Emerging Pharma companies are an important partner to larger companies in drug development and as customers to CDMOs/CMOs. What has been the impact thus far on evolving US trade policy, including tariffs, and changes in healthcare policy and funding? DCAT Value Chain Insights takes an inside look.

By Patricia Van Arnum, Editorial Director, DCAT, pvanarnum@dcat.org

Tariffs remain top of mind
How tariffs will evolve in the US is very much a situation in flux, but two industry associations representing the biotechnology industry, including small -to mid-sized bio/pharmaceutical companies, the Biotechnology Innovation Organization (BIO) in the US and EuropaBio in Europe, have been vocal about the negative impact that tariffs would have on product innovation and the financial health of the sector.

As it stands now (as reported on May 15, 2025), the US government has imposed a baseline tariff of 10% on all US imports and two additional sets of tariffs are under consideration: (1) reciprocal taxes, which are imposed on a country-by-country basis and (2) specific pharmaceutical industry tariffs.

The Trump Administration first laid out a plan for imposing reciprocal tariffs in February (February 2025) as a means to counter non-reciprocal trading arrangements with its trading partners and as a way to improve US competitiveness, including in manufacturing. Those reciprocal taxes were scheduled to go into effect on April 9, 2025, but the Administration placed a 90-day pause (until July 9, 2025) on their implementation to enable countries to negotiate these tariffs with the US government. One exception was China, which had issued trade countermeasures in response to the pending reciprocal tariffs imposed on it and which became subject to a 125% import tariff announced by the White House on April 9, 2025, plus an additional 20% fentanyl-related tariff already imposed in February and March (2025), effectively creating a 145% tariff rate on imports to the US from China. Earlier this week (May 12, 2025), the two countries reached an initial agreement that would reduce tariffs, effective May 14, 2025, by 115 percentage points for an initial 90 days as trade negotiations continue. The deal reduces US tariffs on Chinese imports into the US to 30%, not including certain pre-existing measures, and tariffs on US imports into China were reduced to 10% from 125% as the countries continue to negotiate.

Another set of tariffs, separate and specific to the pharmaceutical industry, are also under evaluation. Last month (April 2025), the US Department of Commerce initiated an investigation to determine the effects on US national security of imports of pharmaceuticals and pharmaceutical ingredients. The investigation was initiated under Section 232 of the Trade Expansion Act of 1962, as amended, which allows the President to impose import restrictions based on an investigation and affirmative determination by the US Department of Commerce that certain imports threaten to impair US national security. In general, a Section 232 investigation considers the following (1) existing domestic production of the product; (2) future capacity needs; (3) manpower, raw materials, production equipment, facilities, and other supplies needed to meet projected national defense requirements; (4) growth requirements, including the investment, exploration, and development to meet them; and (5) any other relevant factors. For pharmaceuticals, the US Commerce Department provided public notice in the Federal Register of its Section 232 investigation into pharmaceuticals on April 16, 2025, with public comment ending May 7, 2025.

Throughout this process, the biotechnology industry, via BIO and EuropaBio, which represent both large and small bio/pharmaceutical companies, have commented on the potential harmful impact that tariffs would have. In late March (March 26, 2025), BIO released the results of a survey of its members taken in February (February 2025) that underscored the global nature of the bio/pharmaceutical supply chain and the negative impact that tariffs would have, particularly on imports from the European Union (EU). Globally, according to the study, nearly 90% of US biotech companies rely on imported components for at least half of their FDA-approved products. With respect to the EU specifically, the study found that 94% of biotech firms anticipate higher manufacturing costs if tariffs are placed on imports from the EU and that proposed tariffs on the EU would oblige 50% of companies to potentially find new research and manufacturing partners. In addition, overall, half of those companies surveyed say they would have to rework or potentially delay regulatory filings, and 80% of biotech companies said they would need at least 12 months to find alternative suppliers, and 44% said it would require more than two years.

EuropaBio, which represents biotech and bio/pharmaceutical companies in Europe, weighed in on the tariff situation last month (April 8, 2024) prior to the 90-day pause on reciprocal taxes and the later action of the US government to initiate an evaluation of specific tariffs on the pharmaceutical industry. It called for an exemption of tariffs on bio/pharmaceuticals and a continuation by EU policymakers to advance the competitiveness of the EU biotechnology industry through several strategic policy and legislative proposals.

“In this critical moment, EuropaBio actively supports the European Commission, our company members and national biotech associations to enhance EU ambition, competitiveness and attractiveness for biotech innovators of all sizes,” said EuropaBio, in an April 8, 2025, statement. “Specifically, EuropaBio calls for an exemption for biopharmaceuticals and their manufacturing inputs, plus strengthening biotech value chains, to preserve and grow global resilience and positioning. We have called on the [European] Commission to accelerate the positive work already underway for biotech through the Biotech Communication of 2024, with regulatory streamlining, and the EU Biotech Act. This ambition should also be translated into related initiatives including the Life Sciences Strategy, Pharma Package, and Bioeconomy Strategy, to secure EU leadership across value chains and industrial ecosystems.”

Drug pricing reforms: impact on bio/pharma companies
Another policy move impactful to the bio/pharma industry as a whole, including smaller bio/pharmaceutical companies, is a move by the Trump Administration to implement most-favored-drug pricing in the US.

This week (May 12, 2025) President Trump signed an Executive Order to put into motion a plan to implement most-favored-nation drug pricing in the US as a way to lower the cost of prescription drugs in the US. The premise behind the Executive Order is that the US pays higher prescription drug costs comparative to other developed countries and therefore assumes a larger share of  the costs of drugs and that measures should be taken to reduce the differential in the prices of prescription drugs in the US compared to other developed countries, where prescription drug prices are lower (see related story, “President Trump Issues Executive Order for Most-Favored-Nation Drug Pricing“) 

BIO pointed to the chilling effect that most-favored-nation drug pricing would have on product innovation, particularly among smaller bio/pharmaceutical companies, which it says are also facing headwinds with proposed tariffs. “Most favored nation is a deeply flawed proposal that would devastate our nation’s small- and mid-size biotech companies – the very companies that are the leading drivers of medical innovation in the United States and the cornerstone of America’s biotechnology leadership,” said John F. Crowley, President and CEO, BIO, in a May 12, 2025, statement. “…Patients and families are not a bargaining chip in a trade war, but that’s exactly how they are being treated – first through proposed tariffs on our nation’s medicines, now with foreign reference pricing in the name of fairness. Researchers that spend years developing cures and breakthrough treatments are being penalized and the US is falling behind in the 21st century biotech race. Meanwhile, US medication prices prop up middlemen that prevent cost savings from being passed on to patients. The solution is investments that ensure the US continues to lead the world in medical innovation, and policies that simplify the system.”

HHS, NIH, FDA budgets & funding cuts: impact on bio/pharma companies
Another policy issue of concern for the bio/pharma industry, including smaller bio/pharma companies, relate to funding cuts to the US Department of Health and Human Services (HHS), which oversees both the US Food and Drug Administration (FDA), responsible for regulatory oversight of bio/pharmaceuticals, and the National Institutes of Health, an important source of funding for scientific research. This week (May 14, 2025), HHS Secretary Robert F. Kennedy Jr. testified before two Congressional Committees, the Senate Health, Education, Labor and Pensions Committee and the Appropriations Committee of the US House of Representatives to discuss the proposed HHS budget for fiscal year (FY) 2026, which would be subject to Congressional review and approval.

The Trump Administration’s proposed FY26 budget blueprint, which serves a guide to the Administration’s policy priorities, was released earlier this month (May 2025). It proposes an overall HHS budget of $93.8 billion, a 26.2% decrease from the FY25 enacted level, which includes proposed cuts at the NIH of $18 billion, or 40%, compared to FY25 levels, to $27 billion. Part of that reduction includes consolidating the 27 NIH programs areas into eight main areas by retaining the National Cancer Institute, the National Institute on Aging, and the National Institute of Allergy and Infectious Disease (NIAID) and consolidating into five proposed new focus areas: The National Institute on Body Systems Research; National Institute on Neuroscience and Brain Research; National Institute of General Medical Sciences; National Institute of Disability Related Research; and National Institute on Behavioral Health. The proposed FY26 budget would also reduce funding at the Centers for Disease Control and Prevention by approximately 44%, or $3.6 billion, to $4 billion.

The budget cuts are in addition to staffing reductions at HHS, announced in late March (March 2025) under the Administration’s efficiency workforce optimization initiative. The plan combines personnel cuts, centralization of functions, and consolidation of HHS divisions, including calling for the reduction of the current number of HHS full-time employees from 82,000 to 62,000. Under that plan, FDA would also decrease its workforce by approximately 3,500 full-time employees, with a focus on streamlining operations and centralizing administrative functions. This reduction will not affect drug, medical device, or food reviewers or inspectors, according to an HHS fact sheet.

For smaller bio/pharmaceutical companies, which have limited pipelines and rely on external capital from investors or monetizing their drug-development activities through deals with larger companies, any potential delay or slowing of the progression of their investigational drug candidates to secure that funding raise concerns. To what degree restructuring and funding at FDA will impact review and approval times is still unknown. Moreover, NIH research funding, which can serve as a first line for incubating academic/biotech startups, also creates further pressures in the sector.