John Whelan: Pharmaceutical sector learning to live with uncertainty
Johnson & Johnson was one of a number of pharmaceutical companies with operations in Ireland to announce US investment in response to tariff threats from Donald Trump.
The sedate world of pharmaceutical trading was abruptly shattered as soon as US president Donald Trump took the oath of office last January and issued a barrage of executive orders.
It became clear he intended weaponising his economic policy with a scattergun of tariffs on imports from friends and foes alike.
The first hint of things to come was his announcement on January 27 that new import tariffs would apply to the pharmaceutical industry, without specifying the rates that would apply.
This led to a flurry by all the major pharmaceutical companies who counted the US as their major market to rapidly increase their imports and stockpile inventory inside the US as insurance against the unknown costs of the tariffs.
Ireland’s pharma exports rocketed in the process, almost doubling month on month through the year, reaching €90.4bn in the year to October.
On February 18, Mr Trump announced he would implement at least a 25% tariff on pharmaceuticals to come into force over the course of the year.
This led a number of large pharma companies, hoping to gain favour with the Trump administration, to announce major investments in the US.
One of Ireland’s largest companies, Eli Lilly, pledged $27bn in investments in the US at an event with the Trump administration that month.
This was followed by one of the longer-term investors in Irish pharma manufacturing, Johnson & Johnson announcing a $55bn investment over the next four years to build new plants in the US.
Adding to the uncertainty, in April the US Department of Commerce launched a Section 232 investigation to determine whether the import of pharmaceuticals, including active ingredients and finished products, posed a “national security” threat.
This created panic amongst others in the sector which led Swiss pharma giant Novartis, who rely on the US for 40% of their annual revenue, to announce a $23bn investment in the US to set up two innovation hubs, manufacturing facilities, and create 1,000 jobs, so “all key Novartis medicines for US patients will be made in the United States”.
In May, Mr Trump signed an executive order instructing the US administration to demand pharmaceutical companies drop their branded drug prices to what he called Most-Favoured-Nation prices (MFN).
The policy intention is to align US price tags for branded drugs to the lowest prices paid by peers in other developed countries.
At least 17 different pharma companies with a manufacturing presence in Ireland announced billion-dollar investments across the year, ranging from expanding R&D capacities to building new production facilities and creating jobs in the US.
While some commitments don’t include a timeline, most companies made pledges spanning the remaining three years of the Trump administration.
These massive commitments to build pharmaceutical facilities inside the US over the coming years, inevitably will suck investment away from Ireland.
The picture is further exacerbated by the massive imbalance of trade with the US , with Ireland’s trade surplus increasing by almost half to €84.5bn in the 10 months to October.
This has not gone unnoticed by Mr Trump, who earlier in the year vowed to impose a sweeping range of tariffs on Ireland’s exports to the US.
The fact this did not happen as we nestled behind the EU overall agreement, does not mean the threat will not re-emerge at a later date.
The unsavoury picture emerging is the once major strength of Ireland’s foreign direct investment policy focused on the US, was now becoming our achilles heel.
In August, the EU formally agreed to a tariff of 15% on exports of pharmaceuticals into the US, in common with most countries globally.
And just when we thought the tariff situation was settled, the Trump administration announced on December 1 a zero-tariff deal on pharmaceuticals with the UK, a first globally.
The UK trade off that the country’s public health service NHS will pay manufacturers more for their drugs, opens the door for the EU to offer the Trump administration a similar deal.
With a bit of cohesion and backbone the EU should be able to get the same zero tariff deal as the UK.
