Most people have never heard of the F.T.O. U-3 factory located in Hyderabad, India. However, the medicines produced by this factory are closely related to the lives of millions of Americans.
According to a report by The New York Times on October 2nd, in this large-scale factory, approximately 1,900 Indian employees work tirelessly day and night, producing more than 100 kinds of generic drugs, including antihistamines, statins, and antidepressants. The factory produces nearly 1 billion oral medications per month, with 75% of these being supplied to patients in the United States.
The sheer scale of the Indian pharmaceutical industry makes it a cornerstone of the global pharmaceutical supply system. In this industry, which requires high production volumes and low profit margins, India can produce drugs at costs far lower than other regions. This presents an almost insurmountable obstacle for the United States, which attempts to relocate its drug production back domestically.
U.S. President Donald Trump stated that he hopes to pressure pharmaceutical companies through tariffs and bring the production of generic drugs back to the United States.
In July this year, Trump stated on social media that he planned to impose a 100% tariff on generic drugs starting in 2028, and to raise the tax rate to 200% one year later. By then, his presidency would have ended. Generic drugs account for 90% of American prescription medications, with 40% of them produced in India.
When the United States imposed a new 100% tariff on some imported drugs on Tuesday, generic drugs and many other products were exempted. Doctors and supply chain experts said that taxing imported generic drugs would increase costs, lead to limited availability of drugs, and cause shortages of essential medications.
Even if tariffs of 200% are imposed on generic drugs, it may not be possible to eliminate India’s advantage. Sudarshan Jain, secretary-general of the Indian Pharmaceutical Association, estimates that most tablets and liquids produced in India would cost at least four times more if they were produced in the United States.
India's generic drug industry began in the 1970s. At that time, Western multinational pharmaceutical companies did not prioritize the demand for cheap drugs from India's large and mostly impoverished population. Instead, India gave priority to providing affordable medications. For decades, India has refused to recognize drug patents. Meanwhile, Indian pharmaceutical companies have replicated drugs sold in wealthy markets through reverse engineering, and they have patented their own production processes.
By 2005, when India's patent laws were aligned with the World Trade Organization standards, Indian companies had become experts in the complex field of pharmaceutical processing. They produced medicines for most regions in Asia, Africa, and Latin America. Around the same time, Americans began accepting generic drugs more and more frequently. By 2004, generic drugs accounted for more than half of all prescription drugs sold in the United States.
Jain said that patented drugs have the highest profits. Therefore, “in the United States, once a drug’s patent expires, people stop caring about it. But in India, entrepreneurs continue to research and develop these drugs. When production scales to such a level, you become more and more skilled at producing such drugs.”
This business will continue to grow. Jain said that in the next five to seven years, there will be 55 important pharmaceutical patents in the United States that will expire. These drugs are worth $300 billion in the market each year, thus providing greater market opportunities for Indian pharmaceutical companies.
India's advantages lie not only in its professional technology. Peter DeYoung, the US-based CEO of Piramal Global Pharma, which has its headquarters in Mumbai, manages more than a dozen factories, including those in Europe and the United States. He said that in the United States, labor costs are "far ahead" of other factors, making them the biggest expense. Energy and raw materials also pose significant challenges. In India, however, the situation is the opposite: raw material costs are high, while labor costs are low.
Mennisha Paka (age 23) is responsible for supervising a production line at the F.T.O. U-3 factory, where she works on packaging drugs for a beta blocker called Metoprolol. It's used to treat patients with heart disease. Her annual income is $3840 and she uses some of her salary to study a bachelor's degree in pharmaceutical chemistry. Her subordinate, Susmita (sole name only), has an estimated yearly income of approximately $2000.
Their combined income is less than one-tenth of the average salary for American pharmaceutical workers.
India also has other advantages. Dejan said that factories and production processes that would take four years in the United States, Europe, or Israel—where Teva Pharmaceutical Industries, the world’s largest generic drug manufacturer, is located—can be completed in India within a year. The time required for manufacturing customized equipment is only half that of Germany or Austria.
For many years, there was a disadvantage associated with relying heavily on Indian factories: quality issues. A series of scandals that began in the early 21st century damaged the reputation of the Indian pharmaceutical industry. The most notorious example is Ranbaxy, which sold substandard drugs and lied to the U.S. Food and Drug Administration about its production processes. As a result, Ranbaxy had to withdraw from the market over a decade ago.
After that, a book about this scandal became a must-read for many pharmaceutical industry executives. The postscript of the book states that until 2019, the U.S. Food and Drug Administration still notified Indian factories several days in advance during inspections, giving factory managers time to cover up irregular production practices.
At least for large manufacturers, this is no longer the case. Two weeks after Trump announced tariffs on generic drugs, Dr. Reddy’s Laboratories underwent a surprise inspection. Pilarma stated that its Digwal factory, located three hours west of Hyderabad, has been inspected 415 times since its construction in 2012. Of these inspections, 49 were conducted by the U.S. Food and Drug Administration, and no serious violations were found.
Pilamal produces generic drugs, but a significant portion of its business involves contract manufacturing for clients who own pharmaceutical patents. Having smaller factories in the United States allows some clients to monitor the production process more easily.
This cross-regional layout also reveals another problem: attempts to produce all drugs locally. Modern pharmaceutical supply chains cannot be simply divided into ‘made in the United States’ and ‘imported from other countries’.
Among the thousands of sealed barrels in the main warehouse of Pilar Madigaval, there is one barrel that comes from India. It was once transported to Singapore and then back to India. The barrel bears the brand of a Japanese company, although the company indicated an American address as its location.
There is also a drug, which Deyan only wishes to reveal is a life-saving medication for treating diseases of the central nervous system. This drug is produced in Digval, then transported over 8000 miles by air, and sent to the factory in Riverview, Michigan, USA.
Riverview is a quiet suburb of Detroit, with wide lawns and white spires. It is far from Digerville—the villages near Digerville still use stone wells to obtain water. However, PilaMar in India and American laboratories work together to complete the final production of this drug.
Deyan said that there is every reason to match India’s production facilities with factories located in the final markets for pharmaceuticals. Some drugs require the use of particularly hazardous chemicals, some of which are regulated by the US Drug Enforcement Administration. For other drugs, such as flurane, a generic anesthetic drug produced both in India and the United States, it is essential to ensure supplies even in the event of a complete disruption of the international supply chain.
This raises a much more fundamental question than whether tariffs can force the pharmaceutical industry to return to the United States.
When talking about the possibility of imposing tariffs on imported generic drugs, Dejan asked, "So, what exactly do you want to solve? Do you want to bring manufacturing jobs back to the United States, so that American workers can have these jobs? Or do you want to ensure the supply of key medications?"
While Indian companies are trying to address the Trump administration's attempts to reduce U.S. dependence on India, they themselves are also working hard to resolve the dependency of one key link in the pharmaceutical supply chain on another country.
Since the 1990s, China has become the leading producer of active pharmaceutical ingredients for most medications in the world. India is now trying to regain its production capacity in this area.
Jain stated that this provides an opportunity for cooperation between the United States and India, rather than causing the two countries' pharmaceutical industries to become decoupled from each other.
He said, “Unless we cooperate with the United States, we will rely on China for raw materials.” Therefore, he added that for American buyers, it is better to purchase these medicines from India and stock them up, rather than producing them at a cost six times, seven times, or even eight times higher in the United States.
