It
could
be
years
before
a
cell
therapy
from
Nkarta
reaches
autoimmune
disease
patients
in
the
market,
but
CEO
Paul
Hastings
still
thinks
about
the
impact
of
pharmaceutical
tariffs
here
and
now.
With
blood
from
healthy
donors,
Nkarta
isolates
immune
cells
called
natural
killer
cells,
then
engineers
them
for
a
new
therapeutic
purpose.
The
donor
material
comes
from
the
U.S.
and
Nkarta
manufactures
its
therapies
at
its
own
site
in
South
San
Francisco,
but
it’s
misleading
to
call
these
biologic
medicines
all-American
products.
Nkarta
relies
on
chemicals
and
other
materials
from
global
suppliers.
One
key
vendor,
based
in
Germany,
is
the
sole
source
of
a
particular
instrument
and
related
chemicals
for
Nkarta’s
manufacturing
process.
Some
of
these
chemicals
expire
after
four
to
six
months,
making
it
difficult
to
stock
up
as
a
safeguard
against
supply
chain
disruption.
Tariffs
could
make
these
items
more
expensive
for
the
clinical-stage
company.
“All
of
those
pieces
are
in
the
supply
chain,
and
many
of
those
pieces
are
not
coming
from
here,
they’re
coming
from
other
places,”
Hastings
said.
“What
you’re
doing
[with
tariffs]
is
you’re
minimizing
the
opportunity
to
get
good
raw
materials.”
It’s
no
longer
a
question
of
whether
tariffs
are
coming,
it’s
how
much
they’ll
cost.
Pharmaceutical
tariffs
are
now
set
to
begin
at
the
end
of
the
month,
putting
them
on
a
similar
timeline
as
the
so-called
reciprocal
tariffs
for
countries.
President
Trump
has
said
a
goal
of
pharma
tariffs
is
to
get
drugmakers
to
bring
manufacturing
back
to
the
U.S.
But
the
supply
chain
in
place
today
developed
into
a
global
network
over
decades,
so
untangling
it
and
relocating
it
will
be
difficult
and
expensive.
Some
pharmaceutical
giants
are
responding
with
new
manufacturing
announcements.
Those
moves
belie
the
fact
that
for
many
companies,
big
and
small,
there
are
pieces
of
the
sprawling
supply
chain
beyond
their
control.
The
challenges
facing
Nkarta
offer
just
one
example
of
the
economic
and
technical
complexities
of
a
policy
that
calls
for
drugs
made
in
America.
The
WTO
Pharma
Agreement
and
the
Rise
of
Globalization
The
federal
government
settled
pharmaceutical
tariff
policy
more
than
30
years
ago.
The
U.S.
is
one
of
the
countries
party
to
a
1994
World
Trade
Organization
(WTO)
agreement
that
eliminated
tariffs
on
finished
pharmaceuticals
and
active
pharmaceutical
ingredients
(APIs).
The
agreement
is
renewed
periodically
to
update
the
items
covered.
As
of
the
last
update
in
2010,
more
than
10,000
APIs
are
covered.
With
the
WTO
pharma
agreement
in
place,
some
local
taxes
and
customs
duties
still
must
be
paid,
but
gone
were
the
tariffs
on
the
cross-border
movement
of
drugs,
said
Ed
Buthusiem,
managing
director
in
the
healthcare
practice
at
BRG,
a
consulting
firm.
The
agreement
has
been
in
place
for
so
long
many
people
in
the
industry
take
it
for
granted
that
pharmaceuticals
have
not
been
subject
to
tariffs.
“Because
of
the
WTO
agreements,
tariffs
really
aren’t
something
that
companies
have
had
to
deal
with
for
a
long
time,
it
simply
was
really
not
an
issue,”
Buthusiem
said.
In
1994,
the
prevailing
view
was
that
China
would
grow
into
a
major
economy,
and
having
good
economic
relations
with
the
country
was
economically
smart,
said
Rob
Andrews,
who
is
now
CEO
of
the
Health
Transformation
Alliance
but
was
a
Democratic
congressman
from
New
Jersey
in
the
1990s.
Congress
gave
the
WTO
agreement
overwhelming
bipartisan
support,
but
Andrews
voted
against
it.
He
said
he
agreed
with
many
of
his
colleagues
that
good
trade
relations
with
China
were
important,
but
he
wanted
more
protections
for
the
environment
and
intellectual
property.
Andrews
added
that
his
personal
belief
is
Trump
is
now
using
tariffs
as
a
negotiating
tactic,
but
in
a
way
that
goes
against
years
of
broad
bipartisan
consensus
that
tariffs
are
appropriate
only
in
situations
of
extreme
economic
unfairness.
“Trump
is
disrupting
that
consensus,”
Andrews
said.
“It
is
kind
of
amazing
to
see
the
tables
turn
to
see
a
Republican
doing
this.
This
wouldn’t
have
been
[President
Ronald]
Reagan’s
position,
but
it
is
Trump’s
position.”
Uncle
Sam
Wants
You…
to
Reshore
Manufacturing
Concerns
about
the
location
of
manufacturing
came
to
a
head
during
the
Covid-19
pandemic,
when
the
lack
of
domestic
production
manifest
in
shortages
of
key
healthcare
products.
Drug
manufacturing
had
left
the
mainland
U.S.
over
the
course
of
decades.
In
the
1970s,
drug
production
moved
first
to
Puerto
Rico
for
tax
advantages,
then
to
Europe,
former
FDA
Commissioner
Janet
Woodcock
said
in
2019
testimony
to
Congress.
Eventually,
China
and
India
became
major
markets
for
drug
and
API
production
because
of
their
significantly
lower
costs,
she
said.
The
first
Trump
administration
addressed
manufacturing
issues
and
drug
shortages
from
the
standpoint
of
emergency
preparedness.
The
Coronavirus
Aid,
Relief,
and
Economic
Security
(CARES)
Act
signed
in
2020
includes
a
provision
requiring
drug
and
API
makers
to
develop
and
maintain
risk
management
plans.
But
legislation
alone
has
not
brought
manufacturing
back
from
abroad.
Whether
a
manufacturing
plant
produces
API
or
finished
drug
product,
the
decision
about
where
to
locate
production
is
economic,
Buthusiem
said.
Ireland
grew
into
a
pharmaceutical
production
hub
because
of
tax
advantages.
If
tariffs
make
overseas
production
economically
disadvantageous,
Buthusiem
said
companies
might
bring
more
production
back
to
the
U.S.
But
tax
burden
is
just
one
of
several
factors
that
go
into
site
selection.
Labor,
geopolitics,
climate,
and
environmental
factors
are
also
considerations,
he
said.
The
specter
of
tariffs
has
sparked
a
parade
of
pharma
company
announcements
this
year
touting
investment
plans
for
U.S.-based
manufacturing.
This
week,
Biogen
announced
plans
to
spend
$2
billion
to
expand
its
existing
manufacturing
presence
in
Research
Triangle
Park,
North
Carolina.
AstraZeneca
followed
by
pledging
to
invest
$50
billion
over
the
next
five
years
at
sites
across
the
country.
But
it’s
worth
noting
that
big
pharma
companies
were
already
rolling
out
major
manufacturing
announcements
before
tariff
talk
started
heating
up.
For
example,
Eli
Lilly
and
Novo
Nordisk
already
had
manufacturing
initiatives
well
underway,
both
of
them
aiming
to
meet
the
overwhelming
demand
of
their
obesity
and
diabetes
drugs
that
contributed
to
shortages
that
resolved
only
in
the
past
year.
Even
if
a
pharma
company
manufactures
a
drug
in
a
U.S.
facility,
pinning
down
what
could
be
subject
to
tariff
is
not
straightforward.
Well
before
a
drug
enters
distribution
channels,
its
various
components
move
along
a
global
supply
chain
—
just
like
the
materials
for
Nkarta’s
cell
therapies.
Big
pharmaceutical
companies
maintain
overseas
plants
that
make
and
supply
bulk
substance,
the
API
in
drugs,
said
Buthusiem,
a
GSK
veteran.
For
drugs
destined
for
the
U.S.
market,
these
ingredients
are
shipped
to
U.S.
facilities
for
the
final
stage
of
manufacturing.
Some
of
the
new
manufacturing
facilities
that
big
pharma
companies
have
been
announcing
could
be
such
fill
and
finish
sites,
he
said.
In
addition
to
API,
drugs
have
inactive
components
called
excipients,
whose
production
is
also
global.
A
tariff
could
apply
to
the
final
drug
product
or
its
separate
components.
But
even
if
the
U.S.
makes
more
excipients,
APIs,
and
finished
drugs,
that
does
not
necessarily
spare
Americans
from
pharmaceutical
tariffs.
The
new
U.S.
drug
manufacturing
announcements
rolling
out
have
been
for
branded
pharmaceuticals.
Across
all
therapeutic
areas,
90%
of
prescription
drugs
in
the
U.S.
are
for
generics,
according
to
IQVIA.
Generic
drugmakers
have
not
been
hosting
ribbon
cuttings
for
multi-billion-dollar
manufacturing
plants
in
the
U.S.
Challenges
for
Bringing
Back
Drug
Production
While
the
U.S.
has
some
generic
drug
manufacturing,
most
pharmaceutical
products
made
in
America
are
branded
drugs,
which
have
higher
margins,
said
Diederik
Stadig,
an
economist
at
the
Netherlands-based
bank
ING.
The
lower
costs
of
China
and
India
make
these
markets
a
better
match
for
the
low
margins
of
generics
and
their
APIs.
As
an
example,
he
pointed
to
doxycycline,
a
frequently
prescribed
antibiotic.
Even
though
that
generic
drug
is
marketed
by
several
U.S.
companies,
the
API
in
that
product
comes
from
China.
The
oral
small
molecules
market
has
been
a
race
to
the
bottom
in
pricing,
said
Stephen
Farrelly,
ING’s
global
lead
of
pharma
and
healthcare.
Consequently,
the
low
cost
of
these
pills
means
a
manufacturer
has
little
room
to
maneuver
to
adjust
to
costs
increases
—
from
tariffs
or
construction
of
U.S.
manufacturing
plants.
By
pursuing
tariffs,
the
Trump
administration
may
find
itself
competing
against
its
policy
goals
of
lowering
prices
and
easing
shortages,
Farrelly
said.
While
new
U.S.
drug
manufacturing
will
create
jobs,
those
jobs
will
require
higher
salaries.
A
company
would
need
to
raise
drug
prices
to
cover
construction
and
employment
costs,
making
tariffs
inflationary,
he
explained.
Many
biologic
drugs
on
the
market
are
still
protected
by
patents,
so
their
higher
prices
still
leave
room
for
drugmakers
to
make
money
even
if
manufacturing
moves
to
the
U.S.
But
the
specialization
of
biologic
manufacturing
creates
higher
barriers
of
entry
for
vendors,
making
it
hard
for
drugmakers
to
find
substitutes,
Farrelly
said.
That
affects
companies
like
Nkarta.
While
some
raw
materials
and
consumable
items
in
Nkarta’s
manufacturing
process
are
available
from
more
than
one
commercial
supplier,
the
company
hasn’t
confirmed
their
suitability,
it
said
in
its
last
quarterly
report.
Substitutes
might
cost
more,
be
subject
to
delays,
or
require
changes
in
the
manufacturing
process
—
which
in
turn
delay
clinical
testing
or
force
Nkarta
to
repeat
a
clinical
trial.
Drug
shortages
were
a
problem
before
Trump
proposed
pharmaceutical
tariffs,
but
tariffs
could
exacerbate
them.
The
shortage
risk
is
much
higher
for
generic
drugs
versus
branded
products,
said
Bill
Coyle,
global
head
of
biopharma
at
consultancy
ZS.
With
such
low
prices,
manufacturers
for
some
generic
medicines
have
dwindled
to
a
few.
For
some
generic
products
that
sell
in
low
volumes,
there
may
only
be
a
single
source.
Furthermore,
the
API
might
be
in
one
or
two
sources,
Coyle
said.
The
low
prices
of
generic
medicines
diminishes
economic
incentive
to
keep
a
product
on
the
market,
U.S.
Pharmacopeia
(USP)
said
in
its
annual
drug
shortage
report.
If
additional
costs
eat
too
much
of
the
already
thin
margin,
a
company
may
just
stop
making
a
drug.
By
USP’s
count,
46%
of
oral
drugs
discontinued
last
year
had
a
price
of
less
than
$1
per
pill.
Who
Pays
for
Tariffs,
and
When?
Companies
pass
on
the
cost
of
tariffs
in
the
form
of
higher
prices
for
goods
and
services.
But
just
as
it’s
not
yet
clear
which
part
or
parts
of
the
pharma
supply
chain
will
be
tariffed,
it’s
also
unclear
how
and
when
patients
will
feel
the
impact.
A
drug’s
price
in
the
U.S.
varies
depending
on
what’s
negotiated
for
a
health
plan.
Coyle
said
some
agreements
are
multi-year
and
may
have
clauses
that
limit
price
changes,
which
means
passing
on
a
drug
price
increase
from
tariffs
might
not
be
possible
until
the
next
contract
negotiation.
“That
makes
it
meaningfully
harder
to
recoup
those
costs
for
contracted
products
—
which
is
a
lot
of
the
products
in
the
marketplace,”
Coyle
said.
The
Health
Transformation
Alliance
negotiates
drug
prices
on
behalf
of
member
companies
with
self-insured
employer
health
plans,
firms
such
as
Foot
Locker,
The
Coca-Cola
Company,
and
Marriott.
Andrews
said
alliance
members
are
concerned
about
increases
to
healthcare
costs
from
tariffs,
but
their
main
worry
is
the
broader
economic
impact.
If
tariffs
lead
consumers
to
cut
back
on
purchases
and
travel,
that’s
bad
for
business.
The
agreements
the
alliance
negotiates
are
typically
annual.
Andrews
said
if
something
happens
during
the
contract
term,
such
as
a
tariff,
some
contracts
have
provisions
to
permit
a
price
increase.
Payers
—
private
insurance
companies
and
national
healthcare
systems
—
are
price
driven,
ING’s
Stadig
said.
If
the
Trump
policy
is
to
bring
more
generic
drug
production
into
the
U.S.,
that
requires
rethinking
of
how
much
society
is
willing
to
pay
for
these
medicines.
“I
think
that’s
a
good
discussion
to
have
in
general,
but
it’s
also
a
complex
one,”
Stadig
said.
“That
creates
uncertainty
for
generic
manufacturers
where
if
they
invest
in
the
U.S.,
prices
would
have
to
go
up.
But
are
you
going
to
get
reimbursed?
And
I
think
that’s
sort
of
the
fundamental
discussion
that
underlies
this.”
Firms
may
try
to
push
some
tariff
cost
on
to
consumers,
said
James
Gellert,
executive
chair
and
former
CEO
of
RapidRatings
International,
a
financial
technology
company
that
assesses
supply
chain
risk
of
public
and
private
companies,
including
pharma
companies.
But
Gellert
also
expects
costs
will
be
shared
across
the
supply
chain,
which
will
test
business
relationships.
The
companies
best
suited
to
weather
tariffs
are
those
that
collaborate
with
their
suppliers,
sharing
financial
information
to
figure
out
what
a
tariff
means
for
a
supplier’s
ability
to
maintain
inventory
and
deliver
a
good.
Tariffs
mean
a
supplier
must
direct
more
capital
toward
covering
the
additional
costs,
Gellert
said.
That
makes
the
supplier
a
weaker
partner,
not
just
because
it’s
financially
weaker,
but
also
because
it
might
not
be
able
to
deliver
goods
on
time
—
potentially
contributing
to
shortages.
Gellert
added
that
reshoring
manufacturing
does
not
necessarily
avoid
tariffs.
Even
when
a
U.S.
manufacturing
plant
uses
U.S.-based
suppliers,
those
suppliers
might
still
source
materials
from
abroad.
“You
don’t
necessarily
know
which
of
your
new
suppliers
have
tariff
exposure,
and
that’s
an
irony
here,”
Gellert
said.
“In
a
perfect
world,
the
administration
would
like
to
have
all
companies
manufacturing
in
the
U.S.
But
if
that’s
the
case,
every
one
of
those
companies
is
going
to
have
less
visibility
into
where
their
suppliers
have
foreign
exposure.”
Changing
Decades
of
Trade
Policy
in
a
Matter
of
Months
Trump
has
been
offering
snippets
of
detail
about
what
pharmaceutical
tariffs
will
look
like.
Earlier
this
month,
he
said
they
could
be
as
high
as
200%
for
certain
pharmaceutical
products.
He
also
said
drugmakers
would
have
a
grace
period
to
shift
their
supply
chains.
Last
week,
the
president
said
pharma
tariffs
would
begin
at
the
end
of
July
with
a
low
tariff
to
give
companies
“a
year
or
so
to
build,”
then
they
would
rise
to
“a
very
high
tariff.”
“The
pharmaceutical
companies
are
moving
back
to
America,
where
they
should
be,”
Trump
said.
While
a
year
or
more
gives
companies
time
to
build
up
inventory,
that
is
not
enough
time
to
relocate
an
entire
supply
chain.
New
manufacturing,
for
both
small
molecules
and
biologics,
is
neither
a
short-term
decision
or
a
short-term
fix,
BRG’s
Buthusiem
said.
It
can
take
several
years
to
bring
a
plant
online.
Beyond
construction,
the
plant
itself
and
the
product
produced
at
the
site
need
to
be
cleared
by
the
FDA
before
production
starts.
The
FDA
was
already
short-staffed
to
handle
plant
inspections
before
the
Trump
administration’s
cuts
to
the
agency,
Buthusiem
said.
Now
the
agency
is
struggling
to
retain
staffers
who
remain.
The
WTO
pharma
agreement
is
still
in
place.
Buthusiem
said
it’s
unclear
whether
the
Trump
administration
will
renegotiate
the
pact
or
just
ignore
it.
To
Jonathan
Todd,
vice
chair
of
the
transportation
&
logistics
practice
group
at
the
law
firm
Benesch,
Friedlanders,
Coplan
&
Arnoff,
it’s
an
open
question
about
what
tariffs
mean
for
historic
trade
treaties.
But
the
basis
for
circumventing
the
WTO
agreement
and
other
trade
pacts
is
coming
from
multiple
inquiries
underway
by
the
U.S.
Department
of
Commerce.
Under
Section
232
of
the
Trade
Expansion
Act
of
1962,
the
department
may
investigate
the
effects
of
imports
on
national
security.
The
pharmaceuticals
inquiry
began
April
1
and
encompasses
finished
drugs,
APIs,
critical
starting
materials,
and
products
derived
from
these
items.
A
Section
232
investigation
can
take
up
to
270
days.
But
Trump’s
timeline
for
imposing
tariffs
suggests
the
results
are
coming
sooner.
It’s
a
playbook
Trump
used
for
other
industries
during
his
first
term.
In
2018,
Section
232
investigations
resulted
in
a
25%
tariff
on
steel
imports
and
a
10%
tariff
on
aluminum
imports.
While
some
exemptions
were
granted
at
the
time,
product-specific
exemptions
were
revoked
last
month
and
the
tariff
rate
was
increased
to
50%.
Todd
said
the
president
is
continuing
to
carry
out
his
own
America-first
trade
policy.
“Many
of
the
actions
of
this
Trump
administration
are
continuations
of
the
Trump
45
administration,”
Todd
said.
“There’s
much
more
activity
now
and
the
policy
objectives
are
much
more
ambitious.
But
the
trend
line
is
similar
to
eight
years
ago.”
Photo:
Getty
Images