Dr. Reddy’s taps contract manufacturer to access Chinese market

India’s Dr. Reddy’s has a long-standing interest in China. The generic drug manufacturer entered the market more than 20 years ago and sells products in China through a subsidiary and a joint venture with a local partner.

However, for much of Dr. Reddy’s time in China the country has been hard for foreign companies to access and offered moderate rewards for businesses that cleared the hurdles. That is now changing, leading Dr. Reddy’s to identify 70 products in its US portfolio that are suitable for the Chinese market.

Dr. Reddy’s will need additional capacity to support its Chinese expansion plan. Talking to investors on a quarterly results conference call, Dr. Reddy’s CEO, Erez Israeli, said the company is outsourcing to attain extra capacity, enabling it to achieve benefits associated with making medicines in China.

Israeli said, “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​.”

Capacity sourced from the China-based contract manufacturing organisation will complement Dr. Reddy’s internal capabilities. Dr. Reddy’s already has its own Chinese facility that makes products for sale by its joint venture, Kunshan Rotam Reddy Pharmaceuticals (KRRP).

Dr. Reddy’s is expanding the Chinese facility that supports KRRP to handle some of the expected rise in the volume of medicines it sells in China. In-house manufacturing facilities in India will also make products for the Chinese market.

The focus on capacity capable of serving the Chinese market follows regulatory changes that made the market more attractive to foreign drugmakers and Dr. Reddy’s success in accessing some of the available opportunities.

In September, Dr. Reddy’s became the first Indian drugmaker, and second foreign company after Novartis’ Sandoz, to win approval to supply a medicine under China’s new procurement process. The contract covers the supply of the antipsychotic medication olanzapine.

One challenge, whether manufacturing is outsourced or kept in house, will be to keep the cost of production low enough for the Chinese market to deliver attractive margins. Dr. Reddy’s reportedly agreed to sell olanzapine at a 35% discount to secure the chance to supply it to public hospitals.