The pharmaceutical industry is scrambling with scenario planning as U.S. President Donald Trump's 200% tariff proposal threatens to drive up drug prices and rip out corporate profit margins.

The president once again warned on Tuesday that long-awaited industry-wide tariffs would be announced "very soon" after the administration launched a so-called 232 investigation into the sector in April.

Trump suggested that those levies would not go into effect immediately, but get a grace period of "about a year, year and a half to come in."

Analysts nevertheless warn that such a rate — even with a delay — will have a detrimental effect on drug prices and profit margins.

"A 200% tariff would inflate production costs, compress profit margins, and risk supply chain disruptions, leading to drug shortages and higher prices for U.S. consumers," Barclays wrote in a note Wednesday.

UBS analysts cited a "significant negative impact" on margins, where goods are manufactured outside of the U.S. Meanwhile, the hit for patients could be "disastrous," Afsaneh Beschloss, founder and CEO of investment firm RockCreek Group said Tuesday, in reference to an estimated 100% levy.

"That would be potentially disastrous for every person because we need those pharmaceuticals, and it takes those companies a long time to produce them here in the U.S.," Beschloss told CNBC's "Closing Bell."

It is estimated that a tariff of just 25% on pharmaceutical imports would drive up U.S. drug prices by almost $51 billion annually, increasing domestic prices by as much as 12.9% if passed on, according to research from industry trade group Pharmaceutical Research and Manufacturers of America (PhRMA), which on Wednesday lambasted the president's proposals as "counterproductive" to health outcomes.

Delay brings little relief
Pharmaceutical products have typically been excluded from trade tariffs due to their critical nature. However, Trump has repeatedly targeted the industry for what he deems unfair pricing practices, and has urged firms to reshore manufacturing to the U.S.

In response, global pharma firms including Novartis, Sanofi
and Roche and U.S.-headquartered Eli Lilly and Johnson & Johnson
have made commitments to invest large sums in the U.S.

UBS dubbed the administration's tariff grace period of 12 to 18 months as "insufficient time" for firms to relocate their manufacturing stateside.

"We would usually think of 4 to 5 years as the timeline to move commercial scale manufacturing to a new site," the analysts wrote.

The industry is now awaiting further details at the end of this month, when the final Section 232 investigation report is due. But in the meantime, firms have little choice but to plan for various potential outcomes.

Source: cnbc