SA Asks: How could higher India tariffs impact drug stocks?

India is a major supplier of prescription drugs, over-the-counter medications, and pharmaceutical ingredients to the United States.

Recently, President Trump announced he intends to impose a 25% tariff on products imported from India, plus a 25% punitive tariff for the country continuing to buy Russian oil.

So far, pharmaceuticals appear to be exempt from those tariffs. However, the president also recently announced that he plans to impose tariffs as high as 250% on imported pharmaceuticals as part of an effort to get foreign drugmakers to manufacture their products in the U.S.

We asked Seeking Alpha analysts Stephen Ayers and ALLKA Research how they think higher U.S. tariffs on Indian pharmaceutical products could impact stocks.

Stephen Ayers: The India tariffs could hurt generics-focused Indian companies that derive a lot of their revenue from the U.S. market.

A prime example is Dr. Reddy’s Laboratories (NYSE:RDY), which specializes in generics and active pharmaceutical ingredients, or APIs. In fact, Dr. Reddy’s is facing two major headwinds: tariffs on imports and a push by the U.S. government for more stringent intellectual property protections for innovator drug companies.

As far as I am aware, for now, pharmaceuticals from India are exempt from tariffs. However, this could be later used as a negotiating tool to strike a deal that would weaken India-based generic manufacturers such as Dr. Reddy’s. India is well-known for its manufacturing of low-cost generic medicines. It has been estimated that about half the generic drugs in the U.S. are from India.

Companies poised to, at least, indirectly benefit include large and established U.S. pharmaceutical companies like AbbVie (ABBV), Eli Lilly (NYSE:LLY) and Merck & Co. (NYSE:MRK). If IP laws are tightened in India, it would effectively delay generic competition for U.S. Big Pharma blockbuster drugs, extending monopoly pricing power and protecting billions in revenue.

For example, some blockbuster drugs, like Merck’s Keytruda, generate tens of billions of dollars each year. So, even if generic manufacturers are delayed by just one more year, it could mean billions more in revenue for companies like Merck.

ALLKA Research: Trump continues to play with fire by threatening to impose additional tariffs on India.

As Indian companies account for 47% of generic drug prescriptions in the U.S., I believe that Trump’s tariff policy will slow down EBITDA growth at key players such as Dr. Reddy’s Laboratories (NYSE:RDY), Sun Pharma and Biocon in the short term. These three giants are also key suppliers of a wide range of low-cost generics, vaccines and biosimilars for such drugs as Johnson & Johnson’s Stelara (JNJ), AbbVie’s Humira (ABBV) and Novo Nordisk’s NovoLog (NVO).

If Trump goes all-in, which is unlikely, it will require Indian drugmakers to spend billions of rupees and at least three years to transfer production of active pharmaceutical ingredients, or APIs, to the U.S., which will, of course, harm Americans through higher prices and lead to temporary disruptions in the supply of vital drugs.

Among the American stocks, I highlight Teva (NYSE:TEVA), Viatris (NASDAQ:VTRS), Perrigo (NYSE:PRGO) and Amneal (NASDAQ:AMRX), which are also dependent on the export of APIs from India to their production facilities in the U.S.

As a result, I believe that despite the ongoing uncertainty on Wall Street regarding the Indian pharmaceutical industry, Trump will hesitate to toughen his stance so as not to provoke a new round of inflation, as well as to avoid creating a shortage of cheap copies of branded drugs.