UBS has flagged a fresh risk for European drugmakers after President Trump said pharmaceuticals imported into the US could soon face tariffs of up to 200%.
The comments, made earlier this week, revive concerns over protectionist policies targeting medicines not manufactured on American soil.
The UBS team believes such a move would be “significantly negative” for companies with high-cost import routes, though most large European players are not heavily exposed in this way.
Relocating manufacturing, however, is not straightforward. While Trump indicated there would be a grace period of 12 to 18 months, UBS argues that is far too short.
Transferring production at commercial scale and obtaining regulatory approval typically takes four to five years, according to the analysts.
There may be room for flexibility. The Swiss bank highlighted recent remarks from the chief executive of Roche, who suggested that products could be exempt from tariffs if a transfer to the US had been “initiated” and the company could show that investment was underway.
It is unclear, though, what level of progress would be required. Would a site need to be selected, or would formal construction have to begin?
Several companies, including Roche, AstraZeneca PLC (LSE:AZN), GSK PLC (LSE:GSK, NYSE:GSK) and Sanofi have already announced plans to expand their US manufacturing footprint.
These moves could offer some protection if exemptions are granted, though the criteria remain uncertain. UBS also points to bilateral trade deals with the UK and Switzerland that appear to include preferential tariff terms for pharmaceuticals.
The second-quarter reporting season, which kicks off with Johnson & Johnson on 16 July and Novartis the following day, may offer the first real insight into how companies are assessing the risk and preparing for it.
For now, the share prices suggest investors are already taking a cautious view. UBS’s valuation model, based on long-term net present value assumptions, shows that the European majors are trading at a 17% discount to the historical average.
This implies the market is already pricing in a 15% to 20% hit to profits across the sector.
UBS believes that level is “reasonable” given the tariff threat and ongoing pricing pressures, but until there is greater clarity from the White House, the risk to earnings will remain a key concern.