Navigating Internal Constraints and Uncertainty

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 are the internal constraints that nearly a quarter of life sciences CFOs are reporting as their biggest manufacturing obstacle, and what other hurdles are they encountering?

Stewart: So at BDO, we just completed our CFO survey, and part of that was looking specifically at life sciences CFOs. As you said, 24% of them said internal manufacturing constraints were a huge problem that they face. There’re a lot of different challenges hidden there. We think of big companies, like Pfizer, that have huge global footprints of manufacturing, but the reality is, most companies are smaller, don't have internal manufacturing, and may work with a CDMO partner, or scaling to that.

They're still in discovery phase and moving towards clinical phase. Some of those just don't have the capability or capacity for internal manufacturing and wonder how to do that. It’s sort of a confluence of events that make it an incredibly challenging time. The Biosecure Act, which was proposed last year, puts strain on potential Chinese partners to produce biologics for people, and currently, the talk about tariffs and other things have made it very challenging, because people just don't understand what's likely to happen in the future, and so it's very difficult for people to plan and figure out what they're going to do right now.