Shortages and Slowdowns: How Pharmaceutical Tariffs Threaten Supply and Innovation
- Liam Boyd
- Apr 15
- 4 min read
Updated: Apr 15
Table of Contents
Over the past several weeks, the Trump administration has rolled out, rolled back, and otherwise equivocated on many aspects of the tariffs aimed at nearly every other country and territory globally (including uninhabited ones). For better or—more likely—worse, there has been little vacillation on the advent of pharmaceutical tariffs, with the administration doubling down on Monday its desire to (unsurprisingly) invoke Section 232 of the Trade Expansion Act on pharmaceuticals. Despite continued negative reactions across the global economy, the administration seems steadfast in their belief that these tariffs will bring pharmaceutical (and other industries’) manufacturing back to the U.S. and ultimately benefit the American people.
Although these statements have been paired with limited specifics, we nonetheless believe it’s important to explore what the likely ramifications of these tariffs will be. Some outcomes have already been discussed extensively (supply chains, generics, prescription medication shortages), others deserve more attention.
Overview of the Situation and Debate to Date
The U.S. has not proven itself to be immune from drug shortage issues. At any given time, these weaknesses are on display in the FDA Drug Shortages database, and the COVID pandemic and prior U.S. - China trade war enforcements have shown more extreme cases of disruption. In both cases, shortages were experienced across a variety of therapies: from targeted cancer therapies to widely used ADHD medications. There is little disagreement about why these shortages arise: economic factors are a key root of shortages, thanks to low-profit margins for generic drugs, lack of incentives for quality manufacturing, and market consolidation (4).
Manufacturers of prescription drugs (which 61% of Americans report currently taking) are particularly constrained in their ability to pass along increased production costs and therefore more sensitive to market fluctuations. With China’s role in API manufacturing skyrocketing, it’s highly likely that manufacturers would see increased production costs in a tariff scenario (see chart below).
With China’s role in API manufacturing skyrocketing, it’s highly likely that manufacturers would see increased production costs in a tariff scenario
Considering largely inflexible pricing, these manufacturers are left with essentially two options in the near term: cut costs and risk quality issues or exit the market and reduce overall drug supply.
Eli Lilly and Novartis, among other large pharmaceutical manufacturers, have made headlines by announcing $27B and $23B of investment into U.S. manufacturing capabilities. In the case of Novartis, the infrastructure investment seems to be aimed specifically at tariff concerns: “all key Novartis medicines for U.S. patients will be made in the United States.” Lilly, on the other hand, offered a broader justification (albeit in line with Trump’s stated desires) of “creating a future where American innovation leads the world in pharmaceutical manufacturing.”
Eli Lilly and Novartis, among other large pharmaceutical manufacturers, have made headlines by announcing $27B and $23B of investment into U.S. manufacturing capabilities
Such moves might validate the administration’s hopes, but they should not be construed as near-term solutions: manufacturing facilities typically take at least 5 years to operationalize once ground has been broken, and these initiatives have only just been announced. A weakened FDA is unlikely to be able to accelerate facility approvals, no less.
Wider Consequences Abound
Beyond these relatively well-established consequences, we have identified several other areas in which we expect to see significant impacts from tariffs, namely: clinical trial cost and timeline expansion, increased budget caution and tightening, and fewer early-stage trials.
Beyond APIs, clinical trials rely on a variety of materials and services sourced from low-cost hubs that have been targeted by tariffs. Such materials and services include lab supplies, diagnostic instruments, IVRS/IWRS systems, central lab consumables and workflows, and remote monitoring tools. Increased costs for these and other items are likely to drive up both per site and per patient costs, while elongating recruitment timelines.
Core Clinical Execution Risks:
Increased budget caution will not be novel to anybody who’s been in the industry for the last several years. 2022 serves as an ominous example of how uncertainty around economic pressures (in that case high inflation and geopolitical stress) impacted biopharma. Sales cycles were stretched, and discretionary spending categories, such as external advisory, data analytics, and advertising were cut back significantly.
Spurred by increased budget caution and clinical costs/risks, we believe it is possible to see an industry shift towards prioritization of later-stage and more “de-risked” assets over novel, early-phase programs. 2022 again serves as an example of how macroeconomic tightening and investor pullback led to a drop in trial starts, particularly for early-stage oncology and rare disease assets.
We believe it is possible to see an industry shift towards prioritization of later-stage and more “de-risked” assets over novel, early-phase programs
Companies with fewer late-stage assets and greater reliance on licensing, acquisitions, or external funding may be more exposed to the financial and operational pressures these market shifts create.
The View from the Crow’s Nest
The Trump administration’s tariffs—if realized—are likely to have profound and painful effects for the pharmaceutical industry and patients alike. In the near term, shortages, affordability, and quality control issues remain the core concern. Over a longer horizon, the U.S. may have to contend with stifled innovation and missed opportunities for breakthrough advancements in care.
If you are interested in learning more, get in touch at strategy@spinnakerLS.com.
Spinnaker offers true partnership and comprehensive guidance to help leaders navigate the complexities of the Life Sciences industry and chart a path to success. From early-stage market assessment through commercial execution and ongoing lifecycle management, we deliver tailored solutions to ensure optimized practicable results.
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