Breakingviews - Big Pharma pioneers the TOFU tariff trade

Reuters

22-07-2025

DUBLIN, July 22 (Reuters Breakingviews) - Big Pharma is giving Donald Trump's credibility a booster shot. Buoyant stock markets generally seem to rest on the belief that the U.S. president always chickens out on provocative trade measures, known as the TACO principle. Yet drugmakers like Britain's $213 billion AstraZeneca (AZN.L), opens new tab, which on Monday revealed a surprisingly solid $50-billion, opens new tab American investment plan, seem to believe that sector-specific tariffs are possible or even likely. Call it the TOFU trade: Trump Occasionally Follows Up.
AstraZeneca is not the first pharma company to make a big pledge. In April, opens new tab, only weeks after the now-infamous "Liberation Day" blizzard of trade threats, $260 billion Swiss group Roche (ROG.S), opens new tab also announced a $50-billion U.S. investment plan. That followed American drugmakers Pfizer (PFE.N), opens new tab and Eli Lilly (LLY.N), opens new tab, who had already announced their own chunky commitments to bring more production back home.
The investments appear to have an element of damage control. Unlike the S&P 500 Index (.SPX), opens new tab, which is now up 11% since Trump's April 2 tariff announcements and closed at a record level on Monday, investors are offering pharma stocks little chance of immunity. The S&P Pharmaceuticals Select Industry Index is down 1% compared with Liberation Day, while European drugmakers like AstraZeneca, Roche, Novartis (NOVN.S), opens new tab, Sanofi (SASY.PA), opens new tab, GSK (GSK.L), opens new tab and Novo Nordisk (NOVOb.CO), opens new tab are down 5% to 18%. The falls generally look even more dramatic relative to early February levels, before Trump floated possible tariffs specifically on the sector.
AstraZeneca boss Pascal Soriot is making a suitably aggressive bet to soothe investors' fears. His $50 billion pledge is equal to all forecast research and development costs and capital expenditures across 2025, 2026 and 2027, according to Breakingviews calculations using analysts' consensus forecasts gathered by Visible Alpha. Since the United States is only one market, and currently a little over 40% of total revenue, the pledge is undoubtedly a huge number - even if it includes some relabelling of plans that were already underway. Soriot has also made the specific commitment to build a new manufacturing facility in Virginia, which will partly focus on producing ingredients for the racy weight-loss treatment market.
True, there's not a huge downside to investing in the largest pharmaceutical market in the world, where drugmakers can often charge 10 times what they can in Europe. Scaling up in the massive U.S. obesity market could pay off over time. On the other hand, analysts told Breakingviews that manufacturing in the United States can be costlier than in Europe because of generally higher staff turnover. Building a new factory also comes with risks. It's hard to argue that Soriot and his rivals would be doing all of this if not for the threat of tariffs.
That, of course, could leave Big Pharma with a potential headache if Trump flakes on pharma tariffs, which could be announced as soon as next month. For Soriot and his fellow drugmaker CEOs, it makes sense to hope for TACO but get ready for TOFU.
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