President Trump recently warned big drugmakers that a pharmaceutical "tariff wall" is coming.
His administration is reportedly considering implementing an even bigger threat to the U.S. pharmaceutical industry.
These two policies could have major impacts on AbbVie, Lilly, and Johnson & Johnson.
Investors often view Pharmaceutical stocks as safe havens during periods of market turbulence. Stock market volatility or even economic downturns usually don't affect drugmakers' underlying businesses much, if at all. Physicians prescribe medications, and patients take them, regardless of the S&P 500's gyrations or how macroeconomic factors might shift.
Indeed, shares of the three biggest pharmaceutical companies based on market cap -- AbbVie(NYSE: ABBV), Eli Lilly(NYSE: LLY), and Johnson & Johnson(NYSE: JNJ) -- have all delivered solid gains so far this year, while the major market indexes have fallen. However, President Donald Trump is giving AbbVie, Lilly, and J&J investors plenty to worry about. Is the Trump administration about to cause these big pharma stocks to crash?
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A pharmaceutical "tariff wall" is coming
Johnson & Johnson factored roughly $400 million into its 2025 guidance to account for the impact of tariffs. But that amount applied only to the company's medtech business. In J&J's first-quarter earnings call, CEO Joaquin Duato said, "There's a reason why pharmaceutical tariffs are zero. It's because tariffs can create disruptions in the supply chain leading to shortages."
Duato and J&J might not enjoy zero pharmaceutical tariffs for much longer. President Trump said on April 8, 2025, that he planned to levy a "major tariff" on drug imports to the U.S. In a meeting with pharmaceutical industry executives on April 30, the president warned that a "tariff wall" is coming.
Although AbbVie, Eli Lilly, and Johnson & Johnson manufacture many of their products in the U.S., they still import some drugs and ingredients used in the products. Steep pharmaceutical tariffs would increase the companies' costs.
Don't count on these three big drugmakers being able to easily pass along the higher costs resulting from tariffs to customers. AbbVie CEO Rob Michaels said on the company's Q1 earnings call that he doesn't see price increases "as a viable source for mitigation" of the potential tariff impact. Michaels noted "penalties in the government channel and with existing contracts in the commercial setting" as barriers to hiking drug prices.
An even bigger threat
However, the Trump administration could unleash an even bigger threat than tariffs to AbbVie, Lilly, and Johnson & Johnson. Reuters recently reported that the White House is considering implementing international reference pricing for Medicare and Medicaid prescription drugs. This would link the price that the federal healthcare programs pay for medications to the prices paid by other developed countries. One of Reuters' sources expressed a view that international reference pricing presents the greatest "existential threat" to the U.S. pharmaceutical industry.
Michaels was asked about the issue during AbbVie's Q1 earnings call. He didn't use the phrase "existential threat," but did sound concerned. Michaels said, "We hope the administration contemplates the harm that international reference pricing could have on [the] U.S. healthcare industry and future innovation." He added, "I think anything like price controls, cost increases, or higher taxes just leaves less investment available across the industry to advance new innovative medicines."
Pharmaceutical industry organization PhRMA believes international reference pricing could have three serious consequences. The organization argues that the approach would cause "long delays and reduced access to lifesaving medications" for Americans. It also predicts fewer new therapies will be developed and maintains that the government price-setting strategy would lead to "weaker U.S. leadership in biopharmaceutical innovation."
AbbVie, Lilly, and Johnson & Johnson could face more immediate problems from international reference pricing. Each company has products that rank among the highest-cost medications for Medicare Part D. If the Trump administration implements international reference pricing, the revenue the big pharma companies make from these drugs could be significantly reduced.
Prepare for a big pharma stock crash?
Should investors prepare for AbbVie, Lilly, Johnson & Johnson, and other big pharma stocks to crash thanks to the Trump administration's policies? I don't think so.
In President Trump's meeting with pharmaceutical industry leaders last week, he said that his administration will give drugmakers "a lot of time" to move manufacturing to the U.S. before they're hit by his promised "tariff wall." AbbVie, Lilly, and J&J have already committed to investing in new U.S. facilities.
Also, the first Trump administration tried to implement international reference pricing but was blocked by a federal judge. Any future attempts would likely be challenged in court, too. The pharmaceutical industry would also lobby vigorously against the pricing strategy.
However, there's a lot of uncertainty. Although I don't expect AbbVie, Lilly, and J&J to crash, the unanswered questions relating to tariffs and international reference pricing could weigh on all three big pharma stocks.
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Keith Speights has positions in AbbVie. The Motley Fool has positions in and recommends AbbVie. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.
