Five ways pharma can leverage AI amid tariff turmoil

To date, the pharmaceutical industry has largely withstood the impact of tariffs, with the S&P Healthcare index showing only a 0.5% decline this year, compared to a 7.5% drop in the broader S&P 500. However, U.S. President Donald Trump has announced that significant tariffs will be imposed on imported pharmaceuticals starting in mid-May, marking a shift after three decades of minimal or no trade barriers.

This announcement comes despite major investment plans from leading pharma companies. Bristol Myers Squibb intends to invest $40B in U.S.-based research and manufacturing over the next five years, while Eli Lilly has pledged at least $27B toward building domestic production facilities.

The primary targets: China and India, which together provide more than 70% of the active pharmaceutical ingredients (APIs) used in U.S. drug production, amounting to approximately $140B in annual prescription drug imports.

The anticipated tariffs are likely to drive up costs, disrupt supply networks, and affect the availability of essential ingredients and technologies. As custodians of commercial contracts, General Counsel (GCs) play a critical role in shaping and protecting these supply chains. Now is the moment to review, renegotiate, and strengthen contractual frameworks.

Recommended Actions

GCs should carefully examine both existing and upcoming supply or procurement agreements, especially sections dealing with country-of-origin representations, force majeure, legal changes, and termination rights.

1. Country-of-origin representations

The U.S. government is expected to clamp down on practices like transshipment and mislabeling that are used to circumvent tariffs. Contracts should contain precise obligations for disclosing country of origin, as this directly determines tariff applicability.

AI application: Pinpoint contracts with compliance-related warranties and detect inconsistencies across suppliers.

2. Force majeure and hardship provisions

Typical force majeure clauses may not cover tariff-related or political actions. GCs should assess whether hardship clauses enable commercial adjustments.

AI application: Group and benchmark language related to force majeure and hardship, extract summaries, and identify mentions of terms like "tariffs" or "embargoes." This allows for quick risk assessment and prioritization of contracts for renegotiation.

3. Change in law provisions

Tariff impacts typically qualify as a change in law — but only if contracts define them accordingly. GCs should confirm whether these clauses address foreign regulations and trigger renegotiation rights or automatic price adjustments.

AI application: Deploy Legal AI tools to find and evaluate contracts that include (or lack) robust change-in-law terms.

4. Flexible pricing structures

Tariff volatility makes fixed-price contracts risky. Without adjustment mechanisms, companies could face margin compression.

AI application: Use clause analysis to identify pricing models, flag fixed versus variable terms, and highlight contracts that lack cost pass-through options.

5. Unclear definitions create risk

Ambiguities in terms like "tariffs," "duties," or "trade restrictions" can lead to disputes during sudden changes. Contracts should be updated to reflect current legal definitions and avoid future litigation.

AI application: Detect outdated or inconsistent definitions using AI, helping GCs modernize contract templates and clause libraries.