Guangzhou Pharma aims high after stake deal

PUBLISHED : Wednesday, 27 February, 2008, 12:00am
UPDATED : Wednesday, 27 February, 2008, 12:00am

Guangzhou Pharmaceutical Corp, a regional drug distributor, aims to become a national leader in five years through closer co-operation with its new shareholder Alliance Boots.

The distribution flagship of dual-listed Guangzhou Pharmaceutical Company said it hoped to boost its national market share to 10 per cent from the current 3.6 per cent by enhancing its partnership with Alliance Boots and looking for possible acquisitions in other regions.

Alliance Boots, a British drug wholesaler and retailer, recently completed a deal to pay 545 million yuan for a 50 per cent stake in the drug distributor.

'The capital injection by Alliance Boots provides financial strength for Guangzhou Pharmaceutical Corp to grasp development opportunities amid consolidation of the whole industry,' said Yang Rongming, chairman of state-owned Guangzhou Pharmaceutical Company.

Mr Yang said the company was in talks with Alliance Boots over original equipment manufacturing, exports of traditional Chinese medicines and on sharing Alliance Boots' exclusive dealership with major drug producers.

An Alliance Boots source said talks related to the launch of Boots products on the mainland would be held in coming weeks.

'We are optimistic and capable of achieving that target,' he said, adding that the company did not rule out acquisitions of competitors in other regions.

Fifty-eight-year-old Guangzhou Pharmaceutical Corp is the nation's fourth-biggest drug distributor after state-owned Sinopharm Medicine, Shanghai Pharmaceutical and the private Jointown Group.

The stake deal with Guangzhou Pharmaceutical Corp marks Alliance Boots' first foray into the mainland market, which the company has identified as one of its top development priorities despite the low profitability of the industry.

Stefano Pessina, executive chairman of Alliance Boots, said the amount of the capital injected was 'small' and said there were no limits to further investment.

The country's wholesale and retail pharmaceutical distribution sector is regionally fragmented and mainly involves supplying hospital pharmacies.

Competition, inefficiency and kickbacks to hospitals and doctors often erode earnings.

The average net profit margin in the industry is less than 1 per cent, compared with 2 per cent in the United States.

Du Jinsong, an analyst at Credit Suisse, said regional acquisitions, rather than organic growth, were the key for Guangzhou Pharmaceutical Company to achieve its target.

'The market is looking forward to seeing the execution of deals,' he said.

Guanghzou Pharmaceutical's H shares closed up 2.18 per cent at HK$6.10 yesterday, while its Shanghai-listed shares rose 1.76 per cent to 15.05 yuan.