Indian CDMOs Face Tariff Exposures in Patented Drug Supply Chains

US Tariff Framework Weighs on Indian CDMOs, Despite Exemption for Generics

A new US tariff framework targeting patented medicines is set to have a significant impact on Indian Contract Development and Manufacturing Organisations (CDMOs), despite an exemption for generic formulations, biosimilars, and generic APIs. The customs rules on "country of origin" expose India-based manufacturers of high-value APIs and intermediates to higher duties, even when they do not sell directly into the US.

Under the new US framework, patented medicines and related active pharmaceutical ingredients and key starting materials can face tariffs ranging from zero to as high as 100 percent, depending on whether the innovator company has entered a "most favoured nation" (MFN) pricing deal with the US government or committed to manufacturing and R&D investments on US soil. MFN refers to a policy framework aiming to lower US prescription drug costs by pegging their prices to the lower prices paid for the same drugs in other developed countries.

Tariff Impact on Indian CDMOs

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The tariff proposals are aimed at branded medicines, but Indian CDMOs face indirect exposure because they participate in the supply chain for innovative drugs, even when they do not ship finished products to the US. The CRDMO space will be impacted, given that the majority of Indian CRDMOs have manufacturing units in India. However, the impact will be uneven and largely manageable, with analysts estimating a mid-single digit Ebitda impact.

Divi's Laboratories, one of India's largest custom synthesis players, derives less than 10% of its revenues from the US and is estimated to face a 4-5% EBITDA impact. Sai Life Sciences and Anthem Biosciences, which work closely with small and mid-sized biotech firms, face relatively higher sensitivity, with HSIE estimating 6-8% EBITDA impact. Piramal Pharma's CDMO business, which contributes over half its revenues, appears better cushioned, with HSIE estimating a 5-6% EBITDA impact.

Contractual Protections and Strategic Shifts

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Analysts covering Indian CDMOs point to contractual protections as an important buffer. Many CDMO agreements include pass-through clauses for regulatory or country-policy risks, allowing companies to negotiate tariff-related costs with customers rather than absorb them entirely. For players like Divi's, low levels of direct US shipments further limit near-term earnings volatility.

The larger significance of the tariff regime lies not in immediate profit erosion, but in longer-term strategic shifts. The US administration has made it clear that tariffs are designed to push innovator companies to cut prices and move manufacturing and R&D onshore. This changes what customers expect from their suppliers, and Indian CDMOs may need to adapt by investing in US capacity, adopting dual-shore manufacturing models, or acquiring companies with an onshore footprint.