Pharma Giants Investing in US Manufacturing Amidst Tariff Uncertainty: Vamil Divan

Pharmaceutical Manufacturing Investment in the US

• 💡 Major pharmaceutical companies are already increasing their investment in US manufacturing capabilities.
• 🚀 These plans will take time to implement, but in the interim, companies have stockpiled inventory of key products within the US.
• ⚠️ While near-term impacts are minimal, potential headwinds are anticipated in 2027 as new manufacturing comes online.

Impact of Tariffs on Pharma

• 🎯 The specifics of tariffs, including which products they apply to, are still unclear and closely watched by investors.
• 🚫 The current focus appears to be on newer branded and patented products, with generic drugs largely excluded.
• 📊 Since generics constitute about nine out of ten prescriptions filled in the US, this exclusion significantly limits the immediate impact of tariffs on the broader market.
• 💰 The sales and profits for large pharma companies are primarily driven by these branded products, making the tariff details crucial.

Drivers of Pharma Sector Optimism

• ✨ Enthusiasm for the sector is largely fueled by ongoing innovation within pharmaceutical companies.
• 📈 AbbVie (ABBV) is highlighted for its growth drivers like Skyrizi and Rinvoq in immunology.
• 🤝 Johnson & Johnson (JNJ) was upgraded due to innovation in oncology (bladder, lung cancer, multiple myeloma) and immunology.
• 🔬 Companies that drive innovation are expected to be rewarded by shareholders, despite near-term challenges like tariffs and US drug pricing.

Mergers & Acquisitions in Pharma

• 🧩 M&A activity is expected to continue, especially for companies facing significant patent cliffs in the coming years.
• 🛒 Companies like Merck, Pfizer, and Bristol Myers are actively acquiring newer products from smaller biotech firms to fill pipeline gaps.
• ⏳ From 2026 to 2030, many companies will experience substantial product losses, and internal pipelines may not be sufficient to compensate, driving the need for external acquisitions.