State Council News: Great Change of Distribution Enterprise

  • 2019-12-06
December 3, the official website of the State Council issued the Notice on Deepening of Policies and Measures for Reform of Medical and Health System through Centralized Procurement and Use of Drug as a Breakthrough Issued by Leading Group on Deepening Reform of Medical and Health System of the State Council. Where, the sixth part made it clear to promote the construction of a unified and open production and distribution market pattern. In details, it aims to (1) promote fair and orderly market competition, and break up the market segmentation and local protection of medicine products; (2) promote the cross-regional and cross-ownership mergers and reorganizations of production and distribution enterprises; (3) foster a number of internationally competitive large enterprise groups; and (4) accelerate the formation of pattern of drug production and distribution with large backbone enterprises as the mainstay and small and medium-sized enterprises as supplement.

At the 2019 Huaihai Biomedical Industry Development Summit, the relevant person in charge of the Pharmaceutical Logistics Sub-branch of China Federation of Logistics & Purchasing indicated that the concentration ratio of the distribution industry will be higher and higher in the future.

With the continuous implementation of such policies as the two-invoice system for consumables, small instrument distribution enterprises are indeed disappearing or being acquired. In fact, as early as the end of 2016, the Ministry of Commerce of the People’s Republic of China has issued the Development Plan for the National Drug Distribution Industry (2016-2020), indicating that by 2020, a group of large distribution enterprises with a nationwide network, and a high degree of intensification and informatization will be cultivated and formed. The annual sales of the top 100 enterprises account for more than 90% of the total volume of the drug wholesale market. The higher the concentration level of market share, the more distribution enterprises will be phased out.

In addition to the two-invoice system, the procurement of drugs with target quantity is also promoting the increase of concentration in the distribution industry. “Two-invoice system” and procurement of drugs with target quantity have different impacts on the industry. However, the two policies will jointly bring major change of enterprises, increase concentration of industry, and improve compliance and living condition of industry, reflecting the competition for survival of the fittest. The dealer model has been drastically reduced. Manufacturers either choose the commission model, or carry out the integration direct selling. But the latter costs too much, and at last most enterprises will choose the commission model. The distribution and logistics will be entrusted to large commercial distribution enterprises, or to external consulting companies, CSO, etc.

An industry insider also analyzed that the industry reform is the redistribution of benefits, i.e., to distribute part of the benefits that used to belong to enterprises and hospitals to the patients, with great sale by virtue of procurement of drugs with target quantity. Although the sales of consumables and medicines are increasing, the share of total market is decreasing, which is unfavorable for all enterprises.