Evolve Or Fade Away? Biotech's Outsourcing Moment In Trump's Tariff Tangle

By Louis Garguilo, Chief Editor, Outsourced Pharma

Ali Pashazadeh, founder, Chairman and CEO of Treehill Partners, a strategic and financial advisory firm, is a deep thinker who I try to visit with at least annually.

He’s been a healthcare investment banker for 20 years, practicing surgeon for 30, and has served as a biotech CEO.

A few weeks ago, I asked Pashazadeh to help us think through the evolving policies of the new U.S. presidential administration and the current tariff turbulance as they relate to development and manufacturing outsourcing.

Evolve, But Finances Unclear

Pashazadeh starts our discussion with what he considers two overriding “metrics” that impact biotechs most specifically.

First, when it comes to candidate development and manufacturing supply chains, he says, “fundamentally you either evolve or you're extinct. This is the world you are in right now.”

His second tenet is that presently, financial predictability is not something markets or investors can get right, and as a result “you sure as hell aren’t going to forecast that aspect correctly.”

At TreeHill, says Pashazadeh, the working prognosis had been that as many as 85% of biotechs turn out to be nonviable. In the current tariff environment and with global animosities building (and supply chains less certain), that estimation is more like 95%.

“Five percent of companies will evolve and continue to exist in 10 years. The other 95% will find a reason – via a board, investors, management, or from a geographic perspective – to do “exactly what they were doing three months ago,” and thus condemn themselves to potential inviability.  

“So I generally think evolve, and that certainly includes your outsourcing strategies, but you’ll have to move forward with that major caveat of added financial cloudiness."

Until Trump Redux, whether you develop and manufacture your biopharm asset in China, South Korea or India, says Pashazadeh,  as long as you manufacture to high quality/cGMP standards (i.e., you meet FDA requirements in the U.S.), that was sufficient.  

However, his advice to clients going forward is if you want to future-proof your programs and your business, you’ll either need current local U.S. manufacturing, or the ability to smoothly switch to the U.S. as an alternative – and convince investors and others that is actually doable.

“If you didn't do that five months ago, and another early-stage biotech did, and both of you were going for a capital raise, nobody would've bother you about this,” Pashazadeh says.

“They would've just said, ‘Okay, just ensure us you manufacture in India or China to U.S. standards.” 

Today, on the other hand, investors say:

'If I'm putting our money into your company, I want to know how future-proof you are, because I can't quantify what will happen with the tariffs and current markets.

It’s safer for us to ask you to manufacture – or at least have some accessible footprint – in the U.S.'

Including to his China-based pharma clients, says Pashazadeh, “we've been advising this for four or five years, actually.”

“The world is moving into geographic isolation, or at least pockets of isolation.”

For you as a biotech to be investor-relevant and counter operational risk, you need to have a development/manufacturing outsourcing option in each of those jurisdictions important to you, and one of those almost always is the U.S.

“We flew out to South Korea recently to again tell our clients this, but still they say they understand, but they’ll only enact this when their programs are further advanced,” Pashazadeh says.

For one reason, they say Americans charge a lot more than CDMOs do locally, and until now it has proved okay to leave the status quo as is.

“However, with the new environment and tariffs specifically, for the first time globally – whether you are a European CEO or wherever you are elsewhere in the world, you now need to think of your CDMO having capabilities in the U.S. if you want to play here. 

“Again, we’ve actually been telling clients for years you need to create a footprint in the U.S. with local development and manufacturing capability, and local management.

“Clearly the tariffs are now crystallizing that need and that trend.”

Denouement Of Surprise

Which inevitably leads to a plausible conclusion – narrowed to our specific focus here and whether readers will embrace the thought.

The Trump Tariff Tradeoff policy could accomplish much of what it was intended to do – bring more drug development and manufacturing, and bolster domestic supply chains in the U.S.

And, as considered earlier, the globe could end up with lower tariffs and trade barriers.

However, we still appear well in advance of calculating any final analysis on what 2025 wrought on our drug industry. We’ll simply have to live through:

the pain – those global biotechs Pashazadeh sadly anticipates will not be able to or will resist making the operational changes needed to survive in a topsy-turvy macroenvironment for outsourcing;

the price – adjusting a substantial amount of the biotech biosphere to more U.S.-based cost structures for outsourcing;

the uncertainty – of investing and financing, market assessibilities, healthcare in general, and  even a stable political world.

Certainly, biotechs are in for more repercussions (intended and otherwise) before we can evaluate globally our evolving reality for drug development and manufacturing outsourcing.