The news: The trade deal between the US and EU will include a 15% tariff on pharmaceuticals imported from Europe, the White House said. Certain generics are expected to be spared from the levy, though specifics on which ones aren’t yet known.

Catch up quick: President Trump threatened a 200% tariff on imported medicines earlier this month, but with a ramp-up period of up to 18 months. Separately, the administration is conducting a Section 232 national security investigation, which could lead to country-specific tariffs. However, the 15% EU tariff rate is final, irrespective of findings from the national security investigation, per The New York Times.

Why it matters: A large share of the active pharmaceutical ingredients (APIs) used in brand-name drugs consumed in the US are manufactured in EU countries.

• 43% of branded pharmaceutical APIs come from the EU, higher than any other region, according to a US Pharmacopeia analysis of 2024 imports.
• Pharmaceuticals are the largest European export to the US.
• Additionally, most leading drugmakers operate in Ireland due to the country’s tax-friendly policies.

The tariff impact on the pharma sector could be as high as $19 billion, according to a Reuters report citing multiple analyst forecasts. However, each company’s exposure will vary greatly and will depend on different strategies to reduce the impact of tariffs.

• Top pharma companies have committed to producing more drugs in the US, for instance. This includes manufacturers with a significant EU footprint such as Novartis, Roche, Merck, and AstraZeneca.
• Merck’s president and CEO said in Tuesday’s earnings call that the company projects a minimal impact due to recent investments in US manufacturing.
• Merck’s blockbuster cancer drug Keytruda is primarily manufactured in Ireland, but the company is now planning to produce the drug in the US for patients here.
• AstraZeneca's CFO similarly stated that the company won't be significantly impacted, citing a segregated supply chain and sufficient capacity in the US.

The final word: Pharma companies and industry trade groups had been holding out hope that their medicines imported to the US would be exempt from tariffs. Not getting that reprieve is a setback—but the 15% rate on its own could be seen as a decent outcome, particularly considering that 200% tariffs were threatened and the Section 232 investigation could lead to a higher levy in other countries. However, pharma manufacturers of branded products will likely absorb most of the tariff costs since passing them onto patients is tougher than in some consumer-focused industries due to existing contracts with health plans and other players in the drug supply chain.

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