Will He, Won't He-Trump's Tariff Haze Has Pharma Investors On The Edge

(MENAFN- Live Mint) The uncertainty over tariffs being imposed on pharmaceuticals by the US is making investors cautious about the sector. The market makes for a large chunk of revenue of India's top drugmakers. The Donald Trump administration has been teasing hefty tariffs on pharmaceutical imports for months now.

While Indian exporters are expected to come out of this largely unscathed, either by avoiding tariffs on account of low-priced generics or by passing on the costs, the uncertainty is hurting the market's outlook.

“Clearly, it is the overhang that is worrying the investors a little bit... the way the markets are approaching it is to say let's wait and watch what happens,” Chirag Dagli, fund manager of DSP healthcare fund and DSP multicap fund told Mint.

On Monday, the Associated Press reported that the US would impose duties upwards of 200% on drugs coming into the country. Last week, US President Donald Trump said he would reduce drug prices by 1,400-1,500%. Shares of top Indian pharma companies like Sun Pharma, Zydus Lifesciences, Lupin, Dr Reddy's and Divi's Laboratories fell 2-4% on the NSE following his statements.

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Currently, Indian pharmaceutical products are not subjected to any tariffs in the US. Last month, the country imposed 25% tariffs on Indian imports, which was later doubled to 50% citing India's continued purchases of Russian oil. Pharmaceuticals have so far been exempted from these tariffs.

However, in May this year, President Trump revived the Most Favored Nation drug pricing initiative that aims to align US drug prices to the lowest prices paid by comparable developed countries. Additionally, the country launched a section 232 investigation into drug imports to determine if they impair national security. This is still ongoing.

Trump has floated tariffs on pharma products up to 200%, possibly in a phased manner, starting at 25–50%. In August, a 15% tariff on European pharma imports was announced, much lower than earlier threats. It currently remains unclear whether Indian generic drugs will come under the purview of tariffs. And if they do, at what rate.

The Nifty Pharma index has remained flattish over the last four weeks, down 0.2% on the National Stock Exchange as on 5 September, and has fallen over 6.5% since January. The Nifty 50 index has also remained flat over the month, up 0.4% on Friday, and has risen 4.2% since January.

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The uncertainties around tariffs, as well as the impact of the loss of exclusivity of blood cancer blockbuster drug Revlimid for select companies, are being closely watched.

“The sector delivered healthy returns last year, but 2025 brings near-term challenges,” said Vrijesh Kasera, fund manager at Mirae Asset Investment Managers (India).

In 2024, the BSE Healthcare index delivered returns of about 39%, making it one of the top performers. The pace has considerably slowed down. In the last six months, the index gained about 14.5%. In comparison, benchmark Sensex delivered 8.2% returns in 2024, and 9.5% in the last six months.

The US is India's largest export market for pharmaceuticals. In FY25, of the country's overall pharma exports of $30.4 billion, $10.5 billion or 34.5% were to the US, according to industry body Pharmaceuticals Export Promotion Council of India (Pharmexcil). Exports to the US were up 15.6% from FY24.

Top Indian drugmakers, including Dr Reddy's, Aurobindo Pharma, Zydus, Lupin and Cipla, garner anywhere between 30% and 50% of their total revenues from the US.

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Several industry experts, however, see India's pharmaceuticals sector escaping a major hit, given that the US administration's objective seems to be to acquire more affordable medicines for its citizens and Indian products would fulfil that criteria.

India exports a chunk of low-cost generics to the US, and generics account for over 90% of prescriptions by volume in the US. Over 45% of generics and 15% of biosimilars by volume in the US originate from India, given the country's low-cost manufacturing.

“We remain constructive on India pharma,” said Vrijesh Kasera of Mirae Asset India Mutual Fund.“Valuations have meaningfully corrected from peak levels on tariff-related concerns, yet the structural story remains intact, anchored by India's scale advantage and low-cost manufacturing edge.”

Even if tariffs are imposed, the industry is expected to pass on the additional cost to the consumers or cut back on their exposure to the US. Indian drugmakers are looking at boosting exports to markets including Russia, Brazil, and the Netherlands, as well as to the semi-regulated markets in Africa, Latin America and Southeast Asia, according to two recent reports by Reuters.

“I'm not worried about tariffs fundamentally, but it is impacting the mood of pharma stocks,” said Dagli of DSP. At this point, any clarity would be a good thing,“because it takes you out of the uncertain environment,” he said.

The Revlimid impact

Another concern being flagged for some pharma companies is the loss of exclusivity for blood cancer drug Revlimid, which loses its patent in January 2026. Some Indian drugmakers, including Dr Reddy's, Cipla, Natco Pharma and Sun Pharma, had agreements to distribute the drug in limited quantities in the US, and have cashed in on the blockbuster drug.

Next year, the market will open to all generic makers and see low-cost entries flooding the market and prices plunge.

While the loss of revenue from Revlimid has been baked into expectations for the sector, what needs to be watched is how it will impact companies' margins.

“Transient product revenue losses and margin pressures warrant close monitoring. Until there is better clarity on core earnings strength, investors may prefer to stay on the sidelines before re-engaging with the sector,” Kasera said.

Details on the market size for Revlimid were not available. Innovator Bristol Myers Squibb had reported $5.8 billion in global sales of the drug in 2024. This did not include generic sales by Indian companies, which do not provide product-wise revenue break-up.

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