Online sales help firms stay healthy
The Internet is a shot in the arm for retail drug industry, reports Yao Jing.
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 email@example.com