Top Indian drugmakers expand in China as policy changes trigger opportunity

China flag
Major Indian drugmakers Sun Pharma, Cipla, Aurobindo and Dr. Reddy's are all trying to expand their presence in China. (Getty Images)

China and India are both major API suppliers and generic-heavy countries. Because of the similarity, Indian drugmakers have long had a hard time finding an inroad into the Chinese market. But as U.S. pricing pressure lingers on, and as China welcomes competition to further bring down its own drug costs, a door has opened.

Cipla on Tuesday said (PDF) it’s forming a Chinese joint venture with local firm Jiangsu Acebright Pharmaceutical. The Indian company will hold an 80% stake in the combined investment of $30 million. The new company will set up a manufacturing facility to make respiratory products—a key strength of Cipla's—for the Chinese market.

“While our core home markets remain our current growth anchors, we see China as a crucial part of our future roadmap,” Cipla CEO Umang Vohra said in a statement. “We have a long-standing relationship with Acebright, and this partnership to build a manufacturing facility in China is a significant step for us.”

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The deal looks like a reverse of course for Cipla. In 2012, Cipla clawed back a big chunk of its investments in Desano Group (now called Acebright Group), the parent firm of Acebright Pharma. Part of the money went to a Cipla-Desano JV called Biomab, which makes biosimilars for the Chinese market, and two other Acebright Group subsidiaries, Cdymax and Shanghai Desano Pharma, only to exit its stake in Cdymax and Biomab years later, according to local media reports.

Cipla isn’t the only top Indian drugmaker busy expanding its business in China. Last month, Sun Pharma inked two licensing deals with China Medical System, giving the latter local rights to psoriasis drug Ilumya—which won a U.S. nod last year—and its version of Allergan’s dry eye therapy Restasis.

RELATED: As U.S. trade war escalates, China rolls out red carpet for Indian drugmakers

Late last year, a subsidiary of Aurobindo Pharma formed a joint venture with Shangdong Luoxin Pharmaceutical Group to manufacture nebulizer inhalers and other products.

And Dr. Reddy’s Laboratories, which has a larger presence in China than its Indian peers, is planning to launch about 70 products for China in the coming years and to build a new plant, according to PTI.

“China is an important space for us and we see a major opportunity in China,” the company’s chief operating officer, Erez Israeli, said on a recent earnings call, as quoted by the Indian news agency. “As China opened, especially with the changes of regulations to the kind of products in terms of quality and cost-effective that we can build to China, we identified 70 products from our U.S. portfolio that reached those requirements.”

The march into China comes as these large generics makers continue to face pricing pressure in the U.S. It also comes as China consolidates its generic drug market by requiring makers of already-approved copycats to conduct another evaluation to prove quality consistency with originator products if they want to stay on the market. The country has also rolled out policies encouraging use of generics while at the same time cutting back their prices.

RELATED: China's driving sales growth ahead of the U.S. for Big Pharma. But can it last?

The moves offer a special chance for leading Indian companies to tap into China. As the quality equivalence application moves on, the many small players that make low-quality products are being pushed out, leaving more room for large firms like Sun, Cipla and Aurobindo. Meanwhile, the Chinese government is further opening up its pharmaceutical market, introducing more competition to drive down drug costs, and Indian firms have been invited to take part.

China is currently piloting a bulk procurement program that offers big drug supply contracts in 11 major cities to winning bidders—after a steep price discount of as much as 90%. As the country prepares to expand the program to the entire nation, there were reports that some Indian companies could offer additional discounts of 20% to 30% off the tendered prices. If that happens, it will definitely be another blow to Western drugmakers.

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