Ellie Gabel, associate editor, Revolutionized explores how it has been a turbulent few years for pharmaceutical supply chains.
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Supply chain concept.
Just as things were returning to normal after the COVID-19 pandemic, geopolitical instability reared its head. How will the trade war impact drugmakers? Can industry professionals prepare for the unpredictable volley of policy changes? Discover how geopolitical uncertainties are affecting supply chains in the pharmaceutical sector.
Recent policy changes add to geopolitical instability
President Trump’s “reciprocal” tariffs initially exempted drug products. However, in April, President Trump threatened the sector with a major, targeted tax similar to the 25% levied on steel, aluminium and automotive part imports. This move would end the country’s decades-long participation in the World Trade Organisation’s Pharmaceutical Agreement, which eliminates tariffs and other duties on medicines and their ingredients.
The Trump Administration has launched an investigation into pharmaceutical products to incentivise domestic production. While the president has hinted at a temporary reprieve — enough time for companies to move operations to the US — he has made it clear the tariffs will happen.
Unpredictable duties are the latest in a series of geopolitical events shaping the global economy. The emerging trade war between the US and China is fuelling deglobalisation, causing unrest among logistics leaders. Notable conflicts like the Russia-Ukraine war and the Red Sea attacks have contributed to inflation and supply chain disruption.
How pharmaceutical supply chains will be impacted
The geopolitical landscape is evolving rapidly, complicating predictions. However, trade wars, armed conflicts and fluctuating inflation rates will almost certainly impact supply chains, affecting drugmakers and pharmacies.
The impact on consumers
An Ernst & Young-commissioned report revealed a 25% tariff on these imports would increase drug costs by almost $51 billion annually, raising prices by up to 12.9% for consumers. Drugmakers would likely absorb that hit in the short term, which could impact accessibility and fuel future shortages.
In theory, people would be able to shoulder the cost. A $120 prescription would only increase in price by around $15.50. However, tariffs could make generics inaccessible. According to the US Food and Drug Administration, branded options are an estimated 85% more expensive than their off-brand counterparts. That $120 would become $250, which is far less manageable.
The impact on drugmakers
Drugmakers — especially those producing generics — may be unable to continue absorbing tariff costs because they operate on very thin profit margins. The discovery, development and approval process costs $1 to $2 billion and takes 10 to 15 years per candidate, most of which fail clinical trials. Even if they scale back midprocess to minimise losses and disperse risk, they lose the money they have already spent.
Companies may turn to unproven vendors or leverage questionable loopholes to avoid absorbing unnecessary costs, potentially exposing them to counterfeiting or introducing noncompliance risks. Those outcomes could lead to fines and legal action.
Adjacent industries would be affected, too. A McKinsey & Company report shows supply chain disruptions experienced over a decade could cost medical technology companies the equivalent of 38% of their annual earnings, potentially totalling hundreds of billions of dollars.
How can industry professionals prepare themselves?
The world recently experienced the largest election year in human history — 3.7 billion people voted in 72 countries — so geopolitical instability is expected as administrations change. However, this past year has led to excessive turbulence for supply networks. The pharmaceutical industry has been somewhat spared but will soon face tariffs.
Since the short-term outlook is not optimistic, professionals should prioritise resilience throughout their extended supply networks. Just-in-time manufacturing can help them keep ordering and inventory expenses relatively low.
Another approach is to change sourcing. While the industry has favoured traditional stainless steel, the scope for single-use alternatives has evolved rapidly in recent years due to rising demand for biopharmaceutical products. These sterile components are disposable, accelerating turnaround times and reducing costly downtime. These savings create a safety net.
The last major strategy for improving resilience in pharmaceutical supply chains is digitalisation. Leaders can stay connected and informed with real-time insights, instant communication, interconnected technology stacks and automation.
Deloitte’s Center for Health Solutions surveyed biopharmaceutical supply chain leaders in 2023. It found that 33% plan to scale digital technology adoption by 2028. Those who have already done so have reported quantifiable gains in key areas. Around 50% report risk-sensing improvements, while 47% have made sourcing more cost-effective.
The future outlook of pharmaceutical supply chains
No one can predict the future. However, indicators suggest supply chain disruptions are unavoidable. Even if world leaders agreed on an amicable trade solution today, the threat of tariffs and embargoes will linger. Decision-makers must decide whether to reshore production, adopt new trade routes or change vendors.