US Tariffs on Pharma: Zydus, Dr Reddy’s at highest risk, says Jefferies; Check impact on other Indian pharma stocks

The US President Donald Trump's proposal to impose tariffs on imported pharmaceutical products has raised concerns in the Indian pharma sector, which is a major supplier of generic drugs to the US market. While the move seems to be largely aimed at Ireland and China, Indian pharma companies with significant exposure to the US may still face challenges.

If tariffs are implemented, companies will have to decide whether to absorb the cost or pass it on to consumers. India currently levies up to 10% import duties on drugs imported from the US with several drugs having lower duty of 5% while around 150 drugs are exempted from duties.

Foreign brokerage firm Jefferies believes that if the US applies reciprocal tariffs, it will at best be 10% on imported Indian medicines to the US. It expects pharma companies will aim to pass on tariff increases to payors. If the costs aren’t passed onto the end patients then the entire supply chain will have to partly absorb the impact. Key players in the US supply chain are Retailers or Distributors, formulation manufacturers and API or KSM suppliers to manufacturers.

Jefferies said that it believes generic formulation players and CMO players are at higher risk due to high competitive intensity while other segments like CDMO have a cost plus model while CRO is a FTE based service model.

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

Here’s a look at Indian pharma stocks that could be most affected according to Jefferies:

High-Risk Stocks: Generic Drug Manufacturers and CMOs

Generic drug makers and contract manufacturing organizations (CMOs) could bear the brunt of new tariffs due to intense pricing competition and their heavy reliance on US sales. Among them:

Zydus Lifesciences | 45% US sales | With a major portion of its revenue coming from oral solid dosage (OSD) formulations in the US, Zydus is highly exposed to any potential tariff impact.

Dr. Reddy’s Laboratories | 43% US sales | Dr. Reddy’s Laboratories derives over 25% of its sales from injectable drugs in the US, which could face pricing pressure.

Gland Pharma | 54% US sales | As a CMO, a portion of Gland Pharma’s revenue comes from manufacturing for US-based clients. If tariffs increase costs, its business could be directly impacted.

Biocon | 50% US sales | While its direct generics exports from India to the US are lower than 30%, any cost increases may impact its competitive positioning.

Moderately Affected Stocks: Diversified Business Models

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

Lupin | 35% US sales | A significant portion of Lupin’s US revenue comes from inhalers, a category with relatively higher margins and lower competition.

Sun Pharmaceutical Industries | 30% US sales | Over half of Sun Pharmaceutical Industries' US revenue comes from patented drugs, which are manufactured by contract manufacturing organizations outside India, reducing its exposure.

Cipla | 28% US sales | With more than 15% of sales from inhalers, Cipla has a differentiated product mix that could help mitigate pricing pressure.

Lower Risk Stocks: CDMOs and API Vendors

Companies operating under a cost-plus model or providing contract research services may be less impacted as they typically have built-in cost pass-through mechanisms, according to Jefferies.

Syngene International | 68% US sales | The company primarily operates on an FTE-based model, with a significant portion of sales coming from cost-plus contracts, making it less vulnerable to direct tariff impacts.

Piramal Pharma | 41% US sales | With about 50% of Piramal Pharma's manufacturing done outside India, its exposure to Indian manufacturing-related tariffs is lower.

Divi’s Laboratories | 17% US sales | As a CDMO, its cost-plus contracts provide some insulation against tariffs.

Can Indian Pharma Absorb the Impact?

If tariffs are imposed, pharma companies will likely attempt to pass on costs to distributors, retailers, or insurance payors in the US. However, given the cost-sensitive nature of the generic drug market, this may not always be feasible. The alternative — absorbing costs — could squeeze margins, particularly for high-exposure companies.

Setting up manufacturing in the US to bypass tariffs is not a viable short-term solution, as it requires high capital expenditure and regulatory approvals that can take 5-6 years, according to Jefferies.

What’s Next?

While India’s overall pharma exports to the US stand at $8.7 billion, any reciprocal tariff by the US would likely be capped at 10%, considering India itself levies up to 10% import duty on US drugs.

Going through the latest statements of President Trump, Jefferies believes the President has a reasonably strong intention to put tariffs on pharma imports into the US, but he has specifically raised concern on pharma companies using Ireland as tax haven as well as large amounts of drug manufacturing happening in Ireland and China.

It would not be surprising if the generic industry is spared as spending on generic & Biosimilar medicines was just ~13% of overall US drug spending but represented 90% of all prescriptions, Jefferies said.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.