Risk Mitigation Planning for Pharmaceutical Tariffs

The impact of tariffs on the pharmaceutical and biotechnology industries is unclear as tariff decisions unfold in the second quarter of 2025. However, the U.S. government is considering imposing tariffs on pharmaceutical products. On April 16 of this year, the federal register announced that a 232 probe¹ has been launched:

The Secretary of Commerce initiated an investigation to determine the effects on the national security of imports of pharmaceuticals and pharmaceutical ingredients, including finished drug products, medical countermeasures, critical inputs such as active pharmaceutical ingredients, and key starting materials, and derivative products of those items.²

As we dive into the ramifications of pharmaceutical tariffs it becomes clear their potential impact could be substantial.

Potential Impacts of Tariffs on the Pharmaceutical and Biotechnology Industry

Foreign Manufacture of Active Pharmaceutical Ingredients

The CDER Fiscal Year 2023 Report on the State of Pharmaceutical Quality noted that, “of 168 CDER-regulated essential medicines, medical countermeasures, and critical inputs, 80 drug products were solely reliant on foreign manufacturing sites for their active pharmaceutical ingredient (API).” ³ Unavailability of API for these drug products could result in drug shortages and escalating drug manufacturing costs which may impact the consumer.

The Healthcare Distribution Alliance (HDA) has alerted the public and industry to the potential adverse impact of tariffs on the supply of generic drugs, stating “We are concerned that placing tariffs on generic drug products produced outside the U.S. will put additional pressure on an industry that is already experiencing financial distress. Distributors and generic manufacturers cannot absorb the rising costs of broad tariffs. It is worth noting that distributors operate on low profit margins — 0.3 percent. As a result, the U.S. will likely see new and worsened shortages of important medications and the costs will be passed down to payers and patients, including those in the Medicare and Medicaid programs.” ⁴

According to the WTO’s 1994 Pharma Agreement, the majority of pharmaceutical products, and the substances used to produce them are exempt from tariffs. The Agreement was signed by Canada, the European Union, Japan, China, Norway, Switzerland, the United Kingdom, and the United States.  If tariffs are imposed on pharmaceuticals, this could amount to a violation of WTO rules.⁵

Given the complexity of pharmaceutical supply chains, the disruptive impact of tariffs should not be underestimated. The Biotechnology Innovation Organization (BIO) released results from a membership survey that underscores this problem. Analysis of the survey results indicates that:

• Nearly 90% of U.S. biotech companies rely on imported components for at least half of their FDA-approved products. Tariffs could compromise the supply of medicines for US patients.

• Proposed tariffs on the European Union would force 50% of the surveyed members to scramble for new research and manufacturing partners. Half of those surveyed say they would have to rework or potentially delay regulatory filings, jeopardizing the pace of innovation.

•  80% of the biotech respondents to the survey claimed they will need at least 12 months to find alternative suppliers. Furthermore, 44% of them would require more than two years to complete their search for these suppliers. These delays could disrupt the pipeline of breakthrough treatments.⁶

Eli Lilly's CEO, David Ricks, stated the company will absorb the costs of potential tariffs on pharmaceutical imports, but this will likely lead to cuts in research and development (R&D). Ricks explained that drug prices are capped in Europe and the U.S., so the impact of tariffs will be felt elsewhere, potentially forcing companies to cut staff or R&D spending, with R&D likely to be the first to be affected.⁷

Considerations for Short and Long-Term Tariff Impacts

Potential Short-Term Impacts of Tariffs

Morningstar assumes pharmaceutical tariffs are enacted but do not last after 2026 due to political pressure from midterm elections. In this scenario, they do not believe that biopharma is likely to undertake an extensive reevaluation of its manufacturing footprint, with the possible exception of incremental U.S. capacity additions.⁸

Potential Longer-Term Impacts of Tariffs

Tariffs could have longer-term impacts on the R&D network which feeds into product development pipelines. The increased cost of manufacturing drug products in a tariff climate may force biotech companies to develop fewer drug candidates. Additional downward pressure on drug candidate development could come from recent research budget cuts by the National Institutes of Health (NIH) and their impact on academic R&D, which is a powerful drug development engine. This dynamic has the potential to have a significant negative impact not only on biotech company product development which relies heavily on academic research to feed their product pipeline but also large pharmaceutical companies whose R&D efforts rely heavily on acquiring product candidates from biotech companies.

Strategic Mitigation Considerations

• Drug substance is subject to lower tariffs than drug product. Consider importing drug substance into the U.S. and execute fill/finish in the U.S. (Celltrion, a manufacturer of biosimilars based in South Korea, is considering this course of action).⁹ 
• Identify critical raw materials and consumables that are currently sourced from countries impacted by the tariffs and develop a plan to source these materials from local suppliers. Given the uncertainties surrounding the implementation of tariffs, do not immediately launch this plan, but establish the steps required for its execution should the need arise. For drug product used in active clinical studies, key planning steps include:

• Review the associated certificates supplied by the manufacturer of the replacement material (CoA, CoO, TSE/BSE certificate) to ensure that the material’s critical quality attributes are properly tested, have appropriate acceptance criteria and the source of the material is well described and meets regulatory requirements. Note that the replacement material may have different release tests and acceptance criteria for lot release than the material currently in use. In this case, evaluating manufacturer certificates may not be sufficient to establish suitability of the replacement material for use in the manufacturing process.

• If possible, evaluate the replacement material in a scaled down version of the established manufacturing process to confirm that the resulting product meets all lot release acceptance criteria. Execute a risk assessment for drug product manufactured using the replacement material that is intended for use in animal safety studies or in a clinical trial. This assessment should compare the safety, identity, potency, purity (including the impurity profile) and stability attributes of drug product manufactured using the replacement material versus drug product manufactured using the established material.

• Based on the results of the risk assessment and the pilot scale manufacturing study it may be necessary to execute a comparability study. Given the time and cost associated with this type of study, consider discussing the pilot scale data and the comparability study plan with the Agency.^{10, 11}

• For licensed products a change in the supplier of a critical raw material considered to potentially have an impact on critical drug product quality attributes should be discussed with the Agency. Which reporting category this post-approval CMC change will fall under will be an important outcome of this discussion.¹²
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• Stockpile the materials purchased from foreign suppliers in the U.S. before tariffs are imposed. Be mindful of the projected raw material use-rate so that unused materials won’t expire on the shelves because more inventory was purchased than the production schedule could accommodate. Conversely, If the drug substance/drug product is currently being manufactured in another country, then in the tit-for-tat climate of retaliatory tariffs, consider the possibility that a country may impose tariffs on raw materials and starting materials being imported from the U.S. Consider stockpiling those materials in the country of manufacture. If a warehousing function must be secured to implement this strategy (i.e., to properly store starting materials like cell banks), then assess the time and cost of identifying and qualifying a GMP compliant facility as well as the effort entailed in executing the legal paperwork. Allow a minimum of three to four months to complete this action plan.
• Identify and assess Contract Development and Manufacturing Organization (CDMO) candidates to replace companies in tariffed countries that currently manufacture the drug product and/or drug substance. Replacing a foreign CDMO with U.S. based manufacturer will be expensive and require several years to complete once process transfer, pilot runs, assay transfer, assay qualification (and/or validation) and comparability assessments are factored into the product manufacturing timeline.