Pfizer Teams With Distributor Jointown To Delve Deeper Into China's Rural Markets

SHANGHAI - Pfizer Inc., like many of its Big Pharma peers is seeking out local Chinese partners to gain access to China's lower-tier cities and rural areas. To that end, the world's largest pharma company recently signed an agreement with China's third-largest pharma distributor Jointown Pharmaceutical Group Co., Ltd. to distribute Pfizer products in markets outside of big cities.

The two companies did not disclose the specific products in the deal, but Pfizer spokesman Xi Qing said the cooperation would "focus on Pfizer's products sold at retail drug stores, clinics and country hospitals."

Jointown is the largest private pharma distributor in China. In the first half of the year, its revenue was up 17.1% to RMB 12 billion ($1.88 billion), far behind the government-owned distributers Sinopharm Group Co. Ltd.'s RMB 48 billion ($7.5 billion) and Shanghai Pharmaceutical Holdings Co. Ltd.'s RMB 25.2 billion ($3.94 billion) (Also see "China's Top Drug Distributors Are Soaring: China Earnings Round Up (Part 2)" - Scrip, 29 Aug, 2011.).

"Jointown has strong coverage at these terminals. The cooperation aims to set a new model of in-depth distribution," said Xi, who noted Pfizer has not been able to cover these markets on its own.

Second Distributor Deal

This is the second deal Pfizer signed with a local distributor. In April, Pfizer announced a memorandum of understanding with SPH to explore business opportunities, including the potential to jointly register, commercialize and distribute in China an innovative compound from Pfizer. The company was also a cornerstone investor of SPH's Hong Kong initial public offering in May and purchased SPH shares worth $550 million (Also see "With Pfizer As Cornerstone Investor, Will Shanghai Pharmaceutical Be Largest Pharma IPO Ever?" - Scrip, 10 May, 2011.).

Pfizer initiated its geographic expansion seven years ago to cover more hospitals in tier-2 cities and launched the Spring Bud Program this year to penetrate into county level hospitals.

In an earlier interview with PharmAsia News, Kevin Xiao, the leader of Pfizer China's Commercial and Diversified Business, noted, "Pfizer is very optimistic about the [rural] market. This market volume may not be as big as [markets in cities] in the short term, but more importantly, we have gathered information and gained experience through geographic expansion and Spring Bud," (Also see "Pfizer China Country Manager Wu Xiaobing And General Manager For Commercial And Diversified Business Kevin Xiao On Expansion To Rural Markets In China: An Interview With PharmAsia News" - Scrip, 11 Apr, 2011.).

The Jointown deal is a steady step forward with the rural expansion plan, marking the company's improved understanding of China's diverse rural markets.

"There are a lot of differences in rural markets such as consumption capacity and physician prescription preference," said Xiao, who leads Pfizer's geographic expansion and flew to Yingcheng City Hubei Province, where Jointown began its business, to sign the agreement.

"We will pick product lines suitable for the channel in the beginning stages, and we wouldn't bring the blockbusters or top sellers in big cities to the rural market," he said.

Pfizer is not the only one to announce partnerships with large scale distributors in China. Merck & Co. is in negotiations with Sinopharm to commercialize Merck's human papillomavirus vaccine Gardasil. The potential deal could also be expanded to promote other Merck vaccines and pharma products in China (Also see "Merck Teams Up With Sinopharm On Vaccines As It Gears Up For Gardasil Approval In China" - Scrip, 29 Jul, 2010.).

Merck affiliate MSD also signed an agreement to form a joint venture with Simcere Pharmaceutical Group that will see both companies expand access to critical lifestyle drugs across China. The JV will initially focus on cardiovascular and metabolic diseases, and will market products from both companies' portfolios (Also see "Merck, Simcere Form JV To Expand Access To Lifestyle Drugs Across China" - Scrip, 22 Jul, 2011.).

Jointown Prefers Organic Growth

Jointown's private status makes it more difficult to acquire local distributors, most of which are backed by local governments, than its major competitors Sinopharm and SPH. And increasing acquisition costs and a slow integration process have steered the company toward organic growth.

"Because the merger and acquisition valuation on the market is too high, it is impossible for our company to make an acquisition with more than 25-times P/E," Kevin Gu, Jointown's VP, said in a Citi Healthcare conference in Hong Kong Sept. 6. "Therefore, we don't have a large scale acquisition plan."

According to Gu, Jointown will partner with local distributors to penetrate new areas. The company is also planning to increase its 45 distribution centers to 60-80 centers to cover all provinces in China except for Tibet.

The company is also expanding beyond its core pharma distribution business into medical devices, active pharmaceutical ingredients and intermediates, traditional Chinese medicine and technology services. Its medical devices business is focused on distributing medical consumables, which enjoyed a 60-90% growth in the past few years, and has become the largest consumable distributor in China, according to the company.

-Dai Jialing ([email protected])