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 the cost of healthcare.

With a recovery underway in its U.S. 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 Editor-in-Chief John Micklethwait in Mumbai on Thursday. “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 multicity bulk drug procurement program that’s driving down prices and providing an opening for Indian manufacturers like Mumbai-based Sun Pharma to compete. The country is importing more drugs, reimbursing for more and speeding up approvals of new medicines to ensure they reach patients faster.

The policy push comes as many generic drugmakers continue to reel from a brutal price war in the U.S., the world’s biggest drug market. While Sun Pharma’s Indian rivals, like Dr. Reddy’s Laboratories Ltd. and Cipla Ltd., are already expanding in China, Shanghvi had mostly kept quiet about his plans.

Scaling Up

India’s top drugmaker will start scaling up its China business in six to nine months, according to Shanghvi. The unit is expected to contribute “some percentage” to Sun Pharma’s $4bn of overall sales within three years, from almost nothing right now, he said.

The $160bn Chinese drug market “is now a focus for Indian generics” as U.S.-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 U.S., distribution is important in China and will need a local partner and higher spend.”

Analysts are split on the prospects for Sun Pharma’s shares, which have lagged the rise in the S&P BSE Sensex this year. In the last four years, Sun Pharma has fallen about 50 percent compared to the Sensex’s 45 percent climb. The drugmaker’s shares closed flat on Monday while the broader gauge declined almost 1 percent.

Sun Pharma’s large portfolio of U.S.-approved products should help the drugmaker ramp up its China business with little investment, Shanghvi said.

“We see enormous interest in China for products that we have global rights for,” Shanghvi said, adding that the company “would be comfortable making significant financial commitments,” there longer term.