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.
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. In addition, 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.
