In a video interview with Pharma Commerce, Brad Stewart, BDO’s national life sciences co-leader, describes the challenges that tariffs may pose to reshoring manufacturing services in the life sciences industry. He highlights the complexity of supply chains in this sector, which are large, long, highly-regulated, and slow to change. Given that future administrations may alter tariff policies, reshoring decisions need to account for the potential reversal of these changes. While it can be more expensive, prioritizing U.S.-based manufacturing capacity can help de-risk supply chains, particularly as tariffs and uncertainty continue to affect global operations.
Stewart emphasizes that the life sciences industry’s supply chain is not limited to finished products but also includes raw materials and components sourced from different countries. Drug substance production often occurs in one country, with fill-finish processes in another. The unpredictable nature of tariffs on goods at various stages of production further complicates the situation, especially when combined with issues like transfer pricing and taxes. These complexities require companies to develop strategies to better manage these risks.
To address these challenges, Stewart suggests that life sciences companies focus on minimizing risks by moving more of their manufacturing capacity back to the U.S. While this may come at a higher cost, it offers the benefit of stability in the face of changing tariffs and taxes. Stewart notes that building new manufacturing capacity in the U.S. is expensive but advisable for companies planning long-term investments, as it allows them to better manage risks and focus on their core mission of producing life-saving products.
Stewart also comments on the internal constraints that nearly a quarter of life sciences CFOs are reporting as their biggest manufacturing obstacle; how artificial intelligence can help support pharma leaders in managing their supply chains; and much more.
A transcript of his conversation with PC can be found below.
PC: What is the Biosecure Act, and in what ways are pharma companies preparing for it, especially from a compliance standpoint?
Stewart: The Biosecure Act came about last year, and Congress thought that certain Chinese companies had too much access to the to the US market, or created a threat to US companies because they had access to information about American citizens, a variety of different things. In the Biosecure Act, Congress posed several different things. One was that if a company received funding from the US government, they were barred from doing business with specific Chinese companies. In the Biosecure Act, Congress named five companies to start with. They additionally set up a process where future companies could be added to that list, and the bill never passed. It passed the House, didn’t pass the Senate, and then we’ve changed Congresses and administrations, so we don’t know what’ll happen.
Although, I was on a call last week, and at least one of the people felt that it’ll come back up again at some point this year, but essentially, what it did is it created turmoil in people’s supply chains. The five companies that were named are some of the largest partners of life sciences companies around the world, and all of a sudden, potentially not being able to have your product manufactured by them is very challenging. For companies that already were partnered with those companies, I think most of them took a wait-and-see approach, because if you’re making a biologic, you may have a year or 18 months of tech transfer, and all the cost—that’s after finding a new partner to manufacture a product—to move the product, and manufacturing to a new supplier.
Many people were sort of like, well, let’s keep a close eye on this and make a decision if something happens. For companies that were looking for new partners, from what we’ve seen talking to our BDO clients, there was a big drop off in people that were partnering with those Chinese companies. It was just a lot of potential risk to them. Many of these are companies that have one product, it’s their first time manufacturing, and the thought of potentially mid-clinical trial or something else, having to go and find a new partner and transfer it to someone else, was just too much risk for them. I think a lot of those companies have chosen partners other than those named, even in many cases, choosing non-Chinese partners, just because of the potential risk. That’s definitely created a lot of stress and turmoil in the supply chain, people moving to US CDMOS, European CDMOs, Korean, all over the world, and so again, it’s like I said before, uncertainty isn’t helpful. We’re already in life sciences, an incredibly high-risk business. By definition, it’s a high-risk business. And then to introduce these other uncertainties, makes it exponentially more challenging.