Adapting to dynamic U.S. pharma policy: Strategies to future-proof your supply chain

The pharmaceutical supply chain has shifted from a relatively stable model to an uncertain, globally interconnected system driven by events revealing systemic vulnerabilities. Historically, disruptions were short-term and isolated (e.g., natural disasters, strikes or demand spikes) causing manageable delays that were seen as exceptions. Now, disruptions are more frequent and global, prompting a rethink of risk and resilience.

Before the 2020s, pharmaceutical supply chain risk management in the West mainly addressed two areas: demand disruptions (e.g., outbreaks, new drug uses, vaccine and antibiotic shortages) and supply disruptions (e.g., local shocks like hurricanes or port disputes affecting production and active pharmaceutical ingredient [API] supply). The COVID-19 pandemic starkly revealed the vulnerabilities of just-in-time inventory systems and single-source supplier strategies, underscoring the urgent need for more resilient, diversified and risk-aware supply chain strategies. In 2025, tariffs imposed by the U.S. government have emerged as a potential major disruptor, sending shockwaves across the entire value chain. In response, managing tariff-related risks quickly became a strategic imperative for pharma leaders around the globe.

Trade tariffs

The Trump administration’s June 3 tariff announcements, including a 25% duty on APIs from China and 20% on those from India, stem from Section 232 investigations under the Trade Expansion Act of 1962. These measures aim to address national security concerns by reducing reliance on foreign drug manufacturing. On April 9, 2025, a blanket 10% tariff was imposed on all countries, later suspended for 90 days except for China. Trump issued an additional executive order on July 31 further modifying tariff rates. The administration argues that tariffs will incentivize domestic production through executive orders targeting regulatory barriers, such as expedited approvals for U.S.-based facilities.

Potential impacts for the pharmaceutical supply chain include:

• Cost escalation across the supply chain: Tariffs have triggered inflationary pressures at multiple levels. Several firms reported API cost increases of 12%-20%, particularly in widely used molecules, such as amoxicillin, acetaminophen and metformin. A 25% tariff on pharmaceutical imports could increase annual U.S. drug costs by nearly $51 billion, translating to price hikes of up to 12.9% if passed through to consumers—especially affecting high-cost specialty drugs used in cancer and diabetes treatment. Sterile packaging materials, glass vials and analytical testing instruments are now subject to 15% tariffs. This has disrupted downstream drug release timelines, particularly for biologics and temperature‑sensitive therapies. Ocean freight rates from China to the U.S. West Coast surged from $3,500 to $6,500 per container by early June and have since climbed further. East Coast rates have hit $7,500. While air freight prices dipped 3% to $5.67/kg in February 2025, they remain significantly higher than predisruption levels.
• Shortages of essential medications: Generic drugs make up 90% of U.S. prescriptions, with many APIs sourced from China and India. Tariffs on these imports risk disrupting supply chains, raising drug costs and worsening shortages of critical medications like antibiotics and cancer treatments. The Healthcare Distribution Alliance expressed concern that tariffs on pharmaceuticals could adversely affect American patients, either through increased medical product costs or manufacturers leaving the market.

Most favored nation executive order

The introduction of the “most favored nation” (MFN) pricing mandate by the U.S. marks a significant inflection point for the global pharmaceutical industry. (On July 31, the administration sent letters to 17 of the world’s largest drugmakers outlining steps they “must take” to moderate the prices of prescription drugs in the U.S.) By requiring that U.S. drug prices for select branded products match the lowest price paid in peer countries, the MFN executive order exerts direct downward pressure on pricing and, consequently, on cost structures across the value chain.

• Amgen showed proactive communication and strategic framing. Within 48 hours of the April 1, 2025, announcement of the Section 232 investigation, Amgen used its Q1 earnings call to publicly quantify its financial exposure—$0.23 per share—and position its $900 million Ohio facility expansion as a long-term hedge against geopolitical and tariff risks. CFO Peter Griffith further advocated tax incentives as a preferable alternative to broad-based tariffs, signaling policy engagement and operational alignment early in the process.
• Pfizer within a month delivered a detailed assessment of the tariff impact and disclosed an estimated $150 million tariff burden, largely driven by 12% of its API imports facing 25% duties.
• Johnson & Johnson (J&J) disclosed its tariff exposure after two weeks following the April 1, 2025, Section 232 investigation announcement. On April 15, CFO Joseph Wolk publicly quantified an estimated $400 million tariff charge for 2025, primarily affecting its medtech business due to tariffs on U.S.-origin products shipped to China and related retaliatory tariffs. Wolk emphasized the limited ability to offset these costs through price increases given existing contractual arrangements. By mid-July, following the U.S.-China tariff pause, J&J revised its forecast, halving the tariff impact to around $200 million and raising full-year sales and profit guidance. The company concurrently highlighted a $55 billion investment plan to expand U.S.-based manufacturing capacity, positioning it as a strategic hedge against ongoing geopolitical and tariff risks. This transparent and timely disclosure illustrates J&J’s proactive engagement with trade policy dynamics and operational resilience amid evolving tariff uncertainties.
• Merck disclosed its tariff exposure within three weeks of the April 1, 2025, Section 232 tariff investigation announcement. On April 24, during its Q1 2025 earnings call, CEO Robert Davis and CFO Caroline Litchfield reported an estimated $200 million tariff-related cost primarily driven by U.S.-China tariffs and retaliatory duties affecting key APIs and vaccine components. Merck stressed the limited ability to pass these costs on to customers due to contractual constraints, echoing industrywide challenges. While acknowledging the tariff headwinds, Merck underscored its robust inventory levels and flexible supply chain, positioning these as buffers against near-term disruptions. The company highlighted ongoing operational adjustments, including reprioritizing existing U.S. plants, expanding contract manufacturing and accelerating internal manufacturing investments to mitigate medium-to-long-term tariff risks. Since 2018, Merck has invested $12 billion in domestic manufacturing and plans an additional $9 billion through 2028.
• Eli Lilly adopted a direct and investment-focused stance. On its Q1 earnings call on May 1, 2025, just 30 days after the April 1 Section 232 announcement, CEO David Ricks explicitly addressed the tariff issue. He conveyed that while current tariffs weren’t materially affecting the 2025 outlook, any expansion—especially retaliatory measures—would pose risks to future performance. Ricks urged policymakers to favor enhanced tax incentives over trade levies, reaffirming Lilly’s strategy of accelerating U.S. manufacturing. He noted the company’s ongoing $27 billion domestic expansion and its aim to supply all U.S. needs from American-made facilities—mirroring Amgen’s proactive framing.

Response 2: Domestic investments and manufacturing expansion
 

Several companies used the tariff discourse as an opportunity to reinforce or announce significant domestic investments:

• J&J disclosed a potential $400 million tariff impact while simultaneously announcing a $55 billion U.S. investment plan through 2029, emphasizing its view of tariffs as regulatory events to navigate—not derail—its supply strategy.
• Merck forecasted $200 million in tariff exposure and committed $9 billion in U.S. manufacturing and R&D investments, bolstering supply chain autonomy. Merck unveiled a $1 billion facility in Wilmington, DE, dedicated to producing Keytruda, its blockbuster cancer immunotherapy. This investment safeguards against API import tariffs. Simultaneously, Merck KGaA (the German subsidiary) adjusted its 2025 sales guidance downward by 3%, citing tariff uncertainties affecting its life sciences division.
• AbbVie estimated a $30 million hit from current tariffs but pledged $10 billion over 10 years to build four new U.S. facilities, explicitly stating it would not pass costs to consumers.
• Eli Lilly responded with plans to build four U.S. manufacturing sites, including reshoring small-molecule API production—an effort driven by both tariff risks and unprecedented demand for its diabetes and weight loss therapies, more than doubling Lilly’s domestic capital expansion commitments since 2020. By localizing production of APIs and finished drugs, Lilly aims to insulate itself from both tariff risks and MFN-driven price cuts.
• Swiss-based Roche and Novartis have announced combined investments exceeding $73 billion in U.S. manufacturing through 2030. On April 22, 2025, Roche unveiled a $50 billion investment plan for the U.S. over the next five years. This initiative will expand Roche’s already significant U.S. footprint, which includes 13 manufacturing and 15 R&D sites across eight states. Novartis announced a $23 billion investment in U.S.-based manufacturing and R&D infrastructure over the next five years. This expansion includes 10 facilities—seven of which will be brand new—and will enable Novartis to produce 100% of its key medicines for U.S. patients domestically. By expanding stateside production, both companies seek to maintain premium pricing power while avoiding potential 25%-31% tariffs on EU and Swiss imports.

Response 3: European firms reassess supply chains

European firms offered nuanced responses:

• AstraZeneca announced shifts in U.S. supply away from European plants, citing concerns that Europe was losing pharmaceutical investment to the U.S. and China in a post-tariff era.
• GSK expressed confidence in its ability to manage U.S. tariff risks, citing its strong U.S.-based manufacturing footprint, continued contingency planning and deployment of advanced technological strategies like AI and dual sourcing. CEO Emma Walmsley stated GSK is “well positioned” to absorb tariff shocks and has restructured its supply chain “for regional resilience” post-Haleon spin-off. She emphasized the company’s proactive use of AI-driven cost reductions and built-in supply chain flexibility to mitigate the impact.
• Roche disclosed ongoing engagement with both U.S. and EU regulators while assuring stakeholders that inventory buffers and diversified sourcing would limit operational exposure.

Across the board, the tariff debate has evolved from a regulatory issue into a strategic inflection point—accelerating supply chain localization, deepening policy engagement and reshaping capital allocation in pharma. This moment also highlights why cohesive and resilient operational frameworks are no longer optional, they are essential. In an era of policy unpredictability and geopolitical uncertainty, organizations must be able to rapidly quantify risk, coordinate cross-functional responses and communicate with stakeholders. The ability to act decisively and transparently not only protects market position but also builds long-term trust with investors and regulators alike.

Reaction to the MFN order

While the MFN executive order’s stated goal is to make medicines more affordable for American patients, its ripple effects are most acutely felt in the supply chain, where cost-of-goods-sold (COGS) pressures are mounting. Pharma companies are responding to the order by doubling down on supply chain optimization, cost containment and risk mitigation. The focus is on building more agile, transparent and resilient supply chains that can withstand both regulatory shocks and ongoing global disruptions. The industry’s ability to adapt will determine not just COGS management but also continued access to medicines for patients in the U.S. and beyond.

ZS has done additional internal evaluation of the major players’ responses to the tariffs and MFN executive order to compare their readiness and resilience. For more of this analysis, contact us. 

The evolving policy landscape—marked by the Section 232 tariffs and the MFN executive order—has exposed critical fault lines across pharmaceutical supply chains. For example, companies will need to make some sizable bets about their domestic versus international supply chains on the basis of whether tariffs will stick. In a world where tariffs stick, some companies could be “left behind” if they don’t have U.S.-based manufacturing and are operating at a higher cost of goods than their competitors who do.

Meanwhile, the MFN executive order creates significant uncertainty about where and when pharma will launch assets outside the U.S., making supply chain flexibility and good scenario planning even more critical.

From procurement and manufacturing to distribution and regulatory compliance, disruption is no longer a remote risk—it’s a present and persistent reality. The range of responses from pharma leaders highlights not only the urgency of action but also the complexity of building resilience on a scale.

ZS is helping pharma companies accelerate this shift from reactive problem-solving to proactive, strategic resilience-building.

For example, a large medtech company is actively collaborating with ZS to assess operational exposure, model strategic scenarios and prioritize investments that insulate its supply chains from geopolitical shocks. Similarly, other biopharma leaders are partnering with ZS to drive cross-functional alignment and decision-making speed.

What’s clear from our analysis of disruption responses is that supply chain leaders are under mounting pressure to connect the dots across procurement, logistics, regulatory and finance quickly and decisively. Delayed quantification and siloed responses are no longer viable. Today, these leaders must bring clear, data-backed insights and coordinated action plans to the executive table to protect not only bottom-line costs but also top-line performance and, critically, patient access.

Structural resilience is no longer optional—it’s a competitive differentiator.

ZS combines deep domain expertise, advanced analytics and orchestration capabilities to help life sciences supply chains respond to disruption in a faster and smarter way. Here’s how:

• Tariff response control-room-as-a-service: ZS can establish and operate a centralized response command center, providing structure, analytics and cross-functional orchestration for ongoing crisis response. For example, ZS’s Risk Management Playbook has helped clients quickly align legal, regulatory and procurement functions around tariff scenarios.
• Network simulation capability: ZS builds cost and lead-time simulations at the SKU, supplier and lane levels, offering full bill-of-material and N-tier visibility to inform trade-offs. For example, our Network Digital Twin asset enables real-time scenario planning for tariff impact and supply route diversification.
• External disruption sensing: We integrate external data feeds—tariffs, port delays, customs regulations and freight rates—through proprietary sensing models. For example, ZS’s External Sensing Asset provides early warnings and adaptive risk signals to leadership teams.
• Resilience assessment and design: ZS offers a structured framework to assess resilience maturity across supply chain practice areas and design fit-for-purpose mitigation levers. For example, our SC Resilience Assessment measures over- and under-resilience, aligning mitigation strategies with business continuity and growth goals.

From life sciences companies’ rapid disclosure and strategic framing to their capacity-building investments and end-to-end readiness, the message is clear: Resilient supply chains are the foundation of sustainable growth and strategic agility in today’s policy-driven environment.

ZS is proud to partner with life sciences organizations at this inflection point, helping them turn disruption into a durable advantage. Through targeted cross-functional sprints and scalable capabilities, we enable clients to not only manage the immediate impacts of tariff shocks and pricing mandates but also to future-proof their supply chains for whatever comes next.