Impact of U.S. Tariffs on the Indian Pharma Sector
The Indian pharmaceutical industry is bracing for initial disruptions should the U.S. impose tariffs. Over time, however, drug manufacturers may shift some of that impact onto consumers, according to a high-ranking executive from a prominent company.
Rajeev Nannapaneni, vice-chairman and CEO of Natco Pharma, addressed this issue during a recent earnings call. He highlighted the significant role the U.S. market plays in the overall corporate portfolio, necessitating a strategic reassessment if tariffs are enacted.
Strategic Adjustments in Response to Tariffs
Mr. Nannapaneni previously stressed the need for drugmakers to establish front-end manufacturing capabilities in the U.S. to mitigate tariff impacts. He emphasized that the company must adapt its strategy in light of any policy changes.
As the leading pharmaceutical market globally, the U.S. contributes to around two-thirds of Natco’s business. “You can’t ignore 60-70% of the business and run your business,” he remarked, referencing the company’s ongoing initiatives to expand beyond the U.S. market.
Recently, Natco announced plans to acquire a 36% stake in South African pharmaceutical firm Adcock Ingram Holdings (AIHL) for approximately $226 million (around ₹2,000 crore). Mr. Nannapaneni noted that this investment would contribute considerably to their earnings, projecting that South Africa could account for 15-25% of base earnings.
Challenges in Pricing Due to Tariffs
Addressing questions about the impact of tariffs, Mr. Nannapaneni explained that immediate price adjustments would be challenging due to existing contracts and pricing strategies. However, in the long term, the company aims to pass on some cost increases to customers, as the margins on many products are quite low. He anticipates some initial disruptions but believes the company will adapt within a quarter.