Distribution, supply chain key to Eli Lilly's China expansion

Eli Lilly ($LLY) CEO John C. Lechleiter says the company has big plans for China, and a significant part of the success it expects there will come from expanding supply chain and distribution.

Lilly is searching for local distribution partners in China, Lechleiter told reporters at a briefing in Beijing, as reported by China Daily. It is part of its "goal to be the fastest growing pharmaceutical company in China," the CEO said. "We are increasing our investments in every aspect of our business."

Lilly's China sales grew by 25% in 2011, faster than the industry average, after it doubled its sales force there across three years, Bloomberg reports Lechleiter saying. He intends to increase Lilly's share of revenue from China by 2%.

He said the company plans to form commercial partnerships with Chinese companies that work in distribution and emerging technologies. The Lilly Asia Ventures, a venture capital fund, is looking for investments, including in distribution. Part of the $60 million the fund has invested in China went into CITIC Pharmaceutical, a Beijing-based drug distributor. Last year, that company was bought out by Shanghai Pharmaceuticals, one of top three state-owned pharmaceutical distributors that control most of drug distribution there.

While China does not allow wholly owned foreign distributors to operate there, some companies have formed partnerships--but not drug companies, China Daily reports.

Frank Guo, research director of the market research company Ipsos, told China Daily, "So far, China's pharmaceutical distribution network has been dominated by a group of domestic large companies, such as Shanghai Pharmaceuticals and China National Pharmaceutical Group, whose profit margins exceed 10 percent, while in developed markets, such as the United States and Europe, it's usually no more than 1 percent." 

But Lechleiter says that to meet the company's expectations there, getting control of drug distribution costs will be necessary.

- read the China Daily story 
- get more from Bloomberg's report