Pharma Stocks Crack As Trump Hints At “Never Seen Before” Tariff

Shares of Indian pharmaceutical firms fell sharply on Friday against the backdrop of comments from US President Donald Trump suggesting that tariffs on the import of pharmaceuticals could be on the horizon. The news has shaken investor confidence, especially after the sector had previously seen a rally on hopes that it might be spared from broader trade restrictions announced earlier in the week.

A Sudden Shift in Stance

Speaking on Air Force One, he suggested that his administration would take a different approach, saying pharmaceuticals would be treated as a separate category for tariffs. This announcement comes in contrast to previous signals, including a White House fact sheet on the overall “Liberation Day” tariff plan, which initially had pharmaceuticals off the list next to copper, semiconductors, and lumber. The plan, called “Liberation Day,” announced on April 2, imposed a 26 percent reciprocal tariff on some imports from India — a level the US administration says is half the effective tariffs for American companies in India.

The conditional future of sector-specific tariffs rattled the Indian pharmaceutical trade. Many notable firms experienced severe drops in their share price. Stock Prices Slumped: Aurobindo Pharma/Laurus Labs/IPCA Laboratories had upto 8% fall. Similarly, Lupin, Biocon, and Cipla registered a huge fall. The rout also affected other names with Marksans Pharma, Dr Reddy's Laboratories, Shilpa Medicare, Sun Pharmaceutical Industries, Gland Pharma, Ajanta Pharma, and Wockhardt posting significant losses, with some falling as much as 10%. The BSE healthcare index was also in the negative territory and traded down significantly in morning trades.

Market Furrowing and a Basic Worry

The negative response highlights the deep dependence of Indian drugmakers on the US market. According to industry data, India provides pharmaceutical products of about $10 billion to the USA every year which accounts for 6% of the total imports of US pharma and 2.5% of the total USA medicine cost.

Before President Trump’s recent remarks, there was a general view that Indian pharmaceutical exports, which primarily consist of generic drugs, would be unlikely to face new tariffs. This optimism was somewhat predicated on the realization that such policies would likely drive up health care costs for American consumers. In addition, analysts had pointed to the vital role of Indian generics in delivering significant savings to the US healthcare system, which they estimate costs US consumers over $400 billion a year. Tariffs on generic pharmaceuticals would be counterproductive in light of these savings, according to research from Nuvama Institutional Equities.

Implications could be far-reaching

The imposition of tariffs has several implications for the Indian pharmaceutical industry. These include the possibility of price increases for generic medicines in the US, potential drug shortages, the rationalisation of low-margin products, and disruptions to the existing supply chain.

Yet, some analysts argue that the impact may be less severe for generic drug manufacturers than it is for innovators. But with generics' already low-price structure, there is room for companies to pass along any costs from tariffication to their customers. Analysts at Jefferies, who had engaged with drug manufacturers, said that higher input costs are typically passed along to customers due to clauses in existing contracts and therefore this is expected to be a common approach toward tariffs. Pharma majors have echoed this sentiment, suggesting that such tariff increases will likely be passed on to US consumers.

Analytical service HDFC Securities has adjusted their estimates under different scenarios, with negative FY27 EBITDA impact across their coverage universe saying it can be anywhere from 3-45% in a scenario where Indian companies entirely bear the brunt of a 100% tariff. Even a 50% pass-through could have an outsized impact.

It is a new uncertainty for Indian pharma companies with high US exposure like Sun Pharma (32% US sales), Torrent Pharma (10%), Piramal Pharma (41%), Zydus Life Sciences (46%), Gland Pharma (50%), Aurobindo (48%), and Dr. Reddy’s (47%). The impending announcement from the Trump administration will now be closely scrutinized by investors and observers to ascertain the exact form and magnitude of these “never seen before” tariffs.

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