Pharma stocks: Trump tariffs at 35%? Likely impact on Sun Pharma, DRL, Aurobindo

Pharma stocks are in focus today ahead of the US President Donald Trump's ‘Liberation Day’, where he would announce reciprocal tariffs on US imports across countries and sectors. Indian generic pharma companies, led by Dr Reddy's Labs and Zydus Lifesciences, could be at the receiving end. 

Domestic pharma sector could attract as high as 35 per cent tariff -- 10 per cent country reciprocal tariff and 25 per cent sector-specific tariff. This is based on the WTO data that suggested the trade-weighted average tariffs imposed by India on US products is at 12 per cent and the one imposed by the US on Indian products is at 2.2 per cent, implying the average tariff gap of 10 percentage points.

But such an extreme outcome is highly unlikely, Nomura said adding that most pharma companies that it interacted with indicated that they would look at passing the impact of tariffs to customers.

In its base case, Nomura believes that pharma tariffs may not be imposed today, but postponed to a later date. It said the US may reiterate its stance on tariffs for drugs manufactured outside the US in due course. 

"We think this is the base case that the market assumes ahead of the announcements. In our assessment, a tariff of less than 10 per cent is likely to drive a positive reaction in Indian pharma stocks given current expectations. On the other hand, a tariff higher than 10 per cent can potentially drive further correction in pharma stocks," it said.

The US pharmaceutical trade deficit with India has increased over the past two years, particularly due to contribution from generic Revlimid in the US. These exports amounted $1.2 billion in 2024 and accounted for 10 per cent of the deficit, which should decline from current levels in the years ahead, Nomura said.

"The cost of manufacturing generics in the US will be uneconomical by a significant margin compared to India. Therefore, despite tariffs, generic companies are unlikely to make substantial investments in the US, particularly
for low-value products. Furthermore, there is uncertainty on whether the tariffs shall remain in place in the long run," Nomura said.

Here's likely impact of US tariffs on top Indian drug exporters:

Sun Pharma
Nomura estimated Sun Pharma US sales at $2.1 in FY26 and $2.3 billion in FY27. The specialty brands accounts for 55-57 per cent of the revenues. It believes 10 per cent of the Sun Pharma's US specialty revenues is formulated in the US. This primarily includes production of Levulan. The remaining 90 per cent of the specialty products are formulated outside the US. 

"The largest selling product Ilumya is formulated outside the US, most likely in Ireland. Since Ilumya is a chronic therapy, Sun may be able to pass on the impact of tariffs and retain existing volumes. However, market share gain may be impacted in case the competing products benefit from US manufacturing," it said. 

On generics, it estimated that Sun Pharma produces 20 per cent of sales within the US. This includes production at Ohm labs facility and other smaller sites. It said almost half of Taro’s revenues in the US (Taro accounts for 35-40 per cent of generic revenues) are produced at sites in Canada. 

"The tariffs on Canada can be higher than in other countries. The US has applied a tariff of 25% on imports from Canada. This can adversely impact the competitive strength of Taro. The overall impact of tariff for Sun Pharma is relatively low due to high contribution to profit from India and other emerging markets," Nomura said.

Dr Reddy’s Labs
Nomura estimated DRL's US revenues at $1.5 billion in FY26 and $1.1 billion in FY27. Products manufactured in the US should contribute less than 15 per cent to FY27 revenues, it estimated.
Select product like gSuboxone are currently formulated in the US, it said adding that the impact on Dr Reddy’s is relatively higher due to high dependence on US market. 

Cipla

Nomura estimated Cipla's dollar revenues at $900-950 million in FY26 and FY27. The company’s Invagen sites operating out of the US are likely to contribute 25-30 per cent to the US revenues, it said. The company is expanding its US manufacturing post regulatory issues at Indian sites.

Lupin
Nomura estimated Lupin's dollar revenues at $1.1 in FY26 and $0.96 billion in FY27. Lupin has manufacturing sites in the US that contribute $70-80 million in revenues, according to the company.  Thus, products manufactured in the US should contribute 6-7 per cent to FY26/FY27 revenues, Nomura said.

Zydus Lifesciences
Nomura said Zydus’ US revenues could be at $1.3 billion in FY26 and $1.2 billion in FY27, with very limited production in the US. Given high dependence of US revenues, it expects earnings impact can be high in case the company were to absorb the impact of tariffs.

Aurobindo Pharma 
It is the largest Indian generic company with US sales of $1.6 billion in Calendar 2024. The company has three manufacturing sites in the US, but the
production and contribution from the sites are limited. One of the sites is used for niche formulations, including derma, transdermal and respiratory which can scale up in the future. The company expects oral dosage form production can be scaled upto 12-15 billion units, which can cater to a third of US sales, according to the company. 

Glenmark Pharma
The company has set up a manufacturing site at Monroe. However, there is no contribution from the site currently. The site is currently under warning letter. Nomura estimated Glenmark's dollar revenues at $393 million in FY26 and $461 million in FY26/27F. In case the US site receives regulatory clearance, the site may contribute 5-10 per cent to revenue by FY27F, Nomura said.

Gland Pharma 
Nomura estimated Gland Pharma's dollar revenues at $372 million in FY26 and $393 million in FY27.  The company supplies its products from sites in India. Gland Pharma is relatively better placed compared to other generic companies as: (a) competition in injectable is relatively low; (b) in some key products like Enoxaparin and Heparin, the company competes with Chinese players which are likely to be tariffed at a higher level; and (c) any impact will be shared
with the marketing partners.

Alkem Labs
Nomura estimated Alkem's dollar revenues at $336 million in FY26 and $372 million in FY27. Alkem supplies are largely from India. The company may get impacted in case the tariff impact is not passed onto customers. The company has small scale and is not vertically integrated and hence the profitability of the business is significantly low.

Torrent Pharma
Nomura estimated Torrent's dollar revenues at $141 million in FY26 and $156 million in FY27.

"Given small scale of operations, and a lack of differentiating products, the profitability of its US operations are low. In case of further adverse impact on profitability due to tariffs, we expect the company to rethink its US strategy. Assuming the impact of tariffs at 10% of US imported revenues, we estimate FY27F earnings impact for companies in our coverage universe," it said.

The computation does not factor in any impact on specialty revenues and profitability for Sun Pharma.