Pharmaceuticals: US Tariffs on Branded Drugs; Generics Exempted

US administration imposes 0-100% tariff on import of patented drugs (and related APIs) with multiple ad valorem duty rate structures – (1) 100% on imports of patented pharma and pharma ingredients for those companies that have not initiated an MFN deal or US plant commitments, (2) 15% for products from Japan, EU, South Korea, Switzerland, and Liechtenstein, (3) 10% on products from the UK, (4) 20% for the company with branded products and plans to start plant/R&D Unit in the US, (5) zero for patented drugs (APIs) of companies that have fully executed MFN agreements (13 companies), (6) zero for patented drugs that are designated as Orphan Drugs, and (7) zero for generic formulations, biosimilars, and generic APIs (at least for the next year). The US administration has provided specific timelines to implement ad valorem duty rate like 120 days (31-Jul-26) for select innovator companies (17 companies) and 180 days (29-Sep-26) for all other companies. We believe the key motive behind tariffs is to push the innovator company toward MFN or investment in plants/R&D to bring down drug prices. We expect no major impact on most of the Indian generic pharma companies, mid-single digit impact on Sun Pharma due to its Innovative medicine business, and on CRDMOs. India and the US trade deal is yet to finalize, which could help lower the tariff-related risk.

Tariff tiers on patented medicines: The US administration under its new order imposed a new tariff on patented drugs and APIs with several tiers of ad valorem duty rates like (1) 100% ad valorem duty rate on patented drugs and APIs from the pharma companies that have not executed the MFN deal, (2) ad valorem duty rate of 15% for product manufactured in the EU, Japan, South Korea, Switzerland, and Liechtenstein as to implement pharma-related commitments in existing trade deals with these countries, (3) 10% tariff on products from the UK and with reduction to zero to the extent required by any future agreement between the US and UK on pharma pricing, (4) 20% tariff on branded products of the company with plan to start manufacturing/R&D Unit in the US – with condition to commission plant/R&D before Jan-29 else tariff will increase to 100%.

What is exempted from tariff? The US administration has exempted (1) the patented drugs (APIs) of companies that have fully executed agreements or are negotiating agreements with the Secretary of Health and Human Services regarding MFN pricing and onshoring of production and R&D (13 companies), (2) no tariff on patented drugs (APIs) with orphan drug designation, and (3) zero for generic formulations, biosimilars, and generic APIs (at least for the next year).

Impact on Indian pharma: We see no major impact on most of the Indian pharma companies, given their presence in generic medicines (exempted from tariff at least for the next year). For India’s branded medicine space – Sun Pharma and Zydus are expected to face tariff impact with their specialty portfolio in the US. Sun Pharma Innovative medicine business (20% of sales) could face ~15% effective tariffs, given key products are manufactured in the EU and the US. In the CRDMO space, we believe Sun Pharma will have 2-4% and Zydus will have ~1% impact on EBITDA. The CRDMO space will be impacted, given majority of Indian CRDMOs have manufacturing units in India. However, Indian CRDMOs could bypass the tariff, given their end customers are largely EU base and possibility of end customers could have executed or in the process to execute MFN agreements but the companies working with small-to-mid size biotech companies could see a higher impact. Within our CRDMO coverage, Anthem and Piramal Pharma will have a high impact, while Divi’s and Laurus Lab will have mid-single digit impact. CRDMO companies will look to negotiate and pass on the tariff on the intermediate/API under country-policy risks which are part of contracts.