[U] Should Tariffs Actually Come To Pharma, Merck Intends To “Shift” To “US For US” Manufacturing…

I thought it worth noting that (for multinational but US-based pharma companies), should tariffs actually appear, in substantial percentages, these companies will be well positioned to offset any tariff effect with supply chain rearrangements, as well as being in a position to report significant US corporate level tax credits.

The use of repatriation strategies may very well largely offset any near term selling-price inflation these US pharmaceutical companies might face as a result of any Tangerine 2.0 tariffs. Having long ago set up tax advantaged repatriation structures, these companies are well positioned to ride out any material tariffs imposed.

Here's a bit from the last earnings conference call -- on that topic:

. . .Geoff Meacham (Citi analyst): Asked how Merck plans to offset tariff headwinds. . . .

Rob Davis | Merck | Chairman and Chief Executive Officer

Yeah. No, Geoff, I appreciate the question. And obviously, Caroline spoke to the tariffs that we've included in our [guidance] (corrected by company after the call) so far, the $200 million. And just to be clear, that relates to the existing tariffs that have been announced largely between China and the US, and to a lesser extent, Canada and Mexico. I think you're really referring to the potential for further sector-specific tariffs that could come and what we're doing.

And in that regard, we've been very focused, and I tried to highlight this in the script, we've actually had started to change and rebalance our supply chain strategy, going back -- actually beginning with the Tax Cut and Jobs Act, where we started moving more towards being able to have US for US, Europe for Europe, and Asia for Asia. And we've been in the process of doing that. That was a big part of where we announced that we've spent $12 billion since that time to date. And then we expect to spend an additional $9 billion-plus. And I expect, frankly, that number is going to grow going forward. So we have already been in the process of changing our supply chain. But what we've done specifically, in the near term, we have, I think, done a good job of managing our inventory.

So as you look at 2025, we're well-positioned with inventory to be able to mitigate anything we could see in the short term. And then in the medium to long term, we've already started to identify where we can either reposition our own manufacturing, so change the priorities of existing plants; bring on external manufacturing, in some cases, to bridge gaps; and then finally, to build internal manufacturing long term so that we have that in our base going forward.

So really, as I look at it, short term, I think we're in a good shape. Medium and long term, we're taking the steps to position ourselves. And that really is our main efforts. We are not using and do not really see price as a lever for tariffs just given there's always limitations in what you can do there. So for us, it's more about how do we optimize our supply chain. But again, a lot of what we're doing now, frankly, we were already underway in. So in many ways, we are aligned with what the administration is wanting to do and feel that we are in a position to be able to do that quite effectively. . . .

Now you know. But as I've long said -- in the end, Tangerine will largely exempt pharma all-together. That's how lobbying works. Onward now, into a scorcher in the steel and glass canyons… Grin!

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