How Trump's tariffs are reshaping Indian pharma

Generics challenge

After President Trump’s 22 July announcement, the Nifty Pharma index fell 1.31%, with 18 of its 20 stocks closing lower. Since then, there has been a divergence in how these stocks have performed in the market. Among the top 10 pharma companies by revenue, Aurobindo and Cipla are up by 3% to 4%, while Lupin and Mankind are down by over 4%. Compared to a year ago, all but three companies have given positive returns.

Companies heavily reliant on high-volume US generic formulations, such as Lupin, which gets 42% of its revenue from the US, and Dr Reddy's (~34%), face greater valuation pressure. Traditional generic segments operate on thin margins, making them particularly vulnerable to future import duties. Conversely, firms with localized manufacturing, advanced specialty pipelines, or diversified non-US revenue streams have weathered the announcement better.

The divergence shows that investors have viewed the tariff threat not as a blanket shock, but as a structural filter penalizing commoditized export dependence while rewarding strategic diversification.

American rationale

The tariff schedule comes from a Commerce Department Section 232 review, which said that America was risking its healthcare security and preparedness by depending heavily on imported drugs and ingredients. Trump administration wants to bring back pharmaceutical manufacturing to the US, by penalizing companies that fail to build domestic facilities within the two-year grace period.

The US imports of pharmaceutical products have more than doubled in the past decade to $214 billion in 2025, according to UN Comtrade. Generic drugs account for roughly 90% of all US prescriptions, per the FDA. India supplies 47% of all generic drugs imported into the US, according to IQVIA. By value, however, it's about 30%, indicating the lower price and also the lower margins.

Relocating this low-cost production could pose an economic challenge. Manufacturing generic drugs in India costs about 30-50% less than in the US, according to estimates. Building large-scale capacity in a higher-cost market threatens to increase retail drug prices, potentially complicating the administration's concurrent objective of lowering healthcare costs for US consumers.

Upstream constraints

For Indian pharma manufacturers relying exclusively on domestic production, the impending 2028 deadline poses acute operational vulnerabilities. Commodity generic exporters operate on tight margins of 10% to 15%, leaving them with no capacity to absorb import duties of 100% or 200%.

For pure-play exporters, shifting production to the US is not simply a geographical change. Erez Israeli, chief executive officer of Dr Reddy's Laboratories, told CNBC that moving operations to the US would take four to seven years—well beyond the proposed two-year transition period. The move would also involve extensive regulatory approvals.

Compounding these timeline hurdles is a deep structural reliance on upstream raw materials. According to a report by Niti Aayog, China supplies 66% to 86% of India's imports across major Active Pharmaceutical Ingredient (API) categories—including antibiotics and nitrogen heterocyclic compounds—and accounts for 70% to 75% of key starting materials (KSMs). Because Chinese APIs are estimated to be 35% to 40% cheaper than domestic alternatives, Indian formulators face an input dependency that makes establishing fully independent US or onshore supply chains economically difficult.

Buying up

Indian drugmakers with existing manufacturing facilities in the US have greater strategic flexibility. Under the Section 232 policy framework, companies establishing domestic facilities can apply to the US Commerce Department to secure a reduced 20% tariff rate over four years (for branded segments).

According to the PwC 2026 Midyear Outlook, potential import tariffs are actively shaping transaction strategies in US pharma M&A, where deal values reached $65 billion in Q1 2026.

Already, major Indian players have been acquiring US assets to secure their foothold. Earlier this year, Sun Pharmaceutical Industries committed $11.75 billion in an all-cash acquisition of New Jersey-based Organon & Co., which operates six manufacturing plants globally.

In June, Aurobindo Pharma closed a $250 million deal to buy Lannett Company after FTC clearance, securing a Seymour, Indiana plant to add 4 billion doses in annual capacity. Previously in January, Zydus Lifesciences acquired two California-based biologics facilities from Agenus to support its biosimilar pipeline.

These deals involved specialized segments, which give companies higher margins, justifying higher operating costs unlike commodity generic drugs.

Capital reallocation

Beyond expanding physical US footprints, Indian pharmaceutical firms are reallocating capital away from commodity generics toward biologics, biosimilars, and specialty medicines.

A Deloitte survey of pharmaceutical CXOs reveals that 55 percent of industry leaders prioritize expansion into specialty drugs and biologics, while 45 percent identify biologics and biosimilars as their primary R&D focus over the next two to three years. It's not just the US tariffs that are pushing Indian pharma in this direction. It is also driven by an impending global patent cliff, with over $200 billion in drug sales expected to lose exclusivity.

To capture these higher-margin therapies, Lupin invested $250 million in its Coral Springs, Florida facility for complex products, while Cipla commissioned plants in Massachusetts and New York. Simultaneously, companies are monetizing proprietary research to transfer commercial risk. Glenmark Pharmaceuticals out-licensed a first-in-class trispecific antibody to AbbVie for $700 million upfront plus ongoing royalties, transferring US trade and regulatory exposure to an international partner.

By prioritizing complex molecules and research partnerships, Indian drugmakers are shifting from volume-driven exports to science-led development.

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