US Tariffs on Pharma: Dr Reddy’s to Sun Pharma—Can Indian Drugmakers Escape Trump’s Tariff Tantrums?

Introduction: The Looming Tariff Threat

On April 8, 2025, US President Donald Trump announced that the United States would “soon announce a major tariff on pharmaceuticals” Reuters. This announcement has sent shockwaves through the global pharmaceutical industry, particularly affecting Indian pharmaceutical companies that have significant exposure to the US market.

The announcement came after pharmaceuticals had initially been exempted from earlier reciprocal tariffs that the US had imposed on approximately 60 countries Times of India. The renewed threat has caused significant market volatility with pharmaceutical stocks tumbling globally.

Impact on Indian Pharmaceutical Companies

Market Reaction

The immediate impact of Trump’s announcement was visible in the stock market. The Nifty Pharma Index fell nearly 2%, with major players experiencing significant declines:

• IPCA Laboratories, Glenmark Pharma, and Biocon were among the top losers, falling between 4% and 5.5% Reuters
• Leading firms like Lupin, Biocon, and Glenmark Pharmaceuticals saw their shares decline by up to 6% Finimize

Exposure Analysis

The vulnerability of Indian pharmaceutical companies to US tariffs varies depending on their exposure to the US market:

1. Dr. Reddy’s Laboratories:
   • Approximately 47% of its generics business revenue comes from the US market Equitymaster
   • Jefferies has identified Dr. Reddy’s as being at high risk due to its significant US sales exposure LiveMint
2. Sun Pharmaceutical Industries:
   • About 32% of its revenue came from the US market in 2023-24 Equitymaster
   • As India’s largest pharmaceutical company, Sun Pharma has significant business in the US, with formulation sales reaching US$ 1,854 million in FY24, up 10.1% over the previous year Sun Pharma
3. Other Major Players:
   • Aurobindo Pharma, Piramal Pharma, and Gland Pharma also have substantial exposure to the US market Equitymaster
   • Companies with high US sales exposure (around 30-50% of their total revenues) are particularly vulnerable LiveMint

Can Indian Drugmakers Escape the Tariff Impact?

Executive Perspectives

Leading executives from major Indian pharmaceutical companies have weighed in on the potential impact and strategies to navigate the tariff challenges:

1. GV Prasad, Managing Director of Dr. Reddy’s Laboratories:
   • Maintains that Indian drugmakers are likely to remain competitive despite the tariffs Financial Express
   • Believes that shifting all production to the US is “not practical” due to capacity constraints and cost implications Financial Express
   • Indicates that if tariffs are imposed, “it should be possible to absorb them,” noting that while US drug prices are already low, additional duties would primarily raise costs for consumers rather than disrupt supply CNBCTV18
2. Dilip Shanghvi, Managing Director of Sun Pharmaceutical Industries:
   • Expressed optimism that generic drugs might be exempt from the tariffs Times Now News
   • Stated that if tariffs are imposed, most of those costs would be passed on to customers Times Now News
   • Does not foresee a significant negative impact on the industry, citing India’s long-term competitive advantage Times Now News

Mitigation Strategies

Indian pharmaceutical companies are employing various strategies to mitigate the potential impact of US tariffs:

1. Cost Absorption and Price Adjustments:
   • Companies may absorb some of the tariff costs within their supply chains LiveMint
   • Foreign brokerage firm Jefferies expects pharma companies will aim to pass on tariff increases to payors LiveMint
2. Manufacturing Capacity Expansion:
   • Aurobindo Pharma plans to expand manufacturing capacities to increase annual production to over 50 billion units Equitymaster
   • Piramal Pharma is planning expansion at its PPS Facility in Lexington, Kentucky, which could help mitigate tariff impacts Equitymaster
3. Product Portfolio Diversification:
   • Sun Pharma aims to grow faster than the industry with new product launches and volume growth Equitymaster
   • Dr. Reddy’s is targeting new product launches such as denosumab in FY26 and a high-value biosimilar abatacept by early 2027 Equitymaster
   • Companies are investing in innovation by diversifying product offerings, venturing into novel drug discovery, and increasing production of innovative generics, biosimilars, and branded drugs BioSpectrum India
4. Global Market Diversification:
   • Companies are looking to expand globally through strategic acquisitions or setting up new operations to compensate for potential revenue losses in the US market BioSpectrum India
   • There is also a push toward strengthening the domestic market to reduce reliance on US exports Finimize
5. Technological Upgrades:
   • Indian pharma companies are leveraging new technologies by upgrading production systems, quality control processes, and digital supply chain management to improve efficiency BioSpectrum India

The Broader US-India Pharmaceutical Trade Relationship

The potential tariffs come against the backdrop of a significant and growing US-India pharmaceutical trade relationship:

1. Trade Volume:
   • India exports USD 8.7 billion worth of pharmaceuticals to the US while importing just USD 800 million Times of India
   • India supplies approximately 47% of generic medicines used in the US NDTV
2. Current Tariff Structure:
   • India currently levies up to 10% import duties on drugs imported from the US, while the US applies zero tariffs on Indian pharmaceutical imports LiveMint
   • Trump’s proposed “reciprocal tariffs” aim to address this imbalance BBC
3. Healthcare Cost Implications:
   • Indian generic medicines have saved the US healthcare system USD 219 billion in 2022 and USD 1.3 trillion from 2013 to 2022 Times of India
   • Four out of ten prescriptions filled in the US in 2022 came from Indian companies Times of India

Expert Analysis and Market Outlook

Analysts and industry experts have provided varying perspectives on the potential impact of US tariffs on Indian pharmaceutical companies:

1. Tariff Impact Assessment:
   • Bernstein analyst Courtney Breen has suggested that steep tariffs could lead to about $53 billion in additional costs for pharmaceutical imports Reuters
   • If companies opt to bring new manufacturing to the US, they could face additional spend of $2 billion for each new site with a five-year runway to production Reuters
2. Manufacturing Relocation Skepticism:
   • BMO Capital Markets analyst Evan Seigerman has expressed strong opposition to pharmaceutical tariffs, stating they “will likely do little to shift manufacturing back to the U.S.” Reuters
   • Umang Vohra, MD and Global CEO of Cipla, questioned the wisdom of building manufacturing plants in the US based on tariffs that might disappear in a few years BioSpectrum India
3. Tariff Duration Considerations:
   • Current tariffs are being pursued under emergency powers, which could potentially end with the current administration or sooner with an act of Congress Reuters
   • This temporary nature influences companies’ hesitation to make long-term manufacturing location decisions BioSpectrum India

Conclusion: Can Indian Drugmakers Escape Trump’s Tariff Tantrums?

Based on the available information, Indian pharmaceutical companies like Dr. Reddy’s and Sun Pharma may be able to weather the storm of potential US tariffs through a combination of strategies:

1. Cost Absorption and Pass-Through: Both Dr. Reddy’s and Sun Pharma executives have indicated they can either absorb the tariff costs or pass them on to customers, suggesting the immediate financial impact may be manageable.
2. Continuing Competitive Advantage: India’s structural advantages in pharmaceutical manufacturing—including lower production costs and established expertise—mean that even with tariffs of 10-25%, Indian companies may remain competitive in the US market.
3. Strategic Shifts: Companies are already implementing diversification strategies in product portfolios, manufacturing locations, and target markets to reduce dependency on US exports.
4. US Healthcare System Dependency: The US healthcare system’s significant reliance on Indian generics (47% of generic medicines) creates a mutual dependency that could moderate the eventual tariff levels or implementation timeline.
5. Temporary Nature of Tariffs: The potential temporary nature of these tariffs, which might change with a new administration or congressional action, discourages dramatic shifts in manufacturing location strategies.

While Indian pharmaceutical companies face significant challenges from potential US tariffs, the combination of their inherent competitive advantages, strategic adaptations, and the interdependent nature of the US-India pharmaceutical trade relationship suggests they may indeed be able to navigate through Trump’s tariff tantrums—albeit not without some turbulence along the way.