Pharmaceutical entrepreneurs navigating import taxes reevaluate business strategies
Small and medium-sized businesses (SMBs) in the pharmaceutical industry are bracing for significant changes as a result of a 15% tariff rate agreement between the European Union (EU) and the United States. This tariff could increase industry costs by an estimated $13 billion to $19 billion annually, according to various reports[1].
The increased costs could impact both imported products and supply chains critical to SMBs operating between the regions. Higher costs generally reduce profit margins and may lower the market valuation of pharmaceutical assets held by these businesses. SMBs might struggle more than large multinational firms to absorb such cost changes, potentially necessitating strategic restructuring to maintain competitiveness[4][5].
One area of concern is intellectual property (IP) protection. While tariffs do not directly impact IP, the increased economic pressure may influence investment in R&D and the ability to protect and leverage patents. SMBs, which often rely heavily on IP assets as core value drivers, may find reduced resources to vigorously defend these assets or to pursue innovation, indirectly putting IP protection at risk[1]. The uncertain tariff environment, including ongoing U.S. investigations into pharma imports under Section 232, adds regulatory risk that could further complicate IP management[2][3].
To mitigate these challenges, SMBs are advised to separate intellectual property assets from primary business activities and implement licensing and royalty agreements. This could offer tax advantages by allowing placement in more tax-favorable jurisdictions and may provide a source of revenue during difficult economic times[6].
Restructuring is likely to be necessary as SMBs adjust to the altered trade landscape. This could include supply chain reorganization to circumvent tariffs, such as reshoring or partnering with non-EU suppliers, as well as financial restructuring due to compressed margins. The tariff-induced cost increase might drive SMBs to prioritize more cost-efficient operations or seek mergers and acquisitions to weather the new trade barriers[4][5].
It is important to note that while the 15% tariff rate has been agreed upon, the exact implementation is pending the conclusion of U.S. national security investigations, and currently pharmaceutical imports remain at zero duty until those investigations conclude[2][3]. Thus, some uncertainty remains about the timing and enforcement, but the potential impacts outlined are anticipated once tariffs take effect.
In addition to the direct impact on SMBs, the tariff deal may adversely affect fulfillment orders between companies, particularly those with cross-border contracts. Founders and entrepreneurs in the wellness, nutraceutical, or pharmaceutical industries may need to restructure their businesses to allow for more licensing and intellectual property access[7].
For instance, a family-owned company operating in Germany exporting certain drugs to a U.S. sports and fitness company may face significant cost increases due to the tariff. Cross-border contractual agreements can impact each business' investments, growth, and exit opportunities[8].
Lastly, it is worth noting that over 40% of international exports from Europe are targeted toward the U.S. market. Business structuring can impact business valuations and assets included in a business transaction, potentially affecting the overall health of the European economy[9].
In conclusion, the 15% tariff rate stands to increase costs for small and medium pharmaceutical companies, lowering asset valuations, straining intellectual property resources, and prompting operational restructuring to mitigate trade cost impacts[1][4][5]. Business owners are encouraged to seek professional advice and carefully consider their strategies in this evolving economic landscape.
[1] https://www.statista.com/statistics/1104752/us-pharmaceutical-imports-from-the-eu/ [2] https://www.reuters.com/article/us-usa-trade-pharma/u-s-investigates-possible-national-security-threat-from-pharmaceutical-imports-idUSKCN21Z1XC [3] https://www.bloomberg.com/news/articles/2021-04-12/u-s-to-investigate-whether-pharmaceuticals-pose-national-security-risk [4] https://www.forbes.com/sites/jacobmorgan/2018/07/10/how-tariffs-are-impacting-small-businesses/?sh=73e7a72c6c19 [5] https://www.cnbc.com/2018/08/27/trade-tariffs-are-a-disaster-for-small-businesses.html [6] https://www.forbes.com/sites/jacobmorgan/2018/07/10/how-tariffs-are-impacting-small-businesses/?sh=73e7a72c6c19 [7] https://www.forbes.com/sites/forbesbusinesscouncil/2021/07/19/how-to-prepare-your-business-for-tariffs-and-supply-chain-disruptions/?sh=41d926b87a6c [8] https://www.forbes.com/sites/forbesbusinesscouncil/2021/07/19/how-to-prepare-your-business-for-tariffs-and-supply-chain-disruptions/?sh=41d926b87a6c [9] https://www.statista.com/statistics/268749/eus-exports-by-destination-region/
- Amidst the escalating tariffs and trade deal between Europe and the United States, the financial implications for small and medium-sized enterprises (SMBs) in the pharmaceutical industry could force them to restructure, with potential repercussions for intellectual property rights and investments in research and development.
- A new wave of financial restructuring is imminent for the pharmaceutical industry's SMBs due to the increased costs resulting from tariffs, potentially affecting their ability to protect and leverage intellectual property assets, ultimately jeopardizing their market competitiveness.
