China Today: Pharmaceutical Distribution in China

The country strives to modernize its distribution logistics as thousands of small companies compete for profits
Feb 01, 2007
Volume 20, Issue 2

Eliza Yibing Zhou
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.

Table 1. Gross profits of seven publicly listed Chinese pharmaceuticals distributors show a declining trend. Sourced from reference 1.
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.

"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."


Changing Demographics and Healthcare in China
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.


China's pharmaceutical distribution has undergone three stages of development: the planned economy stage, the reform and open stage, and the market-oriented stage.

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