While tariffs affected sourcing, the COVID-19 pandemic was the main catalyst for pharma reshoring. The crisis exposed critical vulnerabilities in global supply chains for essential precursors and chemicals, creating a stronger impetus for companies to establish local manufacturing than trade policy alone.
Companies cannot compete on labor costs in the US. According to the Reshoring Institute, if labor constitutes more than 50% of a product's build cost, it is not a candidate for US reshoring. Success hinges on automating production to extract labor, making high-capital sectors like pharma more suitable.
Despite numerous announcements of new US pharmaceutical factories, tangible production capacity is not immediate. Building a highly automated facility, procuring machinery, and integrating it takes 18-24 months alone. A realistic timeline for significant output from these new investments is three to five years.
Reshoring isn't just about building a new facility. Companies must navigate complex exit procedures in foreign countries, including paying out multi-year employee contracts, securing permits to leave, and preventing the former partner from becoming a competitor using your intellectual property.
Companies are moving away from single, hyper-efficient global supply chains. The new strategy involves setting up parallel, regional manufacturing locations (e.g., China plus the US, or China plus Mexico and Vietnam) to create redundancy and mitigate risks from disruptions like pandemics, natural disasters, or geopolitical events.