By: IPP Bureau
Last updated : August 27, 2025 9:01 am
The US generic market is crucial for Indian pharma, contributing about 35% to its total revenue, around US$ 10.7 billion
India Ratings and Research (Ind-Ra) opines that a potential tariff on pharma imports into the US, while still under Section 232 investigation, is unlikely to impact the credit profiles of Indian pharma companies.
While the US contributes around 35% to the total revenue for leading Indian pharma companies, this proportion has been steadily declining over the past few years due to price erosion and its impact on margins and returns.
Ind-Ra believes that the low-cost, high-value proposition of Indian generic exports offers significant cost advantages to the US healthcare industry. Any tariffs imposed would likely be largely passed on to end-consumers, with limited absorption by Indian pharma companies. However, Ind-Ra believes there will be a short-term impact for the initial three to four months due to contracts, pricing, and efforts to maintain market share.
Under Section 232, the pharmaceutical sector is exempt from reciprocal tariffs. However, Ind-Ra anticipates this exemption may be temporary due to ongoing changes in tariff policies and negotiations between several countries and the US government. Even with an exemption, India’s pharmaceutical sector might face targeted tariffs if the US identifies trade or security reasons.
The US generic market is crucial for Indian pharma, contributing about 35% to its total revenue, around US$ 10.7 billion. The US heavily relies on Indian generics due to their low-cost, high-volume nature, making it challenging to replace them with higher-cost local production. This somewhat shields Indian pharma from future US tariffs, as they help reduce US healthcare costs (around US$ 15,000 per capita). Ind-Ra points out that the price gap between generic and patented products in the US is typically about 95%. Combined with issues such as price erosion, regulatory challenges, and substantial R&D costs, this results in low EBITDA margin
Assuming a 25% tariff, most pharma companies might shift much of the cost to consumers, depending on product competition to minimise the EBITDA impact. They could also mitigate effects by negotiating with US importers, exploring alternative markets, investing in US manufacturing, or leveraging their competitiveness to absorb costs. However, tariffs exceeding 25% could erode their competitive edge, making it difficult to pass costs onto consumers for already low-cost generics, leading to market exits and drug shortages in the US. A drop in big pharma prices might require sourcing parts of the value chain from Indian players, and Indian generics are poised to seize this opportunity due to their high number of abbreviated new drug application (ANDA) filings and United States Food and Drug Administration (USFDA) approvals.
“Most Indian pharma players have a generic business in the US market, earning thin operating profitability. However, Indian companies have a diversified revenue model and a healthy balance sheet. There is no major risk to liquidity in the sector (large cash balances- 10%-11% of revenues). Furthermore, most companies have sufficient headroom under debt covenants and diversified funding sources. Hence, any material impact from future tariffs to Indian pharma is highly unlikely,” says Vivek Jain, Director, Corporates, Ind-Ra.