UK pharmaceutical giants AstraZeneca PLC (LSE:AZN) and GSK PLC (LSE:GSK, NYSE:GSK) shares both avoided the wider sell-off on Thursday morning on hopes that drug imports will escape the new 'reciprocal tariffs'.
Based on a clarifying fact sheet produced by the White House alongside President Trump's announcement, it appears that pharmaceutical products imported into the US will be exempt from higher-rate tariffs
"At least for now," says analyst Sean Conroy at Shore Capital.
"It is still somewhat unclear whether the broader reaching 10% baseline tariffs could still be levied against imported drugs and vaccines, in our view.
"Given the globalised natural of supply chains across the industry, there had likely been some perceived risk to near-term guidance for GSK and AstraZeneca, who had travelled poorly into 'Liberation Day', along with the broader cohort of large-cap pharmaceutical companies."
UBS analysts said they believe the 10% baseline tariff "does not appear to impose on pharmaceuticals".
They noted that the language in the fact sheet, suggested the 10% tariff "acts as a 'catch all' for countries not outlined in his table of tariffs by country, with Pharma also being excluded from this tariff, in our view".
The fact sheet issued by the White House last night says: "Some goods will not be subject to the Reciprocal Tariff. These include: (1) articles subject to 50 USC 1702(b); (2) steel/aluminum articles and autos/auto parts already subject to Section 232 tariffs; (3) copper, pharmaceuticals, semiconductors, and lumber articles; (4) all articles that may become subject to future Section 232 tariffs; (5) bullion; and (6) energy and other certain minerals that are not available in the United States."
Shore Cap's Conroy says he has been told by GSK that no changes to their outlooks are expected based on the available information, while AZ said they are assessing the implications of the announcement and believe that essential medicines should be exempt but are also actively seeking to mitigate any impact.
He said the extent and duration of the tariffs and possible exemtios will "only become clear in time", but he said there were some key questions that initially spring to mind about the effect on the UK and European big pharma, including the degree of impact drugs or vaccines across their whole portfolios, given some products are already manufactured in the US, whether the tax is being levied against gross or net sales, and to what extent companies can recuperate these costs, including how much of the inflationary pressure can be passed onto and borne by US patients and payors.
"We anticipate there might be a degree of share price volatility over the coming months until there is better visibility around quantifying any potential impact from these tariffs."
UBS said it continued to see an "overhang" for the pharma sector given that it "remains in focus" for the Trump administration.
In his speech, President Trump's speech he said "the pharma companies are coming back [to the US], because if they don't, they got a big tax to pay".
UBS said: "We believe this highlights his continued appetite to effect change in the industry. We believe these potential scenarios could include: (1) Trump potentially adding a separate round of tariffs specifically targeting the Pharma industry, (2) A Phased in approach of tariffs, and (3) In the worst case (although we think less likely), he could choose to do something relating to transfer pricing in his 'One, Big Beautiful (tax) bill'.
"We don't see Pharma being 'out-of-the-woods' yet."
UBS said Abbvie Inc (NYSE:ABBV) and Merck & Co Inc (NYSE:MRK, ETR:6MK) as "big winners" from the announcement.
"We believe the news that pharma will not be subject to the Reciprocal Tariff should be a big positive to the sector that has been under pressure from this for the last two weeks."
Abbvia and .and Merck were highlighted as companies with significant non-US manufacturing, which shares could benefit significantly from this news, while Pfizer Inc (NYSE:PFE, ETR:PFE) and Amgen Inc (NASDAQ:AMGN, ETR:AMG) "could also benefit, in our view".
** Update: Adds more detail, comments **