US tariff threat keeps drugmakers on their toes

Reacting to the move, pharma stocks declined by up to 5.3% intraday. The 20-member Nifty Pharma Index fell as much as 2.10% during the session before trimming losses to close 1.31% lower. The index still underperformed the benchmark Nifty, which declined 0.79%. All but two constituents of the Nifty Pharma Index ended in the red. Lupin was the worst performer, falling 4.4%, followed by Piramal Pharma and Ajanta Pharma. Industry leader Sun Pharma also ended lower, declining 0.91%.

According to Bharat Shah, National President of the Indian Drug Manufacturers’ Association (IDMA), if implemented, the decision will hurt the industry, but he added that it might be difficult for the US to carry out the threat given the country’s huge reliance on cheaper generic medicines from India. “We have seen how US policy announcements evolve over time, so it remains to be seen how this proposal finally shapes up. Doubling the cost of generic medicines could lead to higher prices or even shortages in the US. We believe there will be room for negotiations going forward,” he said.

Trump’s latest step comes against the backdrop of the Section 232 investigation into pharma imports launched by the US Commerce Department. In February this year, India and the US signed an interim trade deal that maintained a status quo on India’s pharma exports to the US which meant that Indian generic exports was supposed to attract zero duty from the US.

Industry Concerns

According to Global Trade Research Initiative (GTRI), the latest announcement completes Trump’s effort to cover almost every segment of pharma imports. In September 2025, for instance, the US president announced plans for a 100% tariff on imported branded and patented medicines, (although that proposal was never implemented and was later replaced). This was followed by the US administration formally announcing tariffs of up to 100% on specified branded medicines and key pharma ingredients under the Section 232 national security framework, while excluding generic medicines. “The July 21 announcement now brings generic drugs into the proposed tariff regime, leaving virtually no major pharma category outside Trump’s reshoring strategy,” the GTRI note stated.

Currently, the US is the largest pharma export market for India. Out of the $25.8-billion worth of pharma exports by Indian drugmakers in 2025, $9.74 billion or 37.7%, went to the US. Indian companies have a 40% share in the US generics market by volume, while they account for just 13% by value. High-quality Indian generic medicines help US consumers reduce their healthcare costs and help hospitals lower bills.

Manufacturing Cost Arbitrage

Experts said that despite the sharp stock market reaction, the proposed tariff regime is unlikely to materially change the cost-competitiveness of Indian generic drugs. Tushar Manudhane, Senior Vice President and Institutional Research Analyst (Healthcare) at Motilal Oswal said that manufacturing medicines in India continues to be 40-60% cheaper than in the US, which is the fundamental reason global pharma companies have outsourced production to India. “Even after the proposed tariff increase, it would still fall short of offsetting India’s manufacturing cost advantage. Indian generic medicines would continue to remain competitive,” he said.

GTRI said that Indian generic medicines are typically sold at prices 7-10 times lower than branded alternatives, which is why many products could remain competitive even after a 100% tariff.

According to Manudhane, several Indian drugmakers already have subsidiaries in the US, and there is a considerable difference between the transfer price at which medicines enter the US and the final selling price in the market. “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 a subsequent product approval cycle of at least 12-15 months. This would effectively mean minimal impact on Indian pharma companies supplying medicines to the US market,” he said.

In a note, Vishal Manchanda, Senior Vice President (Institutional Research) at Systematix Group, said there is a strong likelihood of the proposal facing legal and political challenges before implementation. “In the worst-case scenario, if tariffs are imposed, Indian players would only choose to reshore manufacturing of high-margin drugs. It may not make financial sense to manufacture commodity generic drugs in the US,” Manchanda said.

Several domestic companies already have manufacturing operations in the US. While Sun Pharma manufactures sterile injectables, ophthalmics and specialty medicines, Aurobindo Pharma produces oral solids and injectables and Lupin makes oral formulations and inhalation products.

Industry body Indian Pharmaceutical Alliance (IPA) said leading drugmakers operate more than 40 manufacturing facilities in the US, supporting American jobs while investing in manufacturing, research and resilient supply chains. “India has been a trusted partner in ensuring the supply of affordable and quality-assured medicines for American patients. We will continue to engage with the US Administration to build a stronger partnership and further strengthen health and medicine security for both countries,” said Sudarshan Jain, secretary general at IPA.

Suresh Nair, Partner (Indirect Tax) at EY India, said the policy could encourage companies to expand manufacturing in the US over the long term, but the transition would require fresh investments, changes to existing supply chains and could increase costs for the industry. “The overall impact is likely to vary across companies, products and therapeutic segments, depending on commercial viability, supply chain flexibility, regulatory considerations, market dynamics and the pace at which alternative manufacturing and sourcing arrangements can be developed,” he said.