Early decisions about manufacturing and supply chains could prove costly as a company reaches the commercial stage.
For an early-stage founder, urgency is the default mindset. Securing funding, hitting clinical milestones and building the right team are right in front of you and feel like the only things you can focus on. Tariffs and trade policy, by comparison, can feel like a distraction—a distant problem that can be dealt with in the future.
But such thinking is a mistake. Overlooking tariffs when making important planning decisions can quickly erode your long-term value and leave you stuck when you want to exit.
As the CEO of Mercury, a logistics partner to life sciences companies, I have seen companies working on pivotal research reach milestone moments—fundraising, partnership negotiations and even exits—only to be blindsided by inquiries about the impact of tariffs on their commercial product.
For startups, tariffs may not sting today. But failure to consider long-term supply chain considerations can undermine companies by inflating their commercial costs, shrinking their pool of potential acquirers or complicating regulatory approval.
Discovery Meets Strategy
Tariffs rarely matter when an early-stage company is only focused on research. Shipments are typically classified as “for research purposes only,” with nominal values, typically $1, and are shielded from tariffs. A 250% tariff on a package worth $1 is not impactful.
But this is where companies go wrong. Just because you don’t feel the impact now doesn’t mean you won’t down the line. In our business, failure to plan is planning to fail.
During preclinical development, you make important decisions about your partners, and once you pick a contract manufacturing organization (CMO) or contract development and manufacturing organization (CDMO), it’s hard to reverse the path you’re on. If your CMO or CDMO is based in a country with high tariffs or difficult customs regulations, your future costs, profitability, strategic options and valuation can be quickly compromised.
Clinical and Logistics Complexities
When a biotech startup enters clinical development, its shipping needs grow more complex. While biological specimens still carry nominal values, investigational drug products do not. In most countries, customs requires a commercial value, even though the product isn’t on the market, creating both risk and variability. If companies declare too low, they risk compliance issues once the drug is commercialized and subject to customs’ reviews. Declare a higher value and tariffs can start impacting companies’ profit margins once their drugs are commercial.
There are ways around paying the full amount of a tariff when not yet commercial, such as classifying shipments under a prototype designation. But these workarounds only buy time and won’t be a solution in the commercial stage.
This is often when companies pick a CMO or CDMO, and when international trial design begins impacting tariff exposure. By aligning CMO selection with trial locations, startups can reduce tariff burdens and streamline logistics. We’ve seen partners manufacture drug products in the same country where their trial will occur, avoiding both tariffs and regulatory delays and significantly decreasing the cost of shipping. Smart choices such as these can set companies up for long-term success.
When Tariffs Can Haunt You
Once a therapy is approved and priced, companies begin feeling the pinch of tariffs whether they prepared ahead of time or not. Depending on their destination, drug products and active pharmaceutical ingredients (APIs) can carry significant costs.
A Mercury client experienced a 15% tariff when importing a multi-million-dollar shipment of a commercial drug product. When the shipment is valued that high, any tariff hurts, let alone one at 150% or higher as we’re seeing discussed as possible on some healthcare products.
When a company hits the commercial stage, tariff risk directly impacts pricing strategy, margins and even patient access. Investors and potential buyers will scrutinize the startup’s supply chain and its resilience to tariffs. Suppose you locked yourself into a high-tariff-exposed country early on. In that case, you may need to consider moving your manufacturing to a different country, which can be a long, slow and expensive process.
The Risk of Short-Term Thinking
Tariffs shape how investors perceive your business: Are you profitable? Do you have healthy margins? Are you organized? Tariffs don’t just affect your current operating costs; they affect your future strategic options. Early decisions in the research and clinical stages can have long term implications on when you go commercial.
The good news? If you plan for this early on, you can manage the risk. Tariff-related considerations for early-stage biotechs include:
- CMO partnerships: Selecting a CMO within the geographic area of your trials and markets can save you time and money.
- Local manufacturing: Prioritizing production where your drug will be approved and sold diminishes expensive and variable shipping tariffs.
- Minimizing tariffs: Foreign-trade zones and legal classifications are important to know about when planning. The prototype exemption during development, for example, can limit what you pay in the short term.
Research-stage biotechs should embrace tariffs as a strategic lever and a part of their long-term success plan. When reviewed correctly, executives can position their companies to avoid unnecessary costs, maximize their valuations and attract potential buyers.
Don’t let tariffs become your crisis of tomorrow.
