US Tariffs: Only Sun Pharma exposed to some headline risk, but with limited earnings impact

New Delhi: The imposition of a 100 per cent tariff by the US on imports of branded and patented pharmaceutical products starting October 1 may not significantly hurt Indian drug makers, with Sun Pharma being exposed to some headline risk but with limited earnings impact, according to analysts.

Among Indian companies, only Sun Pharma has sizeable sales from patented drugs in the US (about 17 per cent of 2024-25 revenue), HSBC Global Investment Research said in a report.

The US last week announced the imposition of a 100 per cent tariff on branded or patented drugs entering the United States from October 1, except for pharmaceutical companies building manufacturing plants in the US. The exemption covers projects where construction has started, including sites that have broken ground or are under construction.

HSBC said Sun Pharma reported global sales of USD 1.217 billion from patented products in FY25, of which the US market accounted for about USD 1.1 billion (85-90 per cent of global sales), amounting to 17 per cent of total revenue and 8-10 per cent of consolidated EPS in FY25.

"Generic (off-patent) drugs remain exempt from US tariffs, hence there is no impact for other Indian companies," it added.

Anuj Sethi, Senior Director, Crisil Ratings, said the new tariff "may not significantly hurt Indian drug makers", as exports to the US - accounting for 20 per cent of the Indian pharmaceuticals market- primarily comprise generic, off-patent medicines, which may not come within the ambit of these tariffs.

"To be sure, some domestic formulation makers have a niche presence in the branded and patented drugs space, but the contribution of those drugs to their revenue is modest," he said.

"Moreover, given the largely non-discretionary nature of these products, the majority of the tariff cost is likely to be passed through. Some of these domestic companies also have manufacturing facilities in the US, which would make them exempt from the new levies."

HSBC said that currently, Sun's patented products are mostly manufactured by global Contract Development and Manufacturing Organization (CDMO) partners, e.g. for Ilumya, its largest product in the patented portfolio (56 per cent of total patented product sales in FY25), drug substance is done by a CDMO partner based in South Korea, while the finished dose is manufactured by a European CDMO.

"While this tariff development is broadly negative for Sun Pharma, we think the tariff impact on earnings depends on multiple moving parts - spread of supply chain (from active ingredients to Fill-Finish), IP location of the brand, the use of third-party manufacturers, etc. In the worst case, Sun would have to shift manufacturing to CDMO partners with plants in the US," it said.

Sun could also transfer the manufacturing of patented products to its three plants in the US. It could announce new capex or acquire a manufacturing plant in the US (it has cash of over USD 3 billion as of the June 2025 quarter). "In any scenario, moving supply chains, tech-transfer, plant re-purposing, etc. would take considerable time (anywhere from 6-24 months) and resources in our view," it said.