Challenges pharma companies face in push into US manufacturing
Yahoo Finance senior health reporter Anjalee Khemlani explains the pharmaceutical industry's push into domestic manufacturing in the US, as a reshoring tactic to tighten up the supply chain. Planning can still take several years to be finalized and face cost barriers amid tariffs.
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Well, the pharmaceutical industry has its eye on US-based manufacturing. What does that mean near term for the sector? Yahoo Finance's Anjali Comlani joins us now with more on obviously there's been a big push in many different industries to reshore manufacturing.
Um, pharmaceutical companies seem pretty much on board with this, but what does it look like in actuality?
Well, it actually is that they're on board and they have been, but not for the reasons that have anything to do with tariffs. This is not something new for them. Really, the pharma industry has been pushing for reshoring since the COVID-19 pandemic. And that's because that's when they first learned of the risk of the supply chain. So what we have now is this like grand big number, 270 billion plus in investment dollars that has been announced by some of the major companies in the last few months. And that is because of projects that have already been on the table or new projects that they may have pushed up the launch for announcement for in light of the Trump administration pressuring with tariffs and the threat of tariffs. The idea being that if they commit to these reshoring projects, then they will somehow get out of the tariffs. Now, that doesn't seem to be panning out. We know that the Trump administration has said that they will be announcing some sort of tariff soon. So all eyes on that, and what that means then for these companies, will they continue to commit? Will they slow down the pace of them? We're going to sit there and and and wait for them to tell us. But in the meantime, just take a look at the pros and cons of what this reshoring really looks like. On the pro side, you have a majority of drugs currently being produced in Europe and Asia. Europe takes the branded and Asia really for the generics. Now, US really uses a lot of generic drugs, so a lot of our reliance is on Asia for that reason. As I mentioned, COVID-19 showed us that the supply chain is at risk, and so bringing it back will help us with that. Also, newer medications, personalized medications, need to be closer to home. And that's one of the reasons why these companies were already focused on reshoring, or rather opening plants here, because there are some newer medications that have maybe shorter shelf lives or need to be closer to the patient. Um, it's just an easier process. Meanwhile, these companies are also looking at patent cliffs. And that's something that would help boost more manufacturing because they need to focus on their R&D pipeline, and that requires more manufacturing for dosing for clinical trials and the like. Now, looking at the disadvantages, uh, costs are up at this current time in part, thanks to tariffs on some of the construction material. Also, the construction area specifically for manufacturing for pharma, they are facing labor shortages and some of them is getting disrupted by immigration. So that's stressing the sector and means that any of these projects could hit snags and pauses. There's also the pressure from the inflation reduction Act and the most favored nations clauses, and how much price absorption the company is has to do, the companies will have to deal with there. Meanwhile, also, the planning takes about three to five years. So if they're looking at rolling out these plans by 2030, um, they should really be on it right about now to make that happen. I also want to talk about, um, some of the areas. One really interesting thing that is happening though with this shift and this focus is I want to take a look at this map right now, which has sort of these established hubs for pharma manufacturing. You know that the West Coast and California, um, as well as the East Coast, North Carolina, that research triangle, New York, New Jersey area, as well as Boston, has been major hub. Texas and Ohio are coming up interestingly enough, as well as a little bit of South Carolina tied to North Carolina, and then Indianapolis. That one's interesting to me because that is all and entirely Eli Lilly. Thanks to the JLP1. So we're seeing some more interest in some different areas. So what I'm interested in seeing is how much that really appeases the Trump administration, which wants to bring back, you know, manufacturing at large, and will it actually succeed in doing that for this industry? That's the question.
Yeah. All right. Thank you, Ange. Appreciate it.
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