China Pharmaceutical Industry Report (Merger and Reorganization), 2006-2007
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During the Tenth Five-Year Plan period (2001 to 2005), each indicator of the whole pharmaceutical industry greatly exceeded the scheduled; and the industrial output value, industrial added value and total profits more than doubled those of the Ninth Five-Year Plan.

In 2005, the gross output value of China's pharmaceutical industry increased by RMB 263.7 billion over 2000 to RMB 450.8 billion, an average annual growth of 19.2% from 2000 to 2005; the industrial added value rose by RMB 93.4 billion to RMB 160.6 billion, an average annual growth of 19.0%; the sales revenue rose by RMB 251 billion to RMB 427.1 billion, an average annual growth of 19.4%; the profits summed up to RMB 36.1 billion, up RMB 21.8 billion with an average annual growth of 20.4%. In the first half of 2006, the whole pharmaceutical industry kept growing at a higher rate. By the end of July, the accumulated sales revenue amounted to RMB 256.98 billion, a year-on-year increase of 18.91%.

Main Economic Benefit Indicators of Pharmaceutical Industry, H1 2006


Up to now, the economic structure of China pharmaceutical industry has been further improved and regional economy is developing well. Pharmaceutical enterprises are accelerating the organization structure adjustment and enlarging their scales via recombination and shareholding reform, and nearly 130 have now been listed in Shanghai and Shenzhen stock exchanges. The proportion of production value of shareholding economy accounted for 47.4% in 2005, rising from 35.6% in 2000; the state-owned economy declined from 29% to 7.48% and the three forms of foreign-funded economy ascended to 27.2%. In 2004, 9 large-scaled domestic pharmaceutical enterprises achieved the sales revenue of over RMB 5 billion; 2 large-scaled medical device enterprises achieved the sales revenue of over RMB 1 billion. In addition, 3 nationwide medicine retail chain enterprises has established more than one thousand outlets and 27 retail chain enterprises have owned hundreds of outlets.

A large amount of small and medium-sized enterprises still exist in China, along with low R&D cost, shortage of self-developed intellectual property rights and inferior technology. Most importantly, this situation will not last for a long period, which is determined by the industrial inborn high demands in technology, capital and R & D. Pharmaceutical industry is destined to be full of fierce competition due to its demanding technology, high capital intension and profitability. Recently, batch of domestic non-medicine listed companies stepped into pharmaceutical industry, and meanwhile, foreign-funded enterprises also surged into China. There are now more than 1800 joint-ventured pharmaceutical enterprises, and over 20 of world top 25 pharmaceutical multinationals entered into China. China’s high-end pharmaceutical markets are mostly occupied by multinationals or their invested enterprises in China, which forces the domestic pharmaceutical enterprises to perform constant reform and integration so as to improve the concentration degree and competitive ability. Therefore, inner-industry or cross-industry merger and reorganization will come out successively, and most small & medium-sized enterprises will be washed out finally. Along with the constant rapid growth of GDP and ever-improving living standards, the pharmaceutical consumption will increase accordingly, so there is a huge potential in China pharmaceutical industry. However, the consumption of Chinese people in healthcare is not that high, which indicates the market potential instead. Foreign-funded enterprises mainly orient at metropolis due to the restrictions in product, market strategy and resources, while domestic enterprises are dominant in small and middle-sized cities and rural areas. China may become the 5th largest pharmaceutical market in the world for the future. 

There are currently more than 4000 pharmaceutical companies in China, but lack of group/scale enterprises, and even more, they are far less competitive than large-scale counterparts in developed countries. Besides, a wide gap exists in China urban and rural pharmaceutical markets, and moreover, along with the further penetration of rural cooperative medical system, the rural market will be more expansive. The status quo of China's pharmaceutical market paved the way for foreign-owned enterprises to enter China; many international pharmaceutical enterprises take an optimistic attitude at the opportunity to exploit the market at low cost in China. With the growing foreign-capital investment and rapid rising of reform and reorganization among domestic enterprises, it is a short cut for domestic pharmaceutical enterprises to establish a sound competitive cooperation in order to get rid of competitive crisis and enhance competitiveness.

After a few years of merger and reorganization, especially the recent compulsive implementation of GMP and GSP certifications, the number of Chinese pharmaceutical enterprises reduced dramatically from 6700 to current 3600. However, such problems as smaller scales and repetitive construction are still quite serious. As a result, it is inevitable to establish several large-scale groups in this area via M & A so as to compete with foreign pharmaceutical giants. For instance, Taiji Industry (Group) Co., Ltd. acquired Chongqing Traditional Chinese Medicine Co., Ltd (Tongjunge), Shanghai Pharmaceutical (Group) Co., Ltd purchased Shandong Xinhua Pharmaceutical Co., Ltd, and Topsun Group acquired Hubei Qianjiang Pharmaceutical Co., Ltd. According to related procedures of Chinese government, the domestic medicine distribution service has been open to foreign wholesalers and retailers since January 2003.

Aiming at the market expansion, enhancement of strength and rapid entry into biopharmaceutical industry, merger and reorganization among bio-tech companies or large-scale pharmaceutical enterprises, or between bio-tech companies and large pharmaceutical enterprises are continuously carried out around the globe. And the features are as follows: international large pharmaceutical companies perform constant combination, merger and reorganization, which results in an ever-enlarging enterprise scale and trade value; traditional medical companies or biopharmaceutical companies acquire bio-tech companies. But the multinationals mainly targets at obtaining new technology by merger, and the M&A made a large sum of capital flow into R&D and industrialization in biopharmaceutical. Strategic alliance has become the development mode of pharmaceutical industry.

1. Analysis on China Pharmaceutical Industry   
1.1 Status Quo   
1.1.1 Development Status  
1.1.2 Innovation Ability  
1.1.3 Barriers to Entry  
1.2 Investment in China Pharmaceutical Industry   
1.2.1 Fixed Assets Investment and Income  
1.2.2 R&D Investment and Scale   
1.3 Supply and Demand of China Pharmaceutical Market  
1.3.1 Supply   
1.3.2 Demand  
1.3.3 Import and Export 
1.4 Policy Environment of China Pharmaceutical Industry   
1.4.1 Macroeconomic Policies  
1.4.2 Industrial Policies   
1.4.3 Market Access Policy   

2. Segmented Market of China Pharmaceutical Industry   
2.1 Chemical Pharmaceutical Industry   
2.1.1 Overview   
2.1.2 Market Competition   
2.1.2 Investment Income and Risks   
2.2 Traditional Chinese Medicine Industry   
2.2.1 Overview   
2.2.2 Market Competition  
2.2.3 Investment Income and Risks  
2.3 Bio-pharmaceutical Industry   
2.3.1 Overview and Characteristics   
2.3.2 Market Competition   
2.3.3 Investment Income and Risks 
 
3. Status Quo of Merger & Reorganization of China Pharmaceutical Industry  
3.1 Background   
3.2 Characteristics   
3.3 Barriers  
3.4 Development Trend   

4. Analysis on China's Major Pharmaceutical Enterprises  
4.1 China Beijing Tongrentang Group Co., Ltd.   
4.1.1 Production & Distribution Capacity   
4.1.2 Operation Status  
4.1.3 Development Strategy   
4.2 Taiji Pharmaceutical Co., Ltd.   
4.2.1 Production & Distribution Capacity   
4.2.2 Operation Status  
4.2.3 Development Strategy   
4.3 Neptunus Bioengineering Co., Ltd.   
4.3.1 Production & Distribution Capacity   
4.3.2 Operation Status  
4.3.3 Development Strategy   
4.4 North China Pharmaceutical Group Corporation  
4.4.1 Production & Distribution Capacity   
4.4.2 Operation Status  
4.4.3 Development Strategy   
4.5 Harbin Pharmaceutical Group   
4.5.1 Production & Distribution Capacity   
4.5.2 Operation Status  
4.5.3 Development Strategy   
4.6 Northeast Pharmaceutical Group Co., Ltd.   
4.6.1 Production & Distribution Capacity   
4.6.2 Operation Status  
4.6.3 Development Strategy   
4.7 Shandong Lukang Pharmaceutical Group Co., Ltd.   
4.7.1 Production & Distribution Capacity   
4.7.2 Operation Status  
4.7.3 Development Strategy   
4.8 Nanjing Pharmaceutical Co., Ltd.   
4.8.1 Production & Distribution Capacity   
4.8.2 Operation Status  
4.8.3 Development Strategy   
4.9 Shanghai Pharmaceutical Co., Ltd.   
4.9.1 Production & Distribution Capacity   
4.9.2 Operation Status  
4.9.3 Development Strategy   
4.10 Beijing Double-Crane Pharmaceutical Co. Ltd.  
4.10.1 Production & Distribution Capacity   
4.10.2 Operation Status  
4.10.3 Development Strategy   
4.11 Hangzhou Huadong Medicine Group Co., Ltd.   
4.11.1 Production & Distribution Capacity   
4.11.2 Operation Status  
4.11.3 Development Strategy   

5. Analysis on Merger & Reorganization Cases of Domestic-funded Enterprises 
5.1 Taiji Pharmaceutical Co., Ltd Acquired Chongqing Traditional Chinese Medicine Co., Ltd.   
5.1.1 Background   
5.1.2 Course  
5.1.3 Value   
5.2 Beijing Double-Crane Pharmaceutical Co. Ltd Merged Kunshan General Pharmaceutical Factory   
5.2.1 Background   
5.2.2 Course  
5.2.3 Value   
5.3 Topsun Group Acquired Hubei Qianjiang Pharmaceutical Co., Ltd.   
5.3.1 Background   
5.3.2 Course  
5.3.3 Value   
5.4 China Resources Enterprise Limited Acquired Shares of Shandong Dong-e E-Jiao Group   
5.4.1 Background    
5.4.2 Course  
5.4.3 Value   
5.5 Shanghai Pharmaceutical (Group) Co., Ltd. Incorporated Shandong Xinhua Pharmaceutical Co., Ltd   
5.5.1 Background   
5.5.2 Course  
5.5.3 Value   
5.6 Harbin Pharmaceutical Group Acquired Harbing Third Traditional Chinese Medicine Factory   
5.6.1 Background   
5.6.2 Course  
5.6.3 Value   
5.7 Other Merger & Reorganization Cases  
5.7.1 Harbin Pharmaceutical Group Became the Controlling Shareholder of Sanchine 
5.7.2 Lenovo Stepped into Pharmaceutical Industry   
5.7.3 America Vivo Company Acquired Shares of Hisun 
 
6. Investment and Merger & Reorganization of Foreign-funded Pharmaceutical Enterprises in China   
6.1 Pfizer Pharmaceutical Ltd.  
6.1.1 Investment  
6.1.2 Merger and Reorganization   
6.2 GSK(GlaxoSmithKline)   
6.2.1 Investment  
6.2.2 Merger and Reorganization   
6.3 America Wyeth-Ayerst Pharmaceuticals   
6.3.1 Investment   
6.3.2 Merger and Reorganization   
6.4 Switzerland Roche Pharmaceuticals    
6.4.1 Investment    
6.4.2 Merger and Reorganization   
6.5 Johnson & Johnson Pharmaceuticals   
6.5.1 Investment  
6.5.2 Merger and Reorganization 
6.6 Germany Bayer Company  
6.6.1 Investment  
6.6.2 Merger and Reorganization 
6.7 Bausch & Lomb  
6.7.1 Investment  
6.7.2 Merger & Reorganization   

7. Merger and Reorganization Opportunities of China Pharmaceutical Industry 
7.1 Among Pharmaceutical Enterprises  
7.2 Between Pharmaceutical Enterprises and Upper-stream Enterprises  
7.3 Between Pharmaceutical Enterprises and Down-stream Enterprises
Sales Revenue and Profit Growth of Pharmaceutical Industry, Feb 2005-Jun 2006
Changes of Sales Cost in Pharmaceutical Industry   
Statistics of Administrative & Financial Costs in Pharmaceutical Industry 
Contrast of Import and Export of Pharmaceutical Products, 2004 and 2005 
Influence on Pharmaceutical Industry Chain Brought by Related Supervision Policies Recently Issued by Chinese Government   
Sales value and Proportion of Sub-Pharmaceutical industries, 2005  
Profit Margin Contrast between API and Chemical Preparations  
Profit Margin Contrast between Slice of Traditional Chinese Medicine and Chinese Patent Medicines  
Influences of Breaking Vaccine Circulation Market Monopolization Pattern  
Comparison of Profit Margin in Biopharmaceutical Industry   
Share Structure of Tongrentang  
Operation of Tongrentang Group Co., Ltd, 2004-2005  
Operation of Taiji Industry (Group) Co., Ltd, 2002-2005  
Operation of Tongjunge Holding Co., Ltd, 2001-2005 (Unit: RMB/ thousand)  
Shares Held by Taiji Industry (Group) Co, Ltd., 2001-2006  
Operation of Neptunus Bioengineering Co, Ltd 
Operation of NCPC, 2004-2005  
Operation of Harbin Pharmaceutical Group, 2001-2005  
Operation of Northeast Pharmaceutical Group Co., Ltd, 2003-2005  
Operation of Shandong Lukang Pharmaceutical Group Co., Ltd, 2003-2005  
Operation of Nanjing Pharmaceutical Co., Ltd, 2001-2005  
Operation of Shanghai Pharmaceutical Co., Ltd, 2001-2005  
Operation of Beijing Double-Crane Pharmaceutical Co. Ltd, 2001-2005  
Operation of East China Pharmaceutical (Group) Co., Ltd, 2001-2005  
Shareholders' Share Proportion before and after the Shareholding Reform of Hubei Qianjiang Pharmaceutical Co, Ltd  
Flow Chart of OEM Medicines   
Main Economic Benefit Indicators of Pharmaceutical Industry, H1 2006 
Prime Operating Revenue of Shandong Lukang Pharmaceutical Group Co., Ltd by Product

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