US Tariffs on Pharma: Zydus, Dr. Reddy’s Face Highest Risk, Says Jefferies | Impact on Indian Pharma Stocks
The proposed US tariffs on imported pharmaceutical products have raised concerns among Indian pharma companies, which are major suppliers of generic drugs to the US. While the move primarily targets Ireland and China, Indian pharmaceutical firms with significant US exposure could still feel the impact.
Zydus and Dr. Reddy’s at Highest Risk
According to global brokerage firm Jefferies, Zydus Lifesciences (45% US sales) & Dr. Reddy’s Laboratories (43% US sales) are at the highest risk among Indian generic drug manufacturers. If the US imposes reciprocal tariffs , they are expected to be capped at 10%. As India itself levies up to 10% import duties on US drugs. The burden of these tariffs may either be absorbed by manufacturers or passed on to consumers.
Pharma companies must decide whether to adjust pricing strategies or absorb costs internally. If the cost is not transferred to patients, the entire supply chain—including retailers, distributors, and manufacturers—will have to bear the impact.
Indian Pharma Stocks at Risk
High-Risk Stocks: Generic Drug Makers & CMOs
Companies in the generic drug segment and Contract Manufacturing Organizations (CMOs) face the most significant risk due to their competitive pricing models and heavy reliance on the US market.
- Zydus Lifesciences (45% US sales) – A major player in oral solid dosage (OSD) formulations, making it highly vulnerable.
- Dr. Reddy’s Laboratories (43% US sales) – Derives 25% of its revenue from injectables, which may face pricing pressure.
- Gland Pharma (54% US sales) – As a CMO, it manufactures for US-based clients, making it directly impacted.
- Biocon (50% US sales) – While its generics exports are lower than 30%, pricing pressures could affect its competitive edge.
Moderate-Risk Stocks: Specialty Pharma & Biosimilars
Companies with diversified revenue streams, such as specialty pharmaceuticals, biosimilars, and inhalers, may experience a lesser impact due to lower competition in their segments.
- Lupin (35% US sales) – Generates a significant portion of revenue from inhalers, a high-margin and low-competition category.
- Sun Pharmaceutical Industries (30% US sales) – Over half of its US revenue comes from patented drugs, reducing its exposure.
- Cipla (28% US sales) – With over 15% of revenue from inhalers, Cipla benefits from a differentiated product mix.
Lower-Risk Stocks: CDMOs & API Vendors
Companies operating under cost-plus models or offering contract research services are better positioned since they have built-in cost pass-through mechanisms.
- Syngene International (68% US sales) – Primarily follows an FTE-based model with cost-plus contracts, reducing risk.
- Piramal Pharma (41% US sales) – With 50% of manufacturing outside India, its tariff exposure is limited.
- Divi’s Laboratories (17% US sales) – A CDMO with cost-plus contracts, offering some tariff protection.
Can Indian Pharma Absorb the Impact?
Pharma companies are likely to pass on tariff costs to distributors, retailers, or insurance payers in the US. However, the generic drug market is highly price-sensitive, making cost absorption a challenge.
Setting up US-based manufacturing to bypass tariffs is not a short-term solution, as it requires substantial capital investment and regulatory approvals, which may take 5-6 years.
What Lies Ahead?
India exports $8.7 billion worth of pharmaceuticals to the US annually. If the US imposes reciprocal tariffs, they are likely to be capped at 10%, similar to India’s current import duty on US drugs.
Jefferies highlights that President Trump’s proposed tariffs are mainly aimed at Ireland and China, given their role in drug manufacturing and tax havens. However, generics and biosimilars may be spared, as they account for 90% of US prescriptions but only 13% of overall drug spending.
Final Thoughts
While the potential imposition of tariffs on Indian pharma exports to the US remains uncertain. Companies with high US exposure—particularly Zydus Lifesciences and Dr. Reddy’s Laboratories—face significant risks. Investors should monitor ongoing policy developments. As any tariff decision could reshape market dynamics and profitability for the Indian pharma sector.
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