U.S. patented-drug tariffs take effect, Indian generics benefit from tax exemption, Sun Pharma specialty drugs under pressure

Overview

This report comments on the drug import tariff announcement issued by the U.S. President on 2026-04-02. The announcement stems from a Section 232 investigation, against a backdrop of U.S. concerns that the offshoring of drug and API production chains has created trade deficits and national-security risks. The policy taxes patented drugs but does not currently tax generics or biosimilars. Nomura believes this clarification is mildly positive for the Indian pharmaceutical industry, whose U.S. business is dominated by generics, but it is an incremental negative for Sun Pharma, which has significant exposure to U.S. specialty patented drugs.

Core views

The key views are: first, generics and biosimilars are currently not subject to tariffs, easing the market's main concern about Indian pharma companies' U.S. businesses; second, branded or patented drugs are subject to a 100% ad valorem tariff, but lower rates or exemptions may apply where there are national or company-level agreements with the U.S.; third, most of Sun Pharma's U.S. specialty drugs are manufactured in Europe and South Korea, and most products are expected to face a 15% tariff, leaving the company at a disadvantage versus competitors that have already reached agreements with the U.S. or produce locally; fourth, CDMO clients are unlikely to switch in the near term, so the impact should be limited, but the importance of U.S. domestic manufacturing capacity rises over the long term.

Analysis framework

The report assesses the impact across six dimensions: U.S. tariff rules, product type, country of origin, company agreements, manufacturing location, and product mix. It breaks Indian pharma business down into generics, biosimilars, patented specialty drugs, and the CDMO/API supply chain. The earnings impact estimate for Sun Pharma is based on the scale of its U.S. patented-drug sales, the manufacturing locations of its main products, and the assumption that the company absorbs the 15% tariff.

Methodology notes

• Policy impact analysisSection 232 drug tariff scenario breakdown

  Differentiate tariff burden by drug type, country of origin, and company agreements

  The report separates generics, biosimilars, patented drugs, orphan drugs, and other segments, and combines them with trade agreements involving the EU, South Korea, Japan, Switzerland, and the U.K., as well as company-level agreements, to determine the effective tariff rate for different products.

• Company earnings sensitivity analysisTariff absorption scenario estimation

  Impact of Sun Pharma absorbing a 15% tariff on FY28F net profit

  Under the assumption that Sun Pharma absorbs the 15% tariff itself, the report estimates FY28F net profit could be affected by about 5%; if the company passes the cost through via price increases, market-share growth could be hurt.

• Supply chain and origin analysisSubstantial transformation test

  Whether APIs and intermediates are deemed to be of Indian origin

  U.S. Customs may determine the origin of cross-border processed products based on a substantial-transformation test. If Indian APIs are viewed as the key value-added step, some CDMO or API supply could face higher tariff risk.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• SUNP IN

  Main negative exposure to U.S. patented specialty-drug tariffs

  Strengths

  Has more than USD 1bn in U.S. specialty-drug sales, with recent launches and indication expansions supporting FY28F sales growth.

  Weaknesses

  Most specialty drugs are manufactured outside the U.S. and may bear about a 15% tariff; Odomzo could face a 100% tariff if it is deemed Canadian-origin.

  Comparison

  Compared with large competitors that manufacture in the U.S. or have already signed agreements with the U.S. government, Sun Pharma may face a higher tariff burden.

  Risks

  Price increases could hurt market share, absorbing the tariff could reduce FY28F net profit by about 5%, and the outcome of U.S. government agreement talks remains uncertain.

• ZYDUSLIF IN

  Potentially low tariff impact for Saroglitazar

  Strengths

  Saroglitazar is used for primary biliary cholangitis and has received U.S. FDA orphan-drug designation.

  Weaknesses

  The product is still scheduled for FY27F launch, so commercialization execution risk remains.

  Comparison

  Compared with ordinary patented drugs, orphan drugs may enjoy tariff exemptions.

  Risks

  If policy interpretation or the scope of product exemptions changes, pricing and launch timing could still be affected.

• ALKEM IN

  One of the beneficiaries linked to U.S. local CDMO capacity

  Strengths

  The report notes that Alkem already has U.S. facilities that can serve some CDMO demand.

  Weaknesses

  CDMO benefits depend on whether customers require U.S.-based supply, so the short-term contribution may be limited.

  Comparison

  Compared with CDMO companies that only have Indian manufacturing bases, companies with U.S. facilities can more easily meet potential customer requirements.

  Risks

  Small innovative-drug customers that have not reached agreements with the U.S. may drive supply-chain relocation and alter the existing order structure.

• Indian pharma industry

  Tariff exemption for generics and biosimilars creates an industry-level positive

  Strengths

  Indian pharma companies' main U.S. sales are generics, which are currently untaxed; biosimilar exemption removes some market uncertainty.

  Weaknesses

  Patented drugs, APIs, and the CDMO chain may still be affected by country-of-origin and customer-agreement factors.

  Comparison

  Companies focused on generics face less impact than companies with larger U.S. specialty-drug exposure.

  Risks

  The U.S. Commerce Secretary could still impose tariffs on some currently exempt drugs in the future, creating tail risk to policy direction.

Key data

• Baseline tariff on patented drugs100%Branded or patented drugs are subject to a 100% ad valorem tariff unless they qualify for a country agreement, company agreement, or specific product exemption.
• Tariff on generics and biosimilars0%The announcement currently does not tax generics or biosimilars, which Nomura views as an incremental positive for the Indian pharma industry.
• Tariff rate on drugs originating from the EU, South Korea, Japan, and Switzerland15%Based on agreements between the U.S. and the relevant countries or regions.
• Tariff rate on drugs originating from the U.K.10%This could fall to zero in the future under the 2025-12 principle agreement.
• Tariff rate for some pharma companies with existing U.S. agreements0% or 20%Thirteen companies can have zero tariffs until 2029-01-20 due to MFN pricing, R&D investment, and manufacturing reshoring commitments; Pfizer, GlaxoSmithKline, Regeneron, Johnson & Johnson, and others face 20% or lower.
• Sun Pharma U.S. patented-drug salesabout USD 1.1bn in FY26F, about USD 1.6bn in FY28FGrowth comes from recent launches and label expansions, such as Ilumya.
• Sun Pharma earnings impactabout -5% of FY28F net profitAssumes Sun Pharma absorbs the 15% tariff on its products.
• Sun Pharma tariff effective date2026-09-29The report expects the company may build U.S. inventory six months before the tariff takes effect.
• Tariff effective date for companies already under agreement2026-07-31Applies to companies that have already reached an agreement with the U.S.

Impact & implications

For the Indian pharma industry, the exemption for generics and biosimilars means the main U.S. revenue source avoids a direct hit, policy uncertainty declines, and the industry is mildly positive overall. For Sun Pharma, the specialty-drug mix, non-U.S. manufacturing locations, and competitors' agreement advantages imply a relatively higher tariff burden, forcing a trade-off between price increases that hurt share and absorbing tariffs that compress earnings. For CDMO, sticky near-term orders and large-pharma agreements may soften the impact, but U.S.-localized manufacturing capability could become a strategic requirement for winning innovative-drug customer orders over the long term.

Risks

• The U.S. may in the future reimpose tariffs on some currently exempt drug categories.
• If Sun Pharma cannot reach an agreement with the U.S. government, its tariff burden could be higher than that of major competitors.
• Country-of-origin determination for cross-border products such as Odomzo is uncertain, and the tariff rate could rise from 15% to 100%.
• If companies pass tariffs through via price increases, U.S. market share could be hurt; if they absorb the tariffs themselves, earnings will be compressed.
• CDMO and API products may be deemed Indian-origin under the substantial-transformation test, triggering higher tariffs.
• FX, U.S. price erosion, regulatory action, Indian price controls, and new-business investments remain downside risks for covered companies.

What to watch

• Whether the U.S. reaches additional tariff-exemption or lower-tariff agreements with more pharma companies.
• Whether Sun Pharma can negotiate a lower tariff or shift part of its production to the U.S.
• Inventory, pricing, and supply-chain arrangements around the 2026-07-31 and 2026-09-29 tariff implementation dates.
• Actual U.S. Customs determinations on the origin of APIs, intermediates, and cross-border manufactured products.
• Whether the U.S. re-evaluates tariffs on currently exempt generics, biosimilars, or other exempt products.
• Whether Indian CDMO companies accelerate U.S. local capacity build-out.