Addressing Critical Questions Raised by White House Tariff Announcement

By Penn Quarter Partners 

In April, the White House, under the auspices of national security provisions of the 1962 Trade Expansion Act, issued a proclamation imposing new and sizeable tariffs on patented pharmaceuticals and their active ingredients. Since that announcement, Penn Quarter Partners’ strategic planning, policy, and analytics teams have been assessing the ramifications of this policy change and options for response strategies.

These new tariffs raise significant concerns for the country’s life sciences sector and the patients who depend on it. As the Information Technology and Innovation Foundation stated:

“Whether the section 232 tariffs raise prices for critical imported drugs to 15 percent, 100 percent, or to some other level, they will needlessly increase the cost of imported medicines Americans depend on and harm patients who benefit from innovations developed around the world to treat or cure difficult diseases.” 

The White House announcement left major uncertainties that require greater clarity and understanding. The complex, multi-tiered structure of the tariffs raises questions about costs and potential market disruptions as well as potential legal challenges.

The tariffs are set at 100% to begin taking effect on July 31, but with various exemptions. Companies that have executed Most Favored Nation pricing agreements and onshoring agreements will see zero tariffs through January 2029, while companies with only onshoring agreements will be assessed at 20% tariffs. Additionally, countries already covered by existing trade deals will see reduced tariff levels. Lower tariff levels will apply to products from the European Union, Japan, Korea, Switzerland, Liechtenstein, and the United Kingdom.

Generics, biosimilars, and their related ingredients are currently exempt, but that is to be reassessed within a year.

Although smaller manufacturers are being given more time than large companies (180 days versus 120 days) before the tariffs take effect, the adverse impact on them will likely be greater since many smaller firms won’t have the capital to move their facilities or sufficient revenues to absorb the tariff costs.

Penn Quarter Partners is currently engaging with its clients to analyze the critical issues raised by this tariff announcement and the questions that remain unanswered, such as:

• These tariffs are poised to create billions of dollars of additional costs for drug manufacturing. How much of these costs will be absorbed by manufacturers and what portion will be passed through to payers and patients, raising premiums and out-of-pocket costs?

• What is the realistic timeline for companies to negotiate a Most Favored Nation pricing agreement or onshoring plan before tariffs take effect?

• What are the downstream effects on formulary placement and prior authorization for drugs made by companies not covered by Most Favored Nation exemptions?

• How will the MFN pricing commitments made by the companies that have already signed those deals reshape the broader market and options for other companies?

• And, does this policy actually address the supply chain vulnerabilities it claims to target, or does it apply the most pressure to the least strategically sensitive part of the supply chain while failing to address generic drug and API supply dependencies on China and India?

On a related note, efforts are continuing to encourage the administration to withdraw its proposed GLOBE (Global Benchmark for Efficient Drug Pricing, affecting Medicare Part B) and GUARD (Guarding U.S. Medicare Against Rising Drug Costs, targeting Medicare Part D) pricing models. As the Partnership to Fight Chronic Disease pointed out in a letter to Center for Medicare and Medicaid Services Administrator Mehmet Oz, M.D., these Most Favored Nation-style models are drawn from 19 foreign health systems with “fundamentally different values than those in the United States” and would result in  reduced access, narrower treatment options, and slower availability of innovative medicines.

As we work through these issues, we will continue to point out to policymakers that one of the objectives of these tariffs — bringing more biopharmaceutical investment into the United States — is already happening. According to the We Work For Health business-labor alliance, since January 2025, pharmaceutical companies have committed more than $582 billion to strengthen research and development and expand manufacturing capabilities in this country. The costs imposed by these tariffs will make it more challenging to maintain that investment momentum.

Overall, there is going to be inevitable confusion as this policy evolves as to which companies and product lines are affected by the tariffs and to what degree. Penn Quarter Partners’ policy analysis professionals are working with our clients to continue assessing this environment and develop strategies to navigate this challenging terrain.