The Swiss pharmaceutical industry has a lot to lose if the Trump administration tries to limit the import of drugs. However, the sector also faces challenges due to declining drug prices in the US.
Roche’s headquarters are in Basel, but the company generates over half of its revenue from pharmaceutical products in the US.
Nervousness is high in the boardrooms of the Swiss pharmaceutical industry. They are currently trying to find answers to what the re-election of Donald Trump as American president could mean for their business.
There is a lot at stake.
Few Imports from the US
The US is the second most important market for the Swiss pharmaceutical industry after the EU. Last year, the industry exported goods worth 28 billion Swiss francs to the United States, including vitamins and products for medical diagnostics. In the opposite direction, from the US to Switzerland, the volume was only just under 5 billion Swiss francs.
Switzerland thus has a huge trade surplus in the pharmaceutical business with America. Although this surplus has stagnated in the past three years at around 24 billion Swiss francs, it has nearly tripled compared to a decade ago.
As representatives of the Swiss pharmaceutical industry openly admit, this is not only due to the fact that the major corporations Roche, Novartis, and Lonza, along with a number of foreign companies, produce a large number of high-priced biotechnology drugs in Switzerland.
The industry also benefits from the fact that the US pays the highest prices in the world for innovative drugs.
First Discounts in the US Starting Next Year
However, there is a downside, said Matthias Leuenberger, President of the industry association Scienceindustries Switzerland, at a press conference on Friday. Republicans and Democrats agree that drug prices in the US are too high.
Under the Biden administration, the Inflation Reduction Act (IRA) has already been enacted, making an attempt to limit the costs of not-so-new but highly demanded drugs. The state-run health insurer Medicare, whose services are accessible to all US residents aged 65 and over, negotiated discounts for ten drugs.
These discounts will take effect from 2025. In the coming years, ten more drugs will be subject to price negotiations between manufacturers and the government.
The fact that the government is involved in setting drug prices in the US, unlike almost everywhere else in the world, is a novelty. Until now, the pharmaceutical industry could simply dictate how much they wanted to charge for their products in America. They also often managed to implement price increases year after year that were often above the inflation rate.
Americans Pay the Most by Far
The traditionally large freedom in setting prices also explains why the US, according to the market research firm IQVIA, now shoulders 27 percent of the world’s drug expenditures of $1,600 billion. This is disproportionate to the share of Americans in the world population, which is around 4 percent.
Critics on both sides of the political spectrum in the US are increasingly speaking out. They argue that it cannot be that American patients subsidize drugs from which the entire world benefits from in terms of development.
At Roche, the largest Swiss pharmaceutical company, the American share of revenue from drug sales reached 53 percent in the first nine months of this year. Novartis is also heavily dependent on business with America, with 40 percent of its revenue coming from there.
Pressure on Swiss Tax Revenues?
Although the IRA was implemented under the Biden administration, most market observers expect it to remain in place under the new administration as well. The pharmaceutical industry will have to prepare for further price concessions and potentially declining margins in the American business.
The latter could affect the profitability of drug manufacturers, warns an industry expert. This would ultimately have a negative impact on tax revenues for various Swiss cantons.
It should be noted that not only Swiss companies have made the local pharmaceutical sector great. While Roche, Novartis, and Lonza have their headquarters in Basel, substantial fiscal revenues in Zug, Schaffhausen, Lucerne, and Neuchâtel are attributed to the activities of various American industry giants.
For example, Johnson & Johnson operates a large pharmaceutical plant in Schaffhausen, while Bristol-Myers Squibb produces in Boudry, Neuchâtel. Large administrative units of American drug manufacturers are located in Zug and Lucerne.
In short, the American market is supplied not only by Swiss companies but also by American corporations operating from Switzerland.
Swiss Pharma Companies Also Manufacture a Lot in the US
Conversely, Roche, Novartis, and Lonza are also significant employers and taxpayers in the US. All three companies operate multiple production plants there, with extensive research and development activities in the case of Novartis and Roche. One in four Roche employees works in the US, while one in six is from Novartis.
It remains to be seen how much the new administration in Washington will appreciate the fact that Swiss companies also manufacture pharmaceutical products in the US. Will this be enough to prevent Trump from taking protectionist measures against Swiss providers?, many industry representatives nervously wonder.
When asked, neither Roche nor Novartis nor the generic drug manufacturer Sandoz wanted to comment on what changes the change of administration could bring to their business in the US. It is too early to tell, the companies unanimously state. Leuenberger from Scienceindustries also says, “We don’t know.”
“We Are Exposed”
Nevertheless, the industry is concerned that Switzerland’s high trade surplus with the US could prompt the Trump administration to take retaliatory measures. “We are exposed,” says René Buholzer, Managing Director of Interpharma, another pharmaceutical industry lobby organization.
Buholzer hopes that the US will continue to acknowledge how closely intertwined the Swiss and American economies are, particularly in the pharmaceutical industry. He points to the mutual recognition of drug manufacturing practices that has been in place since last year. This is an excellent example of how both sides benefit from close cooperation.
Some industry observers simply trust that Trump will rant and threaten extensively, but not follow through on many of his threats.
He has been in power before, said Michael Grass from the market research company BAK Economics at the Scienceindustries press conference. “Back then, there was no apparent harm to the chemical-pharmaceutical industry.”