Sun Pharma, Cipla Eye Chinese Drug Market To Hedge US Risks

Indian drug makers Sun Pharmaceutical Industriesand Cipla are entering China through local partnerships, as they seek new markets to sell their generic drugs amid stifling competition in the U.S.

On Tuesday, Cipla said one of its units is setting up a joint venture in China with Jiangsu Acebright Pharmaceutical to make, sell, and distribute drugs. The venture will also involve research and development services and analytical development, the company said in a statement.

As part of the agreement, the unit Cipla EU will hold 80% in the joint venture, while Acebright will hold the remainder. Cipla EU will invest up to $24 million over four years, it said.

Cipla’s announcement underscores the increasing focus of Indian companies on China, the second-largest drug market in the world, where spending on medicines is set to reach $140 billion to $170 billion by 2023, according to research firm IQVIA.

Over the past three years, China has taken several steps to reform its healthcare sector, including expediting the pace of regulatory approvals, offering better reimbursement plans for generics, and rolling out a slew of investments to attract more generic drug makers.

The reforms have made China an attractive opportunity for Indian generic drugs companies, who are contending with a slowdown in the U.S., the world’s biggest pharmaceuticals market. Falling drug prices and expedited approval rate for generics have paved the way for increased competition from new players in the U.S.

Last month, top Indian drug maker Sun Pharmaceutical said it entered into licensing agreements with China Medical System Holdings to develop and commercialize two drugs — Tildrakizumab used to treat psoriasis and Cyclosporine for dry eye — in Greater China.

As per the agreements, China Medical will pay Sun initial upfront payments, regulatory and sales milestone payments, and royalties on net sales. The company did not disclose further the terms of the deal. The Chinese company will be responsible for development, regulatory filings, and sales of Sun’s products, the drugmaker said.

Sun, which had launched Tildrakizumab in the U.S. in October, is struggling to make money from the drug due to stiff competition from six other players. HSBC said it expects China to offer an “attractive opportunity” to Sun, with 6.5 million people suffering from psoriasis and 100 million battling dry eye disease.

Smaller rival Dr. Reddy’s Laboratories already has a beachhead in China, with its joint venture company generating sales of more than $100 million and more than 70 new drug applications in the pipeline. In 2000, Dr. Reddy’s had forged a partnership with Rotam Group of Canada to set up KunshanRotam Reddy Pharmaceuticals to develop and manufacture drugs.

To be sure, analysts say that the returns may be limited in China as price competition perks up. Under the government’s new drug procurement program, prices saw an average 50% cut with some extending up to 90%, Jefferies said in a report earlier this year.

Indian companies will have to partner with local firms to distribute their products, with costs scaling up to around 25% of sales. Further, the government focus on developing local Chinese industry makes imports from India an unviable option, fueling the need for local manufacturing setup.

Cipla, one of the early birds in the Chinese drug market, had earlier invested in three Chinese companies, including Shanghai Desano Group, now called Shanghai Acebright. But it exited most of the investments by 2012. Shanghai Acebright is the parent of Jiangsu Acebright Pharmaceutical.

“While China is a large opportunity, success will be difficult and gains are almost two to three years away,” Jefferies said. “In the near term, the base business is still important and structural challenges in these persist.” – Nikkei