Deals Under Duress: Healthcare M&A in an Age of Tariffs and Trade Barriers

1. Introduction

The geopolitical developments of the past year and a half have put the healthcare and life sciences industry through a stress test. Volatile US tariff policies, Chinese trade restrictions on rare earth elements, the EU’s first-ever use of the International Procurement Instrument and China’s countermeasures, as well as supply chain bottlenecks from escalating military conflicts have exposed structural weaknesses in global supply chains, ranging from higher procurement costs to restrictions on market access. At the same time, strategic acquisitions and the divestiture of exposed business units can strengthen companies’ resilience.

Companies must therefore revisit their supply chain strategies. Stability of supply and reduction of geopolitical risk are increasingly becoming independent drivers of M&A transactions. Acquiring local production capacity, integrating critical suppliers, and accessing markets with favourable regulatory conditions are gaining importance. The success of such transactions requires early-stage risk assessment and systematic contractual risk allocation. This article highlights which current developments are particularly relevant to healthcare M&A and how they must be factored into the transaction process.

2. Global Developments in the Healthcare & Life Sciences Industry

A key development in recent months has been the imposition of tariffs on imports of patented pharmaceuticals into the US. The significance of US trade policy is not confined to US-headquartered businesses. The European life-sciences sector has substantial exposure to the US market, with 44% of EU exports of medicinal and pharmaceutical products going to the US in 2025.¹ Medical devices were brought within stricter US tariff measures from April 2025, whereas pharmaceuticals were initially excluded but became subject to a separate, sector-specific Section 232 regime, with duties taking effect in stages from July 2026. This regime was implemented through Proclamation 11020,² under which the US imposes a 100% ad valorem tariff on patented pharmaceuticals and active pharmaceutical ingredients, subject to certain carve-outs and transitional relief. Companies with an approved US onshoring plan benefit from a reduced transitional rate of 20%, while those that have in addition made Most-Favoured-Nation pricing commitments towards the US (i.e. an undertaking not to charge the US more than other developed markets for the relevant products) benefit from a zero tariff rate until 19 January 2029.

The US Biosecure Act, passed in December 2025, is of particular relevance to the industry. It restricts US federal procurement and funding involving biotechnology equipment or services supplied by so-called “Biotechnology Companies of Concern” (BCCs) and may also affect companies outside the biotechnology sector where covered equipment or services are used in the performance of US federal contracts. The legislation thus has broader implications for supplier and service-provider relationships across global life sciences value chains.

Trade-policy tensions are not limited to the US. In medical technology, the EU–China dispute over public procurement access illustrates the growing use of market-access measures in strategically important healthcare markets. Following concerns over European manufacturers’ access to tenders in China,³ the European Commission initiated proceedings in April 2024 under the International Procurement Instrument (IPI).⁴ In June 2025, it excluded 350 product categories from Chinese manufacturers from EU-wide public tenders for medical devices valued at €5 million or more.⁵ China responded with mirror measures a few days later.⁶

3. Specific Developments for the UK and German Markets

The UK and German healthcare markets are currently experiencing distinct but interconnected regulatory and trade-related developments. The United Kingdom has obtained a time-limited and conditional degree of protection from US pharmaceutical and medical-technology tariffs, while Germany is facing a US trade investigation directed at German pharmaceutical pricing and reimbursement.

Under the UK-US pharmaceutical arrangement reached in April 2026, the US committed, subject to stated conditions, not to apply Section 232 pharmaceutical tariffs to covered UK pharmaceutical products and specified medical-technology products until 19 January 2029, nor additional Section 301 tariffs to UK pharmaceuticals or medical technologies during the periods specified.⁷ The arrangement is subject to annual review and can be terminated on six months’ notice. It also provides for a US-UK Pharmaceutical Supply Chains Partnership focused on shortages, surge manufacturing and reducing reliance on non-market economies for key pharmaceutical inputs.⁸ The arrangement therefore provides a degree of current tariff certainty while remaining contingent on continued implementation and compliance with its conditions.

Germany, by contrast, is currently the subject of a Section 301 investigation initiated by the US Trade Representative (USTR) on 18 June 2026 pursuant to the US Trade Act of 1974. The investigation looks into what the USTR describes as Germany’s “persistent underpayment for innovative pharmaceutical products”. The investigation is a US domestic-law proceeding examining whether German acts, policies or practices are unreasonable or discriminatory and burden or restrict US commerce. The USTR’s notice initially identifies two areas: conditions for confidential pharmaceutical reimbursement amounts, including what the notice describes as a 9% discount and additional administrative costs; and certain measures related to the Statutory Health Insurance Contribution Rate Stabilisation Act, which relate to a further increase in the currently applicable mandatory rebate for patent-protected pharmaceuticals.

A separate connection with US policy which is relevant for both markets arises from the US Biosecure Act, restricting specified US federal bodies, contractors and federal-funding recipients from using equipment or services from designated BCCs.⁹ The Act’s prohibitions are not immediate. The Office of Management and Budget (OMB) is expected to publish the first list of covered companies by December 2026, with implementing guidance and Federal Acquisition Regulation (FAR) revisions expected to follow into 2027 and 2028. Depending on the category of designated company, the restrictions are generally expected to take effect within two to three months after the FAR revision, subject to a five-year grandfathering period for pre-existing contracts.¹⁰ UK- and Germany-based businesses can nonetheless be affected well before then, indirectly, where a US customer, collaborator or investor requires a supply chain free of designated providers. This may bring supplier-level diligence into focus, particularly in relation to China-linked Contract Research Organisations (CROs), sequencing providers and Contract Development and Manufacturing Organisations (CDMOs), as well as contractual substitution rights.

UK policy towards China is not one of comprehensive decoupling: the January 2026 UK-China trade package welcomed Chinese approvals for UK vaccines and medical devices and broader market access for certain medicines and healthcare services.¹¹ Yet concerns regarding supply-chain resilience remain pronounced. Government assessments continue to identify China as the UK’s largest source of goods for which the UK has limited alternative supply, including helium, rare earth elements and tantalum used in MRI and CT scanners, X-ray tubes and ultrasound equipment.¹² Concerns relating to critical technologies and supply-chain resilience also increasingly intersect with foreign investment screening. Healthcare is not one of the seventeen standalone mandatory sectors under the National Security and Investment Act 2021,¹³ but many healthcare targets engage specified sectors such as synthetic biology, AI, data infrastructure, advanced materials and critical suppliers to government.

The common thread running through all the developments in both markets is the growing intersection between healthcare policy, trade relations and national security. Whether through tariff arrangements, pricing disputes, supply-chain restrictions or foreign investment controls, geopolitical considerations are becoming an increasingly significant feature of healthcare M&A on both sides of the Channel.

4. Considerations in Transaction Structuring

The developments described make supply chain resilience a strategic priority. Tariffs, blocked transport routes and regulations such as the US Biosecure Act demonstrate that supply chain risks are no longer merely operational but are directly relevant to transactions. They influence nearly every phase of the M&A process: target selection, due diligence, valuation and contractual risk allocation. The following section addresses due diligence, contract review, carve-out structures, warranties and indemnities, and transition agreements.

4.1 From Risk Analysis to Contract Drafting

Buyers and sellers must consider trade-conflict implications throughout the transaction: the target’s exposure to tariffs, import quotas and export controls, and the dependence of key suppliers and distribution channels on political change. Early analysis lays the foundation for operational remedies and contractual risk allocation.

4.2 Preparation on the Seller’s Side (“Dressing the Bride”)

Sellers should systematically identify and document supply chain risks before the sales process begins. Remediable deficiencies should be addressed in advance, and remaining risks presented transparently for due diligence: dependencies on critical raw materials and suppliers, the contractual allocation of customs and procurement risks, and measures for dealing with supply bottlenecks and trade restrictions.

4.3 Selection of the Target Company and Buyer Due Diligence

When selecting the target company, production locations, geopolitical exposure and regulatory frameworks should be considered alongside strategic and economic criteria. Local production capacity can reduce customs risks and supplier dependencies. Two areas take centre stage in due diligence:

4.3.1 Supply Chain Stability and Applicability of Exemptions under the UK-US Pharmaceutical Arrangement

Buyers must have a detailed understanding of the product portfolio, components and raw materials – particularly rare earth elements in medical technology and active pharmaceutical ingredients (APIs) in pharmaceuticals – and verify whether these are subject to import restrictions or tariffs. Strict price regulation combined with inflexible tender contracts makes cost increases along the supply chain particularly burdensome, especially in structurally low-margin segments such as generics. Practical Q&A questionnaires should be product-specific and address each key component or raw material, including availability of alternative sources of supply. Beyond origin-based exemptions, buyers should also verify whether the target has made, or could make, a Most-Favoured-Nation pricing commitment, as this can independently eliminate Section 232 tariff exposure on patented products.

The practical availability of the benefits under the UK-US pharmaceutical arrangement will often depend on whether individual products qualify as “of the United Kingdom” under the applicable US rules of origin, rather than on the existence of manufacturing activities in the UK alone. Determining eligibility typically requires a product-specific analysis of the origin of APIs and key starting materials, as well as the nature and significance of the manufacturing steps performed. In transactional contexts, this assessment is commonly informed by documentation such as bills of materials, supplier declarations, batch records and customs filings. Any identified uncertainties may become relevant to deal structuring and risk allocation mechanisms, including pre-closing remediation measures, tailored customs-related protections and, where appropriate, purchase price adjustments.

4.3.2 Customs Refunds

Buyers should determine which customs duties the target company can reclaim, as this affects valuation. The US Court of International Trade ordered the refund of approximately $166 billion in duties under the IEEPA after the Supreme Court ruled in Learning Resources, Inc. v. Trump that the duties were unlawful.¹⁴ By the end of July 2026, approximately $100 billion had actually been paid out. By way of example, Siemens Healthineers received refunds of more than $200 million in Q3 of its 2025/26 fiscal year and raised its earnings forecast on 31 July 2026.¹⁵ Buyers should also examine whether reimbursement claims from earlier transactions were sold off and how customer and supplier contracts address customs surcharges.

4.4 Recent Transactions and Business Valuation

The strategic importance of trade conflicts for healthcare M&A is evident in recent transactions. Celltrion acquired a US manufacturing facility from Eli Lilly, citing elimination of tariff risks and the expansion of US manufacturing capacity as key reasons.¹⁶ Reflecting pressures associated with the US Biosecure Act, several life sciences companies have reviewed or restructured China operations: GE Healthcare explored a sale of its China business,¹⁷ Bristol-Myers Squibb sold its 60 percent stake in a Chinese joint venture,¹⁸ and WuXi Biologics sold a vaccine plant in Ireland to Merck & Co.¹⁹ These examples illustrate two patterns: acquisition of tariff-privileged capacity, and divestiture of exposed business units. Location and supply chain exposure thus become value-determining parameters, for example through differentiated discount rates.

4.5 Contract Review: Incoterms, Force Majeure, and Price Adjustments

Buyers must thoroughly analyse contracts with key customers and suppliers – Incoterms® 2020, force majeure and hardship clauses, and price adjustment mechanisms govern the allocation of costs and risks and are gaining importance against the backdrop of recent trade conflicts. Under the eleven Incoterms, with the exception of the “Delivered Duty Paid” (DDP) term, the buyer bears import duties, while under ten of the eleven terms, the seller bears the export duties; the sole exception is the “Ex Works” (EXW) term, under which the buyer also bears export costs. An unfavourable allocation of costs and risks can be factored into the transaction documentation and purchase price valuation – this becomes particularly challenging when Incoterms change within a chain of contracts.

Force majeure and hardship clauses do not automatically cover supply chain disruptions. Older contracts in particular are often not tailored to export bans, raw material shortages or the closure of transport routes, giving rise to interpretation and litigation risk. Exclusivity agreements for raw materials and active ingredients should also be reviewed. Price adjustment mechanisms should be assessed for triggers, calculation methods, thresholds and pass-through options, as well as indirect consequences such as contractual penalties or regulatory sanctions resulting from supply failures of critical pharmaceuticals.

4.6 Risk Allocation in the Transaction Documentation

The results of customs and sanctions due diligence can be incorporated into the transaction documentation at several levels: through an adjustment of the transaction scope, the purchase price mechanism, covenants between signing and closing, as well as specific warranties, indemnities, and post-closing undertakings. The appropriate instrument depends in particular on whether a risk is already known, can be remedied before closing, or remains uncertain only with regard to its economic impact.

4.6.1 Scope of the Transaction

In the healthcare sector, activities in sanctioned countries sometimes continue, as certain sanctions regimes provide exceptions or authorisation options for pharmaceutical and medical purposes; permissibility depends on the products, business partners, cash flows and required authorisations involved. Where the buyer, its banks or the W&I insurer cannot or will not assume, finance or insure such a transaction, a carve-out – or, where structures can be sufficiently separated, ring-fencing – may be considered, with remaining risks mitigated through specific guarantees or indemnities. Separation before signing must be specified in the binding offer or as a closing condition, including implementation obligations and consequences of non-compliance.

4.6.2 Earn-out Mechanisms

If the economic consequences of potential tariff changes cannot be reliably quantified when determining the purchase price, an earn-out can bridge the valuation gap. In EBITDA-based models, adjustments to key metrics must be clearly defined; where risks are product- or region-specific, net revenue, gross margin or product-specific manufacturing costs may be more appropriate. The calculation should account for pass-through of customs costs, exchange rate effects, supplier or location changes, and changes in transfer prices and reimbursement terms, ruling out double counting or unilateral influence on the calculation basis. A dispute resolution mechanism with access to relevant operational and accounting records is likely to be essential.

4.6.3 Covenants between Signing and Closing

For the period before closing, material customs and sanctions-related events should be covered by clearly defined information and notification obligations, with trigger events including changes in customs rates, classifications or origin determinations, authority inquiries, and loss of essential permits. The seller may also be required to continue operating in compliance with the law and to remedy identified deficiencies. The buyer’s right to withhold consent must be limited to exceptional measures affecting transaction value and must not confer premature control or interfere with normal operations. In transactions between competitors, “clean team” structures must also be provided for.

4.6.4 Specific Customs-Related Warranties

Given the US Trade Fraud Task Force established in 2025 by the Department of Justice and Department of Homeland Security – which generated over $1 billion in civil and criminal recoveries, penalties, forfeitures and publicly charged losses within one year²⁰ – customs-related risks should not be covered solely by a general “compliance with laws” warranty. A standalone guarantee aligned with the tax definition and tax guarantees is more appropriate, covering customs value, non-preferential and preferential origin, accuracy of customs declarations, and ongoing or announced audits, with known issues addressed through specific exemptions.

4.6.5 Customs Refunds and Exemptions

The purchase agreement should expressly stipulate which party is economically entitled to customs refunds – decisive factors being the period during which duties were paid and who bore the original economic burden. If refunds for periods prior to closing are to benefit the seller, customs duties must be included in the tax definition or reflected through a separate post-closing refund obligation, addressing control over the refund process, filing and cooperation obligations, cost allocation, and treatment of interest, taxes and pass-through obligations. Identified but uncertain payment risks may warrant specific customs-related exemptions.

4.6.6 W&I Insurability

Historical customs compliance risks must be distinguished from the future economic consequences of new customs duties. Breaches of specific warranties relating to previously unknown historical facts can generally be included in W&I coverage, provided the area has been sufficiently reviewed and the insurer accepts the risk during underwriting. Forward-looking margin or cost risks from duties introduced only after signing generally fall outside core W&I scope. Risk-appropriate customs due diligence, documented classification and origin positions, and consistent data on goods flows and prior audits support the most robust coverage; known or excluded risks must be covered through seller liability or a specific indemnity.

4.7 Transition Agreements: Production and Supply Agreements

In carve-outs of product portfolios initially continuing to be manufactured by the seller after closing, a temporary manufacturing and supply agreement is typically required to ensure continuity of supply and give the buyer time to establish alternative capacity. Beyond production, delivery and compensation, the agreement should cover the transfer of technology, know-how and manufacturing documentation, and a binding exit and transfer plan.

In the healthcare sector, the agreements must be closely integrated with regulatory and quality-related requirements – GMP compliance, batch release, complaints, audits, recalls, and communication with regulators – and the contractual division of responsibilities cannot override the parties’ statutory obligations. Operational parameters also deserve attention: forecasting and ordering mechanisms, minimum and maximum quantities, capacity reservations, safety stock levels, and contract terms and renewal options, with pricing covering not only the manufacturing margin but also raw material, energy and customs costs.

The choice of Incoterms should specify the place of delivery, generally in accordance with Incoterms 2020, and align with the actual supply chain, particularly regarding which party acts as exporter or importer and bears import duties; Incoterms allocate costs and risks but do not replace separate provisions on transfer of title and tax treatment. Force majeure and price adjustment clauses should be distinguished functionally: a force majeure clause exempts a party from performance in the event of uncontrollable circumstances, whereas mere cost increases do not automatically trigger a price adjustment, so changes in customs duties and import bans should be expressly accompanied by notification obligations or a right to terminate the contract.

5. Conclusion and Outlook

The geopolitical upheavals of the past year and a half – IEEPA tariffs and their partial repeal, export controls on rare earths, the EU IPI, and the US Biosecure Act – have exposed the vulnerability of global supply chains. Resilience and regulatory robustness are gaining importance over pure cost optimisation; M&A transactions increasingly serve not only expansion or portfolio optimisation, but also the securing of strategic supply chains.

The acquisition of local production capacity, critical suppliers, or target companies with resilient, regulatory-compliant supply structures can reduce dependence on geopolitical risks and secure access to strategically important intermediate goods, while targeted divestitures of exposed business units enable a focus on more resilient market segments. In practice, this means expanding traditional due diligence to include a systematic analysis of customs, trade and supply-chain risks, including customs exposures (and potential refund claims), dependencies on critical raw materials and active ingredients, and the contractual allocation of risk across the supply and sales chain. Identified risks should then be addressed through an appropriate combination of structural and contractual protections, including carve-outs or ring-fencing measures, earn-out mechanisms, specific warranties and indemnities, and targeted post-closing obligations.

The increasing use of restrictions on trade as a geopolitical steering instrument is unlikely to be temporary. Healthcare companies should treat supply chain resilience as integral to strategy. M&A can enable growth while also strengthening operational resilience and managing geopolitical risk.

Sources

1. Eurostat, International Trade in Medicinal and Pharmaceutical Products, Mar. 2026.

2. The White House, Fact Sheet: President Donald J. Trump Bolsters National Security and Strengthens U.S. Supply Chains by Imposing Tariffs on Patented Pharmaceutical Products, 2 April 2026.

3. European Commission press release, 14 Jan. 2025 (IP/25/252).

4. International Procurement Instrument pursuant to Regulation (EU) 2022/1031; European Commission, Report pursuant to Art. 5(4) of Regulation (EU) 2022/1031 on the IPI investigation concerning medical devices procurement in the PRC, COM(2025)5 final, 14 Jan. 2025, p. 5.

5. Commission Implementing Regulation (EU) 2025/1197 of 19 June 2025 imposing an International Procurement Instrument measure restricting the access of economic operators and medical devices originating in the People’s Republic of China to the European Union public procurement market for medical devices, OJ L, 2025/1197, 20.6.2025.

6. Statement by the State Council of the People’s Republic of China, 6 July 2025.

7. UK Department for Science, Innovation & Technology, Arrangement between the United States of America and the United Kingdom on Pharmaceutical Pricing, 2 April 2026.

8. Ibid.; White House, Adjusting Imports of Pharmaceuticals and Pharmaceutical Ingredients into the United States, 2 April 2026.

9. BIOSECURE Act, enacted as § 851 of the National Defense Authorization Act for Fiscal Year 2026, Pub. L. No. 119-60 (2025).

10. National Defense Authorization Act for Fiscal Year 2026, Pub. L. No. 119-60, § 851(c)-(d) (2025), available at: congress.gov/bill/119th-congress/house-bill/3838.

11. UK Government, Prime Minister visit to China: trade and investment factsheet, 30 January 2026.

12. UK Government, Critical Imports and Supply Chains Strategy, 17 January 2024.

13. UK Government, National Security and Investment Act 2021, c. 25.

14. Supreme Court of the United States, Learning Resources, Inc. v. Trump, 607 U.S. 229 (2026), available at: supremecourt.gov.

15. Siemens Healthineers AG, Interim Report Q3 Fiscal Year 2025/26, 31 July 2026.

16. Celltrion, Letter to Shareholders [Update on the Acquisition of Eli Lilly’s U.S. Manufacturing Facility], 11 Nov. 2025.

17. Wu, K., “GE Healthcare Exploring Sale of China Unit, Source Says,” Reuters, 19 Sept. 2025.

18. Reuters, “Bristol Myers to sell 60% stake in China joint venture,” 17 Sept. 2025.

19. Sneha, “China’s WuXi Biologics to sell Irish vaccine facility to Merck as U.S. curbs loom,” Reuters, 6 Jan. 2025.

20. U.S. Department of Justice, Departments of Justice and Homeland Security Partner on Cross-Agency Trade Fraud Task Force, press release, 29 August 2025.