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 healthcare costs. With recovery underway in its US 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 last week. That would create a significant new revenue stream, which is not factored in our valuation when analysts look at it.
China has rolled out an ambitious multi-city bulk procurement programme that's driving down prices and providing an opening for Indian manufacturers like Sun Pharma to compete. It's importing more drugs, reimbursing more and speeding up approvals of new medicines to ensure they reach patients faster.
The policy push comes as many generic drugmakers are still reeling from a brutal price war in the world's biggest drug market, the US. While Sun Pharma's Indian rivals, like Dr Reddy's Laboratories Ltd and Cipla Ltd are already expanding in China, Shanghvi has mostly kept mum about his plans there.
India's top drugmaker will start scaling up its China business in six to nine months, according to Shanghvi. The unit will contribute some percentage to Sun's $4 billion of overall sales within three years from almost nothing right now, he added.
The $160-billion Chinese drug market is now a focus for Indian generics as US-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 US, distribution is important in China and will need a local partner and higher spend.
Analysts are split on the prospects of Sun Pharma's stock, which has lagged the rise in the S&P BSE Sensex this year. In the last four years, it has plummeted nearly 52 per cent compared to the Sensex's 42 per cent climb.
