Nanjing Medical: Expanding Continually        

Nanjing Medical Co., Ltd. (Nanjing Medical, SH: 600713) was set up in January 1994 with the approval of the System Reform Commission of Nanjing Municipality in the form of oriented placement on the basis of its predecessor Nanjing Medical Company, founded in 1951. On June 1st, 1996 it was listed on Shanghai Stock Exchange. There are four main services in this company: the pharmacy trust (purchasing drugs for hospitals as an agent), cash sales and rapid dispositions, retail sales and pharmaceutical industry. And it manages lots of products, such as bulk pharmaceuticals, chemical medicine preparations, antibiotics, biochemistry drugs, chemical additives. Psychotropic drugs, narcotic and medical poisons are also in its service range.
   The long circulation chain in the Chinese medicine industry not only leads to a false high price of drugs but also hinders the concentration of the industry. Therefore, shortening the circulation channel of drugs is a development trend. The status of the medicine circulation enterprises in industries is determined by their scale. Some medicine circulation enterprises with abundant capital tried to enhance their core competitiveness through annexation purchase and industry integration, using property rights, product and market network. Nanjing Medical is such a cross-regional medicine circulation company developed from a regional medicine circulation enterprise by external expansion, with service covering many areas including Jiangsu, Anhui, Fujian, Shandong, Henan provinces and so on.
   In March 2007, Nanjing Medical purchased Xuzhou Pharmaceutical Co., Ltd. and developed the cash sale and rapid disposition service in Huai Hai Medical Co., Ltd. which is a subordinate branch of Xuzhou Pharmaceutical, so its market share was further expanded in the north of Jiangsu province and the coastal economical belt. Pharmacy trusteeship of the company was mainly open to the second-level hospitals, and it has signed the pharmacy trusteeship agreement with more than 150 hospitals; the pharmaceutical industry mainly distributed in Nanjing province, for example, Tongrentang Pharmacy and Hencer Pharmacy.
   At present, traffic of the pure/simple vending of the company (sale drugs to hospitals directly) is almost the same as the cash sale's (cash transaction service). In 2009, the traffic of pure/simple vending will maintain in a stable number while the cash sale and rapid disposition business will speed up development quickly. Since purchasing Xuzhou Pharmaceutical, the scale of the cash sale and rapid disposition of the company will be continually expanded in 2009 with an estimated growth at 30%. To charge the trusteeship of Xinjiang Production and Construction Corps has been negotiated, and that will be helpful for the company to enter the Xinjiang market quickly to develop local cash sale and rapid disposition services.
   Nanjing Medical can centrally issue a great quantity of purchase orders from production enterprises to get preferential prices for its trusteeship hospitals. But the hospitals' bargaining capability is strong while the purchasing price of the drugs is relatively high, therefore, the profit of trusteeship business is limited (with a gross profit rate of only 5% in pure/simple vending), and there is no superiority compared to the pure/simple vending business of Shanghai Pharmaceutical Co., Ltd. and Huadong Medicine Co., Ltd. And the profit growth of pharmacy trusteeship is determined by the gradually perfected integration of the supply chain to a great degree, namely centralized purchasing and collective distribution. Since November 2008 the company has strengthened the integration of the supply chains, eliminating small suppliers, and reducing various products with low efficiency referring to the established catalogues of suppliers and products. Although this may lower income, it also can compress inventory, decrease capital occupancy, and can hopefully improve the gross profit rate. Also, the integration of the supply chain will be promoted in 2009, increasingly enhancing the autonomy of suppliers and product purchasing; the new ERP (enterprise resource planning) system platform was developed, capable of interacting with the ERP systems of its sub-companies. Based on this, the management center of the supply chain was established. The control power for suppliers, customs and sub-companies was enhanced by encoding them. This measure is the development trend for medicine business in the future.
   At the same time, the OEM (original equipment manufacturer) service of the company continually expands, some entrustment suppliers make normal drugs and sell them under the Ningjing Medical's brand, and it also sells general medicine through the network. The gross profit rate of OEM service in 2008 was nearly 40%, with a revenue of RMB100 million. The varieties will continue to expand in 2009 based on the 200-300 varieties at present.