Customers may bear some cost of U.S. tariff rise, says Natco Pharma CEO

For Indian pharma industry, there is bound to be disruption initially in the event of the U.S. imposing tariff but over time the drugmakers will look to pass on some of the impact to the customers, a top executive of a well known company said.

With the U.S. market accounting for a significant part of the portfolio, the industry, however, has to brace for it, Natco Pharma vice-chairman and CEO Rajeev Nannapaneni responded to queries on the impact, in the event of the levy, during an earnings call recently.

Mr.Nannapaneni, who had earlier this year highlighted how it is important for drugmakers to get a front-end manufacturing foothold in the U.S. as a counter measure, said the company needs to readjust strategy based on the policy.

U.S. is still the most important pharmaceutical market in the world, particularly for some products that account for around two-third of the business. “You can’t ignore 60-70% of the business and run your business,” he said, while pointing out at Natco Pharma’s ongoing efforts to build a business outside U.S. The Hyderabad-based firm had recently announced it will be acquiring 36% stake in South African pharmaceutical company Adcock Ingram Holdings (AIHL) for $226 million (around ₹2,000 crore).

Over time, the investment will contribute to a “significant part of our base earnings”… I would believe South Africa will easily be about 15-25% of the base earnings. So we are diversifying away from the U.S. as well. It’s not that we are not. But again, you can’t ignore U.S. at the same time. So you have to play both the cards,” he said.

To another query related on impact of tariffs, Mr.Nannapaneni sought to explain how it would not be easy to pass through immediately considering the contracts and pricing. But, in the long run, “we would like to pass it on to our customers because the margins that we work on most of our products are very low. So, there will be some little bit of disruption initially, but I think eventually we will figure out after a quarter.”