New US Pharmaceutical Tariffs and Pricing Reforms

The Trump administration has enacted a series of measures targeting the pharmaceutical industry, including a 100% tariff on imports of patented drugs and their active ingredients manufactured outside the United States.

Concurrently, the administration has launched a direct-to-consumer website, TrumpRx.gov, and secured agreements with multiple drug manufacturers to offer discounted prices to specific patient groups. These actions have prompted reactions from international trading partners, particularly Australia, which is subject to the highest tariff rate without a special exemption.

Pharmaceutical Tariffs

Implementation and Timeline

President Donald Trump signed an executive order imposing a 100% tariff on specific patented pharmaceuticals and their active ingredients produced outside the US. The tariffs are scheduled to take effect following a 120-day implementation period for large drugmakers and a 180-day period for smaller companies.

The order utilizes Section 232 of the 1962 Trade Expansion Act, which pertains to national security, and was not affected by a February Supreme Court ruling that deemed some previous tariffs unconstitutional.

Exemptions and Reduced Rates

The tariff order includes several provisions for reduced or eliminated rates:

• 0% tariff: Companies that have a "most favored nation" (MFN) pricing deal and are actively building US production facilities for pharmaceuticals and their ingredients.
• 20% tariff: Companies without a pricing deal that are constructing US facilities. This rate is set to increase to 100% over four years.
• Country-specific rates: Companies in the European Union, Japan, South Korea, Liechtenstein, and Switzerland face a 15% tariff. UK companies face a 10% tariff, with expectations of reduction under future agreements.
• Strategic exemptions: Generic drugs are expected to be exempt. Plasma-derived therapies receive a zero tariff if they originate from a country with a trade deal with the US or meet an urgent US health need.

Companies that join the "Most Favored Nation" initiative are exempt from the 100% tariff. Pharmaceutical trade group PhRMA, through CEO Stephen J. Ubl, stated that such tariffs could increase costs and affect US investments, noting that many imported medicines originate from US allies.

Drug Pricing Agreements and the TrumpRx Initiative

"Most Favored Nation" Pricing Deals

The administration has secured agreements with multiple pharmaceutical companies under its "most favored nation" pricing initiative. As of the latest announcements, 14 to 17 companies have participated, including Amgen, AstraZeneca, Boehringer Ingelheim, Bristol Myers Squibb, Eli Lilly, EMD Serono, Genentech, Gilead Sciences, GSK, Johnson & Johnson, Merck, Novartis, Novo Nordisk, Pfizer, and Sanofi.

Under these agreements, participating drugmakers have committed to:

• Charging the US government prices for new drugs that do not exceed those paid by other high-income countries.
• Providing state Medicaid programs access to reduced prices.
• Offering some widely used medications at reduced prices to cash-paying consumers through TrumpRx.gov.
• Investing at least $150 billion in US manufacturing operations.

In exchange, the pharmaceutical companies receive a three-year exemption from potential administration tariffs. Johnson & Johnson confirmed its participation and announced plans to construct two new manufacturing facilities in North Carolina and Pennsylvania as part of a $55 billion US investment plan.

TrumpRx.gov Launch and Functionality

The administration launched TrumpRx.gov, a website that directs cash-paying patients to drug manufacturers offering discounts on their direct-to-consumer platforms. The website does not sell drugs directly.

Launched with 43 drugs from five companies (AstraZeneca, Eli Lilly, EMD Serono, Novo Nordisk, and Pfizer), the administration indicated that discounts from an additional 11 companies would become available in subsequent months.

The discounts offered on TrumpRx.gov varied, with reported savings including 33% off Pfizer's Xeljanz and 93% off EMD Serono's Cetrotide. To qualify for some discounts, customers must declare they are not enrolled in a government insurance program like Medicare and will not seek insurance reimbursement.

Medicare Drug Price Negotiations

Separately, the Centers for Medicare and Medicaid Services (CMS) finalized negotiated prices for 15 medications, effective in 2027, under a program enabled by the Inflation Reduction Act of 2022. This includes a 71% discount on Ozempic, Wegovy, and Rybelsus.

Medicare will receive these drugs at approximately $274 per month, which differs from the $245 per month price agreed under the separate Trump administration deal with Novo Nordisk.

CMS estimates that if these negotiated prices had been in effect in 2024, the program would have saved approximately $12 billion.

Similarly, the Trump administration announced separate agreements with Novo Nordisk and Eli Lilly to reduce prices for specific obesity and Type 2 diabetes medications for Medicare beneficiaries. Under these agreements, Medicare beneficiaries will have a $50 monthly copay for the covered drugs, with companies providing the medications to Medicare and state Medicaid programs at $245 per month.

Price Increases Following Agreements

An analysis by 46brooklyn, a drug price research firm, found that sixteen major pharmaceutical companies that signed deals with the administration subsequently raised list prices on 872 brand-name drugs in January. The median price increase was 4%, consistent with the previous year.

Pfizer increased prices on 72 products, including a 15% increase on its COVID shot. Merck raised prices on 18 products. Pfizer stated its increases were modest and necessary for investment, while Merck attributed decisions to reflecting a product's clinical value.

In contrast, 18 significant price cuts occurred in January, including a 75% reduction on Fiasp insulin and reductions of 37% to 44% on Farxiga, Jardiance, and Eliquis. The 46brooklyn analysis noted that four of the ten drugs selected for Medicare negotiation had large list price reductions, four showed no changes, and two had price increases.

Impact on Australia

Tariff Application

Australian-made pharmaceutical products are subject to the 100% tariff. A White House official confirmed that Australia does not have a special pharmaceutical tariff rate. Australia's baseline tariff rate is 10%, but no specific pharmaceutical trade agreement has been established with the Trump administration regarding this new policy.

Australia's Pharmaceutical Benefits Scheme (PBS) has been noted by Trump's trade advisors, with the US pharmaceutical lobby advocating for tariffs on Australian-made drugs, asserting that the PBS creates an uneven competitive environment.

Australian Government Response

Health Minister Mark Butler described the tariff announcement as "deeply disappointing and deeply concerning," characterizing it as "not the act of a friend."

Butler stated that Australia would not yield to pressure from pharmaceutical companies or the US administration to remove consumer price protections on common medications under the PBS.

Communications Minister Anika Wells reiterated that "the Australian PBS is not for sale" and emphasized the quality of Australian pharmaceuticals.

The Australian government indicated it would collaborate with affected Australian companies and exporters. Opposition Leader Angus Taylor called for the government to negotiate exemptions for Australian exporters and committed to working with the government to seek the tariff's removal or an exemption.

Impact on Australian Industry

Australia exports approximately $1.91 billion to $2 billion worth of pharmaceuticals to the US annually. CSL, a Melbourne-based manufacturer of blood plasma derivatives and vaccines, accounts for the majority of these exports.

CSL announced it does not anticipate a material impact from the tariffs, citing its significant US manufacturing operations. Since 2018, CSL has invested over $3 billion in US operations, creating more than 6,500 US jobs. The company has a new manufacturing facility in Kankakee, Illinois, slated for completion by 2031, and must submit its plans to the US Commerce Department for potential exemption consideration.

Victorian Premier Jacinta Allan expressed concerns about the potential impact on Victoria's medical technology industry and on families needing medicine supplies.