The pharmaceutical industry is facing a seismic shift as global supply chains undergo significant changes driven by recent US tariff announcements, regulatory complexities, and an increased emphasis on regionalization. According to Frank Binder, Managing Director at GSCA (Global Supply Chain Advisors), the current state of the market represents a departure from the previously established norms of international trade, with implications that will last for decades.
In a recent episode of the PharmaSource podcast, Binder highlighted the urgency for companies to adapt to these new realities. He emphasized that waiting for clarity is no longer an option, urging firms to take immediate steps to build resilient supply chains in this evolving landscape.
The Impact of Tariffs on the Pharma Market
While the US comprises over 10% of global trade across all sectors, its role in the pharmaceutical market is particularly pronounced. The announcement of 100% tariffs on pharmaceuticals has sent ripples of concern throughout the industry. Binder stated, “For pharma, it has been quite unsettling. Even though the US makes about 10% of all trades globally, for pharmaceuticals it’s very different. The US as a market is still number one in the world.”
Although many of these tariff threats have been temporarily suspended in favor of company-specific negotiations, the uncertainty surrounding tariffs and pricing mechanisms has effectively halted decision-making for many firms.
The immediate consequences of these tariffs have manifested in shipping patterns, with companies in Switzerland and Europe rapidly moving significant quantities of finished products into the US before implementation. This has led to artificial spikes in shipping activity, followed by subsequent declines.
Navigating Import Complexities and Investment Uncertainties
The complexities of import regulations have significantly increased. Binder noted, “When I talk to my colleagues who are engaged in trade compliance in the US, it has become much more complex to import products. The rules have multiplied. They are not always very clear.” As the US Customs and Border Protection and the FDA have intensified enforcement, companies facing uncertainties regarding their import compliance should seek expert assistance promptly.
Despite announcements of over $400 billion in US manufacturing investments, Binder expressed skepticism about the full realization of these commitments. “There is certainly a lot of positioning and making the company look like a good child following the desires of the US government. But it’s not random. There is certainly a movement to reshoring that’s very clear,” he remarked.
The challenge lies in making sound investment decisions amid uncertainty. Binder warned that the previous rules of international trade are no longer applicable, stating, “It’s impossible to continue a wait-and-see approach, because the current situation—these are new rules to the game.”
As companies navigate these turbulent waters, they must consider infrastructure realities. Investments are likely to concentrate in established pharmaceutical clusters such as Research Triangle Park, Boston, and San Diego, leading to competition for resources such as construction workers and specialized equipment. Rising construction costs, exacerbated by tariffs on essential materials like aluminum and steel, further complicate the landscape.
The Shift from Global to Regional Supply Chains
Looking ahead, Binder anticipates a clear trend toward regionalization, although he does not expect it to apply universally to all products. “I don’t expect that this will apply to each and every product. Some active pharmaceutical ingredients (APIs) and drug products will definitely continue to be globally sourced,” he noted. For high-revenue drugs that are exposed to tariffs, he expects companies to enhance supply chain resilience through dual sourcing and regional manufacturing models.
The rise of contract development and manufacturing organizations (CDMOs) presents an opportunity for companies to diversify more rapidly than if they were to build new facilities. “If you start with a project to build a new manufacturing plant, that’s going to take years and hundreds of millions of dollars,” Binder explained. “If you find a CDMO that suits the product you’re making and is also in the right place, you can be considerably faster and do it without major investments.”
This strategic approach to sourcing and manufacturing could prove vital as the industry adapts to new realities.
Building Resilient Supply Chains
The importance of maintaining robust API inventories cannot be understated. Longer shelf life and the option for retesting make APIs an essential component for enhancing supply chain resilience. “APIs could be stored much more easily because the volume is smaller, and over a much longer time,” Binder highlighted.
He also pointed to the issue of rare earth elements as a cautionary tale for the pharmaceutical industry. China currently controls 80% of global supply of these critical materials, illustrating the risks of relying on a limited number of sources. “As a pharma industry, we shouldn’t get ourselves into this kind of situation,” he asserted.
Companies must prioritize risk assessment and strategic sourcing decisions that consider not only economic factors but also geopolitical dynamics. Binder recommends implementing comprehensive Enterprise Risk Management programs to identify critical products and enhance resilience.
“What the priorities are from a senior leadership perspective should drive these programs,” he advised. Business continuity management plans must also incorporate specific actions to build supply chain agility, enabling companies to switch sources as needed.
Looking Toward the Future
The forces driving onshoring and regionalization are expected to persist in the coming years. “Governments all over the world are saying, ‘Hey, we want to have our own industry. We want to protect it,’” Binder noted. Within the next three to five years, pharma supply chains will likely become more regionalized, although global elements will still play a role.
The trade-off for this regionalization is higher costs. “The cost of goods will go up, so profitability of the industry is likely to be less in the future,” Binder cautioned.
Companies that proactively build resilient, flexible supply networks now, supported by thorough risk assessments and technological infrastructure, will be better equipped to navigate this new era of supply chain management.
