with the companies/products mentioned. 

This post appears through the MedCity Influencers program. Anyone can publish their perspective on business and innovation in healthcare on MedCity News through MedCity Influencers. Click here to find out how.