New Delhi: The Indian pharmaceutical industry is facing potential closures and consolidation due to proposed tariff hikes by the US, according to a note from Rubix Data Sciences.
The increased tariffs are expected to raise production costs, making Indian drugs less competitive in the US market compared to alternatives from other countries.
Smaller pharmaceutical companies operating on tight margins are likely to be the most affected. “Many low-margin generic drugs may become unprofitable, forcing companies to either stop sales or exit certain product segments,” the note said.
Segments such as generic formulations, active pharmaceutical ingredients (API), and contract research, development and manufacturing organisation (CRDMO) are likely to be impacted more than biosimilars.
The generic formulations sector, in particular, is expected to be affected as Indian firms supply a significant portion of the US’ generic drug requirements. A report by Bain & Company estimated that India provides nearly 40% of the US’ generic drug supply, Financial Express reported.
API and CRDMO segments, where Indian players have high exposure to the US market, may also face difficulties. “Although these businesses operate on a B2B (business-to-business) model which will allow them to pass on the cost increases to clients, there is still indirect exposure to tariffs, as their clients will also experience higher costs, potentially reducing demand,” it said.
Experts have said that the proposed tariffs will have a significant impact on Indian pharmaceutical companies’ profitability, as they may not be able to pass on the full cost burden to US buyers. In the long term, this could lead to discussions about shifting production back to the US.
At present, Indian drug exports to the US face zero tariffs, while India imposes tariffs ranging from zero to 10% on imported medicines. In the latest Union Budget, the Indian government proposed a full exemption from basic customs duty for 36 life-saving drugs and medicines and a concessional 5% customs duty for six more medicines.
The biosimilars segment is also expected to face some challenges. However, since the US is currently less dependent on India for biosimilars than for generics, the impact may be limited. However, Indian pharmaceutical companies derive about 50% of their earnings from the US biosimilars market.
Despite the proposed tariffs, the report noted that implementing them may not be straightforward. The US healthcare system relies heavily on Indian pharmaceutical companies for affordable medicines. According to the report, Indian medicines provided $219 billion in savings to the US healthcare system in 2022 alone and a total of $1.3 trillion between 2013 and 2022.
