As the U.S. government considers imposing tariffs on pharmaceutical products in the second quarter of 2025, the implications for the pharmaceutical and biotechnology industries remain unclear. The investigation, initiated by the U.S. Department of Commerce, aims to evaluate the effects of these tariffs on national security, especially concerning the importation of pharmaceutical ingredients, finished drug products, and critical components like active pharmaceutical ingredients (APIs) and medical countermeasures.
At BioBoston Consulting, we are closely monitoring these developments. The potential ramifications of pharmaceutical tariffs could significantly impact both biotech companies and generic drug manufacturers. Let us explore the potential outcomes.
The Challenges and Risks of Pharmaceutical Tariffs
- Impact on Active Pharmaceutical Ingredient (API) Supply
According to the CDER Fiscal Year 2023 Report on Pharmaceutical Quality, around 80 essential medicines depend solely on foreign manufacturing for their active pharmaceutical ingredients (APIs). The introduction of tariffs could disrupt the supply of these vital ingredients, resulting in drug shortages and rising production costs. This, in turn, would increase the prices of medicines and negatively impact consumers.
- Pressure on Generic Drug Manufacturers
The Healthcare Distribution Alliance (HDA) has raised concerns about how tariffs on generic drug products could strain the financial health of the generic drug market. The HDA warns that distributors and manufacturers, who already operate on very low margins, may be unable to absorb the costs associated with these tariffs. This could lead to worsened shortages and increased prices for critical medications, impacting Medicare and Medicaid beneficiaries.
- Potential Violation of WTO Rules
Imposing tariffs on pharmaceutical products could violate the World Trade Organization’s (WTO) 1994 Pharma Agreement, which exempts most pharmaceutical goods from tariffs. Many countries, including the U.S., have agreed to this exemption. The imposition of tariffs could, therefore, face significant legal challenges and disrupt global trade in pharmaceutical products.
The Broader Economic and Supply Chain Consequences
- Disruptions in Global Supply Chains
The Biotechnology Innovation Organization (BIO) surveyed U.S. biotech companies and found that nearly 90% of them rely on imported components for at least half of their FDA-approved products. Proposed tariffs could disrupt the flow of critical materials and hinder the supply of medicines for U.S. patients. Companies may be forced to seek new suppliers, which could delay regulatory filings, increase costs, and potentially interrupt the research and development pipeline for new treatments.
- The Impact on Biotech and Pharma R&D
Eli Lilly’s CEO, David Ricks, warned that tariffs might compel companies to cut costs, with research and development (R&D) being one of the first areas to experience cuts. In an already constrained market with capped drug prices in Europe and the U.S., tariffs could exacerbate the financial pressure on companies, reducing their ability to innovate and develop new therapies.
Short-Term vs. Long-Term Impact of Pharmaceutical Tariffs
Short-Term Effects of Tariffs
If pharmaceutical tariffs are enacted but were lifted after the 2026 elections, Morningstar suggests that biopharma companies will likely avoid significant changes to their manufacturing footprint. However, this scenario could still lead to price increases and potential short-term supply disruptions as manufacturers adjust.
Long-Term Effects on the Biotech Sector
In the long run, pharmaceutical tariffs could have profound effects on the biotech R&D landscape. The increased cost of manufacturing drugs could result in fewer drug candidates entering the pipeline. Additionally, the recent cuts to the National Institutes of Health (NIH) budget could further dampen the academic research that often feeds into biotech product development. This would impact not only small biotech companies but also large pharmaceutical companies that depend on biotech to supply new product candidates.
Strategic Mitigation for Pharma Companies
- Exploring U.S. Manufacturing Alternatives
One potential mitigation strategy involves importing drug substances into the U.S. and performing fill/finish operations domestically. This approach could help bypass tariffs on finished products while keeping costs manageable.
- Sourcing Critical Raw Materials Locally
Another strategy is to identify critical raw materials that are currently sourced from tariff-impacted countries and transition to local suppliers. It is important to begin preparing this transition well in advance, as it could take over a year or more to find and qualify new suppliers.
- Stockpiling Materials Before Tariffs Hit
Companies may also consider stockpiling raw materials before tariffs are imposed. Careful planning will be necessary to ensure that materials are not wasted and that production schedules are aligned with inventory management.
- Evaluate Alternative CDMO Partners
If tariffs affect current Contract Development and Manufacturing Organizations (CDMOs), companies may need to assess new U.S.-based manufacturers. This process can be costly and time-consuming, but it may become necessary to ensure continuity in drug production.
Act Now: Plan for the Impact of Pharmaceutical Tariffs
As the U.S. government continues its investigation into the potential imposition of tariffs on pharmaceutical products, it is crucial for companies in the biopharma and biotech industries to begin planning for the possible impact. With the right mitigation strategies in place, you can safeguard your supply chain, minimize disruptions, and continue to drive innovation in the industry.
Contact BioBoston Consulting Today
At BioBoston Consulting, we specialize in providing strategic guidance to help biopharma and biotech companies navigate complex regulatory challenges, including potential tariff implications. Our experts can help you develop proactive solutions to mitigate risk and ensure the continuity of your operations in this uncertain climate.
📩 Contact us today to discuss how we can support your business in responding to the evolving landscape of pharmaceutical tariffs.