Wednesday, January 19, 2011

Brief SWOT analysis for C&O Pharma

SWOT Analysis - A Qualitative Overview

Strengths:

1. Extensive distribution network of 2,000 distributors and over 300,000 clinics, pharmacies and hospitals across all parts of China

2. Core focus on R&D capabilities such as drugs for ageing adults, anti infection and gastrointestinal, with more than 100 in-house researchers

3. Management - 3 Japanese Executive Directors to replace C&O Board of Directors after Sumitomo purchases 29% stake in C&O Pharma

What does this mean?

(a) Wider B2B channel presence to increase sales and build trust amongst their clientele

(b) Chance to develop new proprietary drugs and hence increase reputation points as a “new company to incorporate a medical milestone”. Focus not diversified to other business functions; relatively robust research team on medical innovation

(c) Having a varied management structure, the Japanese is able to make strategic plans – that is to explore markets out of China; the SE Asia.

A promising plan ahead – “Intend to double C&O turnover to 15 billion yen within 5 years”. The Japanese does not make 5 year plan out of nothing and publicize it in the press, especially after an acquisition.

Weaknesses:

1. Does not have solid quality control and consistency in output production
2. Product marketing (e.g. labeling and packaging)
3. Tendency for high CAPEX in the near future should there be setting up of overseas R&D centre

What does this mean?

(a) Certainly, as investors, we hope there will not be any irregularities in the formulation of the drugs. We know what will happen should it be too profit driven and the social mandate of helping people in the medical field is neglected

(b) May not capture other overseas markets such as Europe-based countries as the package design and labels may not appeal to them (think of Soju/Sakae packaging - how well has it penetrated)

(c) Constant watch-out to miminize overheads and costs. At the moment, it is in low debt position.

Opportunities:

1. China pharmaceutical market is 2nd largest after America. Ride on the market trends, considering China is one of the world most populous nation and the rural areas may lack quality healthcare services and drugs. On the other hand, the consumer health market look set to grow, hence C&O Pharma is able to tap within the network via the channel partners

2. International partnership with foreign pharmaceutical firms. Example – C&O Pharma had a JV with US contract research service provider – Xenobiotic Laboratories

3. Growth expansion plans – products exporting overseas for the first time - to SE Asia

4. New ideas with new management on board – for example direct selling opportunity

Threats:

1. Lack of industry regulation for drug price, as well as international accreditation & awards

2. Local Chinese government intervention, such as drug prices and policy changes

3. Macro-economic shifts to impact the R&D cost and hence impact the value chain

4. Emerging R&D medical hubs in regional countries with huge outlay for medical investment for increased innovation and best practices on quality output

5. China tainted image as a “made in China” product due to the negative cases over the years

For me, I am vested, right after Sumitomo comes in. Tap onto the growth opportunities while assuming the risks involved.

Good luck to me!

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