Startup Originals Team
With the pharmaceutical industry being one of India’s top export earners, looming U.S. tariff increases have stirred concern across the sector. Fitch Ratings recently cautioned that fresh U.S. trade measures could bring new strain, especially for companies highly dependent on the American market. Natco Pharma’s CEO and vice-chairman, Rajeev Nannapaneni, has spoken out about the implications, sharing how both customers and companies will need to adapt.
Pharma Sector Vulnerabilities and US Exposure:
While many large Indian corporates have low direct exposure to current US tariffs, the pharmaceutical sector stands out as particularly vulnerable to any new American trade actions. The U.S. remains the most important market for Indian pharmaceuticals, accounting for as much as 60-70% of Natco Pharma’s business. “You can’t ignore 60-70% of the business and run your business,” Nannapaneni emphasized.
Strategic Moves: Diversification Beyond the U.S.
Natco Pharma has already started diversifying its global operations. The company recently announced a major investment, acquiring a 36% stake in South African pharmaceutical company Adcock Ingram Holdings for $226 million (₹2,000 crore). Nannapaneni expects this will contribute up to 15-25% of the company’s base earnings. However, he cautions that the U.S. will remain central to operations: “It’s not that we are not diversifying, but you can’t ignore the U.S. at the same time. So, you have to play both the cards.”
Impact of Tariffs: Passing Cost to Customers?
Regarding the possible fallout from new tariffs, Nannapaneni noted that it would not be feasible to fully pass on the increased cost to customers immediately, due to contractual and pricing limitations. “The margins that we work on for most of our products are very low,” he explained. However, he added, “We would like to pass it on to our customers because the margins…are very low. There will be some little bit of disruption initially, but I think eventually we will figure out after a quarter.”
Conclusion:
As the U.S. weighs new tariffs on pharmaceutical imports, Indian drugmakers such as Natco are grappling with tough choices. While diversification efforts continue, the sector’s deep reliance on the U.S. market means customers may eventually share the burden of higher costs. The coming months will be key as industry leaders and policymakers navigate these shifting global dynamics.
