Drug Costs Could Rise If Tariffs on Chinese Goods Go Through

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By Jeannie Baumann and Bronwyn Mixter

Drug and device costs could spike if the U.S. ultimately hits Chinese goods with additional levies as part of an escalating trade spat.

Several medical product industry groups told Bloomberg Law it’s too early to tell what the exact impact will be of a directive President Donald Trump issued in response to what he called unfair trade practices.

Trump told the U.S. Trade Representative to determine whether to impose an additional $100 billion worth of tariffs on imports from China; the Chinese government retaliated by proposing $50 billion in reciprocal tariffs. But the U.S. list of more than 1,300 separate tariffs up for consideration contains dozens of substances used for medical treatments, including insulin, vaccines, and the nasal decongestant pseudoephedrine, the active ingredient in Johnson & Johnson’s Sudafed.

Trump’s April 5 directive signals an “opening move in a chess match designed to attain some negotiating leverage with China,” Stephen Ezell, vice president of global innovation policy for the think tank Information Technology and Innovation Foundation, told Bloomberg Law. The affected industries have 30 days to comment, Ezell said, and the government has up to 180 days to take formal action, leaving three to six months for the negotiations to play out. “If we came to a point in three to six months where tariffs on those products were applied, that would potentially disrupt an innovation ecosystem and the life sciences on both sides of the Pacific. It could raise prices for patients, potentially.”

The president has repeatedly railed against unfair trade practices by China, but he also has constantly called for lowering drug prices. “If you compare our drug prices to other countries in the world, in some cases it’s many times higher for the exact same pill,” Trump said during a March 19 event in which he promised to hold a “major news conference” on drug prices. “And we’re going to change that.”

China Imports to U.S. Growing

The pharmaceutical industry makes about 75 percent of the drugs sold in the U.S. domestically, according to a 2016 report from the International Trade Administration (ITA), part of the Department of Commerce. Canada has dominated the final quarter of that market, followed by India and then Mexico, according to Food and Drug Administration data compiled by Bloomberg Law. The FDA data are based on the number of import lines, which are distinct products within a shipment. But a single shipment may include multiple lines, according to the FDA website.

China wasn’t even in the top five manufacturing countries for imported drugs and biologics between 2003 and 2014, but the number of drugs imported from China into the U.S. has jumped in the past few years. The U.S. imported about 5,300 drug lines from China in 2002, increasing to about 30,000 in 2012. But in 2015, when China released a 10-year plan to strengthen the Chinese manufacturing industries called “Made in China 2025,” import lines of drugs and biologics spiked to more than 60,000, rising to 69,000 in 2016, compared to 28,600 import lines in 2014.

Jeffrey K. Francer, senior vice president and general counsel for the Association for Accessible Medicines, said the trade group for the generic drug industry is still assessing the proposed tariff list of pharmaceutical ingredients and products. “We are concerned that the proposed tariffs may lead to increased costs of manufacturing for generics and biosimilars and thus higher prescription drug prices for patients in the U.S.,” he said in an April 4 statement. His association “will maintain a dialogue with USTR to ensure continued patient access to generic and biosimilar medicines.”

The trade group for the brand-name industry, the Pharmaceutical Research and Manufacturers of America, declined to comment April 6 as the list of tariffs remains in a draft form. But a spokeswoman for Paris-based drugmaker Sanofi told Bloomberg Law in an April 6 email, “It’s our current understanding of the proposed tariffs that Sanofi would not be affected.”

Devices Less Clear

The tariff list is trickier when parsing out medical devices. While the list clearly includes devices such as MRI machines, syringes, and catheters, materials used to make device components also could be subject to higher tariffs.

China has increasingly dominated the market share of medical devices imported into the U.S., beating out Mexico as the top importer in 2012 and continuing to grow from there. In 2002, the U.S. imported more than 80,000 device lines from China, according to the FDA; by 2016, that number spiked to 5.29 million.

Greg Crist, a spokesman for the Advanced Medical Technology Association (AdvaMed), told Bloomberg Law it’s too soon to know what impact the proposed tariffs would have on the medical device industry and the group is discussing this issue with 300 members, ranging from Apple Inc. to Medtronic to Roche. The association will share its analyses with the USTR office and will seek to have medical technologies removed from Trump’s tariff list, he said.

Raising the tariffs for pharmaceutical ingredients or medical device parts certainly could increase how much a patient, hospital, or other consumer would have to pay, Ezell of the innovation think tank said in an April 4 interview. New tariffs also could cause a U.S. company to become less competitive compared to a European provider that could charge less for a medical device, Ezell said. A U.S. company that decides to maintain the same price despite higher costs might be forced to cut its research and development budget too, he said.

“If you start raising prices, that also changes the economics of industries,” Ezell said.

At the same time, he said, if the administration’s trade policies are effective, “then the ability of the life sciences innovation system to flourish globally will be maximized because then we’ll have an optimal exchange of talent and people and knowledge and technology.”

“If we can implement the longer term strategy here of prevailing upon China to ameliorate some of its unfair trade practices, this will leave everybody in a better place,” Ezell said.

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