US President Donald Trump is set to announce reciprocal tariffs, with the pharmaceutical sector among those in the line of fire. Earlier, the White House had mentioned that the April 2 announcements may range on country-specific tariffs and not sectors, but that is left to Trump’s discretion.
Last week, Trump had announced a 25 percent tariff on Auto imports into the United States. Currently, India charges a 10 percent tariff on pharma imports from the United States, while the country does not charge any tariff on imports of Pharma from India.
According to a report by CNBC TV18, analysts believe that if reciprocal tariffs are implemented on the Pharma sector, they will, at best, be 10 percent on medicines imported.
A Mint report reveals that the move seems to be largely aimed at Ireland and China, Indian pharma companies with significant exposure to the US may still face challenges.
What would be the impact?
A Citi report maintains that pharmaceuticals companies will aim to pass on the tariff hikes to payors. According to the brokerage, in case the costs are not passed on to the end patients, then the entire supply chain will have to partially absorb the increase. However, Citi also believes that a full pass-through of tariffs is tough.
According to Citi, companies with the highest exposure to the United States generics market will likely take a one-time hit to their Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) in the range of 9 percent to 12 percent.
Jefferies maintains that companies with mixed revenue streams, such as specialty pharma, biosimilars, and inhalers, may face some impact but are better positioned due to limited competition in their segments.
Can India make tariffs zero?
Jefferies maintains that removing import duty on Pharma imports from the United States is doable. India imports pharma products worth nearly $800 million from the US, while exports to the country are worth $8.7 billion.
Meanwhile, blended import duty is below 10 percent as several drugs are exempted from it or just have a duty of 5 percent. Jefferies believes that generic formulation players and CMO companies are at a higher risk.
It is noteworthy that key players in the US supply chain are Retailers or Distributors, formulation manufacturers and API or KSM suppliers to manufacturers.
Some of the companies with US operations currently:
- Cipla
- Dr. Reddy’s Laboratories
- Lupin
- Syngene
- Piramal Pharma
- Sai Lifesciences
- Gland Pharma
- Zydus Lifesciences
- Biocon
- Sun Pharmaceutical
It is noteworthy that setting up a facility in the United States can take upto five to six years. Along with heavy capex, operating expenditure would also be significantly higher in the range of 2-2.5x, according to Jefferies.
