India's Innovative Pharma Sector Fears Impact of 100% US Tariffs on Contract Manufacturers

US Tariffs to Hit Indian Pharma Companies

The US President Donald Trump's decision to impose 100 percent tariffs on patented pharma products and their ingredients is expected to affect Indian drugmakers and contract manufacturers, including Sun Pharma and Divi's Labs, which have exposure to innovative medicines and global supply chains.

The tariffs, announced under Section 232 of the Trade Expansion Act of 1962, will take effect within 120 days for large pharmaceutical companies and 180 days for smaller firms, according to a White House proclamation issued on April 2. However, generic pharmaceuticals, biosimilars, and their ingredients are exempt for now, although the US plans to review that exemption after a year.

Section 232 tariffs are authorized by Congress for national security threats. The US Supreme Court has viewed Section 232 as legally more robust after striking down tariffs imposed under the International Emergency Economic Powers Act (IEEPA) as an executive overreach.

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Countries that have negotiated pharma trade terms with the US, including the European Union, Japan, South Korea, Switzerland, and Liechtenstein, will face capped tariffs of 15 percent. Companies agreeing to US manufacturing and pricing conditions could see levies drop to zero through 2029.

Generics Safe for Now

India's pharma exports to the US reached $10.5 billion (generics) in FY25. The India-US trade deal announced on February 2 immediately reduced reciprocal tariffs on Indian goods from 50 percent to 18 percent. Analysts believe that generic drugs will remain exempt from tariffs in the US, as imposing duties on generics could raise drug prices and worsen shortages in the American healthcare system. India supplies nearly 40 percent of US generic medicines by volume, making this exemption critical for the sector's near-term stability.

Most large Indian formulators, including Cipla, Dr Reddy's Laboratories, Lupin, and Aurobindo Pharma, are unlikely to see immediate earnings disruption, given their heavy reliance on commodity generics rather than patented products.

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At Risk

The real exposure lies in innovative and specialty drugs, where tariffs now directly apply. Sun Pharma remains the most exposed Indian company to tariff risks on innovative products, with around 20 percent of its overall revenue coming from such medicines. While Sun sells many of these products in the US, they are largely manufactured in South Korea and the EU, which benefit from negotiated tariff caps.

However, Jefferies estimates that Sun's innovative portfolio would still face tariffs capped at 15 percent, a level that could materially affect margins unless mitigated through price increases or supply-chain changes.

Impact on Contract Development and Manufacturing Organisations

The tariff also casts a shadow on Indian contract development and manufacturing organisations (CDMOs), which have emerged as global suppliers of high-value drug substances and patented intermediates. While not explicitly targeted, the proclamation stresses the US goal of reshoring pharmaceutical manufacturing, a signal that upstream suppliers could face growing pressure.

Companies such as Divi's Laboratories, Laurus Labs, and Piramal Pharma's CDMO arm may need to accelerate investments in US-based capacities or deepen onshore partnerships to remain competitive over the medium term.

New Investment Commitments

The White House said the tariffs follow a commerce department investigation that found US reliance on imported patented drugs posed a national-security risk, adding that the threat of levies has already spurred about $400 billion in new pharmaceutical investment commitments in the US.

For Indian pharma, the announcement reintroduces trade policy as a structural risk after years of relative stability. While generics appear protected in the near term, exporters of innovative medicines and CDMO services face a recalibration: where drugs are made will increasingly matter as much as what they treat.

As Jefferies said, the framework "keeps generics safe for now, but exposes innovative and patented supply chains to policy risk".