Global Pharma Deals with US Trade Overhauls

President Donald Trump has upended the global pharmaceutical industry by pressuring US manufacturers to reduce overseas production and to curb imports in order to boost jobs at home. While industry leaders are anxious to avoid price controls and to gain tax breaks and patent protections from the new administration, Trump’s “America First” mantra threatens pharma manufacturing and marketing arrangements around the world.

Jill Wechsler

According to FDA officials, the US imports about 50% of drugs from Europe, Asia, and other regions. And up to 90% of active pharmaceutical ingredients (APIs) for US production of finished dosage forms come from overseas, largely from China and India. At the same time, the US exports large quantities of drugs and biotech therapies to Europe and other regions; exports totaled $25 billion in 2015, surpassed only by Germany, Switzerland, and Belgium. 

In his first weeks in office, Trump pulled out of the Trans-Pacific Partnership agreement, halted US involvement in the Trans-Atlantic Trade & Investment Partnership, and threatened to cripple the long-established North American Free Trade Agreement (NAFTA). Even though respected economists around the world have blasted these moves as likely to raise product costs and reduce investment in the US, the new administration anticipates benefits for workers and for consumers. Peter Navarro, head of Trump’s new National Trade Council, predicted important gains from the “unwinding and repatriating in the international supply chains” in ways that reduce imports, including components for finished products. 

The White House also has threatened to levy a border tax on imports, a devastating prospect for trading partners on all sides. Such a policy could lead to higher product costs at home and abroad. Ironically, some members of Congress look to reduce outlays on prescription drugs by authorizing imports from Canada of medicines that lack competition sufficient to keep prices under control. One has to wonder if Trump would veto such a measure. 

White House pressure, thus, is prompting some US firms, such as Amgen and Lilly, according to press reports, to rethink plans to build or expand plants overseas. Many firms have been investing in manufacturing operations in low-tax, low-cost countries such as Ireland, Singapore, India, and China, as global markets for medical products have expanded.

Such moves stand to save money while also facilitating sales and distribution to newly-industrialized and developing nations. And some foreign manufacturers, such as Indian drugmaker Aurobindo Pharma, are looking to expand production in the US to better serve that lucrative market, particularly for sterile injectables that have to meet high quality manufacturing standards. 

Jobs boost?

In return for supporting Trump’s economic policies, industry leaders are looking for significant tax reform that facilitates repatriation of income. Pharma companies predict that a “tax holiday” for bringing back funds held overseas could help create 350,000 jobs in the US over 10 years. However, analysts note that such expansion in employment did not occur following a similar tax change in 2004, and that companies more likely would use repatriated cash to fund mergers and acquisitions-which often lead to reorganizations and layoffs. 

Some economists believe that a new-jobs tax credit will do more to stimulate hiring than changes in how the US taxes corporate profits. 

Pharma companies also are cozying up to Trump to gain administration protection of patents in other countries, which may erode with the demise international trade agreements. And industry would like to head off Trump price-cutting proposals, such as permitting Medicare negotiation of drug prices. In recent weeks, the White House has been quieter about accusing drug companies of “getting away with murder” in jacking up prices, but such reticence could change quickly. 

Jill Wechsler is Pharmaceutical Executive’s Washington correspondent. She can be reached at jillwechsler7@gmail.com