Predicting and Planning for Tariff Impacts: Q&A with Bill Coyle

Bill Coyle
Global head of biopharma
ZS

As the tariff situation continues to unfold in unexpected ways, the pharma industry must prepare for multiple eventualities. This includes making plans for the most impactful outcomes, which could result in pharma products facing significant tariffs. Bill Coyle, global head of biopharma at ZS, spoke with Pharmaceutical Executive about the ways that pharma companies can predict these impacts and then strategize around them.

Pharmaceutical Executive: How can pharmaceutical companies strategize for the future given the generally uncertain nature of the landscape at the moment?
Bill Coyle: One of the challenges you're hearing from business leaders across industries, not just pharma, is the uncertainty in the landscape and what that means for their planning, For pharma in particular, it's challenging because of the long term nature of their investments and plans. You're investing now in assets that won't come to market for many years. Manufacturing plants and supply chains can't just be changed overnight. Of course, that's true in many industries, but pharma might take a bit longer. That's the challenge that our firm is faced with, as are many other industries. A lot of it comes down to how to prepare, plan, and think about the eventualities we may need to be thinking about and making sure they're still making medium- to long-term decisions based on where they need to invest. Pharma companies also need to make plans to accommodate tariffs that are going to reduce their margins or create pressure on them to bring different pricing strategies to the market. They need to think through what those actions are that they can or should take. Obviously, you see many companies also announcing investments in manufacturing capacity in the US, but those are longer term plays because they can't turn on capacity tomorrow.

PE: How complex would the tariffs be if implemented specifically on pharmaceutical products?
Coyle: One of the open uncertainties is what particularly would be tariffed If it was a focus on API and then finished goods. That has some implications if it's everything along the value or supply chain, which could include filling and finishing the vials themselves, or packaging, etc. It depends on the nature of the drug and the inert additive ingredients outside the APIs. That's an uncertainty of what's really going to be tariff. Is it the API, or is the final finish good? Obviously, if there's multiple sources for some of the components, it's perhaps a bit easier to protect yourself against tariffs. If the API is manufactured in one location, however, and if that's not in the US, then that's going to be more difficult.

PE: What is the expected impact to the global supply chain?
Coyle: There's two ways to think about it. One is on the branded side, and then the other is the generic side. The implications are different on the two sides. On the branded side, the pricing is very highly regulated and structured in terms of what one can and can't do with price reimbursements and things that nature. If there are reciprocal tariffs for drugs coming from the US into Europe, it would be difficult to adjust to prices on the European side. Now on the US side (which is where the main focus is from the administration's tariff efforts), if you have a tariff or a product coming from the European Union, and that's where you manufacture, the ability to pass that through is going to also be quite difficult. That’s because you have payer agreements that are in place, often locked up for a couple of years, that might have clauses that don't allow price increases. You've got prices, for example, in the Medicaid channel that are set and calculated based on discounts in the marketplace and your prior price increase history over time. It's a little bit challenging to think about what the net impact will be right away. I think it will likely be mostly a margin hit while manufacturers attempt to best reconfigure their supply chain. But like I said before, it's not the work of a couple of weeks. It's quite a bit of time, and the impact of that could be that if you're unable to do anything on the pricing side in the branded world, and are really just faced with a margin squeeze, it might cause manufacturers to look for other places to cut while they try to optimize their supply chains.

This could potentially mean a reduction in R&D spending. If you think about where a lot of the spend goes, obviously in pharma, it's R&D. Does that mean you have to take a more aggressive look at some of the programs that you're funding from an R&D perspective, and make cuts ther?

It's hard to say what the impact exactly on the supply chain will be, because I think likely, I'd expect you wouldn't have supply shortages and things in the branded space because of the margin that does exist there, but the margin pressures would likely cause you to have to cut other places.

On the generic side, it could be a bit more challenging. The margins are quite slim. Some products, given the competitive nature over time, have really winnowed down to being made by just a few manufacturers. These manufacturers are probably not in the US, and they're unlikely to be able to absorb the increase due to the thinness of the margins. In the US market, generic prices are generally quite low.

The industry might be faced with issues around advanced stocking that perhaps create some supply chain difficulties. You might have shortages that occur. You might have price increases that have to come through the channel, which aren't going to wouldn't be easy for genetic manufacturers to push through, but might be necessary to continue the supply.