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Dr. Reddy’s Is First Indian Pharma Firm Accepted Under China’s New Drug-Buying Plan

Dr. Reddy’s Laboratories has bagged the rights to supply Olanzapine, a key drug to treat schizophrenia, in China.

Capsules are laid out for inspection on the production line of a drug factory. (Photographer: Tomohiro Ohsumi/Bloomberg)
Capsules are laid out for inspection on the production line of a drug factory. (Photographer: Tomohiro Ohsumi/Bloomberg)

Dr. Reddy’s Laboratories Ltd. is the first Indian drugmaker to win an approval to supply a key drug to treat schizophrenia and bipolar disorder in China after the world’s second-largest pharma market asked manufacturers to submit bids to supply commonly used generic medications to hospitals across the East Asian nation.

India’s second-largest drugmaker by revenue bagged the rights to supply Olanzapine in China. Its bid was at a 35 percent discount to the drug’s current prevailing price and it will supply the product to public hospitals in several provinces, including Zhejiang, Hunan and Guangxi, brokerages including Nomura Holdings Inc. and Jefferies Group LLC said citing a media report of Chinese news agency Caixin.

China had rolled out a bulk drug procurement programme to drive down prices and provide better access to quality drugs and treatment to its population. The country is importing more drugs and speeding up approvals of new medicines to ensure they reach patients faster. This also opened a growth opportunity for Indian manufacturers that are facing margin pressure in the U.S., one of the largest contributors to their sales.

Sun Pharmaceutical Industries Ltd., India’s largest drugmaker, has signed a licensing pact with China Medical System Holdings for two specialty drugs to treat dry eyes and psoriasis. Also, peers like Aurobindo Pharma Ltd., Natco Pharma Ltd. and Alembic Pharmaceuticals Ltd., which already have a presence in China, are looking to increase their focus.

Dr. Reddy’s is one of the three successful bidders for Olanzapine, the first Indian and second international generic company after Sandoz Inc. to be selected and successfully participate in the recently held procurement bids for 25 drugs in China, according to a Nomura report authored by pharma analysts Saion Mukherjee and Prateek Mandhana.

After the 35 percent price cut by Dr. Reddy’s, the Olanzapine market is “attractive with $200 million sales”, the report said, adding Olanzapine is one of the largest products for Dr. Reddy’s in China. “The overall revenue gain for Dr. Reddy’s can be $10-30 million, depending on market share gains.”

While Jefferies said the opportunity for Dr. Reddy’s is around $20 million, it expects the overall return on Chinese investment by Indian pharma to be low. “Price cuts in China have remained high and with more entrants, we expect pressure to continue,” it said in a note. Though Dr. Reddy’s is the first mover and should see initial success, long-term gains will require significant restructuring in business model, which would take time, it said.

Still, Nomura said more than the financial gains from Olanzapine, winning the approval establishes the company’s ability to participate in the newly established bidding process in China. Clopidogrel (heart attack and stroke), with a $1-billion market size, is the next big opportunity for Dr. Reddy’s in China, it said.

Shares of Dr. Reddy’s fluctuated between gains and losses during the day to trade little changed at Rs 2,771 apiece compared with NSE Nifty Pharma Index’s 0.63 percent gain.