"Your Ordered Medicine Will Arrive in a Few Hours"... Emerging 'Coupang of the Pharmaceutical Distribution Industry' [The Bright and Dark Sides of the Pharmaceutical Distribution Market]②

Online Platform-Driven Paradigm Shift: Will the Market Be Shaken?
Rising Distribution Costs and Low Margins Challenge the Industry
Online Platforms Emerge as a Promising Alternative

Editor's NoteFew people know how a single pill of medicine, which we casually encounter and take, comes into our hands through such a complex route. The pharmaceutical distribution system follows the structure of 'manufacturer → primary wholesaler (or nth wholesaler) → hospital/pharmacy → consumer,' but especially around the 'wholesale' stage, the interests and hierarchy within the industry are intricately intertwined, causing consumers to suffer indirect damages unknowingly. Although there are about 4,400 wholesalers (according to the Ministry of Food and Drug Safety), only a very small number of companies dominate the market. Given this situation, market imbalance and side effects have become constants. The path to innovating the pharmaceutical distribution market, entangled with the government, pharmaceutical companies, distribution industry, and care institutions, is long and arduous. Asia Economy sheds light on the realities and hidden aspects of the pharmaceutical distribution structure that consumers find difficult to understand and seeks desirable development plans.

① For Whom Are the 'Distribution Giants'?

② Will the Online Platform-Driven Paradigm Shift Shake the Market?

③ "Digital Transformation and Transparency Enhancement Are Needed for Reform"

Delivery vehicles are waiting at the logistics warehouse of Blue M Tech located in Pyeongtaek, Gyeonggi-do.

The pharmaceutical distribution structure, dominated by a handful of companies and entangled among manufacturers, pharmacies, and hospitals, ultimately causes ▲continuous increase in distribution costs ▲proliferation of distribution companies leading to excessive competition and rebates ▲chronic low-margin structure and lack of innovation.

A representative problem is the 'negative margin bidding.' According to the pharmaceutical and distribution industry on the 16th, hospitals, especially large hospitals, adopt a bidding method when selecting pharmaceutical supply wholesalers, during which wholesalers usually competitively lower prices. As competition overheats, some wholesalers end up supplying medicines at prices below the manufacturing cost.

A wholesaler official said, "To maintain transactions with large hospitals, we have no choice but to bid at a loss," adding, "With tens to thousands of companies competing, the low-margin structure has become entrenched, leading to neglect in investing in the quality of pharmaceutical distribution."

This structure ultimately worsens the financial condition of pharmaceutical companies and wholesalers, especially small and medium-sized wholesalers. Already thin profit margins are declining further, while distribution-related costs such as transportation and storage fees are sharply rising every year.

Attention is being paid to an online platform-based distribution system connecting manufacturers with hospitals and pharmacies as a way to correct this structure. An example is Blue M Tech, a pharmaceutical distribution company located in Pyeongtaek, Gyeonggi Province, visited on the 14th. This facility, with a total floor area of 10,608㎡, one basement floor, and four above-ground floors, had dozens of pharmaceutical delivery trucks coming and going. Medicines produced by domestic and foreign manufacturers enter Blue M Tech's logistics warehouse and are stored separately in frozen, refrigerated, and controlled-temperature warehouses according to their storage conditions. Blue M Tech's logistics center includes a 119㎡ frozen warehouse maintained at minus 25℃ and a 3,002㎡ controlled-temperature warehouse that maintains 15?25℃ with humidity below 60%.

These medicines can be delivered nationwide within a few hours to a day upon receiving orders. It is like the 'Coupang of the pharmaceutical distribution industry.' Kim Jun-seok, Vice President of Blue M Tech, said, "We have built an integrated online-based system covering all processes from order collection, storage, packaging, delivery, to returns," adding, "Unlike traditional offline wholesalers, sales and collection tasks are digitized, enabling price competitiveness and business expansion."

About 29,300 hospitals and clinics have joined 'Blue Pharm Korea,' an online pharmaceutical platform operated by Blue M Tech that connects manufacturers and hospitals. This accounts for 85.7% of all hospitals and clinics in Korea (about 35,000). They supply about 90,000 types of prescription medicines and medical consumables, and recently collaborations with global companies such as Merck, Bayer, and Sanofi have increased. The distribution share of Novo Nordisk's obesity treatments Saxenda and Wegovy has grown, attracting market attention. The business expansion of online platform companies like Blue M Tech signals changes in the pharmaceutical distribution industry. Besides Blue M Tech, online platforms operated by manufacturers or small and medium wholesalers such as Hanmi Pharmaceutical's HMP Mall and Baro Pharm are introducing distribution models that connect hospitals and pharmacies online.

Existing wholesalers are also attempting to transition to online platforms, but sales still mainly rely on offline organizations. The emergence of these new online platforms omits the complex and oversized traditional distribution process, boasting convenient ordering systems and fast delivery speeds. Financial benefits such as card point accumulation and proprietary rewards are also attractive, leading to the expansion of new online platform distribution especially among younger pharmacists.