Indian pharma braces for Trump tariff fallout

So, what happens if these tariffs are implemented?

According to Vishal Manchanda, equity research analyst- pharma, Systematix Group, the Indian generic drug manufacturers will likely have no choice but to pass on the additional tariff costs to US consumers. “For basic, commodity drugs, the pricing is already so competitive that absorbing the cost internally isn’t feasible. At the same time, the US may also have limited alternatives, as no other country can match India’s scale and pricing efficiency in supplying low-cost generics,” he explains.

However, if costs cannot be passed on to US buyers like Group Purchasing Organization (GPOs) and Pharmacy Benefit Manager (PBMs), it could “lead to margin compression for exporters, potentially triggering drug price hikes and shortages in the US”, explains Dr Amit Varma, co-founder and managing partner, Quadria Capital. “Large US purchasers could reopen contracts and diversify sourcing to geographies like the EU, Puerto Rico and Mexico.”

Manchanda points out that manufacturing generic drugs in the US is not a viable alternative in the short term. “The US lacks the full pharmaceutical ecosystem—formulations, APIs, intermediates, packaging infrastructure—that India has built over decades. Recreating that ecosystem domestically would take significant time and investment. The dependency on Indian suppliers is deep and difficult to replace quickly,” he notes.

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Companies like Zydus, Aurobindo and Dr Reddy's—those with a higher presence in the low-margin, generics segment—might be the worst hit. In comparison, players like Cipla, Lupin and Sun Pharma will be safeguarded from potential impact of the tariffs due to their specialised, high-margin portfolios.

“Pharma companies with diversified exposure—especially those with over 50 percent revenue from the EU and rest of the world, and those focussed on niche segments like ophthalmics, inhalation therapies, depot injections and peptides—are likely to remain resilient,” notes Varma. In essence, the more specialised and complex your portfolio is, the less vulnerable you are to tariff shocks.

Additionally, Varma believes that firms may re-engineer their supply chains by moving fill-finish and packaging operations to North America to meet “substantial transformation” rules or pursue selective US acquisitions to retain access.

Vinita Gupta, CEO of pharma major Lupin, during an analyst call on February 12 for Q3FY25 results said: “We are monitoring it very carefully and the industry has made a strong pitch, both from the Association for Accessible Medicines standpoint as well as IPA (Indian Pharmaceutical Association). The tariffs, if implemented, will have a significant impact on the generic drug industry.” Lupin, like most other industry stakeholders, hopes that pharmaceuticals and generic drugs, in particular, will be exempted from these tariffs.

On the other end, the American health care system is likely to be affected the most. Why?

According to research firm IQVIA, overall cheaper generic drugs saved the US health care system about $408 billion in 2022. To lower costs for patients, the US started outsourcing, particularly generics, from countries like India and China. The move to implement a 25 percent tariff, hence, becomes counterproductive and eventually might lead to drug shortages in the US, state experts.

Lupin’s Gupta said, “If [tariffs are implemented], we'll be looking at other ways and means of mitigating the impact with a combination of manufacturing in the US as well as wherever possible, from a cost perspective and otherwise.” Stakeholders are hopeful that the case made by the industry is heard, and implications understood. “Any tariff impact can really cause more product disruption and drug shortages, which no one wants in the country,” she added.