US Imposes 100% Tariff on Patented Drugs: Impact on Indian Pharma

The United States will implement a 100% tariff on imports of branded and patented pharmaceutical products starting on October 1, 2023. This decision has raised concerns for Indian pharmaceutical companies, particularly for Sun Pharma, which relies significantly on revenues from patented drugs. Analysts suggest that while there is some exposure to headline risk for Sun Pharma, the overall earnings impact may be limited.

According to a report from HSBC Global Investment Research, Sun Pharma generates approximately 17% of its revenue for the fiscal year 2024-25 from patented products, with around USD 1.1 billion of its global sales attributed to the US market. This figure represents an estimated 85-90% of its total global sales for patented drugs, amounting to USD 1.217 billion in total for FY25.

The new tariff will not apply to generic, off-patent drugs, which dominate the exports of Indian pharmaceutical companies to the US, accounting for 20% of the Indian pharmaceuticals market. Senior Director at Crisil Ratings, Anuj Sethi, noted that while some domestic companies have a niche in branded and patented drugs, their contribution to total revenue remains modest. He emphasized that the majority of the tariff costs will likely be passed on to consumers due to the essential nature of these medications.

The US government announced last week that the tariff will only be waived for pharmaceutical companies establishing manufacturing plants in the United States. This exemption includes projects that have already commenced construction. Consequently, Sun Pharma’s ability to adapt will be crucial; the company could potentially shift its manufacturing to its existing plants in the US or invest in new facilities, given that it has over USD 3 billion in cash as of the June 2025 quarter.

HSBC’s analysis indicates that currently, Sun Pharma’s patented products are primarily manufactured by global Contract Development and Manufacturing Organizations (CDMOs). For instance, the drug substance for Ilumya, which constitutes 56% of Sun Pharma’s patented product sales, is produced by a partner in South Korea, while the finished product is made by a European CDMO. This reliance on external manufacturing partners could complicate the company’s response to the new tariff.

The potential impact on Sun Pharma’s earnings will depend on various factors, including the spread of its supply chain, the location of intellectual property, and the use of third-party manufacturers. In a worst-case scenario, the company may need to relocate manufacturing to CDMO partners with facilities in the US, which could result in significant logistical challenges. Moving supply chains and repurposing plants could require considerable time—estimated to take between 6-24 months—and resources.

While the tariff development presents challenges for Sun Pharma, the company is exploring options to mitigate the financial impact. The coming months will be critical as the pharmaceutical giant navigates this new landscape and considers its strategic decisions.