Trump Tariff to Push Indian Pharma Co to Embrace AI, Cost-Efficient R&amp;D
U.S. President Donald Trump announced a 59% reduction in prescription drug prices earlier this week, just a day after unveiling a new US pharmaceutical policy. He emphasised the government would eliminate intermediaries and enable the direct sale of medications to American citizens at the most favoured nation (MFN) price. The announcement sent ripples through the healthcare sector, especially given ongoing concerns surrounding pharmaceutical pricing and supply chain stability. It also risks triggering drug shortages or price hikes within America’s healthcare system. Purav Gandhi, founder and CEO of Healthark, spoke with AIM and said this development is an opportunity for India. “The move by the U.S. Government would push pharma companies to move R&D centres to low-cost, high-quality destinations such as India,” Gandhi said. Companies are already outsourcing to Contract Research and Development Manufacturing Organisations (CRDMOs) or establishing offshore R&D centres in India. These tariffs, however, could indirectly hinder critical research and development (R&D) efforts in the Indian pharmaceutical sector. “As a lot of R&D shifts to India, there will be capacity constraints in terms of talent and the ability to scale, pushing companies to adopt AI in R&D to improve efficiency, speed, and accuracy of R&D,” Gandhi noted. He further explained that a shift is already taking place, with companies beginning to leverage AI to accelerate steps in their R&D processes. Investments in complex generics and biosimilars, which are essential for India’s pharmaceutical evolution, may suffer as companies are forced to focus on conserving cash. Sarvesh Singh, mentor of change, NITI Aayog also highlighted that major pharmaceutical initiatives such as Sun Pharma’s speciality drugs or Biocon’s biosimilars—both of which require 5 to 7 years and over $200 million per product to develop—could slow significantly. Sun Pharma is the first Indian pharmaceutical company to realise and embrace the importance of innovation, investing 6–8% of global revenues annually in research and development (R&D). Singh highlighted that while tariffs might inhibit R&D investment in some areas, they could also accelerate a strategic shift towards high-margin niches such as injectables or oncology drugs. Potential Impact of US Tariffs Aarthi Janakiraman, research director at Everest Group stated key Indian players such as Sun Pharma, Dr Reddy’s, and Cipla generate a significant portion of their revenues from the US market, anywhere from 30 to 45% of their yearly revenues. This Trump tariff comes when tensions are rising over potential US tariffs on pharmaceutical exports from India, a sector that, according to reports, supplies 47% of America’s generic drugs. The proposed 10% tariff, which mirrors India’s tax on US drug imports, could severely impact profit margins for generic drug producers. For an industry already squeezed by competition, such tariffs could be devastating. Smaller exporters operating on sub-5% margins may face existential threats. Analysts see the Earnings Before Interest, Taxes, Depreciation, and Amortisation (EBITDA) margin for Aurobindo Pharma and Dr. Reddy’s, whose businesses are exposed to the U.S. Market, could shrink by 9–12% if they cannot pass these new costs to buyers. Janakiraman added cost-effective R&D strategies, including collaborative efforts to reduce costs and risks. These processes aim to streamline drug discovery, expected to gain prominence amid a potential slowdown in novel therapy development. Meanwhile, government initiatives, such as India’s Production-Linked Incentive (PLI) scheme, are helping to stabilise supply chains by reducing dependence on active pharmaceutical ingredients (APIs) imported from other countries. These initiatives could indirectly support ongoing R&D efforts. Long-Term Resilience Despite Immediate Challenges While tariffs undoubtedly present immediate challenges, they could also drive long-term resilience in India’s pharmaceutical sector, Gandhi noted. Companies that invest in less price-sensitive segments, such as biosimilars, may gain a competitive advantage. However, the sustainability of innovation in this space will depend on the resolution of trade tensions and continued policy support for R&D tax breaks or patent reforms. As per Singh, pharmaceutical companies in India are also exploring several strategies to adapt to the shifting market dynamics. These include cost optimisation by  investing in automation and exploring local raw material sourcing to reduce costs and maintain competitiveness. Many Indian companies are now also seeking co-development partnerships with US biotech firms. By combining India’s large-scale manufacturing capabilities with American expertise in regulatory affairs, companies can position themselves to better handle the demands of an increasingly complex market. Sanofi’s collaborations with Dr. Reddy’s, Cipla, and Emcure, along with its partnership with AstraZeneca and Mankind Pharma to distribute asthma medication, are notable examples of this growing trend. Moreover, Indian pharmaceutical companies are also looking to expand into other global markets, including Europe, Africa, and Southeast Asia, to mitigate the risks of tariff-induced pressure from the US.
The proposed 10% tariff, which mirrors India’s tax on US drug imports, could severely impact profit margins for generic drug producers.
The proposed 10% tariff, which mirrors India’s tax on US drug imports, could severely impact profit margins for generic drug producers.
["AI (Artificial Intelligence)"]
["Go", "API", "AI", "innovation", "ML", "RAG", "automation", "Aim", "GAN", "R", "AI (Artificial Intelligence)"]
["AI", "ML", "Aim", "RAG", "R", "Go", "API", "GAN", "automation", "innovation"]
Shalini is a senior tech journalist, exploring the latest advancements in AI. When she's not reporting on the latest innovations, you can find her immersed in her next literary adventure.