23 Chinese Pharmaceutical Distribution Companies Report Combined Accounts Receivable of RMB 293.7 Billion as of Q3 2024

As ofBy the end of the third quarter of 2024, accounts receivable for 23 domestic pharmaceutical distribution enterprises reached RMB 293.7 billion.

The pharmaceutical distribution industry is a typical capital-intensive sector. On one hand, when purchasing from upstream suppliers, pharmaceutical distributors often adopt cash-on-delivery or high-ratio prepayment methods to secure greater discounts, rebates, and lower purchase prices. On the other hand, when selling products to downstream customers, these distributors typically offer certain credit periods for sales on account.

Therefore, the strength of self-owned capital determines the business scale and growth potential of pharmaceutical distribution enterprises, making cash flow a core competitive indicator for their operational development.

When accounts receivable are high and cash inflows decline, both the strategic planning and operational initiatives of pharmaceutical distribution enterprises are affected. Why have accounts receivable at pharmaceutical distribution companies repeatedly hit record highs in recent years? What impact do elevated accounts receivable have on corporate strategy? What measures have pharmaceutical distribution enterprises taken respectively?

Among numerous pharmaceutical distribution enterprises, SPH has the highest accounts receivable, amounting to RMB 83.07 billion. In fact, as China’s second-largest pharmaceutical commercial enterprise, SPH’s total accounts receivable have consistently ranked among the highest. For instance, its accounts receivable stood at RMB 72.034 billion at the end of 2023 and RMB 66.76 billion at the end of 2022, representing a three-year growth rate of approximately 42.96%.

It should be noted that downstream customers in the pharmaceutical distribution sector are primarily public hospitals and healthcare service providers. These institutions maintain strong credit profiles, demonstrate favorable post-period collection performance, and carry an extremely low risk of actual bad debt occurrences. For instance, at Shanghai Kaikai Industry Co., LTD., accounts receivable aged within one year accounted for approximately 99.8% of total accounts receivable, with a collection completion rate exceeding 99% for such receivables. Similarly, the bad debt provisions for accounts receivable aged within one year at companies such as Lu Yan Pharmaceutical, Zhejiang Zhenyuan, Dajiaweikang, and First Pharmacy were 0.5%, 5%, 0.25%/5%, and 5%, respectively.

(Bad Debt Provisions for Accounts Receivable with Different Aging Periods by Each Enterprise)

According to statistics, Yaoyigou is the pharmaceutical distribution enterprise with the highest three-year growth rate in accounts receivable, reaching 1429.98%. It is followed by Kaikai Industry, Sinopharm Group Co., Ltd., Liuyao Group, and Sinopharm Accord, with rates of 384.49%, 77.6%, 61.05%, 56.83%, and 51.17%, respectively.

By examining high-growth companies such as Yaoyigou and Shanghai Kaikai Industry Co.,LTD., we have identified the reasons behind the continuously accelerating growth of accounts receivable among pharmaceutical distribution enterprises.

First, the rapid growth of emerging businesses and pharmaceutical wholesale operations, driven by credit sales models, has led to elevated accounts receivable.Taking Yao Yi Gou, which primarily focuses on pharmaceutical distribution services for the out-of-hospital market, as an example, its accounts receivable grew from RMB 27 million in 2021 to RMB 123 million in 2023, reaching RMB 421.3 million by the third quarter of 2024.

This is because Yaoyigou PlusAggressively Expand Online Retail Business. In 2022, brands under Yaoyigou, including Health Home Chain, Kanglekang Chain Pharmacy, and Chongqing Yao Damai Pharmacy, successively obtained B2C pharmaceutical sales permissions on major internet platforms. Meanwhile, Yaoyigou also leveraged the Douyin platform to develop its live-streaming e-commerce business for over-the-counter (OTC) drugs. Among them,Subsidiaries under Yao Yigou, such as Chongqing Yaodamai and Jingcheng Mingyi, all operate on a credit sales model, leading to an increase in accounts receivable at year-end.。

In 2023, Yaoyigou’s online retail business experienced rapid growth. The increase in credit sales under the subsidiaries Chongqing Yaodamai and Jingcheng Mingyi, coupled with a rise in credit sales to some of Yaoyigou’s new customers, led to a significant increase in accounts receivable. According to the financial report, Yaoyigou’s pharmaceutical retail (online) business revenue increased by 269.51% year-on-year in 2023.

In addition, the growth of Yaoyigou’s traditional pharmaceutical business has also contributed to the increase in its accounts receivable. In 2022, the revenue from Yaoyigou’s pharmaceutical wholesale (commercial distribution) business increased by 23.7% year-on-year. In 2023, the revenue from this business grew by 21.26% year-on-year.

In addition to online retail, pharmaceutical distribution companies are also expanding their SPD businesses.For example, Shanghai Kaikai Industry Co.,LTD.'s accounts receivable increased from RMB 97 million in 2021 to RMB 470 million by the end of the third quarter of 2024, primarily due to the rapid growth in revenue from its regionalized SPD business.

SPD is an integrated management model for hospital-wide medical supplies. Specifically, SPD involves the comprehensive planning of procurement, inventory, distribution, and consumption management, adhering to the principle of “letting logistics handle logistics and clinical staff focus on clinical care.” Supported by technologies such as informatization and the Internet of Things (IoT), it enhances logistical efficiency and reduces management costs. Through SPD, hospitals can achieve refined supply chain management, full-process traceability of high-value consumables, significant reduction in logistics management costs, and improved efficiency in medical supplies management.

In the past, the management of in-hospital medical supplies was relatively extensive and inefficient, which not only increased hospital expenditures and burdened medical staff but also impaired the efficiency of supply chain operations. Leveraging the advantages of the SPD model, the trend toward smart hospital development, and supportive policies, an increasing number of hospitals are beginning to procure SPD services.

In 2021, Shanghai Kaikai Industry Co.,LTD. began to lay out its SPD business and initially constructed a regionalized SPD model. In 2022, the company advanced the bidding and launch of its SPD system, completed the development and testing of multiple information systems such as logistics ERP and warehouse management systems, and established a supply chain collaboration platform and a business intelligence system. Driven by simultaneous R&D and promotion efforts, Shanghai Kaikai Industry Co.,LTD.’s SPD business generated RMB 35 million in revenue in 2022, while also refining its products, thereby laying the foundation for subsequent high growth.

In 2023, leveraging its product advantages, Shanghai Kaikai Industry Co.,LTD. rapidly promoted its integrated in-hospital SPD system, successfully achieving full deployment across 27 district-affiliated medical institutions. Thanks to these measures, the company’s SPD business generated RMB 250 million in revenue that year. In 2024, Kaikai Industry’s SPD business continued its strong momentum. According to financial reports, the business achieved RMB 319 million in revenue during the first three quarters of 2024.

According to announcements by Shanghai Kaikai Industry Co.,LTD., the sales settlement model and credit policy for its regionalized SPD (Supply, Processing, and Distribution) business are as follows: Medical devices are settled based on outbound consumption, with daily clearing and monthly reconciliation. The settlement model is determined through tiered management according to the scale of medical institutions, while credit terms ranging from 3 to 12 months are granted based on the hierarchical classification of these institutions.

Consequently, as the regional SPD business transitioned from its initial phase to a period of rapid growth, Shanghai Kaikai Industry Co.,LTD. saw a swift increase in sales revenue from regional public institution clients with strong credit profiles, leading to a substantial rise in its accounts receivable. Data shows that accounts receivable related to the SPD business amounted to RMB 28.33 million in 2022, whereas this figure reached RMB 338 million in the first three quarters of 2024.

(Regional SPD Business Revenue and Book Value of Accounts Receivable of Shanghai Kaikai Industry Co.,LTD.)

Not only Shanghai Kaikai Industry, but also distribution enterprises such as SPH, Jointown Pharmaceutical Group, China Resources Pharmaceutical, Sinopharm Holding, and Guoke Hengtai are vigorously developing SPD businesses and have achieved significant results.

Second, under policy reforms, industry concentration continues to rise, leading to steady expansion by leading pharmaceutical distribution enterprises and a corresponding increase in accounts receivable.. According to the "2023 Statistical Analysis Report on the Operation of the Pharmaceutical Distribution Industry" recently released by the Ministry of Commerce, market concentration in the pharmaceutical distribution industry is steadily increasing.

In 2023, the year-on-year growth rate of the core business revenue of the top five pharmaceutical wholesale enterprises reached 9.6%, which was 2.1 percentage points higher than the industry average. Moreover, the core business revenue of these five enterprises accounted for 51.3% of the total size of China's national pharmaceutical market during the same period, representing a year-on-year increase of 1.5 percentage points. From the perspective of market share, the concentration of pharmaceutical wholesale and retail enterprises continues to rise.

This trend is also reflected in accounts receivable, where those of leading enterprises have grown in tandem with their revenue. For instance, SPH’s accounts receivable increased from RMB 58.1 billion in 2021 to RMB 72.9 billion in 2023, representing a growth rate of approximately 25.51%. During the same period, the revenue of its pharmaceutical distribution segment rose from RMB 190.7 billion to RMB 234.0 billion, a growth rate of about 22.7%. Thus, although accounts receivable increased by approximately RMB 14.8 billion, this growth was nearly synchronous with revenue expansion, remaining within a safe and controllable range.

For another example, Sinopharm Accord, which ranks among the top, saw its accounts receivable increase from RMB 15.96 billion in 2021 to RMB 18.16 billion in 2023, a growth rate of approximately 13.75%; during the same period, its pharmaceutical commercial revenue grew from RMB 68.3 billion to RMB 75.4 billion, representing a growth rate of about 10.4%.

Furthermore, factors such as medical insurance reimbursement and local government fiscal conditions also affect the accounts receivable of pharmaceutical distribution enterprises.

Although within a safe range, excessively high accounts receivable have still raised concerns among many industry insiders. After all, high levels of accounts receivable reduce corporate cash flow, hinder certain expansion initiatives, and introduce operational risks.

Meanwhile, although downstream customers maintain good creditworthiness and their payment capability is relatively assured, the collection cycle exerts certain pressure, resulting in financial strain for the enterprise. Consequently, on-hand cash flow will also influence the company’s expansion decisions.

In light of this, pharmaceutical distribution companies have begun to manage accounts receivable and make strategic adjustments in response to changes in the current industry and competitive landscape.

Jointown Pharmaceutical Group is the largest private pharmaceutical commercial enterprise in China.，Ranked fourth among pharmaceutical commercial enterprises in China. In 2023, Jointown Pharmaceutical Group fully launched its strategic transformation along four new directions: “New Retail, New Products, Internet Healthcare, and Real Estate Investment Trusts (REITs).”

Specifically, in terms of its real estate investment trust (REITs) strategy, Jointown Pharmaceutical Group plans to issue infrastructure REITs in batches, using its approximately 3.3 million square meters of pharmaceutical logistics warehousing assets and supporting facilities as the underlying assets, so as to revitalize its pharmaceutical warehousing and logistics assets and supporting facilities.Reconstructing the Company's Asset-Light Business Model, and accelerate asset liquidity.

In July 2024, Jointown Pharmaceutical Group announced the launch of a pre-REITs project for pharmaceutical warehousing and logistics, aiming to enhance the efficiency of expansion offerings by establishing a multi-tiered capital operation platform featuring “publicly offered REITs + pre-REITs.” In December, the China Securities Regulatory Commission issued the Approval for the Registration of the Huitianfu Jointown Pharmaceutical Warehousing and Logistics Closed-end Infrastructure Securities Investment Fund.

It is reported that the issuance of public REITs and Pre-REITs will have a positive impact on Jointown Pharmaceutical Group’s future financial indicators. According to projections, upon completion of the public REITs issuance, Jointown Pharmaceutical Group is expected to see an increase in net profit of no more than RMB 700 million; upon completion of the Pre-REITs issuance, the company is expected to see an increase in net profit of no more than RMB 900 million.

This is the first public REITs offering in the pharmaceutical industry, which will provide experience and a model for asset-light operations in the pharmaceutical distribution sector.

In addition, since the implementation of its new strategy, Jointown Pharmaceutical Group’s net cash flow from operating activities in the second quarter of 2024 turned positive, reaching RMB 453 million, compared with the first quarter. Jointown also projected that it would continue to intensify efforts to collect accounts receivable by year-end, expecting the full-year net cash flow from operating activities to be positive and aligned with its operational performance.

Faced with numerous uncertainties in the market, industry, and external environment, Renmin Tongtai, which has a high proportion of accounts receivable to total assets, has also chosen to promptly adjust its strategic planning and operational strategies.。

In 2023, Renmin Tongtai’s wholesale segment completed its transformation toward integrated commercial distribution. Following the transformation, various business segments achieved resource sharing and coordinated development, leveraging the advantages of integrated wholesale and retail operations to reduce procurement costs and enhance operational efficiency and core competitiveness.

Specifically, Renmin Tongtai has established a presence in wholesale, retail, logistics, e-commerce, and medical services. The company can integrate procurement resources from its wholesale and retail operations to share preferential product policies and reduce procurement costs. Furthermore, by leveraging the product variety and scale advantages of its wholesale business, the store network and membership benefits of its retail business, and the centralized distribution capabilities of its logistics centers, Renmin Tongtai enables synergies across different business segments, thereby enhancing operational efficiency and strengthening its competitive edge.

In terms of capital management, Renmin Tongtai is strengthening lean management of accounts receivable, improving the assessment mechanism for accounts receivable collection, reducing financing costs, and enhancing the efficiency of fund utilization.

Shanghai Kaikai Industry Co.,LTD. has significant capital requirements due to its strategic transformation into the big health industry. To meet the company’s funding needs and accelerate business development, Shanghai Kaikai Industry Co.,LTD. has chosen to raise funds by issuing shares to specific investors.

It is understood that Shanghai Kaikai Industry Co.,LTD. is accelerating the deep integration of traditional Chinese medicine with the health industry, a move that requires greater support from working capital.

However, since 2021, Shanghai Kaikai Industry Co.,LTD. has invested heavily in the big health sector to develop its pharmaceutical wholesale and SPD (Supply, Processing, and Distribution) businesses, resulting in high accounts receivable and increased pressure on operating capital. In 2023, for example, the company’s year-end accounts receivable reached RMB 365 million, a year-on-year increase of 120.52%, while the net cash flow from operating activities was only RMB 578,400, representing a significant year-on-year decline of 99.27%.

Under the influence of multiple factors, Shanghai Kaikai Industry Co.,LTD. will face an operating capital shortfall over the next three years, with net cash flow from operating activities further declining during 2024–2026. According to projections, the company’s total net cash inflow over the next three years will amount to RMB 2.4174 million.

Therefore, Shanghai Kaikai Industry Co.,LTD. planned to issue A-shares to specific investors in 2024 to raise funds, thereby strengthening its capital base and ensuring the robust implementation of its operational development and strategic plans.

In addition, many pharmaceutical distribution companies have alleviated their financial pressures through multiple channels.For example, YaoYiGou has introduced strategic collaborations with financial institutions such as Ping An Bank through its “YaoJuLi” platform. These financial institutions provide credit-based “Baitiao” supply chain finance services to terminal pharmacies, thereby alleviating their capital pressures and enhancing customer stickiness.

Sinopharm Group Co., Ltd. improved its liquidity position through measures such as reducing accounts receivable. According to reports, in the first half of 2024, Sinopharm Group optimized its days sales outstanding (DSO) by one day compared to the same period last year by increasing the collection ratio, reducing inventory backlog, and promptly following up on fund recovery. In terms of capital structure, accounts receivable accounted for 28.86% of total assets in the first half of 2024, representing a year-on-year improvement of 0.24 percentage points.

Perhaps in response to the financial pressures faced by pharmaceutical distribution companies, the National Healthcare Security Administration and the Ministry of Finance jointly issued the Notice on Prepayment of Medical Insurance Funds in November 2024. This policy mandates that regions with sufficient medical insurance fund surpluses provide one month’s worth of prepayment funds before the end of the first quarter each year, thereby alleviating the burden of advance payments borne by designated medical institutions under the medical insurance scheme. This measure may help resolve the longstanding issue of delayed payments to pharmaceutical enterprises.

As a capital-intensive industry, the pharmaceutical distribution sector will see its market concentration continuously rise, driven by leading enterprises that leverage their platform and financial advantages to expand their market presence.

To enhance their competitiveness, an increasing number of pharmaceutical distribution companies have begun to integrate resources.

In early 2024, China Meheco and Chongqing Pharmaceutical Holdings simultaneously announced that China General Technology (Group) Holding Co., Ltd. is engaging in strategic integration of Chongqing Pharmaceutical Health Industry Co., Ltd. with Chongqing Huayi Holding (Group) Company.。

China Meheco is a company listed on the Shanghai Stock Exchange, with its controlling shareholder being China General Technology Group. China General Technology Group is a key state-owned enterprise under the direct administration of the central government. Chongqing Pharmaceutical Holdings is a company listed on the Shenzhen Stock Exchange, with its controlling shareholder being Chongqing Medicine and Health Industry Co., Ltd.Upon completion of the integration, China General Technology Group will become the actual controller of Chongqing Pharmaceutical Holdings.。

(Source: Ministry of Commerce, "Statistical Analysis Report on the Operation of the Pharmaceutical Circulation Industry in 2023")

Following the merger, the Chongqing Medicine–China Meheco consortium will rank fifth among pharmaceutical distribution enterprises, with a scale exceeding RMB 100 billion—twice that of Nanjing Pharmaceutical, which ranks sixth. Currently, Genertec has obtained the “Reply on Matters Concerning the Gratuitous Transfer of State-owned Equity in Chongqing Medicine and Health Industry Co., Ltd.” from the State-owned Assets Supervision and Administration Commission of the State Council in December 2024.

On the path to integration, Chongqing Pharmaceutical Holdings and China Meheco have not slowed their pace. Following the announcement of their strategic integration, Chongqing Pharmaceutical Holdings partnered with JD.com in May 2024 to establish cooperation in areas including consumer goods supply chains, pharmaceuticals and healthcare, wholesale and retail, warehousing and logistics, and overall supply chain management. In November 2024, China Meheco announced its plan to acquire a 40% equity stake in General Technology Liaoning Pharmaceutical Co., Ltd. for RMB 68.4372 million. Upon completion of the acquisition, China Meheco will hold 100% equity in the latter.

According to reports, General Technology Liaoning Pharmaceutical Co., Ltd. has established a certain market position in Liaoning Province’s pharmaceutical distribution industry. Its business primarily focuses on pharmaceutical distribution and direct sales, while also engaging in innovative operations such as e-commerce sales. Upon completion of the acquisition, the company will become a wholly-owned subsidiary of China Meheco, bolstering China Meheco’s regional synergy advantages in Northeast China and enhancing its regional competitiveness.

Additionally, to address industry transformations, SPH launched the integration project for its commercial sector’s northern and southern platforms in August 2023.. It established 15 working groups to advance integration, achieving on schedule the goal of integrated operations across 25 provinces in China and four major professional segments, thereby creating a “National Modern Pharmaceutical Supply Chain Service Platform.” Through this integration, SPH further strengthened operational control over its pharmaceutical commercial business, realizing the unification of its decision-making and authorization framework, operational systems, information systems, logistics, talent and incentive mechanisms, and financial systems.

Not only that, but SPH also completed the acquisitions of Hunan Runji Pharmaceutical and the commercial division of Chia Tai Tianqing in 2023, further strengthening its sales network. Following the completion of these integrations, six provinces recorded over RMB 10 billion in pharmaceutical distribution sales for SPH in 2023.

In 2024, building on its previous efforts to integrate the northern and southern segments of its pharmaceutical distribution business, SPH convened a special conference on commercial integration in the first half of the year. The company promoted unified management of budgeting and performance assessment, established and improved relevant information systems and institutional frameworks, strengthened integrated operations, and deepened the development of provincial-level platforms, thereby creating a new pattern of integrated commercial development.

The China Resources Group is also a frequent participant in M&A activities.Previously, China Resources Pharmaceutical Commercial Group successively acquired a 51% equity stake in Anhui Lifang Pharmaceutical and Sichuan Kelun Pharmaceutical Trading Group to strengthen its competitiveness and market share in the respective regions.

Beyond M&A integration, leading players in the pharmaceutical distribution industry are also exploring new growth drivers. To date, many pharmaceutical distribution companies are optimistic about and actively pursuing directions such as pharmaceutical manufacturing, specialized CSO (Contract Sales Organization) services, collaborations on blockbuster new products, and expansion into downstream retail channels (online). With the comprehensive support of distribution giants, the domestic pharmaceutical market is poised to become even more dynamic.