Pharma Shares Decline as Trump Pushes to Reduce Reliance on Foreign-Made Medicines

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On May 6, 2025, Indian pharmaceutical stocks experienced a significant downturn, with the Nifty Pharma index dropping by approximately 1.5% in early trading. This decline was triggered by an executive order signed by U.S. President Donald Trump on May 5, 2025, aimed at promoting domestic drug manufacturing and reducing U.S. reliance on foreign-made medicines. The order, coupled with Trump’s reiterated plans for imposing tariffs on pharmaceutical imports, has sparked concerns about potential disruptions to India’s export-driven pharma industry, which supplies nearly 50% of the U.S.’s generic medicines. This article explores the reasons behind the share price decline, the implications of Trump’s policy, the challenges facing Indian pharma companies, and the broader impact on global pharmaceutical supply chains, while contrasting this with the recent rally in Coforge Ltd. shares.

Indian Pharma Stocks Take a Hit

The announcement of Trump’s executive order sent ripples through the Indian stock market, particularly impacting major pharmaceutical exporters to the U.S. Shares of Sun Pharmaceutical Industries Ltd. fell by over 1.5%, making it the top loser on the Sensex. Cipla Ltd. declined by more than 2%, while Lupin Ltd. saw its shares drop by over 3%, emerging as the top laggard on the BSE 100. Aurobindo Pharma Ltd. led losses on the Nifty Pharma index with a decline of over 3%, followed closely by Lupin and Cipla. Other companies, such as IPCA Laboratories Ltd., Glenmark Pharmaceuticals Ltd., and Biocon Ltd., ended the trading session between 4% and 5.5% lower.

The executive order mandates the U.S. Food and Drug Administration (FDA) to submit a report within 180 days reviewing regulations and guidance to bolster domestic pharmaceutical manufacturing. It also proposes eliminating “duplicative or unnecessary requirements” and increasing fees on foreign manufacturing facilities to incentivize U.S.-based production. Additionally, the order calls for centralized coordination of environmental permits by the Environmental Protection Agency (EPA) to expedite approvals for new and expanded domestic pharmaceutical manufacturing capacities.

Trump’s Policy: Reducing Reliance on Foreign Medicines

Trump’s executive order is part of a broader “America First” agenda to reshore pharmaceutical manufacturing, framed as a national security imperative to address drug shortages and reduce dependence on countries like India and China. The U.S. imported $213 billion worth of medicines in 2024, with India supplying nearly half of its generic drugs, which are critical for cost savings in the U.S. healthcare system. Trump has repeatedly criticized the U.S.’s reliance on foreign suppliers, noting a 30% increase in drug shortages during the Biden administration, with 295 active shortages recorded by the end of 2022.

On April 8, 2025, Trump announced plans for a “major” tariff on pharmaceutical imports, initially exempt from his blanket 10% tariff on other imports and a 104% duty on Chinese goods. He has since indicated that sector-specific tariffs, potentially 25% or higher, could be imposed in the near future, with a possible announcement within weeks. At a National Republican Congressional Committee event, Trump claimed that tariffs would incentivize drugmakers to relocate operations to the U.S., stating, “Pharmaceutical companies are going to come roaring back… because if they don’t, they got a big tax to pay.”

However, Trump hinted at a potential reprieve on May 1, 2025, suggesting that companies moving operations to the U.S. would face no tariffs and be given “a lot of time” to transition. He cited significant investment pledges from companies like Eli Lilly and Company ($27 billion), Novartis AG ($23 billion), Genentech ($50 billion), and Johnson & Johnson ($55 billion) as evidence of pharma’s commitment to U.S. manufacturing.

Why Indian Pharma Stocks Are Under Pressure

Indian pharmaceutical companies, which account for a third of their $13 billion annual exports to the U.S., are particularly vulnerable to Trump’s policies. The U.S. market is critical for companies like Sun Pharma, which derived $474 million (over 30% of its consolidated sales) from the U.S. in the March 2025 quarter, with 72.7% of its FY24 turnover from exports. The proposed tariffs and increased regulatory scrutiny could disrupt their business models in several ways:

1. Tariff Costs and Price Hikes: Tariffs of 25% or higher could significantly increase costs for Indian exporters, who currently face little to no tax on U.S. imports compared to the 11% duty on American drugs imported to India. Indian companies have warned that tariffs would force price increases, potentially raising healthcare costs for American consumers. Bernstein analyst Courtney Breen estimates that steep tariffs could add $53 billion in costs for U.S. pharmaceutical imports.
2. Complex Supply Chains: The global pharmaceutical supply chain is highly interconnected, with India and China supplying 82% of active pharmaceutical ingredients (APIs) for U.S. life-saving drugs. Relocating manufacturing to the U.S. is costly and time-intensive, requiring $2 billion per new “green field” site and a five-year runway to production. Indian firms, optimized for low-cost production, may struggle to compete with higher U.S. labor and production costs.
3. Regulatory Hurdles: The executive order’s call for “routine reviews” of overseas manufacturing facilities and increased fees could raise compliance costs for Indian companies. The FDA’s recent layoffs have already raised concerns about inspection capacity, and additional scrutiny could delay approvals and exports.
4. Market Access Risks: Tariffs could reduce the competitiveness of Indian generics, which save the U.S. billions annually. If U.S. drugmakers prioritize domestic production, Indian exporters may lose market share, particularly for antibiotics and other generics largely produced in India and China.

Contrast with Coforge’s Rally

While Indian pharma stocks faced headwinds, Coforge Ltd., a mid-tier IT services company, saw its shares rally by 5% on the same day, driven by a stellar Q4 FY25 performance. Coforge reported a 47.1% year-on-year (YoY) revenue increase to Rs 3,409.9 crore and a 16.76% YoY profit growth to Rs 261.2 crore, fueled by strong order inflows ($2.1 billion) and the integration of Cigniti Technologies. Brokerages like Motilal Oswal projected up to a 47% upside, with a target price of Rs 11,000.

Unlike the pharma sector, which is grappling with Trump’s tariff threats and supply chain disruptions, Coforge operates in the relatively insulated IT services industry, benefiting from global demand for digital transformation and minimal exposure to trade barriers. Coforge’s proactive measures, such as a Rs 19 per share dividend and a 1:2 stock split, further boosted investor confidence, contrasting sharply with the uncertainty surrounding pharma companies.

Global Pharma Supply Chain Implications

Trump’s policies threaten to disrupt the global pharmaceutical supply chain, which has relied on tariff-free trade under a 1995 World Trade Organization (WTO) agreement. Key implications include:

• Cost Increases: Tariffs on APIs, excipients, and equipment, already subject to a 10% blanket tariff, could cascade to retail pharmacies and 340B providers, who are locked into fixed reimbursement rates. Avalere estimates that only 53% of APIs used in U.S. medicines are produced domestically, with 30% imported directly and 17% incorporated into foreign-made drugs.

• Drug Shortages: Industry executives warn that tariffs could lead to shortages of generics, such as antibiotics, which are unprofitable to produce with added costs. The FDA reported 28% of API manufacturers in the U.S. in 2019, highlighting reliance on foreign suppliers.

• R&D Impact: Higher tariffs could erode margins for brand-name drugs, reducing funds for research and development. BMO Capital Markets analyst Evan Seigerman noted that the complexity of pharma supply chains makes major manufacturing shifts unlikely, predicting minimal industry changes during Trump’s term.

• European Concerns: Europe, which exported €90 billion ($97 billion) in medical and pharmaceutical products to the U.S. in 2023, faces risks from tariffs. The European Federation of Pharmaceutical Industries and Associations (EFPIA) warned that tariffs could shift production from Europe, undermining its role as a supply chain hub.

Analyst Perspectives and Industry Response

Analysts are divided on the impact of Trump’s policies on Indian pharma. Motilal Oswal remains optimistic, projecting 9–11% growth for the pharma sector in FY26 and suggesting that high tariffs on China could benefit Indian manufacturers under the “China+1” strategy. However, LiveMint noted that Indian pharma underperformed during Trump’s first term (2017–2021), with large-caps like Cipla, Sun Pharma, and Lupin declining 16–49% due to regulatory and competitive pressures.

Drugmakers are lobbying for phased tariff implementation to allow time to shift manufacturing, with companies like Eli Lilly and Johnson & Johnson announcing new U.S. plants. Some European firms have resorted to air-shipping medicines to the U.S. to stockpile ahead of tariffs. The Pharmaceutical Research and Manufacturers of America (PhRMA) supports domestic manufacturing but warns of potential disruptions, emphasizing that 65% of U.S. medicines are already produced domestically.

Challenges and Strategic Adjustments

Indian pharma companies face significant challenges in adapting to Trump’s policies:

• Cost Competitiveness: Higher U.S. production costs could render Indian generics less competitive, particularly for low-margin drugs like antibiotics.
• Investment Barriers: Building U.S. manufacturing facilities requires billions and years, with regulatory approvals adding complexity.
• Supply Chain Risks: Shifting suppliers to avoid tariffs increases risks of counterfeit or substandard materials, necessitating enhanced batch testing and audits.

To mitigate these risks, Indian firms could:

• Diversify Markets: Expand exports to Africa, Southeast Asia, and Latin America to reduce U.S. reliance.

• Localize APIs: Increase domestic API production to reduce dependence on Chinese imports, aligning with India’s Production Linked Incentive (PLI) scheme.

• Lobby for Exemptions: Engage with U.S. policymakers to secure tariff carve-outs for critical generics, as suggested by some X users.

Investor Guidance

The decline in Indian pharma shares reflects short-term uncertainty, but long-term investors should consider:

• Fundamentals: Companies like Sun Pharma and Cipla have diversified portfolios and strong domestic markets, cushioning U.S. exposure.

• Buy-on-Dips: Price corrections could present buying opportunities, particularly for firms with robust pipelines and non-U.S. revenue streams.

• Monitor Policy: Track Trump’s tariff announcements and FDA regulatory changes, expected within weeks, for clarity on impact.

Investors should consult certified financial advisors to align strategies with risk profiles, given the sector’s volatility.

Conclusion

The 1.5% drop in the Nifty Pharma index on May 6, 2025, underscores the market’s sensitivity to Trump’s push for domestic drug manufacturing. Indian pharma companies, heavily reliant on U.S. exports, face risks from proposed tariffs, increased regulatory costs, and supply chain disruptions. In contrast, Coforge’s 5% rally highlights the IT sector’s resilience to trade barriers, driven by digital transformation demand. While short-term challenges loom for Indian pharma, strategic adjustments and potential policy reprieves could mitigate impacts. Investors should stay informed through sources like Moneycontrol, Reuters, and Business Standard logical reasoning for updates on U.S. trade policies and their effects on the pharma sector.