Americans face some of the highest drug prices in the world for name brand drugs. This is due in part to price discrimination. Federal laws designed to protect America’s drug supply chain from adulteration and counterfeits also serves to protect the profits of drug makers. Importation (or reimportation) of drugs manufactured or sold abroad is only authorized by the manufacturer. In other words, if an American drug maker sells a drug for $10 per capsule in the United States, but only charges $1 per capsule in Brazil, CVS pharmacy cannot legally order a shipping container filled with the drug from Brazil.
Price discrimination makes many of the brand name drugs Americans buy more expensive than need be. Another federal action that runs the risk of driving up the drug costs is tariffs.
The drug industry got a temporary reprieve on Wednesday when foreign-made medicines were exempted from President Trump’s far-reaching new tariffs.
But Mr. Trump has been saying for weeks that he plans to impose tariffs specifically on pharmaceuticals, with the goal of shifting overseas production of medications back to the United States. He has said those levies could be 25 percent or higher. Drugmakers still expect tariffs targeting them to be announced soon.
What happened to American’s drug making capacity? It went global. Increasingly, drugs are made in a variety of places. Drug companies are also headquartered in numerous countries, which has little to do with where they are actually made. Pfizer, Merck, AbbVie and Janssen are the biggest American drug companies. Novartis and Roche (Switzerland), Sanofi (France) and AstraZeneca and GSK (United Kingdom) are other major producers. There are also drug makers in Germany, Japan, Denmark, China and India.
Drugmakers have powerful financial incentives to produce their products overseas. For most companies and most medications, tariffs are unlikely to reverse that, experts said.
Instead, tariffs threaten to increase prices and create shortages of certain generic medications, which account for a vast majority of U.S. prescriptions. Americans are less likely to feel a direct impact for brand-name drugs.
Ireland is a major producer of brand-name drugs due to tax laws.
Many of the industry’s biggest blockbusters are manufactured at least partly in Ireland. Among them are: Keytruda, Merck’s cancer drug; Zepbound, Eli Lilly’s weight-loss drug; and Stelara, Johnson & Johnson’s anti-inflammatory drug used for conditions like arthritis.
Mr. Trump has taken notice. “This beautiful island of five million people has got the entire U.S. pharmaceutical industry in its grasp,” he said in March at a meeting with Prime Minister Micheal Martin of Ireland.
Drugs are not generally entirely made in one country. The same is true of many products both made in American and imported to America. Even for drugs made in the U.S. the active ingredients are often made elsewhere, mainly in China, Europe and India.
There’s usually no single country where a drug is manufactured. Plants in different parts of the world handle different parts of the process. Factories make chemicals and other raw materials. Drug companies buy those materials and use them to make the active ingredient of a medication. Then the active ingredient needs to be formulated into a pill or a liquid. In the final stage, the drug is packaged into boxes, vials or pens.
The potential disruption from tariffs is more pronounced with generic drugs. Off-patent drugs have very low profit margins. They are also more likely to be in short supply when one manufacturer closes down production facilities due to low prices or outdated equipment. Currently there are about 100 drugs on the official shortage list. Most are generic drugs.
Ingredients for generic drugs are often made in China and frequently exported to India where they are made into cheap drugs. Currently, the U.S. enjoys the cheapest generic drug prices in the world, one-third cheaper than in other developed countries. With generic drug prices low and with each segment often produced by only two or three manufacturers, supply chain disruptions are common.
For now, medicines were exempted from tariffs but this could change at any moment. President Trump has complained about other countries having too much influence over America’s drug supply chain. This includes China to a large extend but also Ireland and India. Although these inconvenient facts are unlikely to change any time soon (if ever), the results in the short term could be higher prices at the pharmacy counter and increased shortages of generic drugs.
Read more at NYT: Trump’s Next Tariffs Target Could Be Foreign-Made Medicines