How Tariffs Will Drive Up Pharmaceutical Costs & Which Drug Categories Will Be Most Affected

In this Pharmaceutical Executive Video Interview, Peter Ax, Founder & CEO of UpScriptHealth, discusses the impact of tariffs on the pharmaceutical industry, highlighting that tariffs will initially affect pharmaceutical companies, particularly those dealing with branded medications and generics. He notes that tariffs could lead to strategic supply chain changes, including potential US manufacturing shifts. Digital health platforms like UpScriptHealth aim to reduce friction and costs in healthcare, potentially offsetting tariff impacts. Ax emphasizes the importance of telehealth in ensuring medication availability and the strategic partnerships between digital health platforms and pharma companies to improve patient care and access. He also praises Pfizer's approach to delivering comprehensive care rather than just selling medications.

Will tariffs drive up pharmaceutical costs? Are there particular types of tariffs or drug categories that would be more affected than others?

When you think about tariffs, you really have to think about how they impact micro markets. Let's, for example, think about there's generic medications and there's branded medications. And let's think about those as two micro markets for a minute. The branded medications, the cost of branded medications, comes from two things, right? It comes from raw materials, and it comes from labor. So, if the price of raw materials goes up, or increases in price for what we're importing in raw materials, certainly that's going to, on its face, impact the price of the development of that medication.

However, the fact that it's impacting the price that medication will not necessarily impact the price to the consumer, because think about all the intermediaries involved in healthcare. There's payers involved, there's PBMs involved, and because of that, what you will see is, let's say, an increase in pricing raw materials, increase in price in the manufacturer of that branded drug, and the person that's going to really bear the brunt of that is really the pharmaceutical company in the short run.

Now, in the long run, it impacts all consumers, but in the short run, it's really the pharmaceutical company, because they have to renegotiate contracts with their PBMs and renegotiate pricing. I mean, some of the contracts might have specific clauses that deal with tariffs as an issue, but most won't. There'll be a lagging effect on any price increase to individuals, and really, it's the pharmaceutical companies that will bear the brunt. The second piece of that analysis is the other micro market, generics. If you think about generics, a lot of the cost of manufacturing generic is really the raw material. So, tariffs may have a larger impact there.

Not only that, but the generics Marketplace is a thin margin marketplace, so you could even see perhaps a curtailment of some supply as manufacturers decide they're not going to manufacture certain drugs that require increasing prices and raw materials that they can't pass on to the consumer. So it really depends on how quickly they'll be able to pass that pricing onto the consumer. The other side of that argument is the consumer price for generics is so low that to go up 10 or 20% isn't really going to be a very dramatic number. So you may not see a large impact in the generic space at all, or you might see certain manufacturers deciding that they want don't want to be involved any longer in manufacturing certain drugs.

Now, having said that about the micro markets of tariff pricing, I think one of the bigger implications of tariff changes that will take place is in the boardroom. Because if you think about it, what sudden tariffs are doing is forcing companies to analyze their strategic supply chain, where's Where are their supplies coming from? What manufacturing do they need to bring into the United States? What manufacturing do they need to redevelop? Do they do they need to redeploy assets and resources? And those are board level discussions. So frankly, I think tariffs have an instantaneous effect on pricing, right, but they have a much longer-term effect impact on strategically. How is the supply chain going to evolve? How is where is manufacturing going to move? And if you're a board member of a major pharma company today, you've got to be asking yourself, ‘Is your company properly positioned to deal with supply issues when tariffs come and go?’, and it looks like tariffs might be in the sort of vernacular for the next at least the next four years, and probably longer.