Eli Lilly searching for local partners in distribution

Updated: 2012-03-21 07:40

By Liu Jie (China Daily)

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Eli Lilly and Co is looking for local distribution partners in China as part of a plan to support its development in China.

Analysts said the move marks Lilly as the first international drug company aiming to enter China's drug distribution sector.

John C. Lechleiter, the company's chairman, president and CEO, said on Tuesday that the Chinese market is still "fragmented and fast changing". He said Lilly intends to form commercial partnerships when the time is right with Chinese companies that work in distribution and emerging technologies.

He also said that Lilly Asia Ventures - a venture capital fund that was established by the company in 2007 and that concentrates on the biopharmaceutical industry in China - is now working in a wide range of businesses, including drug distribution.

Since 1998, the US drugmaker has invested $300 million in research and development, manufacturing and sales networks in China.

Lilly Asia Ventures, for its part, has made eight investments and spent nearly $60 million in China. It put money into CITIC Pharmaceutical - a Beijing-based drug distributor - in 2008. Last year, the company was bought by Shanghai Pharmaceuticals Holding Co Ltd, one of the top three State-owned medicine distributors in China, for 4 billion yuan ($633 million).

Drug-distribution companies that are wholly funded from foreign sources may not establish themselves in China. Even so, some international companies of that type have managed to enter the country through the formation of joint ventures with their Chinese counterparts.

No drugmaker, though, has done so.

"It (a commercial partnership with local distributors) makes sense," said Frank Guo, research director of the market-research company Ipsos Healthcare China.

"So far, China's pharmaceutical distribution network has been dominated by a group of domestic large companies, such as Shanghai Pharmaceuticals and China National Pharmaceutical Group Corp, whose profit margins exceed 10 percent, while in developed markets, such as the United States and Europe, it's usually no more than 1 percent," Guo said.

He said that having distribution channels will give Lilly a means of reducing its costs and becoming more efficient.

As the Chinese government works to reduce drug prices and provide affordable medical care for the country's 1.3 billion residents, pharmaceutical companies are faced with pressures to reduce their costs and maintain their profit margins. Many Chinese now complain that foreign drugmakers are earning fat profits in China by selling expensive products.

"Price should not be the only consideration when (we are talking about) saving money and reducing medical costs," Lechleiter said.

He said attention should also be paid to the quality of medicine, the proper use of therapy and the development of new drugs to cure diseases that cannot be treated now.

Lilly has seen its sales in China increase by 20 percent each year for the last 10 years. Last year, its China sales increased by 25 percent year-on-year, compared with 5 percent globally.

The company served 1.1 million patients in China last year, and its business in the country accounted for about 2 percent of its global business, a number that had increased little from 2010.