News / US pharma shippers mull move to domestic production – but it will take time

© Peter Scott

US pharma bosses are considering moving their production home, which could have far-reaching consequences for global pharma supply chains. The obstacles are challenging, though.

Last week pharma giant Eli Lilly announced plans to spend at least $27bn on the construction of four new manufacturing facilities in the US. Three, set to come onstream over the coming five years, will be turning out raw ingredients for pharma manufacture, while the fourth will produce injectable medicines.

The company revealed the news less than a week after President Trump had met bosses of major drug producers. He recently indicated that a 25% tariff on imported pharmaceuticals had been under consideration as his administration aims to address trade imbalances and push production of strategic assets to the US.

US secretary of commerce Howard Lutnick said the Eli Lilly move was “exactly what the president was hoping would happen”.

The desire to bring pharma production back to the US is not new. Faced with a marked increase in drug shortages, owing to supply chain disruptions since the pandemic, government agencies as well as drug-makers have been chewing on the issue.

Over the past decade, the US has increasingly sourced its pharma needs from other countries. A 2023 study by Recon Strategy showed a steady increase in the value of drugs imported into the US since the mid-2010s. At the start of that decade, about half all pharmaceuticals consumed in the US were generated domestically, but this has been falling since 2017, while the market size was expanding.

Mindful of these developments and the danger of further supply chain disruptions, the previous US government granted some funding for domestic production, but this yielded little in the way of high-profile developments. The majority of pharma companies that set up shop in or moved to the US have been start-ups and smaller players.

Nor is it just a matter of expanding production capacity. Countries that have built up their pharma production have generated sizeable pools of industry specialists. Not only does the US lack manufacturing capacity, but also a sufficiently large pool of qualified workers.

The authors of the Rencon study argued two years ago: “The US market has become so reliant on offshore manufacturing that any such trade regulations risk massive drug-supply shortages, particularly for essential medicines. Simply, the US can’t produce enough domestically to make this jump overnight – further investments in US-based capacity and human capital will be prerequisites.”

Moreover, increased domestic production of pharmaceuticals would likely raise prices and stoke inflation.

Ram Menen, the former head of Emirates SkyCargo, also sees a number of obstacles that make a massive shift in international pharma flows in the near term challenging.

“It will take years for the companies to build factories and start production in the US. They have also got to establish their procurement of the raw materials and get their supply chains established; a lot of these raw materials will have to be sourced from outside the US; which will all add tremendous costs to the end product. Companies will also be evaluating whether it is cheaper to pay the higher tariff than production in the US,” he commented.

In addition., there are question marks about the future beyond the tenure of the current administration, he pointed out.

“Politically it could all change in four years when a new administration comes up, and they will be trying to fight escalating costs of consumables,” he said.

And, for airlines and associated service providers that have made significant investments in pharma handling and established dedicated corridors, the prospect of US-centric near-shoring would be ominous.

The cargo divisions of Delta and LATAM announced at the end of October that they were expanding their network collaboration on pharma shipments to more routes between North and South America to boost connectivity and routing options for clients.

Some markets will be hit more than others. Bruno Guella, general manager of Latin America Cargo City (LACC), the logistics platform of Montevideo’s Carrasco International Airport, is unfazed by the US government’s consideration of 25% tariffs on pharma imports. LACC is a multimodal hub for regional distribution for two large multinational pharmaceutical firms.

“I don’t see something that can really affect our business, because this is mostly related to the production and to source the US market in the US. Most of our volumes are coming from Europe. If they have more factories in the US, maybe we will start receiving more from the US and less from Europe.

“I don’t see that the move of companies into the US can change dramatically the way that they end up serving the markets of Argentina, Brazil, Uruguay, Paraguay, Chile,” he said.