SCOTT SIMON, HOST:
President Trump is pushing pharmaceutical companies to move manufacturing back to the United States. And this week, he upped the ante by saying he would impose tariffs on drugmakers as soon as August 1. Those tariffs would start low to give them a year or so to build factories here and then rapidly increase. NPR pharmaceuticals correspondent Sydney Lupkin joins us. Sydney, thanks so much for being with us.
SYDNEY LUPKIN, BYLINE: Thanks for having me.
SIMON: Help us get hold of the problem. How many of our medicines are actually made outside the U.S.?
LUPKIN: A lot of them - most of them, actually. Many of the key ingredients are made in China and most generics are made in India. That's according to economist Geoffrey Joyce, the director of health policy at the USC Schaeffer Center.
GEOFFREY JOYCE: Some final formulation may be done in the U.S., but broadly speaking, we are very dependent on foreign suppliers. It's less intensive for branded or on-patent drugs, but still, we are very dependent as well on overseas production.
LUPKIN: The United States was really made aware of how vulnerable its drug supply was when COVID hit. Suddenly, Chinese drug factories shut down. India restricted drug exports. So having more drugs produced in the U.S., especially essential medicines, is broadly considered a good policy.
SIMON: How was it that manufacturing moved outside the U.S. anyway?
LUPKIN: Yeah. There are tax incentives for manufacturing overseas. So by manufacturing name-brand drugs in Ireland, for example, companies can report profits there and pay a very low corporate tax rate. For generics, because they compete mostly on price, companies manufacture in places with lower wages, like India and China. The tariffs are an effort to shift production back to the U.S. soil by basically punishing companies for foreign manufacturing.
SIMON: Will that work?
LUPKIN: It's complicated. Joyce says he thinks it would take a lot more incentives to convince companies to do it - tax breaks, subsidies, things like that. I also spoke to Chris Middendorf, who spent years at the Food and Drug Administration inspecting factories in India and China, and he's now at the law firm Hogan Lovells. And he says it's a big lift to move factories for even just one drug.
CHRIS MIDDENDORF: It's not just about, like, putting the equipment in and starting to manufacture it. It's like, you have to qualify the building. You have to qualify all your equipment in there. Like, you have to establish all your procedures for that site. It's a lot more than just building a building.
LUPKIN: Companies need to prove they can correctly make the drug at a new factory. Because if they can't, the consequences for patients could be dire.
SIMON: Yeah, of course. The pharmaceuticals could be harmful.
LUPKIN: Yeah. All that said, some companies have already announced they're expanding in the U.S. Eli Lilly is beefing up its domestic manufacturing, including at sites in Indiana and North Carolina. And in February, it said that it would be spending billions more dollars to add four new factories. But Lilly says it could take as long as five years for these factories to come online. So that's the realistic timeline.
SIMON: Sydney, could companies just basically ignore the tariffs or absorb them and leave manufacturing overseas?
LUPKIN: Yes, absolutely. That's an option. The pharmaceutical tariff doesn't exist in a vacuum. There are a bunch of other tariffs, too. If a company decides to build a facility in the U.S., it might still get hit with tariffs importing equipment. And for generic manufacturers, whose profits are razor-thin, a tariff might not be much of an incentive to move production. They might pass along the tariff costs to consumers or pull out of the market altogether.
SIMON: What would the consequences of that be for patients?
LUPKIN: Both Joyce and Middendorf expect drugs would get more expensive for consumers or tariffs could result in access issues if companies stop selling foreign-made products here, especially generics. The big questions now are, will the drug tariffs really be the 200% President Trump is threatening or something lower, and will they stick?
SIMON: NPR pharmaceutical correspondent Sydney Lupkin. Thanks so much.
LUPKIN: You bet. Transcript provided by NPR, Copyright NPR.
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