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Trump’s proposed pharma tariffs likely to be counterproductive

ICICIdirect Research 24 Jul 2026 DISCLAIMER

US President Donald Trump has announced a proposal to impose a phased tariff regime on imported generic medicines. Trump said the policy is intended to bring back generic pharmaceutical production and strengthen domestic drug manufacturing. Post the announcement, Nifty Pharma was down ~2%, while leading US exporters like Zydus Lifesciences, Cipla, Dr. Reddy’s Laboratories and Granules were down anywhere between 2-4%.
Under the proposal, generic drugs imported into the US would face a 0% tariff for two years starting August 1, 2026, after which tariffs would increase to 100% for one year and 200% thereafter for companies that do not establish manufacturing facilities in the US within the specified period.
More than 90% of medicines sold in the US are generics by volume, according to the USFDA. Out of which 45-50% are from India.
As per India’s context, Indian pharma exports to the US stood at ~US$ 10 billion which is ~31% of the overall Pharma exports and majority of the exported drugs are generic in nature.
As per comments from some Indian manufacturers, such a move in supply chain of shifting generics manufacturing to the US from India would result in at least 25-30% increase in costs and minimum 50-70% increase in price to the US consumers.
Similarly, margins in the US generics space are low, thus any increase in cost will have to be borne by the US consumers. Otherwise, this may lead to shortages in the generics space as the players will prefer to opt out of the US generics space.
In the worst case, assuming that the US forces localisation of manufacturing via non-tariff route, the impact could still be minimal as most of the Indian generic players have already established US set up via green field or M&A route.
We will keep tab on the development but maintain our overall positive outlook based on inherent manufacturing strength, blended model and a significant non-US generics presence.
Regarding Dr. Reddy’s Q1FY27 results, excluding US performance which obviously got impacted by lower gRevlimid sales, the overall print was decent. The pressure on margins (due to Middle east freight and logistical costs) is transient, and the management is expecting base EBITDA margins of ~20% in FY27 despite the temporary halt in Semaglutide supplies. Overall, we believe DRL’s capability of complex launches on a consistent basis across geographies and healthy growth in the Domestic portfolio (21% of the top-line) to be the key determinant for the future performance.
Cipla numbers were muted (Revenues flat and EBITDA margins down ~900 bps to ~17%) on expected line due to degrowth in the US due to high gRevlimid base and temporary withdrawal of a growth hormone drug due to manufacturing issues. On the other hand, geographies like India, Africa and Emerging Markets did well with 12%%, 12, 16% growth, respectively. Cipla is expected to launch 8 new products in the US and other markets over the next 12-18 months which is expected to improve the financials. The company is sitting on a net cash of Rs ~9500 crore which it may use for acquisitions.
Our top picks in the space are Zydus Lifesciences TP - ₹ 1315; Cipla TP - ₹ 1625; Dr. Reddys Lab TP- ₹1340 and Granules TP - ₹ 1045 

 

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