President Donald Trump's second term in office has been challenging for investors, at least so far. Trump imposed sweeping tariffs on imports from most countries worldwide. For now, several industries have escaped these trade policies, including pharmaceuticals. However, recent developments suggest that it won't last much longer. That could be bad news for leaders in this sector, including Eli Lilly (LLY -2.28%), the largest pharmaceutical company in the world by market cap. Should investors give up on the stock?

Tariffs are coming for the industry

On May 5, Trump signed an executive order to help boost U.S.-based drug manufacturing. Among other things, the president wants to make it easier and faster for the U.S. Food and Drug Administration to inspect drug manufacturing sites. Trump has explicitly said that his trade plans aim to bring back manufacturing to the U.S. And in addition to this executive order, he stated that his administration would announce pharmaceutical-specific tariffs within two weeks.

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Now, this won't come as too much of a surprise to Eli Lilly and its peers. A few weeks ago, the company's CEO, David Ricks, predicted that though Trump had spared the industry with tariffs, that wouldn't last much longer. 

Eli Lilly and many other drugmakers do quite a bit of manufacturing abroad since it's cheaper. The tariffs could increase manufacturing costs and lead to lower margins and profits for the leading pharmaceutical company. In an even worse case scenario, as Ricks argued, it could affect innovation in the sector.

Those might sound like good reasons to avoid Eli Lilly right now, but there is more to consider.

Eli Lilly is getting ready

One way to avoid tariffs is for a company to shore up its local manufacturing capacity. That way, there are fewer imported goods to tax, if any. Eli Lilly has been working on that project even before the current administration. The company recently announced a $27 billion investment to build or improve domestic manufacturing sites. With that, it has now put about $50 billion into similar projects since 2020. During Eli Lilly's second-quarter earnings call, Ricks said that the company has 10 active manufacturing projects. After completing these, Eli Lilly will be able to make therapies for its U.S. patients entirely within the country.

The drugmaker did not give a timeline for the completion of these projects, but that's still positive news for its shareholders and those considering investing in the company.

Look beyond this administration

One important lesson is that Eli Lilly can adapt to changing economic environments. Whether Trump's trade agenda survives his administration or not, we can expect Eli Lilly to find ways to adjust its strategy accordingly. That's why investors shouldn't focus too much on the current economic uncertainty, although keeping an eye on how things evolve is important. However, not much has changed regarding Eli Lilly's underlying business.

It is still producing financial results that are the envy of most of its peers. In the first quarter, Eli Lilly's revenue increased by 45% year over year -- which is exceptional by industry standards -- to $12.7 billion.

The company's shares fell on the heels of its earnings release due to unimpressive bottom-line guidance for the fiscal year 2025, but that's largely because of expenses related to an acquisition. It's not an issue that will haunt Eli Lilly regularly. The company also remains a leader in the fast-growing weight management market. Zepbound's sales in the first quarter came in at $2.3 billion, up from the $517.4 million reported in the year-ago period.

Eli Lilly's lineup will drive strong top-line growth for a long time, especially as it earns approval for newer products. Its pipeline in the GLP-1 space is second to none, while it has approved products and pipeline candidates in other fields that will also become blockbusters down the line. So, Eli Lilly has a robust underlying business, proven innovative abilities, a deep pipeline of promising programs, and the ability to adapt to challenging economic conditions. The stock looks like a no-brainer buy despite ongoing tariff-related developments.