FDA Commissioner Marty Makary has a plan to stop the US from losing the early-stage drug development race to China. The tariff regime is how he hopes to pay for it.
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FDA Commissioner Marty Makary is pushing a two-track reform agenda to reverse US decline in early-stage drug development, where China now conducts more clinical trials and accounts for nearly a third of global drug approvals. The plan combines regulatory streamlining (reducing Phase I evidence requirements) with manufacturing incentives (waiving facility fees for US-based generic and API production), funded by the Trump administration's 100% tariffs on patented pharmaceuticals. The policy window is constrained to three years, as tariff exemptions for US manufacturing commitments expire January 20, 2029, creating urgency for companies to lock in long-term investments.
FDA Commissioner Marty Makary has a plan to stop the US from losing the early-stage drug development race to China. The tariff regime is how he hopes to pay for it.
Makary has told Congress the US is falling behind China in early-phase clinical trials, CNBC reported. He traced the problem to three bottlenecks: hospital contracting, ethical reviews, and the process for submitting and approving Investigational New Drug applications. China now conducts more clinical trials than the US, accounts for nearly a third of new global drug approvals, and is on pace to reach 35% of FDA approvals by 2040.
His response is a two-track FDA reform agenda. The first track cuts the evidence package required to start a Phase I trial. Under proposed changes, the FDA now defaults to one clinical trial for drug applications, backed by confirmative evidence including mechanistic data, findings from related indications, and animal models. The second track waives annual facility fees for three years for companies that break ground on US facilities to manufacture finished generic drugs or active pharmaceutical ingredients, according to a Holland & Knight analysis of the Generic Drug User Fee Act reauthorization. GDUFA III negotiations are ongoing through spring 2026, with HHS submission to Congress expected by January 15, 2027.
The Trump administration's 100% tariff on patented pharmaceutical products under Section 232 is the lever underneath both tracks. The tariffs have already spurred roughly $400 billion in new US manufacturing commitments, according to the White House, as companies scrambled to lock in exemptions before the duties took effect. Large pharmaceutical companies face tariffs in 120 days; smaller companies have 180 days. HHS Secretary Robert F. Kennedy Jr. has endorsed the approach, arguing the drug supply chain is a national security issue. Generics, biosimilars, and their associated ingredients are currently exempt, reassessment due in one year. Orphan drugs, drugs for animal health, and certain specialty products are also exempt.
The exemptions have a hard expiration date: January 20, 2029. That is the end of Trump's current term, and the tariff exemption available to companies that signed a most-favored-nation pricing deal and committed to US manufacturing sunsets with it. Companies are making 20-year property, plant, and equipment investment decisions based on three years of policy certainty, BioPharma Dive reported. If the next administration lets the exemption sunset, $400 billion becomes stranded cost.
For companies that only enter into onshoring agreements with the Department of Commerce, a 20% tariff will apply, BioPharma Dive separately reported. Thirteen companies have already signed a pricing agreement with the administration; four more are negotiating, CNBC reported. RBC Capital Markets called the policy designed to reward cooperation, and the market response bears that out. Nearly every major drugmaker has made some form of commitment. The mid-sized companies most exposed to the stranded-cost risk have already begun lobbying for relief through a coalition called the Mid-Sized Biotech Alliance of America.
The durability of the exemption is the open question. Makary's argument is that the drug supply chain is a national security issue as much as a commercial one. The FDA's proposed changes are designed to make running a first-in-human trial in the US faster and cheaper. Whether that shifts where companies locate that work depends on whether the facilities being built today remain economically viable under whatever policy comes next, and whether the 2029 cliff gets extended or falls.
For a startup evaluating whether to build a manufacturing line in the US versus abroad, the tariff math changes dramatically depending on whether the exemption survives the next administration. For a VC writing a term sheet that includes manufacturing infrastructure, the policy risk is part of the due diligence in a way it was not six months ago.
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