Potential Pharma Tariffs Can Have Only Minimal Impact
Tariffs May Rise—But Indian Pharma Holds the Prescription for US Healthcare.
Chennai: Potential tariffs on pharmaceutical exports to the US are likely to have only a minimal impact as additional cost might be passed on to the end-consumers, with limited absorption by Indian companies.
Though pharmaceuticals are exempt from reciprocal tariffs, there is a likelihood of sectoral tariffs due to ongoing changes in tariff policies and negotiations between several countries and the US government.
The US generic market is crucial for Indian pharma, contributing about 35% to its total revenue, around $10.7 billion. The US heavily relies on Indian generics due to their low-cost, high-volume nature, making it challenging to replace them with higher-cost local production. This somewhat shields Indian pharma from future US tariffs, as they help reduce US healthcare costs by around $15,000 per capita.
If a 25 per cent tariff is imposed, most pharma companies might shift much of the cost to consumers, depending on product competition. They could also mitigate effects by negotiating with US importers, exploring alternative markets, investing in US manufacturing, or leveraging their competitiveness to absorb costs, finds India Ratings and Research.
However, tariffs exceeding 25 per cent could erode their competitive edge, making it difficult to pass costs onto consumers for already low-cost generics, leading to market exits and drug shortages in the US.
But a drop in big pharma prices might require sourcing parts of the value chain from Indian players, and Indian generics are poised to seize this opportunity due to their high number of abbreviated new drug application (ANDA) filings and United States Food and Drug Administration (USFDA) approvals.
Indian pharma companies are also shifting focus from the heavily competitive US generic market to developed markets such as Europe and Japan and other semi-developed markets such as Africa, Latin America, and Southeast Asia. The shift is driven by their growth potential and evolving healthcare and aims at mitigating the impact of pricing pressure, increased regulatory scrutiny, and potential trade barriers.
