The tariff hammer falls on "life-saving drugs".

Text by | Hu Xiangyun

Edited by | Hai Ruojing

In the tariff war, the "medicine" that saves the lives and cures the diseases of ordinary people is also hard to escape.

After a brief "exemption", on April 9th, Trump said that tariffs would be imposed on drugs to force pharmaceutical companies to open factories in the United States because the United States is "the largest market". It can be seen that the drug shortage and rising drug prices that the American people will face are not as important as its political game.

Although Trump has not yet announced the specific tariff rates for drugs, this move has already made enterprises feel self - endangered and react.

On April 10th, Novartis, a Swiss multinational pharmaceutical company, announced a plan to invest $23 billion in US infrastructure over the next five years to ensure that all key drugs provided by Novartis to American patients will be manufactured in the United States. Of course, there are also pharmaceutical giants. For example, the CEO of Eli Lilly told foreign media that "It'll be hard to come back from here".

For Chinese pharmaceutical companies, "going global" has been the keyword for development in recent years, and the United States is also an important area for going global. According to the statistics of the China Chamber of Commerce for Import and Export of Medicines and Health Products, if divided by region, in 2024, the total export value of domestic pharmaceutical products to the United States reached $19.047 billion, a year - on - year increase of nearly 12%, more than the combined total of India, Japan, and Germany, which ranked 2nd - 4th.

Now, the long - standing balance is about to be broken, and it's hard for anyone to stay out of it. Under such a changing situation, how will the overseas expansion expectations of Chinese pharmaceutical companies change? And how will enterprises cope with this tariff storm?

Highly Dependent on China for API Supply

These days, the most discussed topic between Liang Yu and the founder in the United States is tariffs. A few years ago, seeing the explosive potential of new weight - loss drugs, Liang Yu and several "veterans" in the API field started a new round of entrepreneurship. Now, they have received many orders from North America, Europe, and India.

The API is also the most concerned track in this industry. Among the many pharmaceutical products exported by China, Western medicines and their raw materials are the largest category. In 2024, the total export value of domestic pharmaceutical products was $107.964 billion. Among them, the export value of Western medicines was $53.953 billion, and the proportion of API exports in Western medicines reached 80%, with an amount of $43 billion.

In Liang Yu's view, the supply - demand system and manufacturing pattern of APIs have been formed over a long period. The United States is highly dependent on APIs from India and China, and this situation is difficult to change in the short term.

In the United States, 90% of biopharmaceutical companies import APIs (Active Pharmaceutical Ingredients) to produce products approved by the FDA. "Currently, among the APIs directly sold to the United States, India accounts for a larger market share than China. However, about 70% of the basic chemical raw materials (KSM) required for India to synthesize APIs mainly come from China. This is mainly due to various reasons such as manufacturing costs, industrial foundation, and environmental protection policies," Liang Yu explained.

For API manufacturers, it is almost impossible to transfer production capacity to the United States.

Not to mention the high costs caused by the difference in currency units - according to the statistics of the Pharmaceutical Research and Manufacturers of America (PhRMA), in the United States, building a new factory from scratch can cost as much as $2 billion - "Adding a 100% tariff might even be cheaper"; more importantly, "time cannot be wasted". "From design to civil construction, equipment installation, FDA inspection, worker training, and production, five years is the shortest time. Most pharmaceutical companies generally take seven or eight years, while Trump's term is only four years."

Especially for small and medium - sized enterprises, the risk of cultural differences also exists at any time. Liang Yu once considered building a factory in the United States for his business in other fields, but finally gave up because in the United States, "a small and not - so - strong enterprise may have difficulty competing with lawyers and unions. A small lawsuit could bankrupt you."

Therefore, the industrial return of the pharmaceutical manufacturing industry to the United States and the restructuring of the supply chain are difficult to achieve in the short term.

If the tariff increase on drugs is implemented without discrimination in the future, the cost of APIs will probably rise, and part of the burden may be transferred to ordinary American consumers and government payers. An investor worried, "In recent years, the patents of many original drugs have expired one after another, and biosimilar drugs with lower prices can be launched. If the drug price rises due to manufacturing costs and still cannot come down, can patients afford it?"

In addition, the stability of the supply chain cannot be guaranteed either. A recent survey by the industry organization BIO said that if high tariffs are imposed on China, 79% of the companies that have signed contracts with China will be greatly affected.

Of course, if the tariff trade war on drugs is only targeted at China, the competitive landscape faced by relevant API manufacturers will change, and the performance of their business segments in the United States may be greatly impacted.

In response to how to deal with the possible "separate taxation on drugs", Huahai Pharmaceutical, a leading domestic API enterprise, publicly responded that the United States has a market - based price competition, so it may be necessary to "make up for it from aspects such as technology". In addition, it will also evaluate whether there are other ways to undertake the production base in the United States. Transferring the production base may be a direction, but it depends on whether it meets the overall production requirements of the products.

This represents the thinking of some people. Some practitioners believe that their enterprises are reducing costs by improving production processes and increasing efficiency. By means of "strengthening oneself", they further reduce costs to resist the impact of tariff increases.

Innovative Drugs and CDMOs in the Tariff Storm

Besides APIs, another major concern is innovative drugs. In fact, practitioners in this field are relatively calm.

Except for a small number of innovative drugs exported in product form, currently, the main form of Chinese - made innovative drugs going global is to obtain "intellectual property royalties" by authorizing the rights and interests of product pipelines (such as overseas clinical development and commercialization rights) externally. Such transactions will not be affected by tariff increases for the time being.

However, a person from an enterprise that has completed a large - scale pipeline authorization to the United States mentioned that biotechnology is a key competitive point between China and the United States, and we "should not take it lightly". Previously, in the late stage of the negotiation of a transaction he led, due to the large amount of the deal, the MNC buyer proposed that "they might have some pressure if the transaction entity is a Chinese enterprise". Finally, the authorization was completed by the company's US subsidiary.

The person from the enterprise believes that, based on experience, for FIC and BIC products with a single - asset down payment of hundreds of millions of dollars and a total price of billions, and when both parties have the intention to jointly develop the US market, more attention may need to be paid to this issue.

Compared with tariffs, a recent announcement from the National Institutes of Health (NIH) in the United States has made R & D personnel of domestic innovative pharmaceutical companies more worried. The announcement said that starting from April 4th this year, institutions and researchers from multiple countries including China are prohibited from accessing the NIH's data repository and related data. Many interviewees mentioned that this announcement and the revealed confrontation signal are a major impact on domestic new drug clinical R & D.

Although the full - scale migration of APIs is impossible in the short term, the manufacturing of high - value - added links such as the production of innovative drugs may return to the United States. According to a report by Fierce Pharma citing PhRMA, the number of biopharmaceutical manufacturing plants in the United States has been "steadily increasing year by year", rising from 1,018 in 2018 to 1,591 now.

In addition, for upstream enterprises in the pharmaceutical industry chain, represented by CXOs, that undertake a large number of orders from the US market, although "tariffs" may not directly affect them, there is still a possibility of being affected.

A pharmaceutical investor who pays attention to the CDMO field mentioned that for an industry that needs to consider both capital expenditure and personnel, raw materials, and the supply chain, it should benefit from globalization and produce where it is suitable. In recent years, although there have indeed been cases of CDMO enterprises building factories in the United States, limited by production efficiency and talent issues, "the scale has not yet taken off".

Jeff Stoll, the national strategy leader of KPMG's US life sciences practice, also said in an interview with the pharmaceutical industry media Fierce Pharma recently that "it is impossible to hand over the entire production of many drugs only to the United States or only to a friendly country with the lowest tariffs". When making major production decisions, enterprises should not "only react to policies".

Some practitioners believe that although it cannot be denied that the United States is one of the countries with the strongest consumption capacity, "the world's total population is 8 billion, and regardless of rich or poor, people need to take medicine". Exploring more overseas markets outside North America may bring new development opportunities. For example, HanYu Pharmaceutical said this time that it and its partners are closely monitoring relevant developments. At the same time, the company also "has always planned to explore the European or Southeast Asian markets to reduce its dependence on the US market".

In fact, Chinese enterprises have many precedents and experiences in dealing with "tariff shocks". In 2024, the United States significantly increased tariffs on Chinese syringes, needles, personal protective equipment such as respirators, and consumable products such as medical rubber gloves. Relevant enterprises actively responded by accelerating the local production of the industry overseas and reducing their dependence on the single US market.

"Let's wait and see for two years, tighten our belts and hold on. Maybe the situation will become clearer after the mid - term elections in two years," Liang Yu said.

(Liang Yu is a pseudonym)