On­line sales help firms stay healthy

The In­ter­net is a shot in the arm for re­tail drug in­dus­try, re­ports Yao Jing.

China Daily (Canada) - - BUSINESS -

When Shi Zhenyang was run­ning nine drug­stores in China five years ago, he strug­gled to com­pete with ma­jor chain Chang­sha Baix­ing Phar­macy. 7LK, his com­pany, was a late­comer to the mar­ket and Shi felt he had missed his op­por­tu­nity.

“We were barely mak­ing prof­its, while the Chang­sha Baix­ing Phar­macy had achieved con­sol­i­dated sales of about 3 bil­lion yuan ($487 mil­lion) in 2009. I could not dream of catch­ing up with Baix­ing even if I got enough fi­nanc­ing,” said Shi.

To­day, he is get­ting much closer to his dream as he rides China’s on­line drug re­tail­ing wave.

At the end of 2013, China had 202 li­censed on­line phar­ma­cies, 85 more than in 2012.

On­line phar­ma­ceu­ti­cal trans­ac­tions to­taled more than 100 bil­lion yuan in 2013, with more than 90 per­cent gen­er­ated from the busi­nessto-busi­ness seg­ment, theMin­istry of Com­merce said in June.

Some on­line drug re­tail­ers that started out small, in­clud­ing Yhd and 360kxr, have wit­nessed strong growth.

Shi’s con­fi­dence and am­bi­tion also have grown be­cause of the in­creas­ing pop­u­lar­ity of on­line drug­stores with the younger gen­er­a­tion in the coun­try, as well as the gov­ern­ment’s sup­port.

“In 2010, on­line pur­chases ac­counted for 30 per­cent of all phar­ma­ceu­ti­cal sales in the United States, and even 90 per­cent in some Euro­pean coun­tries. How­ever, in China, the fig­ure is no more than 1 per­cent,” Shi said, adding that it is a promis­ing in­dus­try.

From his brick-and-mor­tar Qilekang store, 7LK be­came his In­ter­net re­tailer. In 2012, it launched an on­line store on Tmall, a lead­ing Chi­nese busi­ness-to-cus­tomer e-com­merce web­site.

“We got the ap­proval for an on­line phar­macy in 2010,” Shi said. “Since then, the year-onyear av­er­age growth in sales has been 200 per­cent to 300 per­cent.”

In 2013, 7LK achieved to­tal sales of about 400 mil­lion yuan and is tar­get­ing a con­sol­i­dated sales of 1 bil­lion yuan in 2014. Baix­ing Phar­macy said it ex­pects to achieve on­line sales vol­ume of 200 mil­lion yuan ($32.29 mil­lion) this year.

Most on­line sales are de­rived from non-pre­scrip­tion drugs and health sup­ple­ments, ac­cord­ing to Bruce Liu, a phar­ma­ceu­ti­cal in­dus­try ex­pert with an in­ter­na­tional con­sul­tancy.

But that may change. In May, the State Food and Drug Ad­min­is­tra­tion said that on­line drug op­er­a­tors can start sell­ing pre­scrip­tion drugs.

“It is an in­ter­est­ing devel­op­ment and a bold one, to some ex­tent,” Liu said.

Like e-com­merce, on­line drug sales give con­sumers more choices, con­ve­nience and price trans­parency, he said.

But there are many im­pli­ca­tions for hos­pi­tals, physi­cians, pharma com­pa­nies, phar­ma­cies and dis­trib­u­tors. It even raises ques­tions with gov­ern­ment agen­cies as how to en­sure qual­ity and safety while min­i­miz­ing mis­use or abuse, ac­cord­ing to Liu.

“Open­ing up on­line sales of pre­scrip­tion drugs is a pleas­ant sur­prise for many of them, al­though many are still try­ing to fig­ure out how to cap­i­tal­ize on this move,” he said.

Just af­ter the re­lease of the state­ment by the ad­min­is­tra­tion, J1, a med­i­cal e-com­merce plat­form of China Re­sources (Hold­ings) Co Ltd, be­came the first on­line drug­store to com­plete fi­nanc­ing in China. It de­clared com­ple­tion of A-round fi­nanc­ing of 300 mil­lion yuan — in­clud­ing 110 mil­lion yuan for the early stage — by Shang­hai In­ter­na­tional Group Ven­ture Cap­i­tal.

The cap­i­tal will mainly be used for its data man­age­ment cen­ter, on­line-to-off­line sys­tem and call cen­ter to speed up the shift of J1 from an e-com­merce ser­vice provider to a health man­age­ment ser­vice provider.

“Since the launch of theweb­site in Oc­to­ber 2011, home-use med­i­cal de­vices, com­mon drugs, vi­ta­mins and health ton­ics are among the most pop­u­lar prod­ucts at J1,” said He Tao, J1’s gen­eral man­ager.

“Prompted by the new pol­icy, J1 is de­fined as a man­ager for cus­tomers’ long-term med­i­ca­tion,” He said.

As for Shi, though 7LK’s cur­rent core busi­nesses are in med­i­cal de­vices, fam­ily plan­ning prod­ucts and con­tact lenses, he said he will start fo­cus­ing on phar­ma­ceu­ti­cals.

“Turnover from drugs now ac­counts for 20 per­cent of our to­tal rev­enue,” he said.

Other e-com­merce plat­form gi­ants are also tar­get­ing the mar­ket.

Yhd, a Shang­hai-based on­line su­per­mar­ket con­trolled byWal-Mart Stores Inc, has been given per­mis­sion to sell over-the-counter on­line.

Alibaba Group Hold­ing Ltd paid $170 mil­lion in Jan­uary for a stake in CITIC 21st Cen­tury, a Hong Kong-listed com­pany that fo­cuses on med­i­cal prod­uct data ac­cu­mu­la­tion.

E-com­merce com­pany JD.com Inc is also await­ing ap­proval of its phar­ma­ceu­ti­cal prac­tice.

“Lead­ing e-com­merce play­ers like Alibaba and JD have ex­ist­ing cus­tomer bases and a ready in­fra­struc­ture go­ing for­ward,” Liu said.

How­ever, Yu Zhibin, deputy direc­tor of the Chi­nese medicine depart­ment of the China Cham­ber of Com­merce for Im­port and Ex­port of Medicines and Health Prod­ucts, said that un­like other prod­ucts,

medicines medicine is amuch­more­highly reg­u­lated cat­e­gory.

“Cus­tomers’ pur­chas­ing process and se­lec­tion cri­te­ria will be dif­fer­ent, and de­liv­ery re­quire­ments more strict,” Yu said.

Com­pared with tra­di­tional chain phar­ma­cies, which have ex­pe­ri­ence with med­i­cal lo­gis­tics, third-party lo­gis­tics com­pa­nies do not have a ded­i­cated drug dis­tri­bu­tion sys­tem.

“For on­line gi­ants, they are much big­ger in size and stronger in cap­i­tal. It is easy for e-com­merce plat­forms to meet the stan­dards of lo­gis­tics and stor­age of med­i­cal e-busi­ness,” Yu said.

Yu also warned that the on­line phar­ma­ceu­ti­cal in­dus­try must be strictly su­per­vised and reg­u­lated, as trust has been a fo­cal point for China’s e-com­merce.

Liu echoed that as­sess­ment. “Pre­scrip­tion drug sales on­line will face a num­ber of chal­lenges in the near term, rang­ing from ver­i­fi­ca­tion of doc­tors’ pre­scrip­tions to de­liv­ery stan­dards that need to meet GSP (good sup­ply prac­tices) re­quire­ments.”

And for now, cus­tomers will not be able to use their med­i­cal in­sur­ance sur­plus to­ward on­line trans­ac­tions, un­der­min­ing a price ad­van­tage that was key for e-com­merce in the first place.

“Th­ese chal­lenges are not in­sur­mount­able, though,” said Liu.

Nev­er­the­less, the blos­som­ing on­line med­i­cal sec­tor is also test­ing e-com­merce chan­nels with phar­ma­ceu­ti­cal man­u­fac­tur­ers.

“It may soon be rec­og­nized as the fourth chan­nel and a force to be reck­oned with,” Liu said.

Con­sumers will be more em­pow­ered, and di­rect-to­con­sumer ed­u­ca­tion as well as on­line pa­tient com­mu­nity will play an in­creas­ingly im­por­tant role, he said.

Li Guoqing, a se­nior of­fi­cial at the State Food and Drug Ad­min­is­tra­tion, said ear­lier that Chi­nese on­line drug sell­ers were not prof­itable and were limited by the source of pre­scrip­tion and health in­sur­ance re­im­burse­ment. Meng Jing con­trib­uted to this story. Con­tact the writer at yaojing@chi­nadaily.com.cn

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