1 week ago
Shares of Indian pharma companies, including Gland Pharma Ltd., Glenmark Pharmaceuticals Ltd., Laurus Labs Ltd., and Biocon Ltd., tumbled up to 8% on Monday, April 7, after US President Donald Trump remarked about the upcoming tariffs on the sector. Shares of other drugmakers also fell between 2% and 6%.
The Nifty Pharma index fell as much as 7% in early trading on Monday, extending its year-to-date decline to 14%. The index hit an intraday low of 19,121.10 as against its previous close of 20,560.
On April 2, Trump announced sweeping reciprocal tariffs across 60 countries but left the Pharma sector out that day, which led to the sector outperforming, but struck the next day with regards to imposition on drug imports into the US.
"Pharma tariffs are going to come in at levels you haven't really seen before. We are looking at pharmaceuticals as a separate category. We will be announcing that sometime in the near future, and not too distant future. It's under review right now," Trump said, while speaking to reporters on Air Force One.
Currently, India charges a 10% tariff on pharma imports from the US, while the US does not charge any tariff on imports of Pharma from India.
Analysts believe that if reciprocal tariffs are implemented on the Pharma sector, they will, at best, be 10% on medicines imported.
But what happens in case tariffs are imposed?
Hong Kong-based brokerage firm CLSA said the risk of high tariffs on pharma products is low.
According to CLSA, the risk is lower than the markets are currently pricing in, as US healthcare system sees major savings benefits as a result of Indian generics. Indian companies contributed 46% of generic savings to the US healthcare system.
The brokerage believes that even if tariffs are imposed, Indian drug makers are likely to pass on the costs, given their dominant market share.
However, if these Indian pharmaceutical players are unable to hike their costs, it may result in a shutdown of production. Generic products can command only very lower margins, therefore, if they are unable to increase prices, they could stop manufacturing which would result in drug shortages in the US.
CLSA said that India currently imposes a 5–10% customs duty on pharmaceutical imports from the US, which could set the stage for reciprocal tariffs of up to 10% on Indian pharma exports to the US.
