Biopharma supply chain plans must navigate contradictory US policies
A granular analysis and approach is key to survival
Gopal Nadadur is senior vice president for South Asia, Sam Ide is vice president for China, and Alex Melillo is associate vice president for Japan at The Asia Group, a strategic advisory firm headquartered in Washington, D.C. Gopal is based in New Delhi and Sam and Alex are based in Washington, D.C.
Asia-based biopharmaceutical supply chains are facing a peak period of geopolitically induced uncertainty. Washington is the key source of this upheaval, with industry strategies simultaneously upended by President Donald Trump's tariffs and onshoring policies, national security-focused regulations and pharmaceutical pricing pressure.
The policy priorities are overlapping, at times contradictory, and uncertain in their timing. However, not all countries and segments of the biopharmaceutical supply chain will be impacted equally. Generalized approaches and panicky takeaways can be based on an inaccurate reading of the issues. Understanding the impact on Asia's biopharmaceutical supply chains, company by company, requires a more granular approach.
"Reciprocal" bilateral tariffs unveiled by the Trump administration in early April have led to frantic trade negotiations between the White House and more than 90 countries. However, these tariffs exempted pharmaceutical imports, and so, if fully implemented, would not directly impact pharmaceutical products.
Instead, a Section 232 investigation that was initiated on April 14 could prove more directly impactful to global supply chains. That investigation is supposed to examine U.S. national security risks emanating from dependence on overseas sources for pharmaceutical products. Tariffs are the usual remedy for these types of trade investigations.
After receiving initial investigation results, on July 9, Trump stated his intent to authorize up to 200% tariffs on pharmaceutical imports over a 12-to-18-month period. Initial tariffs could go into effect as soon as August. No one can quite be certain what Trump actually will do on this matter.
That kind of drastic Section 232 tariffs on pharmaceutical products could only be based on an over-simplified picture of these supply chains and trade flows. The United States in fact enjoys an export surplus and competitive edge in innovative pharmaceutical products resulting in a $1.1 billion pharmaceutical trade surplus with China. In contrast, the bulk of U.S. imports comprise lower-cost generic, basic and critical medicines and inputs from sources including China, India, the European Union and Israel.
Depending on the specifics of potential Section 232 tariffs, commoditized products -- largely from India, China and the EU -- would be most impacted. So would innovative products made in Asia and the EU, with Ireland possibly losing its competitive edge as a geography of choice for pharmaceutical multinationals, including U.S.-based companies.
The potential implications involve a few scenarios, with producers and/or patients bearing the costs. One scenario would be companies investing to shift supply chains to "in the United States, for the United States" facilities to avoid tariffs. A second scenario could involve fewer shifts in innovative and higher-value product supply chains, with producers as well as the U.S. patients accepting higher prices that build in the costs of tariffs. A third and related scenario could involve commoditized and low-margin product supply chains remaining largely unchanged, with U.S. patients bearing higher costs.
Amid partisan gridlock in Washington, there is one area of wide agreement among politicians. The U.S.-China competition is here to stay, and with it the need for a national security-driven approach to international economic policymaking.
In 2024, the biopharmaceutical sector was pulled into the fray with the introduction of the BIOSECURE Act, which sought to cut ties between the U.S. and Chinese biotech "entities of concern." While the legislation did not ultimately pass, the current set-up of global biopharma supply chains continues to face risks stemming from the U.S. national security concerns.
The basis for the BIOSECURE Act involved concerns over intellectual property theft, data sharing and the potential for the U.S. biotech IP to be used by the Chinese government for nefarious purposes. In addition to naming Chinese genomics champion BGI as an "entity of concern," the legislation named WuXi Apptec and WuXi Biologics, both major global contract research organization/contract development and manufacturing organizations (CRO/CDMO). Chinese CROs occupy an important portion of the global supply chain, and so the draft legislation immediately changed the risk profile of Chinese CROs and CDMOs in the eyes of global industry players.
If U.S. companies are forced to decouple from Chinese biotech supply chains, the cost of drug development and manufacturing could increase -- at least in the medium term -- while global supply chain capacity outside China is reinforced, a process that could take years, and immense investments.
Trump's stated intent is to invoke most favored nation (MFN) rules to mandate that the world's lowest pharmaceutical prices are made available to the U.S. The underlying argument is that other countries appear to be unfairly benefitting from implicit cross-subsidies enabled by high prices in the U.S.
The U.S. MFN rules could upend the pharmaceutical industry and its tiered pricing approach across markets. The industry is already under significant pricing pressures in a range of markets including Japan, South Korea, Australia and India.
The rules could also hit biopharma companies from India, Japan and other countries. India and Japan respectively exported around $13 billion and $7.7 billion of pharmaceutical products to the U.S. in 2024 -- the U.S. accounts for over 30% of India's pharmaceutical exports.
That said, Washington could still adopt a more granular approach to MFN rules. Patients in the U.S. are impacted less by the costs of generics and many vaccines than by the prices of innovative products, e.g., brand-name drugs, specialty pharmaceuticals, new therapies and drugs for chronic conditions. As such, the Trump administration might focus MFN or MFN-like approaches toward higher-value kinds of health care products. The specifics of the approaches would determine implications for supply chains and business strategies. The U.S.-based companies would like to see Trump redirect his energies toward raising prices outside the U.S., ahead of squeezing prices in America.
Biopharma leaders must adopt three approaches for a more granular policy analysis to inform their strategies.
First, they analyze policies individually, not assume any overarching coherent strategy from the White House, then assess policy impacts on specific segments and geographies in pharmaceutical supply chains rather than as a general impact on the pharmaceutical industry as a whole. Policy ideas will evolve significantly from start to finish and may also face legal challenges impacting their viability and scope.
Biopharma leaders must accelerate the pace of diversification for their most at-risk supply chains, informed by granular analyses of a rapidly evolving policy landscape. Diversification through "friendshoring," while less central to Trump White House thinking compared with the Joe Biden White House, is still likely the best long-term mix of risk mitigation and reward.
They must also closely track ongoing developments involving trusted geographies -- such as India, Japan and South Korea -- and prepare for a range of best-case and worst-case scenarios while also proactively engaging on opportunities. Ongoing developments include the U.S. trade negotiations with these partners and nascent but promising strategic dialogues (e.g., between Japan and South Korea, and Japan and India).
Businesses should also explore opportunities from avenues such as the U.S.-India TRUST initiative for critical and emerging technology, including biotech and pharmaceuticals, and India's recently concluded or ongoing trade negotiations with the EU, U.K. and European Free Trade Association.
A final area of potential opportunity involves individual markets' biopharma-focused initiatives. For instance, the Japanese government -- despite ongoing challenges with pricing policies -- is developing or assessing strategies to promote smoother clinical trials, support rapid approvals, and reward early launches of innovative medicines, particularly in pediatrics and oncology.
In the current rapidly evolving, confusing, and highly uncertain state of play, granular analysis is key. Granularity can make the difference between well-informed supply chain strategies and wild shots in the dark.