The Journal. - A Pharmaceutical Executive on Trump’s Tariff Strategy

Episode Date: July 28, 2025

Earlier this month, President Donald Trump announced the U.S. would impose up to a 200% tariff on imported pharmaceuticals, though he would give them up to a year and a half before fully implementing the tariffs. Trump’s goal is to bring more manufacturing to the United States, but one pharmaceutical CEO, Richard Saynor of Sandoz, says there is little incentive to build in the U.S. Jessica Mendoza hosts. Further Listening:- Why Trump Pushed His Tariff Deadline - Inside the Surprise U.S.-China Trade Deal  Sign up for WSJ’s free What’s News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

At a cabinet meeting earlier this month, President Trump made an announcement for the pharmaceutical industry. We're going to give people about a year, a year and a half to come in, and after that they're going to be tariffed if they have to bring the pharmaceuticals into the country, the drugs and other things into the country. They're going to be tariffed at a very, very high rate, like 200%. Like Trump's tariffs on other industries, a primary goal is to encourage manufacturers to move their operations into the U.S. And already, some of the largest pharma companies in the world are responding.

AstraZeneca is expanding its manufacturing capability here in the U.S. The U.K.-based company just announcing a $50 billion expansion... Drugs giant Roche said Tuesday it would invest $50 billion in the U.S. over the next five years. Here in this country, it's a $27 billion investment for Eli Lilly and company. But drug makers from one sector of the industry say that manufacturing in the U.S. isn't really an option for them. I spoke to the CEO of one of those companies. I'm Richard Sando. I'm the CEO of a company called Sandoz.

And it is Sandoz or Sanzo? I feel like I've heard... People say both. Yeah. Sandoz is a Switzerland-based company, and it's one of the world's largest makers of generic drugs. Generics are medicines whose patents have expired and can be made by many drug companies. And they generally cost less than brand-name drugs. Richard has been in talks with the U.S. government, and he says tariffs aren't the way to encourage companies like his to invest in U.S. manufacturing.

You're working with the Trump administration and having conversations with them, but you've also spoken publicly about your concerns over these tariffs when it comes to your business, to generics. Why is that? What are you hoping to achieve by speaking out about this? This industry treats most of the patients most of the time in the US for a fraction of the cost. These are low cost products, frequently sold in pennies on the dollar. And so tariffs have a huge disproportionate impact. Welcome to The Journal, our show about money, business, and power.

I'm Jessica Mendoza. It's Monday, July 28th. It's Monday, July 28th. Coming up on the show, a pharma executive on Trump's tariff strategy and what it means for generic drugs. Generic drug makers like Sandoz have a different business model than brand-name drug makers. Here's the company's CEO, Richard Saynor, again. Mostly when they think of pharmaceuticals, they think this is one industry. But really, in simple terms, there's two industries. There's the patented industry that, I guess, innovates, brings new drugs to the market. Generally, those are sold at very high prices.

So think about a patented brand name drug like Prozac. Prozac Weekly is here. Ask your doctor if it's right for you. Pharma giant Eli Lilly, which developed the drug, held the patent on it for more than a decade. During that time, Lilly was the only company that could sell the drug, making it billions of dollars. When Prozac's patent expired in the early 2000s, that opened the door for other manufacturers

to make the generic version, which is called fluoxetine. Richard's company, Sandoz, has made one. In fact, 90% of prescription drugs in America are generics made by companies like Sandoz. My job, in a sense, my company's job is to bring copies of those drugs to the market as quickly as possible and really drive down costs. So to give you an example, in the U.S., about 90% of all of the drugs dispensed are generics and biosimilars, but they only cost to U.S. patients about 13% of the total drugs bill. So by far the biggest part of the user, but by far the smaller part in terms of the cost.

Because generics are often much less expensive, the profit margins for the industry are smaller. And so tariffs, especially a possible 200% tariff like the one Trump proposed, they hit harder. Those smaller profit margins also make it harder to manufacture in America, where costs are higher. Most of Sandoz's manufacturing facilities are in Europe, with some factories in India and Brazil. What would your margins look like if you did try to bring manufacturing into the US?

What would the experience be like for your company to try and do that? Today, it would be loss-making. Because if I'm selling a pack of antibiotics, so for me to build a new beta-lactam facility, a penicillin facility, that's about $2-3 billion. Now, the board would never give me $ to three billion dollars, but I mean, assuming we can, I convinced the board. So where's the market?

We currently sell a packet of antibiotics to the U S at a price less than a packet of M&Ms. And we lose money doing that. And then we get a 200% tariff on that. Now, if I genuinely believe there was an opportunity to sell antibiotics and build a factory and get rewarded for that investment, of course, I'm a businessman.

We'd make that investment. Richard told investors in an earnings call that the company would be able to absorb the costs of the tariffs without passing the price onto consumers. Anything beyond that, then we will disclose when we get to our next earnings call. What would your options be? Well, I guess you have two or three. In the short term, if we consistently don't make money,

we'd look at then raising prices. And if we can't raise prices, then we would probably withdraw the product from the market. What effect do you think that would have on U have on US consumers if you had to do that? So we have a record of making sure we put patients first and making sure that we're sustainable in the market. And honestly, we'd have to look at it case by case. I mean, we have a moral responsibility to make sure patients have access

to medicine, which takes precedence over everything else. But we also have a business to run. And clearly over time, if we can't pass on price increases through whatever mechanisms, and there are other competitors who have either for whatever reason lower price products or want to go into that market, then we look at them case by case. And there's no world in which you would move manufacturing to the US? There is clearly a world where I would, but it's not the tariffs alone. And there's no world in which you would move manufacturing to the US. There is clearly a world where I would, but it's not the tariffs alone. It's also a combination of structural reform to show that there's a way that I can make

a sustainable return in the US. And I know that's what the administration, they want US products made in the US that are affordable and sustainable. I want exactly the same things. But the trouble is a tariff is a relatively simplistic tool that tries to address many problems through one action. Richard says that what the tariffs are doing for the generics industry is open up

a broader conversation about structural reforms. All credit to this administration. I mean, we've had better access to this administration at various levels as an industry and as a company. I mean, I was in Washington a few weeks ago. So I think we have good access. And I think really we want the same things. I want to make sure that American patients can get affordable, high quality medicines

available in their marketplace. I think tariffs are a mechanism to force that conversation. high quality medicines available in their marketplace. I think tariffs are a mechanism to force that conversation. So I think the positive is out of it. Look, it's forcing us to think about what would it take for us to invest in the U.S. and how do we make the U.S. a sustainable market? Tariffs is part of the equation. The big question is, how do we make this a market

that makes warrants sustainable investment? How do we understand the patent landscape? How do we understand this a market that makes warrants sustainable investment? How do we understand the patent landscape? How do we understand the payer framework? How do we make sure there's fair competition? What Richard says needs to change for generic drugs in the US? That's next. Sandos has built a steady business in the U.S. selling all kinds of generics and biosimilars. Biosimilars are copies of medicines derived from living organisms or their components. And even though the U.S. is one of Sandos' biggest markets, Richard says it's not a

very easy one. How would you describe the U.S. market compared to others that you operate in around the world? I mean, one word, unpredictable. Now, I know in Europe and the most regulated markets when the patent will expire and I know how the market will evolve and in many markets actually there's legislation to encourage the use of generics and biosymbols over the originator. The trouble is in the U.S. every time I launch a product I have to go to court. And you know if you go to court sometimes you win, sometimes you lose, so there's an

uncertainty there. In Richard's view, U.S. law is deferential to patent holders. And he says his company often faces pushback when trying to introduce a generic drug in the U.S. The originators continue to find mechanisms to extend patents. So let me give you a good example. A drug like Embryol. Embryol has been freely available in Europe for the last five years.

Embryol is a brand-name drug manufactured by the company Amgen. It reduces inflammation and is used to treat arthritis and other autoimmune conditions. Richard's company sells a biosimilar version of this in Europe, but can't sell it in the US. Because of how Amgen chose to use US patent law, it's effectively created a 30-year monopoly. Now, I can't launch this product in the US. We're currently in litigation with Amgen to challenge that decision

because we believe patients should have access to a biologic probably 12 to 15 years after the drug is first launched, certainly not 30 years. So then you put all of those things together in the US means that this is probably one of the most uncertain markets in the world a Spokesperson for Amgen said that the company doesn't comment on pending litigation Another problem according to Richard are the middlemen in the healthcare industry These middlemen act as drug price negotiators, and they've driven down the prices of what they pay for generics in the U.S. The middlemen are generally consolidated. So you now have a situation that really the U.S. really has only three big customers who are buying generic drugs. Now, if you've got

10 suppliers selling into three customers, what happens? Pricing goes down. It's just simple economics. Today, generic makers have a net profit margin of 18% in the US, compared with 28% for brand-name drug makers. That's according to research by the University of Southern California's Schaeffer Institute. You're basically competing purely on price, and that makes it very difficult. So tariffs alone need to be then brought in combination of how we understand and change the dynamics of the marketplace. It's this tricky U.S. market

that Trump's pharma tariffs would trickle into. Richard says he's keeping the lines of communication open with the administration. And he's hopeful that sandoes can continue to grow in the U.S. I think the positives for me is at least we're having the right conversations. I think behind the scenes they understand all of these issues. This is still the most attractive market in the world. And I'd love to bring more products to more American patients. And I'd love to build factories in the US.

But I need to be confident that I'm going to get a return on that investment. So it sounds like you're optimistic about how these conversations are going. Look, I think, put it this way, it can't get much worse from where we started. And so, and I think this administration recognizes that something needs to change. From where things stand right now, what does Sandoz's future in the US market look like? Do you feel like it's going to grow here or are you going to be focusing your efforts elsewhere? Look, I absolutely have no doubt our US business will continue to grow. We've always had a business in the US.

We will continue to have a business in the US. Clearly, I'd love to invest in the US, but we will see. And America and the US is an exciting market. But equally, I want to work with an administration and with the regulators to find ways to bring more products more sustainably to warrant that investment. Where's the incentives to invest, to go to court,

to build factories, to take risks? And those are really the conversations we're trying to have. court, to build factories, to take risks. And those are really the conversations we're trying to have. Yesterday, the US said it reached a trade deal with the European Union. The agreement includes a baseline tariff rate of 15% on most goods coming from the EU. But as of now, there's uncertainty

as to whether or not that rate will apply to European-made pharmaceuticals. So tariffs are no tariffs, whatever happens with this policy, it's really this, is the US going to be able to make these structural changes? It's the structural nature of the market that needs to evolve. So this isn't really a tariff conversation, this is a market conversation. So in a sense, tariffs is a bit of a smokescreen. This is about how do we change the nature of the U.S. market to the benefit of U.S. patients. But look I'm very

proud about what we do. I'm really excited about our future and look the U.S. is an important place and I'd love to find ways to invest and expand our business here and continue to serve American patients. Well Richard Saynors, CEO of Sandoz, thank you so much for your time. Pleasure, thank you so much. That's all for today, Monday, July 28th. The Journal is a co-production of Spotify and The Wall Street Journal. Additional reporting in this episode by Jared Hopkins, Kim McCrail, and David Wehner.

Special thanks to Peter Loftus. Thanks for listening. See you tomorrow.