MUMBAI: Analysts have ruled out any serious impact on the domestic pharma industry from the 100% tariffs that the US has slapped on branded drugs imports, saying the latest tariff war will have no material impact on domestic companies as they are mostly into generics.
The US sources as much as 45% of its generic drugs and 15% of biosimilars from Indian companies. Like software companies, the $50 billion domestic pharma industry also draws a significant share of business from the US with exports last year touching close to $27 billion.
India, often dubbed the “pharmacy of the world,” counts the US as its biggest market for exports. The pharmaceutical market for FY24 was valued at $50 billion with domestic consumption valued at $23.5 billion and export valued at $26.5 billion. As much as 45% of the US generics demand is met by Indian companies and 15% of biosimilars are also sourced from here.
In fiscal 2025, India exported about $10.5 billion worth of pharma products to the US, accounting for over a third of its total pharma exports. These exports include essential medications for chronic diseases, antibiotics, and life-saving oncology drugs. Many domestic pharmaceutical companies, such as Dr Reddy's Laboratories, Aurobindo Pharma, and Zydus Lifesciences, derive a significant portion of their revenue from the US market, with estimates ranging from 30-50%.
While Crisil Ratings said the new tariffs on patented and branded drug imports are not a bitter pill for domestic pharma companies, another agency Icra Ratings said these tariffs will have no material impact on them.
“The imposition of 100% tariff by the US on imported branded and patented pharmaceutical products starting October 1, may not significantly hurt domestic drug makers. That is because exports to the US—accounting for 20% of the pharmaceuticals market—primarily comprise generic, off-patent medicines which may not come under the ambit of these tariffs,” said Anuj Sethi, a senior director with Crisil.
“To be sure, some domestic formulation makers have niche presence in the branded and patented drugs space, but the contribution of those drugs to their revenue is modest. Moreover, given the largely non-discretionary nature of these products, majority of the tariff cost is likely to be passed through. Some of these domestic companies also have manufacturing facilities in the US, which would make them exempt from the new levies,” he added.
Echoing similar views, Deepak Jotwani, sector head-corporate ratings at Icra Ratings, said, "The 100% tariffs on branded and patented drug imports to the US is not expected to have any material immediate impact on the our pharmaceutical industry. Domestic pharma companies’ strength lies in generic drug exports, which are currently exempt from these tariffs. However, a few of them with exposure to non-US domiciled branded formulation/innovator drug companies, who in turn export to the US, by way of sales of APIs or intermediates to them or undertaking contract manufacturing, may face headwinds."
Overall, the US move underscores the need for domestic pharma companies to diversify markets and innovate in complex generics and biosimilars to stay resilient in a changing global trade landscape, Jotwani added.
In April, the Trump administration had launched a Section 232 investigation into pharma imports. This law allows the US to examine whether certain imports pose a threat to national security. It appears that Trump wants to use this as a way to push drug companies to manufacture more medicines in the US, as domestic production has declined sharply over the years. Major firms like Eli Lilly and Johnson & Johnson have already announced new investments in US facilities.
In response to the tariff announcement, pharma stocks saw sharp declines with the counters of Sun Pharmaceutical and Natco Pharma falling over 3%. At close, the Nifty Pharma index was lower by 2.14% and 5.2% for the week, with most constituents in the red. Laurus Labs, Biocon, and Zydus Life were the top losers, slipping 4-7%.