China's Public Drug Purchasing Coalition Attracts India's Top Drugmaker

Sun Pharmaceutical Industries Ltd. is scouting for a partner in China to help it win a larger piece of the world’s second-largest drug market, where the government is on a mission to drive down the cost of healthcare.

With a recovery underway in its U.S. business, Sun Pharma’s billionaire founder Dilip Shanghvi is homing in on China and believes market watchers are underestimating the potential there for India’s largest drugmaker.

“There is a big opportunity for us,” Shanghvi said in an interview with Bloomberg News Editor-in-Chief John Micklethwait in Mumbai on Thursday. “That would create a significant new revenue stream, which is not factored in our valuation when analysts look at it.”

(Related: Avik Roy Proposes Drug Purchasing Clubs)

China has rolled out an ambitious multicity bulk drug procurement program that’s driving down prices and providing an opening for Indian manufacturers like Mumbai-based Sun Pharma to compete. The country is importing more drugs, reimbursing for more and speeding up approvals of new medicines to ensure they reach patients faster.

The policy push comes as many generic drugmakers continue to reel from a brutal price war in the U.S., the world’s biggest drug market. While Sun Pharma’s Indian rivals, like Dr. Reddy’s Laboratories Ltd. and Cipla Ltd., are already expanding in China, Shanghvi had mostly kept quiet about his plans.

Scaling Up

India’s top drugmaker will start scaling up its China business in six to nine months, according to Shanghvi. The unit is expected to contribute “some percentage” to Sun Pharma’s $4 billion of overall sales within three years, from almost nothing right now, he said.

The $160 billion Chinese drug market “is now a focus for Indian generics” as U.S.-approved drugs are cleared faster, Jefferies analyst Piyush Nahar wrote in a Feb. 27 note.

“While the reforms make China an attractive market, ramp-up and profitability will have significant challenges,” Nahar wrote. “Unlike U.S., distribution is important in China and will need a local partner and higher spend.”