Dealing with API and Excipients in a Time of Tariffs

The US Government recently modified its policy to utilize tariffs to support the US economy. Pharmaceutical tariffs have been forecasted, causing many global organizations to investigate the consequences of the tariffs on their overall product portfolio. Companies need to know the facts and have data to support their decisions.

How to deal with API and Excipient Tariffs.

1. Understand the specific cost structure
2. Identifying new API and Excipient Sources
3. Filing changes

The US tariff policy for pharmaceutical APIs and excipients is currently in flux and subject to change. While finished drugs were initially exempt from the broader 10% tariff, there are indications that this exemption may be lifted, leading to potential tariffs on both APIs and excipients. The US government is also investigating the potential national security implications of relying on foreign supply chains for these components, potentially paving the way for further tariff measures.

In this blog, we will focus on the effects of API and Excipient Tariffs on technology transfer to onshore pharmaceutical production.

A few years ago, I was responsible for international technology transfers for one of the largest global pharmaceutical companies. One of my duties was to control the costs of the finished product. I would meet with customs taxation departments to discuss the tariffs the countries placed on the imported raw materials. The discussions would start with an introduction, the value our product was bringing to the region, and an understanding of the existing tax code and potential exemptions, filing notices and hearings to ensure all parties agreed on the fees and services before products were transferred into the region. Several factors were discussed, including the source of materials, value, quantities, material classifications, waste, and import for export.

The origin of API's and excipients is needed to allow entry into the country. Often the first question was why can't you utilize API's or excipient's sourced from the host country? It is important to note that the government officials did not have a background in pharmaceuticals, and therefore, pharmaceutical nuances such as CMC needed to be explained. Investigating the host country API and excipient material manufacturers is an important first step before scheduling a meeting. A raw material table listing the origin of each material, specification, and a comparison to the host country's raw materials allowed us to agree on the approach.

Quantities of materials were based on forecast volumes of the specific products, the respective raw material volumes based on the batch record, and the frequency of manufacturing campaigns. The quantities were then broken down into the number of shipping containers and the quantity per shipping container. Based on documented data (i.e., 100 batches produced with the same process), we calculated a certain % of waste in the quantities.

The material classifications were very important to understand and defend because the classifications have far reached impacts on not only costs but also the viability of the project. APIs are often controlled substances or highly potent compounds requiring additional controls and screening. Utilizing a team with classification expertise is important to ensure that APIs don't get held up in customs due to varied customs staff experience. Our team has worked closely with customs officials to understand the correct verbiage to import or export materials efficiently.

The fourth factor is the amount of waste and waste disposal methods. The waste percentage from the quantities are needed by many customs and duty officials to understand the overall cost. Different countries deal with the waste issue according to their specific guidelines. Controlled substance waste must be disposed of with control records through approved resources. I would create a plan specifically for waste streams of waste API, Excipients, in process, and retain products to demonstrate that we could demonstrate control.

The final factor is imports for export. Pharmaceutical products which have components originating outside of a country and which are intended to be sold outside of the country are subject to import for export requirements. The original intention of the import for export requirement was to ensure that sufficient controls were in place to ensure that none of the products produced in a country that lacked product approval were not diverted into that country. Customs and Border Protection agents can audit an import for an export site and impose fines or legal action against sites that do not have adequate controls.

In accordance with the guidance related to the supply chain for Technology Transfer, our approach would be:

1. Assessment of all raw materials to understand which materials can be sourced locally and which must be imported:
2. Supplier selection
   1. Supplier selection (GAP analysis)
   2. Technical visit (eyes on the floor)
   3. QA audit
   4. Contract negotiations and possible subsequent investments
3. Preparation for Customs and taxation discussions
   1. Preparation of customs documents and discussion points
   2. Quantities calculation of imported materials
   3. Material classifications
   4. Waste plan
   5. Import for Export if necessary
4. Filing of changes
   1. Identify impacted countries/agencies
   2. Gap assessment of changes
   3. Filing strategy

ProPharma offers comprehensive solutions from industry-leading experts who can quickly develop an implementation plan, schedule meetings with relevant authorities, and provide answers to remove doubts in these uncertain times.

Blog Author

Bob Beall

Vice President, Quality and Compliance