Zuellig Pharma's performance fluctuates after a brief reboun

Due to changes in Korea’s distribution environment

Last year's sales increased 5% year-on-year to KRW 889.3 billion, the first increase in four years

Domestic company shows continued growth, but their unique logistics systems and distribution competitiveness are weakening

Distributes innovative drugs such as Wegovy and Libtayo, the company attempts to rejoin the trillion won club

Zuellig Pharma Korea, a global pharmaceutical distributor that had experienced ups and downs in its external growth, successfully rebounded last year.

 

Zuellig Pharma's sales declined for 4 consecutive years after recording sales of over KRW 1 trillion in 2020 but showed signs of recovery by taking on the domestic distribution of new drugs from multinational pharmaceutical companies.

 

According to the Financial Supervisory Service on the 18th, Zuellig Pharma's sales last year were KRW 889.3 billion, up 4.8% from the previous year.

 

Operating profit was KRW 4.3 billion, similar to the previous year.

 

Zuellig Pharma is the Korean subsidiary of a Swiss global pharmaceutical distribution company that entered the Korean market in 1998.

 

As the first global distributor to enter the Korean market, it faced strong opposition from the domestic industry.

 

The Korea Pharmaceutical Distribution Association formed the Zuellig Countermeasures Committee and took strong measures to prevent Zuellig Pharma from monopolizing the supply of global pharmaceutical companies' products.

 

Nevertheless, Zuellig Pharma's sales continued to grow until 2021.

 

The company's sales grew steadily from KRW 706.9 billion in 2015 to KRW 889.4 billion in 2016, then to KRW 970.9 billion in 2017.

 

Zuellig Pharma recorded KRW 1.184 trillion in 2019, becoming the third company to exceed KRW 1 trillion in sales after Geo-Yong and Baekje Pharmaceutical.

 

The company maintained its status in the trillion-won club in 2020 with sales of KRW 1.0372 trillion, but sales fell to KRW 910 billion the following year.

 

In 2022, sales amounted to KRW 885.3 billion, a 2.7% decrease from the previous year.

 

In 2023, sales decreased by 4.1% year-on-year to 850 billion won.

 

Zuellig Pharma was hit hard by changes in the drug distribution environment.

 

Before, Zuellig Pharma had grown through exclusive deals with multinational pharmaceutical companies.

 

In particular, domestic drug distributors had to sign wholesale contracts with Zuellig Pharma in order to distribute drugs from multinational pharmaceutical companies.

 

However, major multinational pharmaceutical companies began to utilize the distribution networks of Korean pharmaceutical companies, forging co-promotion agreements with domestic companies, gradually reducing Zuellig Pharma's market share.

 

In addition, domestic pharmaceutical distributors obtained distribution rights through direct contracts with multinational pharmaceutical companies, reducing Zuellig Pharma's main source of revenue.

 

For example, Geo-Yong directly distributes UCB Korea’s allergy treatment Zyrtec, and psoriasis treatment Bimzelx.

 

Geo-Yong is also selling over-the-counter (OTC) drugs from multinational pharmaceutical companies, such as the contraceptive Mercilon.

 

Furthermore, major domestic companies have established new logistics systems such as 3PL and 4PL to enhance their competitiveness.

 

Logistics systems are categorized into four types (1PL/2PL/3PL/4PL) based on their structure.

 

3PL refers to outsourcing logistics operations to external companies, while 4PL refers to customized services that not only outsource logistics but also provide consulting on suitable logistics systems and IT-related solutions.

 

Larger companies have adopted integrated logistics strategy models, establishing their own logistics IT systems and strengthening order, receivables, and collection management functions.

 

As a result, Zuellig Pharma now faces competition in the utilization of 3PL/4PL logistics systems as well.

 

In particular, domestic companies have equipped themselves with cold chain systems and are distributing major biological products such as Dupixent, putting a brake on Zuellig Pharma's external growth.

 

Operating profit rebounded, but competition intensified In addition to Zuellig Pharma, other global pharmaceutical distribution companies such as DKSH and DB Schenker Korea, as well as domestic firms like Pico Innovation and Bluemtec have established online platforms, intensifying market competition.

 

However, Zuellig Pharma managed to rebound last year with its first sales increase in 4 years.

 

In particular, operating profit has also improved recently.

 

Zuellig Pharma posted operating losses every year from 2017 to 2021.

 

However, in 2022, it returned to profit for the first time in about 7 years with KRW 900 million.

 

In 2023 and last year, it recorded KRW 4.3 billion, showing growth.

 

Zuellig Pharma succeeded in increasing its operating profit by improving its cost ratio along with a reduction in sales and administrative expenses and employee wages.

 

Thanks to its improved performance, Zuellig Pharma emerged from total capital erosion, which had continued for 2 years since 2020.

 

Total capital erosion refers to a state in which a company's deficit grows so large that its surplus runs out and even its paid-in capital is eroded, resulting in negative total capital.

 

Zuellig Pharma was in a state of complete capital erosion in 2020 and 2021, with total capital of – KRW 1.5 billion and -KRW 14.5 billion, respectively.

 

Zuellig Pharma plans to achieve growth in sales and operating profit through the distribution of innovative new drugs.

 

Last year, Zuellig Pharma became responsible for the distribution of the obesity treatment drug Wegovy.

 

Wegovy is a glucagon-like peptide (GLP-1) obesity treatment that recorded sales of over KRW 60 billion in the fourth quarter of last year alone.

 

Zuellig Pharma successfully secured the distribution rights for Wegovy thanks to its experience in distributing the obesity treatment Saxenda.

 

Zuellig Pharma will also be responsible for the domestic distribution of the immuno-oncology drug Libtayo.

 

Libtayo (cemiplimab) is currently approved in South Korea as a first-line monotherapy for advanced non-small cell lung cancer and as a treatment for metastatic or locally advanced cutaneous squamous cell carcinoma (CSCC) and recurrent or metastatic cervical cancer.

 

Last year, Zuellig Pharma also formed a partnership with European consumer healthcare company Karo Healthcare to target the Asian market and signed a domestic distribution agreement for the athlete's foot treatment Lamisil.