Pharmaceutical firms struggle with transition to manufacturing amidst American tariffs
In the pharmaceutical industry, there is a near-term opportunity for expansion without significant infrastructure investment. However, this growth may be threatened by potential tariffs, which could reshape global drug supply chains and significantly increase costs.
The proposed tariffs, such as those suggested by the US government to reach 200%, could have severe long-term consequences for the industry and consumers. Niall Cunneen, an associate partner at Sia, warns that these tariffs could stress test the pharmaceutical industry, not just in terms of operational flexibility but also long-term strategic resilience.
The tariffs would sharply increase the cost of imported pharmaceuticals, especially generic drugs, which are crucial for affordable healthcare but often operate on very thin profit margins. This could force some generic manufacturers to exit the US market, exacerbating shortages and price volatility.
For the industry, the tariffs would disrupt the healthcare supply chain by affecting sourcing strategies, inventory planning, and long-term contracts. Many drugs rely on active pharmaceutical ingredients (APIs) and components imported from abroad, and sudden cost increases would strain manufacturers, especially generics, that already have narrow margins. The industry's ability to quickly reshore production is limited by infrastructure and time constraints, with experts suggesting a realistic shift would take four to five years.
On the consumer side, drug prices are expected to rise substantially, increasing out-of-pocket costs for patients and insurance payers. A 25% tariff on imports has been estimated to increase US national drug costs by approximately $51 billion, so a 200% tariff would lead to even more dramatic cost hikes. Additionally, limited availability of affordable generics would hit vulnerable populations hardest, as these are often the only accessible medications for many Americans.
The tariffs could also potentially reduce investment in research and development, slow the delivery of new treatments, and force price increases that may affect consumers. Moreover, the proposed tariffs could lead to immediate cost increases, potential drug shortages, and long-term consequences for innovation.
Despite these challenges, more than $170 billion in investment has been announced or redirected toward domestic pharmaceutical capacity in the US over the next five years. This trend toward regionalization of supply chains and reduced reliance on geopolitically sensitive markets is reflected in 57% of the organizations planning to increase their US footprint.
However, none of the interviewed organizations feel fully prepared for potential disruptions caused by tariffs. The complexity and regulatory requirements of pharmaceutical production make relocating manufacturing operations a slow and resource-intensive process. Challenges remain in terms of workforce availability and production agility in the pharmaceutical industry.
The research also highlights Ireland's strategic role as an export hub for pharmaceuticals. With Ireland's pharmaceutical and medicinal product exports rising by nearly three-quarters to €13.7 billion in May compared to the same month last year, the country could potentially benefit from the industry's shifts.
In conclusion, while the tariffs aim to encourage domestic production and reduce drug prices eventually, experts warn that hasty implementation without clear support measures could lead to fewer drug options, higher healthcare costs, slower patient access to medications, and a fragile drug supply system prone to shortages and price spikes.
The proposed tariffs, if implemented, could significantly impact the finance of both the pharmaceutical industry and consumers. For the industry, increased costs due to tariffs could lead to reduced investment in research and development, slower delivery of new treatments, and potential price hikes. On the consumer side, drug prices are expected to rise substantially, increasing out-of-pocket costs for patients and insurance payers.
