Tariff uncertainties may spur rise in third-party pharma manufacturing

Analysts say Indian drugmakers may lean on CDMOs, US plants and diversification to safeguard high-value products as Trump's 100% tariff threat looms over patented drugs

Uncertainties around America’s tariff policies may encourage more third-party manufacturing and geographical diversification in the pharmaceutical sector in the medium term, say analysts and industry insiders. 

United States (US) President Donald Trump last week announced on social media a 100 per cent tariff on imports of branded or patented drugs. 

Pharmaceutical companies that have begun constructing plants in the US may be spared from this. 

Among Indian companies, Sun Pharma has sizeable sales in the US from patented products. Of the reported global sales of $1.2 billion from patented products in FY25, the US market accounted for $1.1 billion (or 85-90 per cent of global sales), amounting to around 17 per cent of revenues. 

HSBC Global Investment Research said Sun Pharma’s patented products were mostly manufactured by global contract development and manufacturing organisations (CDMOs).  For Ilumya, its largest product in the patented portfolio (56 per cent of patented product sales in FY25) is done by a CDMO in South Korea while the finished dose is by a European entity.

 

Analysts say while this tariff development is broadly negative for Sun Pharma, the impact on earnings depends on multiple factors — the spread of supply chains (from active ingredients to Fill-Finish), the intellectual property (IP) location of the brand, the use of third-party manufacturers, etc.

 

“In the worst case, Sun would have to shift manufacturing to CDMO partners with plants in the US. It could also transfer manufacturing patented products to its three plants in the US. It could announce new capex or acquire a manufacturing plant in the US (it has cash of over $3 billion as of June 2025 quarter),” HSBC analysts wrote.

 

This is likely to be an emerging trend for pharmaceutical players overall as they navigate the complexities and uncertainties of a tariff regime.

 

The chief executive officer of a drug-exporting firm in the US said the company had considered having some “fill-finish” work happening at US CDMOs if needed.

 

“So far generics have remained unaffected, but the sword hangs. We have indeed opened talks with CDMOs in the US, and if need be we can shift some manufacturing there. However, the cost arbitrage would be gone. So it’s a tough call both for us and the US administration,” he said.

 

According to a Boston Consulting Group-IPSO white paper “Unleashing the Tiger”, Indian CDMOs have a 70-80 per cent cost advantage on workforce as against the West, and an 85 per cent lower infrastructure setup cost than the West.

 

Several Indian pharma companies like Biocon, Aurobindo, Dr Reddy’s Laboratories, Glenmark, Lupin, and Sun Pharma have manufacturing facilities in the US. Among CDMOs, Piramal, Syngene, and Sai Lifesciences have facilities.

 

Piramal Pharma is working on expanding its sterile injectable drug products facility in Lexington, US. “This should lend an impetus to our integrated antibody drug conjugate (ADC) development and manufacturing programme over the medium to long term,” the company had said in July. ADCs are a kind of cancer therapy designed to deliver chemotherapy directly to cells. This is a growing field in cancer therapy. 

 

Nandini Piramal, chairperson, Piramal Pharma, had told Business Standard: “There is a lot of demand for fill-and-finish products in the US onshore and we had some customers whose products kind of graduated from the facility (Lexington) to somewhere else because we did not have the space or the capacity to do it.” 

 

“We are now adding around 24,000 square feet of manufacturing space as well as a new laboratory and the expansion will be completed by 2027. This is for high-potent sterile fill and finish products.” 

 

The company has 15 global CDMO facilities, with four in North America, two in the United Kingdom and nine in India.

 

Industry insiders say safeguarding high-margin and high-value products would be a key priority of Indian drug companies. Diversifying the geographical footprint would be a part of the strategy and third party manufacturing would rise.