China today represents a $15-billion market for pharmaceutical products. China's pharmaceutical industry has been expanding
at about 20% over the past five years. It has been predicted that China will become the world's fifth largest single pharmaceutical
market by 2010. With such a fast-growing market segment and a huge population, simply getting pharmaceuticals to the patients
and healthcare providers is becoming a daunting task. Biopharmaceuticals distributers face the same challenge, with the added
complications associated with cold-chain management, shelf-life, and product stability.
Eliza Yibing Zhou
China is entering its 11th Five-Year Plan, the national economic development guidance which roadmaps the country's overall development in the five
years between 2006 and 2010. The ongoing reforms in its healthcare system are creating a significant impact on pharmaceutical
pricing and distribution. According to our recent study, Advances in Biopharmaceutical Technology in China (Society for Industrial Microbiology and BioPlan Associates),Chinese pharmaceutical distributors are struggling to survive
harsh competition (Table 1) and are looking for business opportunities that will enhance their profitability. Over the past
decade, there have been 19 waves of drug price cuts, and the government has launched nationwide drug bidding programs since
2000. These programs have considerably lowered gross profits within the drug distribution segment. As China opens its pharma
distribution industry to foreign players, the question on most distributors' minds is survival.
Table 1. Gross profits of seven publicly listed Chinese pharmaceuticals distributors show a declining trend. Sourced from
"China's further integration with the global economy, the internationalizing of domestic markets, and the advancements of
reforms in pharmaceutical, healthcare, and medical insurance systems has brought China's 50-year-old traditional pharmaceutical
distributing mode to an end," said Jin Qian, chairman of Shanghai Pharmaceutical Co. "The Chinese pharma distribution industry
must experience a rebirth before it gains new life."
Chinese pharmaceutical distributors have an arduous task of supplying to 1.3 billion people residing over 9.6 million square
kilometers. Distributing pharmaceuticals to more than 700 million people located in rural areas is especially difficult. In
China, the term medicines broadly includes all products used in the diagnosis, treatment, or prevention of diseases. Drug distribution was rigorously
controlled by the Chinese government. To ensure this control, state-owned distributors have monopolized the drug distribution
sector for many years. Consequently, the expansion of Chinese pharmaceutical distributors has been closely linked to the evolution
of the country's pharmaceutical distribution framework.
Changing Demographics and Healthcare in China
China's pharmaceutical distribution has undergone three stages of development: the planned economy stage, the reform and open
stage, and the market-oriented stage.