This is how new US tariff plans could disrupt biopharma

When U.S. President Donald Trump declared trade tariffs two weeks ago, it led to a global frenzy over a potential trade war. While the 25% tariffs imposed on Canada and Mexico have been shelved for a month, a 10% tariff was slammed on Chinese goods, after which, China clapped back with a 15% border tax on imports of certain U.S. fuel products. Now, the President has announced plans to slap 25% tariffs on all pharmaceuticals and semiconductor chips. As the economic war escalates, how do these tariffs affect the biopharma industry?

U.S. healthcare “relies heavily” on imports; what now with new tariffs on biopharma?

“The U.S. healthcare system relies heavily on imported medications and supplies,” said Shawn DuBravac, founder of Avrio Institute. “The recently announced tariffs could negatively impact the biopharma industry by increasing prices and exacerbating existing shortages.”

A report by the Healthcare Distribution Alliance (HDA), a trade group that represents pharmaceutical distributors, stated its concerns about placing tariffs on generic drug products that are developed outside the U.S.   

“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%,” the statement read. “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.”

Nearly 30% of raw ingredients used to make major drugs come from China, according to a report by Reuters. Moreover, the tariffs are expected to affect cancer and heart medicines as well as antibiotics like amoxicillin – all of which are heavily produced in China. 

“Many of the active pharmaceutical ingredients (APIs), precursor products, and generic drugs made in China and Mexico may end up costing more for patients in the U.S.,” said William Soliman, chief executive officer (CEO) of the Accreditation Council for Medical Affairs.

Echoing the HDA report, Caroline Shleifer, CEO of RegASK, an artificial intelligence (AI)-based regulatory research company, said that the new tariffs will disrupt the global supply chain for pharmaceuticals and life sciences, especially since a substantial share of APIs – around 13% used in the U.S. – and raw materials, including packaging components and production equipment, come from China.

“As a major supplier of critical pharmaceutical ingredients, China’s role in the supply chain is significant. Increased raw material costs are likely to trickle down the supply chain, raising overall production expenses,” said Shleifer.

Moreover, Shleifer worries that as production and transportation costs rise, drug prices will rise, which could give way to “inflationary pressures in healthcare and exacerbate existing affordability challenges.”

Drug prices predicted to increase; shortages may worsen

Prescription medicines in the U.S. cost nearly 2.78 times more compared to 33 other comparison countries in 2022, a study found. The imported pharmaceutical products to the U.S. were valued at more than $176 billion in 2023, with $6 billion of it – including antibiotics – arriving from China. 

“With the combined effect of rising costs and limited availability of raw materials, drug shortages may worsen. This could lead to critical medications becoming even harder to access, particularly for patients with chronic conditions such as neurological and cardiovascular diseases. Rising drug prices and shortages could make it more difficult for patients to afford the treatments they need, further limiting access to essential therapies,” added Shleifer. 

As out-of-pocket costs rise, people may be less likely to buy medicines, leading to poorer health outcomes and placing additional strain on public health systems. These risks heighten the urgency of addressing the ongoing challenges in drug pricing and supply chain resilience, Shleifer pointed out.

“The U.S. has a robust manufacturing base, but these tariffs may place additional pressure on domestic producers, requiring further investments in capacity and infrastructure to keep up with demand. The increased cost of production may also lead to reductions in research and development (R&D) investments, potentially delaying innovation and the market introduction of new therapies,” said Shleifer. 

U.S. trade tariffs: impact on clinical trials 

As biotechs and pharmaceutical sponsors have multiple costs to juggle when running global studies, this could impact clinical trials. Supply chain instability, as mentioned previously, might affect the availability of essential products. According to a podcast episode published in Clinical Trials Arena, Anshul Mangal, president of Project Farma, a consulting firm for biomanufacturing strategy and execution, pointed out that hospitals and research facilities could face a surge in costs for supplies such as gowns, gloves, and syringes, as well as medical equipment such as CT scanners and X-ray machines.

Mexico is the largest supplier of medical devices to the U.S. These include diagnostic tools, imaging equipment, and patient monitoring systems used in clinical trials. Plus, a third of disposable face masks and nearly all plastic gloves used in healthcare come from China.

“Increased tariffs will raise hospital spending on essential research tools. These disruptions could hinder the efficient conduct of clinical trials both in the U.S. and globally,” said Mangal on the episode. “So, therefore, tariffs on Mexican medical device imports would increase costs for clinical trial infrastructure, affecting trials set up, and higher costs for diagnostic kits and laboratory supplies may reduce the number of sites in the U.S. that participate in international trials.”

Mangal believes that this could lead to a shift in the locations chosen to hold global clinical trials. For instance, the countries that have not been hit with tariffs – yet – like India, South Korea, and Europe, “may become more attractive for trial sponsors looking to minimize research costs.”

To mitigate U.S. tariff-related costs, Shleifer added that biopharmas may relocate production, explore alternative supply chains, or even shift toward decentralized clinical trial models. Decentralized clinical trials are trials that take place at locations other than a traditional clinical trial site. This could mean a participant’s home, a local health care facility, or a nearby lab. This model has grown over the years, particularly since the COVID-19 pandemic, as a result of the need for patients to partake in trials remotely. However, risks such as disclosing sensitive patient information, data overflow, and data loss exist.

Are big biopharmas affected by the imposed and potential tariffs?

As the levies have come into effect in China, big pharma partnerships could be struck. Johnson & Johnson and AstraZeneca are both major players with close relations in China. For instance, Johnson & Johnson co-develops the CAR-T cancer therapy Carvykti – a drug on the cusp of being a blockbuster – with Legend Biotech, which has an office in China. And AstraZeneca bought the Chinese cell therapy specialist Gracell Biotechnologies for $1.2 billion. Tariffs could put a strain on big pharma relations in China, according to Biospace. 

Trump has also threatened to slam charges on Japan, South Korea, and the European Union (EU). And although big pharmas like Merck, Amgen, and Bristol Myers Squibb claimed that the tariffs on China don’t significantly impact them, the ones proposed for the EU are likely to.

Europe has become a base for manufacturing biologic drugs, so tariffs on the region could have a profound effect on the world’s largest biopharmas. Moreover, it can take five to 10 years to build a new pharmaceutical plant and meet U.S. regulatory standards, according to pharmaceutical lobbying group PhRMA.

Meanwhile, in South Korea, where they have enjoyed a free trade agreement with the U.S. since 2012, certain pharmas think that being malleable to changing trade landscapes is key.

The South Korean biotech SK Biopharmaceuticals currently depends on the manufacture of its epilepsy drug Cenobamate in Canada, but is now exploring options for a dual production system between the U.S. and Canada.

“I believe that rather than maintaining a single large manufacturing plant, it is important to maintain multiple production facilities flexibly in order to prepare for various risks arising from changing tariff environments and political landscapes between countries,” said Lee Dong-hoon, CEO of SK Biopharmaceuticals.

In fact, since Trump’s ‘Buy American, Hire American’ policy was signed in 2017, various companies have had to move with the times. For instance, Japan’s Fujifilm Diosynth Biotechnologies is building multiple plants in the U.S. to align with the order. So, it might be only a matter of time before biopharma companies hit by the tariffs come up with ways to dampen its effects.

In a report in The Korea Herald, Lee Seung-kyu, vice president of the Korea Bio Association, stressed this, and added: “Without immediate lobbying efforts and strategic actions, our market share could shrink and be overtaken by competitors within a few years.”

Mitigating rising costs 

Mirroring this, Shleifer explained that diversifying the supply chain might be the best way to minimize disruptions. Shleifer added that because small biotechs are particularly vulnerable to tariffs, as they rely on imported APIs, they may need to embrace technological innovation – investments in automation, artificial intelligence (AI), and advanced manufacturing technologies.

“Rising production costs could force these companies to cut R&D budgets and delay clinical study timelines. To counter these challenges, such companies may need to diversify their supply chains, explore alternative sourcing options, and form strategic collaborations to manage rising costs while continuing their research efforts,” said Shleifer.

While these proposed tariffs are bound to pose a significant challenge soon enough, Meri Beckwith, the co-founder of Lindus Health, is optimistic about the future.

“In the long run, companies that can swiftly adapt and relocate their manufacturing operations will have a considerable competitive advantage,” said Beckwith.

As uncertainty remains, we will have to wait and see in a few weeks time how things play out and how the biopharma industry plans to cope if these tariffs are put into action.

Partnering 2030: Biopharma Report

Download Inpart’s latest report revealing the priorities of out-licensers worldwide.