Companies

Shanghai Pharma heads north

By Yang Ning (China Daily)
Updated: 2011-01-13 13:20

Company moves into Beijing with China Health System stake buy

BEIJING - Shanghai Pharmaceuticals Holding Co Ltd, the country's second-largest drug company by revenue, on Wednesday announced the acquisition of a 65.2 percent stake in China Health System Ltd, the third-largest drug distributor in Beijing, for 2.33 billion yuan ($353 million).

The company said it expected to finalize the deal - China's biggest pharmaceutical industry acquisition - before the end of March.

"This acquisition follows the trend in industry development, and also provides a breakthrough for Shanghai Pharmaceuticals' expansion in northern China," said Lu Mingfang, chairman of Shanghai Pharmaceutical.

At present, China's pharmaceutical industry is relatively fragmented compared with the industry in developed economies.

The current market share of China's top three drug distributors is only 20.7 percent, far lower than 90.7 percent for the three biggest companies in the United States, said the company.

"In order to compete on the global stage, China's largest pharmaceutical players have moved quickly to integrate resources and step up the pace of mergers and acquisitions to consolidate the industry," said Lu. The company said it would also be interested in acquiring pharmaceutical product companies in order to supplement its existing product line.

"We will complete our company's Hong Kong initial public offering by the second quarter of this year and plan to use more than half of the proceeds on mergers and acquisitions," he said.

In September 2010, the company announced its plan to list in Hong Kong in the first half of this year.

On Jan 3, the National Council for Social Security Fund agreed to transfer its shareholding in Shanghai Pharmaceuticals to the H-share market to prepare for the company's Hong Kong IPO.

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These shares account for 10 percent of the fundraising target of the IPO.

Shanghai Pharmaceutical has been actively striking deals during recent years as it seeks to accelerate its expansion.

Since 2010, the company has acquired or signed agreements to acquire nine companies in its effort to expand the geographical coverage of its distribution business.

"All these acquisitions have broadened the company's distribution reach outside of the home base in eastern China and made the company a true national player," said Xu Guoxiong, president of Shanghai Pharmaceuticals.

Its latest acquisition, Beijing-based China Health System, realized 4.3 billion yuan in sales and 100 million yuan profit in 2009 and achieved sales of 6 billion yuan in 2010.

Direct sales to hospitals account for 70 percent of the company's business, with wholesale making up the remainder.

Upon the completion of the acquisition, Shanghai Pharmaceutical, China Resources Medications Group Ltd and Sinopharm Holding Co Ltd will be the major players in Beijing's pharmaceutical market.

In Beijing, sales of medicine products totaled 50.86 billion yuan in 2009, making the city the second-largest pharmaceutical market in the country, according to figures from the China Association of Pharmaceutical Commerce.