In a video interview with Pharma Commerce, Dave Malenfant, a healthcare supply chain expert, discusses the potential impact of a proposed 250% tariff on pharmaceutical imports, emphasizing that the effect depends heavily on where in the supply chain the tariff is applied. If imposed on active pharmaceutical ingredients (APIs), the impact would be minimal, as APIs contribute relatively little to the total cost of a finished drug and adjustments could be made through negotiation. However, if applied to finished pharmaceuticals or key components—such as bottle plugs, closures, molded parts, and glass—the cost implications could be significant, since these materials represent a substantial portion of overall manufacturing costs.
Malenfant notes that the US conducts much of its pharmaceutical research and development domestically but often outsources manufacturing to lower-cost countries, only to re-import the products for sale. He questions this practice, arguing that products sold in the US should be manufactured domestically to strengthen the supply chain and reduce dependency on foreign production. He cites examples of non-US companies, such as the world’s largest generic drugmaker, establishing manufacturing facilities in the United States as a step in the right direction.
The interview also addresses duty drawback. a current process allowing companies to recover duties paid on imported pharmaceuticals, which the proposed tariff regulation would reportedly eliminate. Without duty drawback, the financial burden on manufacturers and distributors would increase.
While higher component costs could drive up product expenses, Malenfant believes that companies are unlikely to pass these increases directly to patients. Instead, they may absorb the costs by reducing margins, particularly since US pharmacompanies already operate with some of the highest profit margins globally. However, the ripple effect would reach insurance companies, prompting complex negotiations between insurers, distributors, and manufacturers to prevent direct cost increases to patients and maintain access to medications.
He also comments on how the tariff could cascade through the pharma supply chain; the downstream operational challenges that might arise for pharma companies; mitigation strategies industry leaders should already be exploring; and much more.
A transcript of his conversation with PC can be found below.
PC: How have the latest technological tools helped to reduce pharma manufacturing costs in the United States?
Malenfant: A lot of the new technologies that we have in our processes that use predictive analytics, artificial intelligence, using a lot of the tools that we have in order to do manufacturing—we’re seeing how some of the manufacturing facilities, and some of the stuff that they’ve implemented—have been absolutely remarkable at bringing down costs.
Labor is relatively inexpensive in the United States, and when you talk about pharmaceutical manufacturing as a component of the total cost of manufacturing, it’s very small. What you have to look at is material and overhead. Do I have the overhead and do I have the automation? We are well-positioned in the United States to produce pharmaceuticals much more efficiently, effectively, and safely than a lot of other countries.