US President Donald Trump’s April 2 proclamation targets patented drugs following a Section 232 national security investigation, citing that 53% of patented pharmaceuticals and 85% of active pharmaceutical ingredients are manufactured offshore. But the devil is in the exemptions: Europe, Switzerland and South Korea will face just 15% tariffs, the UK between 0-10%, while generics and biosimilars face zero duties.
Sun Pharma emerges as the most vulnerable Indian player, with over $1 billion in US specialty sales manufactured primarily in Europe and South Korea. “If Sun Pharma absorbs the impact of tariff, we estimate FY28F earnings impact of 5%,” said Nomura analyst Sion Mukherjee, who rates the stock a buy. The alternative of passing costs to customers could adversely affect market share gains, Mukherjee warned.
Jefferies analyst Alok Dalal pegged the damage lower, estimating mid-single digit impact on FY27 EPS of Sun Pharma in a worst-case scenario. “We think the impact can be completely mitigated using transfer pricing or price hikes,” Dalal said, noting that generics have been exempted and thus “no impact on other pharma names in our coverage.”
Seventeen big pharma companies that signed agreements with the US government will pay either 0% or 20% tariffs, depending on deal terms. Companies committing to most-favoured-nation pricing, US investments and onshoring are exempt until January 20, 2029. Niche categories, including orphan drugs, nuclear medicines, plasma-derived therapies, fertility treatments, cell and gene therapies, and antibody-drug conjugates, also dodge the levies.
Among contract development and manufacturing organisations, Sai Lifesciences faces the highest exposure with roughly 12% of sales from US shipments of patented products, according to Jefferies. “Sai Life is most exposed among CDMO,” Dalal noted. However, he expects limited near-term impact as “most big pharma firms have signed a deal with HHS (thus would be eligible for zero tariffs) while biotech firms typically have just one supplier per product.”
Nomura’s Mukherjee said the tariff order “may impact CDMO companies in select cases, but we expect the impact to be modest in most cases.” He noted 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.”Adding new suppliers can take 12-24 months, and channel checks indicate API manufacturing costs in India run 30-40% below US and European levels, suggesting India-based sourcing should continue despite tariff headwinds, according to Jefferies.
Also read: Earnings downgrade alert: How $110 crude and Iran war are threatening India Inc’s double-digit dream
The proclamation states that pharmaceutical supply chains have gradually moved offshore, contributing to a rising trade deficit viewed as a national security risk. Pharma stocks traded up to 2% lower on the news, with Piramal Pharma, IPCA Labs and Sun Pharma posting the steepest declines.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)