How Pharma Leaders Can Secure Supply Chains

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: In what ways might tariffs disrupt pharma supply chains, and how can leaders evaluate and prepare for the resulting challenges?

Stewart: I wish there was an easy answer to that. I think the most honest answer is, nobody knows yet, and it's very challenging, because these—even in the last month or two—have changed in terms of when they were going to happen and what was going to happen. The challenge is the uncertainty, and that's really the most challenging thing in any business, uncertainty about what's going to happen. You can plan. Maybe you'll plan badly, or maybe you'll plan well if you know what's going to happen, but when you're uncertain of what's going to happen, it makes it much tougher.

With the fact that things are so uncertain, here's what people can do. One is that we expect and believe there will be tariffs on some things. Some of those seem to be pretty obvious, most things from China. Let's just ignore pharmaceuticals specifically right now. There are tons of raw materials that we use in the life sciences industry. Even if you're manufacturing in the United States, you still need to purchase equipment supplies. If you're using tubing, reusable, or single-use bags for bioreactors, filters, gloves, a huge number of things that are just routine, everyday purchases for people, whether they're for research and development or manufacturing, they’re coming from China and other countries. Those seem pretty certain that there are tariffs that are going to be implemented and potentially increasing.

I think in those cases, just like any other business, people want to look at their supply chains, they want to try and understand the basics you'd want to anytime. Do I have a reliable supply chain? Do I have a supplier who can provide products to me when I need them with a reasonable timeframe? Do I have the right cost suppliers? So maybe even with a 10% tariff or a 20% tariff, my supplier in China still is a lower cost than buying it domestically or buying it from someone in Europe.

Then three, I think it's good business practice, regardless, to have alternate supply chains. You should have backup suppliers for most of your products. Maybe they're more expensive, maybe you don't need to go to them, but that's just a really good business practice to have backup suppliers, particularly if it's an item which has to be qualified. You might even go through the qualification process to make sure that you can substitute in those suppliers as business conditions change.