China’s Drug Wholesale Market

China’s healthcare spending is currently estimated at $240 billion. China’s pharmaceutical market is forecast to become the second largest behind the U.S. by 2015. The Chinese pharmaceutical wholesale and distribution market is fragmented and largely regionally-based and principally involves supply to hospital pharmacies.

In the 12th Five-Year Plan (2011-2015), China aims to have one to three large-scale drug distribution companies over the next five years. The country’s drug distribution industry grew an average of 15.4 percent annually from 2000 to 2009, with sales increasing 17.3 percent to about 667 billion yuan ($104 billion) in 2010, according to the China Association of Pharmaceutical Commerce.

Cardinal Health said it is looking for more acquisition opportunities in China after its $470 million purchase of distributor Zuellig Pharm China last year. Buying out Zuellig, which had $1 billion in sales and distribution to about 49,000 hospitals and clinics, helped Cardinal establish a foothold in China, where Cardinal previously only conducted sourcing.

Cardinal Chief Executive Officer George Barrett said acquisitions will continue to help the company get bigger in China’s booming drug distribution market. “We will continue to look for opportunities to expand our footprint here in China,” Barrett said in an interview in Shanghai. “I cannot be really specific on particular targets but I will be very disappointed if, looking back a year from now, we have not already made some acquisitions here.”

Potential acquisition targets will be those that can help Cardinal build scale, reduce distribution layers or expand geographic representation, he said.
Cardinal’s acquisition ambitions come at a time when the Chinese government is encouraging consolidation in its drug distribution industry to boost efficiency, after years of rapid but fragmented growth.

Cardinal aims to make its presence felt in all of the links in the country’s drug distribution, from drug manufacturers and hospitals to drug retail stores. And expansion will be made through a combination of acquisitions and organic growth

Cardinal unveiled a major logistics center in Shanghai, its biggest in China. The 40,000-square-meter center will be the cornerstone for the company’s development in Shanghai, one of the biggest drug distribution markets in China.

Cardinal Health is not the only drug wholesaler interested in the Chinese market. Alliance Boots plc, a leading pharmacy-led health and beauty group, has reached an agreement to form a 50:50 joint venture in Guangzhou Pharmaceuticals Corporation (“GP Corp”), the third largest pharmaceutical wholesaler in China.

GP Corp is the third largest pharmaceutical wholesaler nationally with around a 3% market share, and is the leader in its home province of Guangdong with a market share of approximately 16%. Guangdong has a population of around 78 million and enjoys one of the fastest growing GDP per capita in China.

GP Corp reported revenue of around £425 million for 2005, operates eight depots and has approximately 2,000 employees. On completion of the transaction GP Corp is expected to operate 29 retail pharmacies, this being the maximum permitted under current regulations for a 50:50 foreign-invested joint venture such as GP Corp.

Alliance Boots’ partner in the joint venture will be Guangzhou Pharmaceutical Company Ltd, a majority state-owned pharmaceutical enterprise which is listed on the Hong Kong and Shanghai stock exchanges. Guangzhou Pharmaceutical Company Ltd currently owns 90% of GP Corp.

Additional information available