In the first three quarters of 2006, the total sales value of top seven medicine merchandises in China amounted to RMB 211.838 billion, up by 8.07% year-on-year, among which, the total sales value of drug reached RMB 156.805 billion, increased by 7.34% over the same period of 2005; total sales value of Chinese traditional patent medicine totaled RMB 37.205 billion, up by 10.06% compared a year earlier.

As for the major sales channels for drug, there are now following four forms: regional general agency, exclusive agency, multi-dealer agency and sales channels established by drug manufacturers. The sales terminals include hospitals at all levels, health centers/clinics and retail drugstores, etc.

Proportion of Sales Revenue by Drug Terminal, Jan-Nov 2006
 

At present, the profit margin of drug wholesalers in USA is very low, the average gross margin, expense ratio and net profit ratio are 4%, 2% and 1.6% respectively, but they can still make profits as a whole owing to the large scale on the average. Nevertheless, for Chinese drug circulation enterprises, the average gross margin is 8.21%, but the average expense ratio is rather high, reaching 7.65%, so the net profit margin is as low as 0.57%, all of which are also ascribed to enterprises lacking of scale effect plus poor management.

Profitability of Drug Wholesalers between China and USA
 

As the emerging medium and low-end drug markets, both rural drug market and urban community medical institutions can bring great opportunities for drug circulation enterprises. Since 2006, China has improved the subsidy standard for the farmers who participate in the new-type rural cooperative medical system, where the central finance has allotted RMB 20 per person per year against RMB 10 in 2005, the local finance has also increased the subsidy by RMB 10, and meanwhile, the personal charging standard of farmers still keeps unchanged at RMB 10. What's more, according to the plan, the test regions of new-type rural cooperative medical system will cover 40% of the counties (cities, districts) all over China in the year of 2006 and will reach 60% in the 2007. Moreover, it will be introduced to all around China in the year of 2008 and then will basically achieve the goal of covering the rural areas by 2010. And this indicates that the launch of the new-type rural cooperative medical system will bring a drug market potential of approximately RMB 45 billion in the next 5 years.

The supervisory and administrative departments of food & drug have established the so called Blacklist System for commercial bribery enterprise in April 2004, which can help to control the distribution of the prescription drug in China. The individual drug distributors with 70% of market shares were forced to retreat from this drug sales channel (hospitals). In order to succeed in the change for marketing mode of prescription drug from traditional brokerage sales to brand building that takes time and energy, the drug enterprises have to take the lead in launching new products by innovation so as to maintain stable profit margins. As a result, the drug enterprises advantageous in sales channels may first get out of the depression.

Based on the advantages and disadvantages of traditional sales channels, the report brings forward some suggestions for the drug makers, distributors as well as the sales terminals. Besides, it gives a research on the new-type drug sales channels and models such as cosmetic drugstore, medical e-commerce, self-established sales channel, and predicts the development trend of sales channels in pharmaceutical industry. Therefore, the report is of great reference value for enterprises that are engaging in or interested in drug production and sales as well as the related enterprises & organizations.

2. Current Status of China Drug Sales Channel
2.1 Development History and Trend
2.1.1 Development History
2.1.2 Development Trend
2.2 Forms of Sales Channel
2.2.1 Regional General Agent
2.2.2 Exclusive Agency
2.2.3 Multi-dealers Agency
2.2.4 Direct Marketing by Drug Producer
2.3 Problems and Causes
2.3.1 Lack of Products and High-quality Services
2.3.2 Serious Problem Exist in Drug Distributors
2.3.3 Construction on Sales Terminals Should Be Strengthened
2.3.4 Severe Conflicts among Drug Sales Channels

3. Industry Chain of Drug Sales Channel
3.1 External Environments
3.1.1 Economic Environment
3.1.2 Politics and Laws
3.1.3 Social Culture
3.1.4 Market Competition
3.2 Internal Environment
3.2.1 Drug Producers
3.2.2 Drug Distributors
3.3.3 Drug Consumers
3.3.4 Drug Marketing Staff

4. Key Enterprises Involved in Drug Operation in China
4.1 China National Medicines Corporation Ltd
4.2 Shanghai Pharmaceutical Co., Ltd
4.3 Huadong Medicine Co., Ltd
4.4 Jinling Pharmaceutical Co., Ltd
4.5 Wuhan Jianmin Pharmaceutical Group Co., Ltd
4.6 Dalian Merro Pharmaceutical Co., Ltd
4.7 Zhejiang Int'l Group Co., Ltd

5. Suggestions and Market Opportunity of China Drug Sales Channel
5.1 Suggestions
5.1.1 Improvement of Drug Producers
5.1.2 Improvement of Drug Distributors
5.1.3 Improvement of Retail Terminals
5.1.4 Solutions to Problems related to Channels in the Bidding System
5.2 Market Opportunity
5.2.1 Rural Drug Sales Channels
5.2.2 Online Drug Sales
5.2.3 New Drug Sales Channels