By Celeste Ang, Eunkyung Kim Shin, Michal Berkner, Daniel Garcia, Jennifer Revis and Xin Tao

As the life sciences industry grapples with the pressures of newly introduced MFN (Most-Favored-Nation) pricing requirements and evolving tariff structures, the industry faces mounting challenges that reverberate through pricing, access and supply chain management. The US shift towards guaranteed MFN pricing and direct purchasing is unfolding amid heightened uncertainty in international trade relations, regulatory scrutiny and the spectre of increased tariffs.

This complex interplay not only threatens to raise drug prices and disrupt established supply chains but also compels pharmaceutical companies to reevaluate their global revenue models and contractual safeguards. In response, companies are doubling efforts in scrutinising contract agreements, mitigating risks all while grappling with increased regulatory scrutiny and compliance requirements. Ultimately, multinationals across Europe and beyond are looking to ensure business continuity and maintaining access to medicines in a rapidly shifting international landscape.

The US and EU recently announced a 15% tariff ceiling on most imports, including pharmaceuticals (with exceptions for generics). In the meantime, the US Section 232 national security investigation on imports of pharmaceuticals and active pharmaceutical ingredients is ongoing and may lead to higher tariffs in other regions. US President Trump also reinforced his MFN drug pricing policies, giving 17 major pharmaceutical companies a 60-day deadline to bring down prescription drug prices.  The implementation of 15% tariffs is expected to lead to higher costs and prices. This increase may affect affordability for patients and could trigger a slew of policy reviews involving pricing strategies on both sides of the Atlantic. For example, US pharmaceutical companies are looking to increase the price of certain medications in the UK and the EU by as much as over 150% within Q4 2025.

President Trump’s stipulations around MFN could also further complicate multinational companies’ operations. The US administration’s strong push for MFN pricing and direct purchasing could prompt pharmaceutical firms to reconsider global revenue strategies. These measures may result in price hikes abroad or adjustments in revenue allocation, influencing not only trade dynamics but also broader international healthcare policy approaches.

Additionally, companies reviewing pricing strategies to navigate the MFN requirements could highlight a gap between public policy and practical market responses between list prices and net prices. There is also caution around the potential that US pharmaceutical companies may respond to tariffs and MFN pricing requirements by raising prices or delaying product launches in Europe, especially among smaller and mid-sized firms.  These actions could impact the access to medicines between Western and Eastern European countries and trigger stockpiling concerns.

Furthermore, beyond the impact on market strategies and end-use customers, stricter regulations and increased tariffs can impact research and development (R&D) investments and increase the time and cost of bringing new drugs to market.

The imposition of tariffs reinforces the need to ensure that commercial and clinical supply agreements are drafted to balance business continuity with clear contractual risk allocation. These agreements are not simply administrative; they are the foundation of the parties’ duties and remedies and dictate how unexpected external pressures are absorbed. To build resilience, attention must be given not only to tariff-related provisions but also to the broader commercial terms and operational framework that define performance.

Key areas include:

• Core business terms: clearly define the scope of services, payment terms, pricing, purchase volumes and allocation of responsibility for customs, duties and fees
• Operational terms: ensure agreement details match product specifications, sourcing requirements and management of technical or logistical complexities in supply and development
• Risk allocation provisions: assign responsibility for problems by setting performance standards and remedies, representations and warranties, indemnity and insurance, limitation of liability and termination rights, among other risk allocation provisions
• Flexibility mechanisms: cost-sharing or price-adjustment provisions and clear treatment of regulatory actions or changes in law.

In practice, tariffs present two distinct scenarios: when agreements with a supplier are already in place and when new agreements are being negotiated. In both cases, proactive management is essential to avoid disruption.

For existing agreements, companies should review pricing, pass-through costs and delivery terms while assessing force majeure and change-in-law provisions to determine whether tariffs or governmental actions are addressed. For new agreements, parties should allocate tariff-related costs, negotiate tailored provisions addressing government actions and ensure performance commitments are realistic and backed by warranties and insurance.

By treating tariffs as a foreseeable business risk rather than a remote contingency, companies can strengthen their position with contract development and manufacturing organisations (CDMOs) and maintain continuity of commercial and clinical supply.

Even with well-drafted agreements, tariffs and related trade disruptions may generate disputes. For this reason, dispute resolution provisions are a critical safeguard that should be integrated into every supply agreement. Early alignment on scope, pricing and volumes is critical. Effectively allocating disputes risk involves calibrating each party’s roles and responsibilities to the operational realities of the agreement. This involves addressing standards of performance and remedies for failure, risk of loss, non-conformance, supply interruptions, representations and warranties, indemnification, insurance and limitations or exclusions of liability.

Companies are also rightly reflecting on the knock-on impact of tariffs on disputes risk. Already complex supply chains now must bear the additional burden of managing regulatory and location-specific compliance burdens resulting from tariff and trade changes.

These challenges require diversified sourcing, testing, manufacturing, storage and licensing across different jurisdictions. Companies should stay ahead of the risk curve by conducting robust regulatory and compliance risks assessments and audits including of vendors and partners and map out contingency plans and strategies.

Changing sourcing, testing, manufacturing or marketing authorisation sites in response to tariffs makes compliance considerations more technical and interdisciplinary, particularly when cross-border operations are involved. Multinationals should invest in robust risk assessments and contingency planning.

The following areas require specific attention:

• Good Practice Compliance and national security: changes in manufacturing sites impact compliance and may extend facility readiness timelines. EU reforms and US national security considerations influence approval processes, with companies managing these as challenges rather than barriers
• Rising costs and delays in drug development: stricter EU and US regulations and tariffs increase costs and delays in drug development raise risks of recalls and penalties for non-compliance
• EU Omnibus: the EU Omnibus can also compound the impacts of tariffs and customs and raise risk profiles because of regulatory uncertainty and weakened supply chain due diligence.

Companies looking to mitigate tariff impact on their businesses are considering market expansion and diversification through M&A to access larger customer bases, growth opportunities and lowering their cost base. Diversifying supply chain manufacturing locations helps secure multinational business’s footing across multiple regions, reducing dependence on any one market and expanding supply chains in low tariff jurisdictions.

Mitigation strategies include:

• Assessing transfer pricing and customs valuation, including transaction value methodologies such as first sale
• Using preferential tariff programmes, inbound customs procedures and Free Trade Agreements.

As companies navigate the most recent wave of tariffs, decisiveness could make the difference between business continuity and stagnation. Companies should proactively prioritise strategic decisions, favour flexibility in agreements and engage in thorough planning to build long-term resilience.

This article was written by authors from Baker McKenzie, in line with the Healthcare & Life Sciences Supply Chains Series.