The Case for Reshoring Manufacturing to the United States

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: How will the tariffs impact the reshoring of manufacturing services?

Stewart: In four years, we'll have another administration, and maybe this goes the entire opposite direction. These are very challenging things, because our supply chains in the life sciences industry are large, long, highly-regulated, and take long periods of time to change, so changing something that you might change back in a couple of years is difficult.

I think there are some obvious things though. If you have capacity in the US now, does it make sense to prioritize that? Absolutely. That's just like we said in the earlier question, a way to de-risk your supply chain. If you're working with a CDMO or you have internal manufacturing capacity that you can utilize—and maybe it's slightly more expensive—it's probably worth that small additional cost to de-risk it and not have to deal with that uncertainty. It depends on what you're doing. Also, I think one of the things that people don't think about is that it's not just the finished products we worry about. We get raw materials from other countries. We purchase products that we need in the manufacturing process, whether it's for testing or actual manufacturing. One thing people don't think about is our supply chain to actually manufacture these drugs is global. It's not at all uncommon for drug substance to be made in one country and then fill-finish to occur in another country. That's why the uncertainty is frustrating. Because then you're like, okay, where are these tariffs going to be put on? When I'm shipping DS to another country for a fill-finish, or when that fill-finish product comes back, or at every point in that value chain? Then, you layer that on top of transfer pricing and taxes—not tariffs, but the actual taxes that that people are paying on these products. Those are very complex issues that I think companies are going to have to start to work through to try and understand how to best manage that.

PC: What strategies can pharma leaders use in order to start shoring up their supply chains?

Stewart: The easiest point for most life sciences companies now may be just to minimize risks like that. If I can move some of that capacity back in the United States, look to do more of the work here so that I'm not worried about what the taxes or tariffs or anything else may be going forward, those are just things that allow me to focus on my core business of making products to help save people's lives. I think the other thing—particularly about whether people will start to build new capacity in the United States, which Lily is doing—is that it’s a much more expensive thing to do, but I certainly think it makes sense if anyone's planning on building new capacity to very seriously consider doing that in the United States.