Trump tariff plan may have minimal impact on Indian generic drugmakers despite market jitters: MoSL
Mumbai, July 22
Shares of Indian pharmaceutical companies came under selling pressure in opening trade on Wednesday after US President Donald Trump announced a phased tariff plan on imported generic medicines, with the Nifty Pharma index falling nearly 2 per cent.
Sun Pharmaceutical Industries, Cipla, Dr Reddy's Laboratories, Lupin and Aurobindo Pharma were among the major losers, declining by up to around 2-2.5 per cent in early trade as investors reacted to the proposed tariffs.
The market reaction followed Trump's announcement that imported generic medicines would remain tariff-free for two years, after which tariffs would rise to 100 per cent for one year and 200 per cent thereafter as part of efforts to encourage pharmaceutical manufacturing in the United States.
However, Motilal Oswal Financial Services believes the proposed tariff regime is unlikely to materially affect Indian pharmaceutical companies supplying generic medicines to the US.
According to Tushar Manudhane, Senior Vice President and Institutional Research Analyst - Healthcare at Motilal Oswal Financial Services, multiple Indian pharmaceutical companies have subsidiaries in the United States and there is a considerable difference between the transfer pricing at which products enter the US and the final selling price in the market.
"The tariff is presumably at pricing at which it enters US market," he said.
Manudhane also noted that around 90 per cent of generic prescriptions in the US are imported, implying that any tariff would apply across global suppliers rather than being specific to India.
"Secondly, 90 per cent of generic prescription is imported by US, effectively increasing the tariff for everyone (as and when it happens) supplying to US market and it is not India specific," he said.
He added that the economics of pharmaceutical manufacturing continue to favour India because production costs remain substantially lower than in the US.
"The concept of outsourcing to countries like India is based on 40-60 per cent lower cost of manufacturing in India compared to that in US.
Tariff implementation would still fall short and would not lower this advantage of low cost manufacturing from India," Manudhane said.
He further pointed out that relocating generic drug manufacturing to the US would involve significant time and regulatory hurdles.
"Even if the manufacturing plant is set up (which itself takes two years at least), it would be required to undergo plant inspection and subsequent product approval cycle of at least 12-15 months, further prolonging any competition to kick in," he said.
"Above factors questions the economic viability of setting up a manufacturing plant in US for generics."Summing up the likely impact, Manudhane said, "This effectively would mean minimal impact on Indian pharma companies supplying medicines to US market."
— ANI
Reader Comments
As an American consumer, I hope Trump realizes that if tariffs go to 200%, we'll be paying way more for our medicines. Indian generics save us billions. This is just political posturing, but the real impact could hurt patients back home.
Honestly, our pharma companies like Sun Pharma and Dr Reddy's have been preparing for this for years. The 2-year tariff-free period gives them time to adjust. Plus, setting up a plant in US takes years - by then, the political climate might change anyway. Smart move by MoSL to calm the markets.
I find it ironic that Trump wants to bring manufacturing back to US, but the cost structure just doesn't work for generics. Indian companies can produce at 40-60% lower cost. Even with 200% tariff, US consumers will ultimately pay the price. Our pharma sector should focus on R&D too, not just generics.
Market overreacted as usual. Nifty Pharma fell 2% but this is just noise. The real story is that Indian pharma companies have strong fundamentals and global supply chains. Tariff or no tariff, we remain the pharmacy of the world. 🇮🇳
One thing to note - even if tariffs kick in after 2 years, Indian companies will find ways to navigate. They already have US subsidiaries and can adjust transfer pricing. But we shouldn't be complacent. Time to invest in innovation and new drug development.
We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.