Indian pharma companies operating out of US, may have to rationalise their product portfolios and realign manufacturing, to stay profitable despite hit by US import tariffs.
Sources within the industry told Moneycontrol that companies, while waiting for more clarity on the proposed reciprocal tariffs starting from April 2, have been evaluating various strategies on how to mitigate the impending import tariffs.
Currently, Indian pharma companies face almost zero import duties in US.
"We still don't have clarity (on US import tariffs), but that doesn't mean we can sit idle, we are evaluating various options - on how best we can limit the damage," said an executive of an Indian drug maker with extensive US operations.
"If we can't pass on the tariff cost to the customers, we may have to weigh options such as exiting products that are unviable or have reached end of the life cycle, or for certain low volume products we may consider shifting manufacturing to US," the executive added.
Indian companies operate on thin EBITDA margins of 5-15% on average for their base business, even a 10% reciprocal tariff as India charges on US exports would make them unviable, if they fail to pass on the increased import duty on to the US consumer.
"Tariffs may result in massive shortages — though the US generics’ margins of the Indian companies have improved, they are largely concentrated in top 10-20 products," said recent Citi Research report.
"A large part of the tail (50%+ in terms of volume) may be operating at low (5-15% EBITDA) margin for even the bigger names while smaller names (largely unlisted) are operating at even lower margins," the report said.
Some rejig has already begun.
Last week, Dr Reddy's sold a basket of 14 abbreviated new drug applications (ANDAs) in US, including 1 ANDA, which is pending approval to Senores Pharmaceuticals.
Dr Reddy's hasn't gave any reason for the sale of the ANDA portfolio, but tariffs could speed up more such rejig of US generic portfolios.
Senores, which offers contract development and drug manufacturing organisation (CDMO) services to Indian companies operating in US, has commissioned a greenfield manufacturing in Atlanta in US.
The company's Promoter and Managing Director Swapnil Shah told Moneycontrol that while manufacturing in US is expensive, but import tariffs may alter the equation for low volume products.
Shah said he would expect more such transactions and order flowing to CDMOs like Senores who have manufacturing plant in US.
"The industry is seeing a portfolio rationalisation, where companies are discontinuing less profitable products and focusing on high-margin ones," Shah said.
"High-volume products remain competitive from India, while smaller batch productions may shift to US manufacturing due to tariff advantages," he added.
Also, US government has been prioritising local manufacturers for its federal programs like Medicare and Medicaid, offering a competitive edge for companies with US-based plants.
In 2024, India exported drugs worth around $8.73 billion to the US — about 31 percent of its total pharma exports.
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