The pharmaceutical industry is on high alert as US President Donald Trump proposes a 200-250% tariff on drug imports, which could significantly increase prices and reduce profit margins. While the tariffs are set to be announced soon, a grace period of 12 to 18 months has been indicated before they take effect.
“Even with this delay, production costs are likely to rise, potentially leading to drug shortages and higher consumer prices,” noted Kathryn Kinch, Senior Pharma Product Manager at GlobalData, an analytics company.
“Historically exempt from tariffs due to their essential nature, pharmaceuticals are now under scrutiny for perceived unfair pricing, prompting major firms like Novartis and Eli Lilly to invest in US operations,” Kinch added.
A challenging market
The 35th edition of the Biotech Beyond Borders Report published in June this year, researchers from Ernst & Young details how the biopharmaceutical industry is currently in a challenging market with a unique environment of macroeconomic uncertainty and constrained access to capital, high interest rates, increasing inflation, shifting regulatory policies and tariff turmoil.
Commenting on the challenges, Rich Ramko, Americas Life Sciences Sector and Biotechnology Leader at Ernst & Young confirms that… “During a challenging time for biopharma and biotech, the industry needs to look for the best ways to be efficient and extend cash runways.”
A separate study, commissioned by the Pharmaceutical Research and Manufacturers of America and conducted by Ernst & Young, showed that a 25% tariff on pharmaceutical imports would increase the drug costs in the U.S. by approximately US $ 51 billion per year, resulting in an average increase of 12.9% price on drug prices. Based on data from 2023, the United States imported more that US $ 200 billion, 73% from European countries including Ireland, Germany and Switzerland. That year, the national sales of finished drug products included US $ 393 billion.
The impact of tariffs would, based on the opinion of most experts, make it more difficult to increase (US) domestic production, which in turn, also mat lead to the increase of drug costs for patients, while the potential impact of retaliatory tariffs may a reduction of U.S. exports of pharmaceutical products (including ‘finished’ products), limiting overall competitiveness abroad and, according to Ernst & Young-report, the the likelihood of loosing nearly 500,000 jobs directly linked to drug manufacturing and drug exports,
Short-term benefit
According to credit rating agency Morningstar DBRS, while US-based contract development manufacturing organizations (CDMOs) may, also temporarily benefit in the short term, while persistent tariffs could hinder their ability to meet (US) domestic demand.
GlobalData’s Bio/Pharmaceutical Outsourcing Report reveals more news related to pharmaceutical manufacturing, including that Staska Pharmaceuticals received a warning letter from the U.S. Food and Drug Administration (FDA) following a facility inspection that revealed serious issues, including the use of unregistered bulk drug substances, unapproved new products, misbranded drug products, and unsanitary conditions, leading to a voluntary recall of contaminated ascorbic acid solution.
Expanding capabilities
Meanwhile, several companies, including CDMO and biopharmaceutical companies, are expanding their manufacturing capabilities:
- Axplora Group is investing € 35 million to enhance its Farmabios site in Italy,
- Nippon Shokubai is set to tenfold its nucleic acid drug API production in Japan, and
- Vetter Pharma-Fertigung is constructing a new clinical manufacturing site in Chicago, Il, USA.
In addition, global pharma companies such as Swiss headquartered Novartis and Roche, French based Sanofi, and U.S.-based Eli Lilly& Co and Johnson & Johnson are committing to major investments in the United States in hopes to evade the negative consequences of tariffs and a challenging pharma market. However, experts, including Swiss UBS Group, agree that ‘relocating’ commercial scale drug manufacturing to the United States may take between 4 and 5 years, which means that a suggested ‘tariff grace period’ of 12 to 18 months is ‘insufficient.’
For now, companies are left with difficult choices exasperated by unclear policies, making planning more like gambling and hoping for the best.
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Reference
[1] Bio/Pharmaceutical Outsourcing Report, July 2025 GlobalData. Online. Last accesses in August 2025.
[2] US FDA WARNING LETTER. Staska Pharmaceuticals, Inc. MARCS-CMS 699291 — May 05, 2025 Last accesses in August 2025 [Letter]
Featured image. © 2016 – 2025 Unsplash. Used with permission
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