One of the more interesting aspects about President Donald Trump’s recent tariffs is that each major industry has shown at least some degree of weakness, regardless of whether the policies have directly affected them yet.
Take the pharmaceutical industry as an example. For the time being, Trump’s tariff agenda hasn’t actually done much to directly impact pharmaceutical businesses. However, the White House has certainly been dropping some breadcrumbs making executives at pharma giants wary that new tariffs could be imposed at a moment’s notice. Just the idea of how the administration’s tariff policies could impact these businesses has made investors jittery.
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Over the last couple of years, one of the best pharma stocks to own has been Eli Lilly (NYSE: LLY). But now, an investment in Lilly may not look so enticing as the possibility of more tariffs loom. Let’s explore how tariffs would impact Eli Lilly’s business, and assess whether investors should buy the stock now or run for the hills instead.
Beyond research and development (R&D), one of the major expense items for pharmaceutical companies is the cost of raw materials for making medicine. It’s not uncommon to source certain ingredients from overseas.
If tariffs are imposed on the pharmaceutical industry, it’s likely that prices for these ingredients will rise. In addition, as trade relations continue to tense up, retaliatory tariffs from other countries could also weigh on Lilly’s business; the company could start to see diminished brand equity in international markets.
If Lilly does wind up facing these challenges, my hunch is that operating expenses will rise, and profit margins may see some compression in the near term.
Tariff policies can be quite nuanced since certain items or markets may be exempt. With that said, I’ll admit that Lilly’s near-term prospects look cloudy.
Nevertheless, I remain extremely optimistic about the company’s long-term potential.
For the last two years, the company’s primary source of growth has been the blockbuster drugs Mounjaro and Zepbound. These are Lilly’s glucagon-like peptide-1 (GLP-1) medicines, which compete directly with Novo Nordisk‘s Ozempic and Wegovy. Weight loss drugs have become a major catalyst for the pharmaceutical industry in recent years, and Lilly’s foray into the GLP-1 realm so far has been quite successful.