Pharmaceutical stocks saw strong gains on Thursday after US President Donald Trump announced that pharmaceuticals would be exempt from the latest round of reciprocal tariffs on global imports.
The exemption has provided a much-needed boost to the sector, particularly for Indian and European drugmakers, which rely heavily on US sales.
However, analysts have cautioned that broader tariff risks still loom over the industry.
European pharma stocks climb, but uncertainty remains
Following Trump’s announcement, major pharmaceutical stocks across Europe and Asia posted gains.
In the UK, AstraZeneca and GlaxoSmithKline (GSK) both climbed about 1.5%, while Swiss drugmaker Novartis gained 0.69%.
France’s Sanofi also edged higher by 0.3%.
However, Swiss pharmaceutical giant Roche fell 2.3% after its multiple sclerosis drug Ocrevus failed to meet its primary endpoint in a key clinical trial.
While the immediate exemption of pharmaceuticals has been welcomed by the industry, analysts warn that uncertainties remain.
Shore Capital healthcare analyst Sean Conroy noted that a White House fact sheet indicated pharmaceuticals were excluded from the new tariff measures.
However, he added, “It is still somewhat unclear whether the broader-reaching 10% baseline tariffs could still be levied against imported drugs and vaccines.”
Similarly, analysts at Bryan Garnier Research pointed out that Trump’s mixed messaging left room for potential future tariff risks.
The US president had remarked that drugmakers “will come roaring back to the US, because if they don’t, they got a big tax to pay.”
Asian, Indian healthcare stocks rally
Asian healthcare stocks also rallied, led by Indian generic drugmakers, even as the broader market declined.
The CNX Pharma index, which tracks Indian pharmaceutical companies, surged more than 3%, marking its biggest one-day gain in 10 months.
In contrast, India’s benchmark Nifty 50 index fell 0.25% on the day.
Sun Pharma, Cipla, and Dr. Reddy’s Laboratories, the country’s three largest drugmakers by revenue, gained between 3% and 6%.
India, one of the largest suppliers of generic medicines to the US, stands to benefit the most from the exemption.
The US accounted for nearly a third, or $9 billion, of India’s total pharmaceutical exports last fiscal year, with most of these being low-cost generic drugs.
Japan’s pharmaceutical sector also benefited, with Takeda Pharmaceuticals and Daiichi Sankyo advancing 2% and 2.7%, respectively.
However, Japan’s broader Nikkei 225 index tumbled to an eight-month low, reflecting investor concerns over the wider impact of US tariffs on global trade.
Japan’s exports to the US were also substantial, amounting to $6.34 billion in 2023, according to data from research firm OEC.
Jefferies analysts noted that while Indian drugmakers “can breathe easy for now,” the risk of future tariffs remains.
“Higher tariffs at a later date cannot be ruled out, but for now, this exemption allows Indian firms to maintain their competitive edge in the US market,” Jefferies said in a note.
What to expect in the coming days?
Looking ahead, analysts suggest that pharmaceutical companies will closely monitor the Trump administration’s stance on trade policies.
Bloomberg has reported that the US government is considering launching a Section 232 investigation into pharmaceuticals, semiconductors, and critical minerals, similar to previous probes that resulted in tariffs on cars and aluminium.
BNP Paribas India analyst Tausif Shaikh stated, “Assuming a 10% tariff is imposed on pharma products, we expect the impact to be negligible. However, with the sector exempted from reciprocal tariffs currently, we expect a relief rally for the Nifty Pharma Index, after its 11% year-to-date decline.”
While the immediate outlook for pharmaceutical stocks appears positive, the industry remains vulnerable to policy shifts in the ongoing US trade war.
Investors and drugmakers alike will be watching closely for any further developments from Washington.
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