Continuing confusion about compliance is exacerbating the harms that new pharmaceutical tariffs cause the biotech industry, especially small innovative firms, experts say.
Tariffs of up to 100% on patented pharmaceuticals and their ingredients that went into effect Sept. 29 are expected to increase costs for innovators, discourage drug development and investment, and potentially reduce patient access to drugs they need. They also weaken U.S. competitiveness at a time when China is seeking to replace America as the world leader in biotech, experts say.
Meanwhile, the lack of information on how to comply with the Administration’s guidance on tariff implementation is creating chaos that complicates day-to-day operations of drug makers, according to the biotech industry. Innovators of all sizes have questions, ranging from types of patents that will be considered to the process and criteria for seeking an exemption to the tariffs.
“With these tariffs, the United States has reversed decades of sound trade policy, creating new uncertainty for biotech innovators, and increasing the burden on the small- and mid-sized companies responsible for many of tomorrow’s breakthrough medicines,” according to a statement from the Biotechnology Innovation Organization (BIO).
As BIO research shows, small- to medium-sized biotechs are responsible for 71% of the industry’s output and 54% of the new drug applications. The smaller innovative companies generally have less available capital to adjust to shocks like tariffs or to take moves that could reduce the tariff burden, experts noted.
The tariffs are being implemented after a Department of Commerce Section 232 investigation determined that global supply chains are risky, and concluded that onshoring drug production bolsters national security. Yet, experts argue that the additional obstacles to global networks posed by the tariffs will weaken the supply chain and reduce our access to medicines we need.
Companies that agree to move their production to the U.S. can apply for reductions in tariffs, but this relief is out of reach for most small biotechs, which must outsource all of their production. Suddenly shifting their complex manufacturing processes from overseas contractors may be impossible, says Marta Wosińska, a senior fellow at the Brookings Institution, according to Axios.
These smaller firms also generally lack in-house capacity to adjust to new tariff reporting burdens for compliance, experts say.
Insufficient guidance
But even those firms seeking to comply do not have adequate guidance to do so, experts say.
As Bio.News reported on Sept. 14, with two weeks until implementation, much of the necessary federal guidance was still missing, including information on how to qualify for exemptions based on the type of drug being imported, the country of origin, and engagement in Most Favored Nation (MFN) pricing agreements or onshoring commitments.
On Sept. 23, days before the tariff went into effect, the Department of Commerce did issue new guidance, but “its guidance has created more confusion,” according to a Sept. 27 Wall Street Journal editorial.
“Biotech companies will have to apply for exemptions for each individual product, regardless of whether it meets one of the specified categories, and explain ‘why the import meets an urgent U.S. health need.’ Urgent will be in the eyes of the bureaucrats who rarely act with urgency,” says the editorial.
Indeed, the Commerce Department’s guidance does not seem to offer hard, fast rules on the definition of “urgent U.S. health need”, nor provide clarity on the criteria that Commerce will use to make case-by-case determinations.
“The rationale can include information such as the type of disease the product treats and an assessment of alternative therapies or lack of alternative therapies for the type of disease the product treats, the number of U.S. patients that use the product, and whether or not the product is available in other jurisdictions,” the Commerce department’s guidance says. While the guidance notes. “Commerce will make an individual, fact-specific, company-specific decision for each request.”
There is no set time frame for these decisions, and companies still don’t know if those that are ultimately granted exemptions will have to pay full tariffs first and ask for refunds later.
The challenge to competition
Experts expressed concerns that both tariffs and the cost of compliance will eat away at funding that could be used for research, harming America’s competitiveness and the future of innovative therapies for the American people.
“One small company says tariff compliance could consume 2% to 4% of its working capital before it commercializes its first medicine,” says The Wall Street Journal’s editorial. “That means less money for research. It’s hard enough developing a new drug. Tariffs add more uncertainty that will discourage investment in U.S. biotech.”
While the justification given for the tariffs is strengthening national security, experts worry that by harming America’s ability to invest in biotech research, it will have the opposite effect.
“At a time when the United States should strengthen its biotechnology leadership to compete aggressively with China, these tariffs move us in the wrong direction,” says BIO’s statement.
