Consolidation of State-owned Pharmaceutical Firms

News, cover, issue 435, September 7, 2009
Translated by Liu Peng
Original article: [Chinese]

China National Biotec Group (CNBG) will soon be completely incorporated into China National Pharmaceutical Group Corporation (Sinopharm), a source from Sinopharm revealed to EO.

The two pharmaceutical manufacturers are directly administrated by the country's State-owned Assets Supervision and Administration Commission (SASAC).

The source added that the merger has already gotten the nod from SASAC and is now awaiting final approval from the State Council.

CNBG is the leading domestic bio-tech engineering company in China, with annual revenue of 4.9 billion yuan and total assets of 7.6 billion yuan.

The merger will allow Sinopharm to address the current weakness of its manufacturing sector.

"The integration is a good idea," said Yu Mingde, chairman of Chinese Pharmaceutical Enterprises Association. However, he also expressed his concerns over Sinopharm's inexperience in the bio-engineering field.

Founded in late 1998, Sinopharm is a pharmaceutical company that relies on its sales and distribution department which contributes over 80% of the company's 50 billion yuan of annual revenue.
 
The Economic Observer has also learned that Sinopharm will also swallow up the Shanghai Institute of Pharmaceutical Industry (SIPI), a comprehensive research body under the SASAC's control.

SIPI, which was founded in 1957, conducts medicinal research and is also involved in the development, production and marketing of new medicines. Its annual revenues in 2008 reached 910 million yuan and in the same year it achieved a net annual profit of 147 million yuan.

A source from Sinopharm said the restructuring would be completed before the end of this year. Analysts said that the merger of the three companies would enhance Sinopharm's scientific research and medicinal manufacturing capability.

The consolidation of these three centrally-owned firms, is part of SASAC's broader plan to reduce the number of central enterprises from the present 138 to between 80 and 100 by 2010. 

The merger will leave behind three state-owned firms dealing in pharmaceuticals under the control of SASAC. The other two are China General Technology Holding Company (Genertec) - which itself just swallowed up another centrally-owned enterprise called China Xinxing Corporation (Group) that among other interests, also dealt in medical products (see last week's issue wrap) - and the Hong Kong-registered China Resources Medications Group (CRMG), a subsidiary of the huge China Resources conglomerate which is administrated by SASAC.

Huang Dingyi, a well-known domestic pharmaceutical industry expert, believes that a consolidated Sinopharm will, in addition to CRMG and Shanghai Industrial Investment Company (SIIC), a Hong Kong-registered conglomerate, which is fully-funded by the Shanghai Municipality, become one of China's three giant pharmaceutical conglomerates over the next few years.

At present, Sinopharm's subsidiary - Sinopharm Holding Company - is planning to raise some 7 billion Hong Kong dollars via listing on the Hong Kong stock exchange.