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Drug firms need to cut costs to survive
Pharmaceutical wholesalers need to strengthen their logistics capacity and cut costs in order to survive amid the low profit margins in the market, said industry insiders at the China International Medicine Expo on April 27.
"Most of China's drug distributors are on the verge of losing money due to the high distribution cost of pharmaceutical products," said Yu Qinghua, vice chairman of Shanghai Pharmaceutical Co Ltd, the listed arm of China's largest drugmaker, which is also the country's biggest drug wholesaler.
The profit margin for drug distribution is less than 1 percent, said Yu.
"Logistic capacity is the key for drug wholesalers to be successful in the future. That's why we are constructing China's largest drug logistics center as a means to cut costs."
Shanghai Pharmaceutical intends to inject around 186 million yuan (US$22 million) to set up a logistic center in northwest Shanghai.
The center, which started construction at the end of last year, is expected to open next January with a total distribution capacity of up to 15 billion yuan worth of drugs annually.
The planned distribution capacity nearly triples Shanghai Pharmaceutical's current level. When completed, the center will hire about 200 employees, one-third of the number the company now employs to do logistic work.
"The center will help to ease the high-cost burden on us and it will also be open to other drugmakers in 2006 if everything goes smoothly," Mao Yingyi, vice manager of Shanghai Pharmaceutical Logistics Center Co Ltd, added.
The center will distribute over half of the drugs the city needs.
"Several drugmakers outside of Shanghai have indicated their intention to use the center as a channel to distribute their drugs in Shanghai," said Mao.
Wang Guangqing, an analyst with Soochow Securities Co Ltd, said that Shanghai Pharmaceutical's logistic center will set a good example for other drug distributors as they also need to cut costs.
Currently, there are about 12,000 drug wholesalers in the country, nearly half of which are losing money. Small players are the main losers.
"There are too many small wholesalers in China," Wang added. "In the United States, four big drug distributors account for 95 percent of the market share."