India’s generic pharma players may be spared from major tariff blow: Jefferies

Most Indian pharma manufacturing remains in India due to lower labour costs. Setting up US facilities requires significant capital and time, making any large-scale shifts unfeasible.

Trade

• Watchlist
• Portfolio
• Message
• Set Alert

 

 

live

• bselive
• nselive

Volume

Todays L/H

More

×

As the world braces for US President’s country-based tariffs on April 2, a note by Jefferies has allayed concerns of India’s generic pharma makers, adding that the sector may escape any serious action by the Trump administration owing to fears of drug price hikes in America, though some players like Zydus and Dr Reddy’s are vulnerable due to higher US exposure.

Shares of Indian pharma companies have faced a significant selloff in anticipation of the looming tariffs, following the US announcement of a 25% additional levy on all its automotive imports.

In recent past, President Trump has signalled at potential tariffs on pharma imports as well, while calling for bringing overseas manufacturing back home. However, generic pharma may not see major tariffs, according to a Jefferies note, as they have been helpful in reducing US drug costs. The note added there is a possibility of a rally in the shares of US-focused generic pharma companies.

Jefferies pointed out that India currently imposes up to 10% import duties on US drugs, with some having lower duties or exemptions. If the US enforces reciprocal tariffs, it would be, at best, 10% on imported Indian medicines to the US. Should this happen, American companies may pass on the cost increases to consumers, but if the costs are not passed on, the entire supply chain of retailers, distributors and formulation manufacturers may be forced to absorb the hit.

India’s pharma industry includes generic manufacturers, API vendors, CROs, and CDMOs. Jefferies said the generic formulation manufacturers and CMOs face the highest risk due to competition and pricing pressure. Zydus and Dr Reddy’s, with 45% and 43% of sales from the US respectively, are particularly vulnerable, the note said.

Most Indian pharma manufacturing remains in India due to lower labour costs. Setting up US facilities requires significant capital and time, making any large-scale shifts unfeasible. According to Jefferies, the current international generics pricing makes such projects unviable, though some Indian CRO/CDMOs do have US facilities for research, business development, and to offset supply chain risk.

The Jefferies note goes on to suggest that India do away with tariffs on pharma imports completely, as the country imports only $800 million worth of US pharma products but exports products amounting to $8.7 billion to the US. Many drugs already have low (5%) or zero import duties, making tariff removal feasible, Jefferies added.

The Jefferies notes suggests that Trump tariffs on US pharma imports seem likely, but they may be largely directed at tax havens in Ireland and China, rather than India’s exports. Moreover, the US generic drug industry represents 90% of prescriptions but only 13% of consumer spend on pharma, which may imply that the generic industry may be spared from the tariff blowback.