Cipla, Natco, Hetero to Supply Generic Drugs to China
Several Indian drugmakers, Cipla, Natco Pharma and Hetero Labs, have won Chinese government bids to supply key generic medicines, including the diabetes drug dapagliflozin. The contracts form part of a large volume-based procurement (VBP) round that covered 55 drugs, and resulted in 453 products from 272 companies being pre-selected. How significant are these developments for Indian firms, and what should investors monitor going forward?
What Did the Contracts Cover and Who Won What?
China’s latest public procurement invited bids across anti-infectives, oncology, allergy and other categories. Indian winners include Hetero Labs Limited, Cipla Ltd, Annora Pharma Pvt Ltd and Natco Pharma. Hetero and Cipla were among seven firms that won bids to supply one billion tablets of dapagliflozin, a widely used oral drug for type-2 diabetes. Natco won a contract to supply olaparib tablets (an oncology drug), while Annora bagged an award for oxcarbazepine tablets (an anti-epileptic). In all, Indian companies secured contracts to supply seven drugs in this round.
Under the VBP system, winning suppliers are typically allotted specific Chinese provinces and hospital networks to supply the contracted volumes. The process is aimed at cutting costs for patients and public hospitals by awarding business to low-cost, high-volume manufacturers. For the Indian winners, the deals provide direct access to China’s large hospital procurement channels, but at competitively low prices.
Why This Matters, The Upside and the Limits
There are three simple points to understand.
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Scale and revenue opportunity: China is a huge market: getting a slice of province-level procurement can mean large, steady volumes. Supplying one billion tablets of dapagliflozin alone is a meaningful commercial contract for any manufacturer. That can support revenue growth and better utilisation of manufacturing capacity.
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Margin pressure and pricing: Volume-based procurement focuses on pushing prices down. Although Indian companies can compete and secure large orders, they might have lower margins per unit than in certain markets. Margins and working capital influence the economics such that investors cannot expect to make large margins when a company secures a contract.
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Strategic access versus supply risk: Indian firms with winning VBP bids get better access to China's public hospitals, but they also face risks: narrow price range, rigorous quality and regulatory inspection, and dependence on China as the source of many active pharmaceutical ingredients (APIs). Certain industry analysts indicate that China continues to provide a large portion of APIs in the world, making it difficult to source and manage costs.
What Investors Should Check Next
If you follow these companies or the Indian pharma sector, focus on a few practical checks:
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Order size and revenue recognition: Find statements or filings of the companies about the quantities they are going to deliver and in which period. Bid selection does not necessarily imply immediate deliveries of full scale.
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Pricing and margin impact: Check guidance or analyst comments on probable realisations per unit, and their impact on gross margin. At low prices, it may give rise to volume which is revenue-positive and profit-neutral in the event no cost control is undertaken.
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Supply chain resilience: Note where the company sources APIs. If inputs come from China, any disruption or price change in API supply can alter the economics of these contracts. Many Indian firms are working to reduce such dependence, but the shift takes time.
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Regulatory and quality checks: China’s procurement rules include quality audits and local regulatory clearances. Track how quickly winners clear those checks and start shipments. Delays can push revenue recognition into later quarters.
Conclusion
Indian drugmakers winning China’s VBP contracts is a positive sign of their manufacturing strength and global competitiveness. The awards, including supply slots for dapagliflozin and olaparib, give the winners a clear route into large Chinese hospital tenders. But the deals come with tight pricing, supply-chain and regulatory risks that will determine whether these contracts turn into meaningful profit growth. Will these wins translate into sustained revenue and margin improvement for the Indian firms, or will pricing and sourcing limits keep gains modest?
References
This article is for informational purposes only and does not constitute financial advice. It is not produced by the desk of the Kotak Securities Research Team, nor is it a report published by the Kotak Securities Research Team. The information presented is compiled from several secondary sources available on the internet and may change over time. Investors should conduct their own research and consult with financial professionals before making any investment decisions. Read the full disclaimer here.
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