The Zhitong Finance App learned that SDIC Securities released a research report saying that after 2017, under the influence of the two-vote system and collection, industry concentration showed a further upward trend. Data from the Ministry of Commerce showed that the market share of the top 100 domestic pharmaceutical distribution companies in 2022 was 75.2%. Compared with the 96% market share of the top three US pharmaceutical distribution companies in 2015, there is still a lot of room for improvement in the domestic distribution industry concentration. It is worth noting that the new round of state-owned enterprise reform also emphasizes specialized integration in the medical and health sector. The pharmaceutical distribution industry is heavily state-owned assets. Driven by superposition policies, the trend of mergers and acquisitions of domestic pharmaceutical distribution companies is expected to further accelerate as of 2024, and the concentration of leaders may further increase.

In terms of the layout of the upstream pharmaceutical industry, commercial companies rely on their channel advantages, and the integrated layout of R&D, production and marketing is expected to achieve rapid expansion of new varieties produced by themselves. Currently, the Shanghai pharmaceutical innovation pipeline has entered the harvest period, and the company has many well-known traditional Chinese medicine brands, and the new drug+specialty traditional Chinese medicine layout is expected to fully empower the pharmaceutical industry; Liu Yao Group mainly focuses on traditional Chinese medicine in the industrial sector. The company's traditional Chinese medicine business has performed brilliantly in recent years. Its subsidiaries Xianju Traditional Chinese Medicine Technology, Xianju Pharmaceutical, Kangsheng Pharmaceutical, Wantong Pharmaceutical, etc. form the company's pharmaceutical industry system; Kangzhe Pharmaceutical's commercialization advantages are expected to ensure that the commercialization process of innovative varieties is realized one after another.

In terms of pharmaceutical brand operations, with the rapid growth in the scale of the new drug market, demand for CSO services from Biotech with insufficient commercialization capabilities and MCN with weak domestic markets is expected to drive the rapid development of the domestic specialized CSO industry. At present, brand operations have become the core growth point of Baiyang Pharmaceutical, contributing more than 80% of the company's gross profit; in the context of digital transformation and upgrading, Kyushu Express relied on general brand promotion business to create the second growth pole, and the 2023Q1-3 company achieved a rapid increase in revenue and gross profit; Shanghai Pharmaceuticals introduced 29 total imported varieties in 2023, imported vaccine agents achieved sales revenue of about 5.2 billion yuan/ +19%, and pharmaceutical CSO sales of about 2.9 billion yuan/ +50%. It has reached CSO contracts with Sanofi for more than 20 products.

In terms of expanding the downstream retail layout, benefiting from the “dual channel” and “outpatient coordination” policies, the US intranet data shows that the sales volume of physical pharmacies and online pharmacies in China reached 872.5 billion yuan in 2022 based on the average retail price of terminals. By sector, benefiting from the “Internet+Drug Circulation” and “Internet+Health Insurance Service” policies, “new retail” has arrived at an accelerated pace. According to the data of the Internet, online and offline pharmacies presented a “37 pattern” in 2022. Typical companies with retail business layouts in the distribution industry include Sinopharm Holdings & Sinopharm, Jiuzhou Express, Shanghai Pharmaceutical, etc. The total number of National University pharmacies that are compatible with China Pharmaceutical Holdings and its subsidiary Sinopharm has exceeded 12,000; Jiuzhou Dao Good Pharmacist stores are expected to exceed 30,000 by 2025; Shanghai Pharmaceutical's Shangyao YunHealth has 200+ DTP pharmacies and authorized hospital side stores, covering 25 provinces and 66 cities across the country.

It is recommended to focus on the targets: Sinopharm Holdings (01099), Shanghai Pharmaceutical (601607.SH), China Resources Pharmaceuticals (03320), Kyushu Express (600998.SH), Sinopharm (600511.SH), Sinopharm Coherence (000028.SZ), Heavy Pharmaceutical Holdings (000950.SZ), Liu Pharmaceutical Group (), Baiyang Pharmaceutical (301015.SZ), Runda Healthcare (US), Kangzhe Pharmaceutical (00867). 603368.SH 603108.SH

Risk warning: The reform process of state-owned enterprises falls short of expectations; the risk of increased competition in the pharmaceutical distribution industry; the risk that distribution companies' new business development falls short of expectations.