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Last Updated : Nov 04, 2019 07:17 PM IST | Source: Moneycontrol.com

Dr Reddy's Chinese gamble -- build biz on early mover advantage, recent tender wins

Dr Reddy’s is the first Indian company and the second international drug company after Sandoz to be selected and win a supply tender in China under the Quality Consistency Evaluation (QCE) system.

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Drugmaker Dr Reddy’s Laboratories is looking at making aggressive inroads in China, the world’s second-largest market for drugs, as it tries to overcome slowing sales growth in the US market.

The company emerged a successful bidder for anti-psychotic medicine Olanzapine in the recently-held procurement bids for 25 drugs in China. It is also the first Indian company and the second international drug company after Sandoz that got selected and won a supply tender in China under the Quality Consistency Evaluation (QCE) system.

China is implementing a nationwide generic drug procurement process through bids in an effort to bring down the cost of drugs. In order to participate in these bids, the generic companies have to successfully conduct bioequivalent studies.


Japanese brokerage firm Nomura pegged Olanzipine to be $200 million market opportunity per annum.

“The overall revenue gain for DRRD (Dr Reddy’s) can be $10-30 million, in our view, depending on the market share gains,” Nomura said.

The company though remained tight-lipped on its plans.

It is also expected to participate in the tenders for clot-busting drug Clopidogrel, a market worth more than $1 billion in China and dominated by Sanofi.

Erez Israeli, the Chief Executive Officer of Dr Reddy’s in the recent earnings call said the tender market, despite being a higher volume, lower value segment, is very profitable.

Target China

Along with tenders Dr Reddy’s had identified around 70 products to target the Chinese market directly.

Given new regulations pertaining to drug approvals in China, Israeli said the company is expanding presence through direct sale of generics to patients; and through tie-ups and partnerships with local manufacturing set-up to get institutional business.

The company also hinted at expanding manufacturing capacities in China

“We have a plant that is making products for China, primarily for the KRRP product, and we took a decision and we are implementing an expansion for that plant. So this will take some of the growth. On top of it, we are moving a few products to a contractor to make in China. There are certain advantages, for example, exemptions from certain tests when you do a bio study and make products in China, and we'll exploit that. And some products we will sell out of our Indian facilities,” Israeli told analysts.

Dr Reddy’s has been present in China for over two decades, where it manufactures and sells its formulations through a joint venture arrangement called Kunshan Rotam Reddy Pharmaceuticals (KRRP) with a Chinese partner. The company also has local subsidiary Dr Reddy's (WUXI) Pharmaceutical Co.

The company's interest in KRRP was 51.3 percent as of March 31, 2018.

Dr Reddy’s generated sales of around $130 million in FY19. Israeli said the company’s sales are growing a healthy double-digit in China.

Indian drug makers are still scratching the surface in the $137-billion Chinese market, where the multinationals pharmaceutical companies and local drug makers dominate. The Chinese government push to reduce the cost of medicines, improve quality and also Indian government pressure on China to cut the ballooning trade deficit, has prompted China to ease the regulations to allow Indian drug makers to operate in the Chinese market.

Many Indian companies now have joined hands with Chinese drug makers to make and sell drugs in that market including participating in the institutional business.
First Published on Nov 4, 2019 07:17 pm