Priyanka Tiwari
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Indian pharmaceutical companies based in the United States will, for the sake of profit, have to realign their manufacturing processes and rationalize their product portfolios due to the hit they have suffered from US import tariffs.
While waiting for clarity on the proposed reciprocal tariffs set to start on April 2, industry sources told Moneycontrol that firms have been exploring different ways to deal with the tariff imports whilst balancing their other strategies.
At the moment, Indian pharmaceutical companies enjoy almost no import duties when shipping products into the US.
A US based Indian drug maker shared, “We still don't have clarity (on US import tariffs), but that means we can't sit idle, we are evaluating various options- on how best we can limit the damage.”
The executive went on to say, “If we can't pass on the tariff cost to the customers, we may have to weigh options such as excising products that are unviable or have reached end of the life cycle, or for certain low volume products, we may consider shifting manufacturing to the US.”
Even with a 10 percent reciprocate tariff, Indian companies will be rendered obsolete as the direct base business EBITDA margins sit between 5-15 percent and failing to offload the higher import duty to the US consumer will force them to absorb losses. “The US may face severe shortfalls, Indian companies who produce generics have narrow margins but a significant portion of their revenues stem from the top 10-20 products,” stated a recent Citi report. “ The report states that many over a 50% market volume share may find themselves at 5-15% EBITDA margins, even the larger players, with the lesser known names (who are mostly not publicly traded) operating at even worse margins.” Dr. Reddy's has already begun this reshuffle, selling 14 ANDAs last week while retaining 1 that is waiting for approval. While the company has provided no reasoning behind shedding the ANDA portfolio, increasing tariffs may accelerate the rate at which generic US portfolios are reshuffled. Senores Pharmaceutical was able to get a new construction project in Atlanta, and started offering CDMO business for Indian clients located in the US.
According to the company’s Managing Director and Promoter, Swapnil Shah they told Moneycontrol: “The cost of manufacturing in the US has always been high, but the import tariffs could change the dynamics for low volume items.” “There’s so much order and transaction flow to CDMOs like Senores who has a manufacturing plant in the US. I would expect more of the same,” Shah said. “The industry is going through rationalisation of a portfolio where less profitable products are being discontinued, and greater focus is placed on high margin products,” Shah stated. Additionally, Shah commented, “India is competitive for high volume products, but for smaller batches, manufacturing in the US is more cost effective because of the tariffs." “Also, there have been local benefits offered to US manufacturers under programs like Medicare and Medicaid, and overseas companies which have plants based in the US are benefitting from this,” the US government said. In the calendar year 2024, India’s exports of drugs to the US reached approximately $8.73 billion, which is about a third of India’s total pharma exports.
