How US tariffs on patented drugs have affected Indian companies
What's the story
The United States has imposed tariffs of up to 100% on patented drugs, a move that could have a major impact on India's specialty pharmaceutical players. The decision comes after a Section 232 national security investigation and is aimed at reducing the country's reliance on imported pharmaceuticals. However, generics and biosimilars are exempt from these tariffs, leaving them unaffected by the new trade measures.
Market impact
Sun Pharma most exposed to tariffs
Among Indian companies, Sun Pharma is the most exposed to these tariffs. The company has over $1 billion in US specialty sales. If Sun Pharma absorbs the tariff impact, Nomura analyst Sion Mukherjee estimates a 5% hit on its FY28 earnings. However, he also warned that passing costs onto customers could hurt market share gains for the company.
Earnings forecast
Jefferies predicts mid-single digit impact on Sun Pharma's earnings
Jefferies analyst Alok Dalal has predicted a mid-single digit impact on Sun Pharma's FY27 earnings in a worst-case scenario. He believes the company can completely mitigate the impact using transfer pricing or price hikes. Notably, generics have been exempted from these tariffs, meaning there will be no effect on other pharma companies under Jefferies's coverage.
Tariff details
Who will be exempt from the tariffs?
Seventeen major pharma companies that have signed agreements with the US government will pay either 0% or 20% tariffs, depending on the deal terms. Companies committing to the most-favored-nation pricing, US investments, and onshoring are exempt until January 20, 2029. Niche categories like orphan drugs, nuclear medicines, plasma-derived therapies, fertility treatments, cell and gene therapies, as well as antibody-drug conjugates are also exempt from these tariffs.
CDMO impact
Sai Lifesciences has highest exposure among CDMOs
Among Contract Development and Manufacturing Organizations (CDMOs), Sai Lifesciences has the highest exposure with about 12% of its sales coming from US shipments of patented products. However, Dalal expects a limited near-term impact as most big pharma companies have signed a deal (thus would be eligible for zero tariffs) while biotech firms usually have just one supplier per product.
Potential effects
Nomura warns of modest impact on CDMOs
Mukherjee from Nomura said the tariff order "may impact CDMO companies in select cases, but we expect the impact to be modest in most cases." He added that while most Indian CDMOs manufacture key intermediates, and APIs that may not ship directly to the US, in certain cases, the US customs may consider India as the country of origin and levy higher tariffs.