Generic pain, margin loss: Drug companies may find it hard to adjust with Trump’s tariff plans

New Delhi: US President Donald Trump’s plan to levy tariffs of about 25% on pharmaceuticals can potentially hurt Indian companies by squeezing their margins and making locally-produced generics less competitive in one of its largest export markets, industry executives said. India is one of the world’s top producers of generic drugs. It is a key supplier to the US – about 30% of India’s total pharma exports go to the US. “The tariffs imposed by the US under President Trump’s trade policies will affect both the cost structures and market dynamics for Indian pharmaceutical companies,” said an industry expert. Data shows India’s pharma exports to US rose substantially this fiscal year.

While there is no cost alternative to Indian generics currently, imposing tariffs may make them pricier, impacting drugmakers’ margins, said Ravi Uday Bhaskar, director general, All India Drugs Control Officers Confederation (AIDCOC). He, however, pointed out that India has an upper hand in the current scenario. “Nearly 30% of our total exports ($27 billion) are going to America. The US can’t shift to any other country as no country other than India is capable of producing cost-effective quality medicines,” said Bhaskar. “India has 650 USFDA sites which is the largest outside the US. The production cost will be approximately 30% higher if US manufactures.”

Trump’s announcement has, however, rattled the Indian pharma industry, with the local stock market feeling the ripples. Listed pharma stocks fell sharply on Wednesday. Any imposition of tariffs could influence prices and demand for Indian drugs in the US, said an industry executive.

“With the rise in input costs due to tariffs, Indian pharma companies will face increased production costs, which will potentially affect their price competitiveness in both domestic and international markets,” the person said. “Some companies might have to absorb the higher costs, impacting their margins, while others will pass them onto consumers,” he said.

Sheetal Sapale, VP, commercial at Pharmarack said tariffs will inflate the cost of doing business in the US. “We have a price advantage as our USP. If we increase the cost, our USP gets impacted, and if we don’t want that, the companies will have to compromise on their profit margins. It will be a delicate balance, which only time will tell, how Indian companies manage,” she said. Top Indian pharma exporters to the US include Dr Reddy’s Laboratories, Lupin, Cipla, Sun Pharma and Aurobindo Pharma.Significantly, some Indian drugmakers have begun to diversify their supply chains, either by boosting domestic production of key APIs (active pharmaceutical ingredients) or by sourcing from other countries to avoid relying too heavily on China.

“This shift is aimed at reducing vulnerability to the impact of US tariffs and other trade barriers,” said a pharma analyst.