US Tariffs on Pharma: Dr Reddy’s to Sun Pharma—can Indian drugmakers escape Trump’s tariff tantrums?

US Tariffs on Pharma: US President Donald Trump's proposal to impose tariffs on pharmaceutical product imports has put pressure on leading Indian drugmakers, including Sun Pharmaceuticals and Dr Reddy's Labs, among others. While the move seems to be aimed at Ireland and China, Indian pharma companies with significant exposure to the US may face challenges.

Analysts believe the key question is whether India can be exempted from the pharma tariffs, given the better relationship between the countries and the critical nature of India’s generic drug supplies to the US healthcare system.

Also Read: Donald Trump Tariffs: New round to begin? US President says ‘major’ duty on pharma imports coming soon

If tariffs are implemented, companies must decide whether to absorb the cost or pass it on to consumers. India currently levies up to 10 per cent import duties on drugs imported from the US with several drugs having lower duty of five per cent while around 150 drugs are exempted from duties.

Country-specific exemption for India unlikely

According to domestic brokerage Elara Securities (India) Pvt Ltd, a country-specific exemption for India is unlikely. If pharma tariffs were country-specific, there would have been no reason to hold them back when they were announced last week. Hence, analysts believe that a country-specific exemption for India is unlikely in the coming round of pharma tariffs.

India’s generic firms to escape partly

Analysts at Elara Securities do not rule out the possibility of exempting specific drug categories that could benefit (relatively) India’s companies. It is possible that “generic drug formulations” could be exempted while patented drugs and chemical substances used for making drug formulations could be tariffed. 

Also Read: Pfizer, Amgen, Johnson & Johnson, others drop at US market open amid Trump’s US pharma tariff fears

Such a move would hurt the EU and US large pharma companies with plants outside the US, mainly in Europe, China, and China’s Contract Development and Manufacturing (CDMO) firms. It will have a limited impact on India’s generic firms, which largely export generic formulations (finished dosage forms) to the US.

Risks to Indian pharma companies

The domestic brokerage acknowledges that the scenario is volatile, making it difficult to take a definitive call on tariffs and their impact. If material tariffs are implemented, experts at the brokerage believe most of the cost will be passed on to the end customers, but manufacturers will absorb some portion. 

That poses a risk to the near-term margin of India’s generic companies with significant exposure to the US. However, over time, analysts believe the lower margin profile will lead to drug shortages and a rise in prices, so the entire additional tariff burden would get passed on, and the margin would rebound.

Also Read: Trump Reciprocal Tariffs: Pharma shares rise up to 13% on tariff exemption

Foreign brokerage firm Jefferies believes that if the US applies reciprocal tariffs, it will, at best, be 10 per cent on imported Indian medicines to the US.

“Given Zydus Lifesciences and Dr Reddy’s Laboratories have high US sales exposure with ~45 per cent and 43 per cent sales contribution, we believe they are at highest risk among generics in our coverage,” Jefferies said in a report.

According to Jefferies, companies with mixed revenue streams, such as speciality pharma, biosimilars, and inhalers, may face some impact but are better positioned due to limited competition in their segments.

Sun Pharmaceutical Industries has 30 per cent of US sales. Over half of Sun Pharma's US revenue comes from patented drugs manufactured by contract manufacturing organizations outside India, reducing its exposure.

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