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Policies for Medical E-Business loosen Structure of Medicine’s Retailing End may Change
Author:   Source   Date:Aug,14,2014   Browse:11185   
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Recently, China Food and Drug Administration issued “An Approach to Supervise and Manage Online Sales of Food and Drugs (The Draft)”. Targeting at the qualification of online drug stores, the Draft stipulates that, besides those business entities who, according to laws and regulations, have no need to acquire related certification, online business dealers for food and drugs may get relevant business licenses or record evidence. Drug manufacturers and wholesalers may not sell drugs to individual consumers on the internet. The Draft also stipulates that online drug dealers may sell prescribed drugs based on the provisions of drug classification. In the meantime, third party logistics companies are allowed to deliver drugs and third-party trading platform may establish a service system where licensed pharmacists provide consultations.


Insiders believe that, once the Approach is implemented, it is bound to stimulate the development of the medical e-business. Opening retailing channel of prescribed drugs to e-business sellers may bring evolutionary changes to the rapidly growing medical e-commerce.


Loosening Policies Lowering Threshold

In comparison to the former provisions, the Draft has obviously broken the restrictions previously imposed on online dealers for medicine.


“The Draft lowers the admittance threshold for online medicine dealers. Be it nationwide chain stores or regional ones, as long as they are able to sell medicine, these stores can make sales either online or offline,” said Li Caifen, standing vice president of Beijing Best Pharmacist Shop under Jointown Pharmaceutical Group. “The mentality of the Draft is to open up the whole industry, and its growth will be based on fair and just competition. The core competitiveness and the service level of online drugstores will be the final say to judge pharmaceutical business.”


It is practicing doctors who can purchase and use prescribed drugs. For safety’s sake, the government used to stipulate that prescribed drugs were forbidden to be sold online.


In light of policies, Regulation on the Information of Online-Sold Drugs and Temporary Provisions on the Trade, Service and Approval of Online-Sold Drugs, issued in 2005, are still in use. According to the provisions, online drugstores can only trade OTC drugs, and they need to voluntarily establish delivery network, which greatly restricts the development of online drug commerce.


As data shows, there are, as of today, 184 enterprises who have already acquired the qualification of retailing drugs online (online drugstore). Although with drugs as their main products, few of these online stores yield good sales result. In contrast, those who do well are mostly with health products, family planning goods, contact lens and household medical instruments as their trump cards.


Chain Drugstores Take On Challenges

In January this year, in cooperation with YF Capital, Alibaba spent as much as 1.037 billion yuan in taking over CITIC 21CN, marching into the field of medical e-commerce. CITIC 21CN owns the only domestic system of regulatory code, and its subordinate, 95095 Medical Platform, owns Qualification Certificate for Online Drug Trade and Service.


Just after the Draft was issued, a domestic online drugstore called J1.com declared that they had successfully raised fund. This online drugstore, under Huarun Group, claimed that they had finished the first round of fund-raising in the first quarter this year. The total amount of the fund reached 300 million yuan, and actually arrived fund in the first round 110 million yuan. The investor is Shanghai International Group Venture Capital Co., Ltd. This move makes J1.com the first domestic online drugstore who successfully financed. This is interpreted by industry insiders as that the new policy for online drug dealers inspires the enthusiasm of the whole capital market and attracts investors’ attention. The loosening of the restrictions against online drugstores and prescribed drugs sales seems to big capital players a greater market space.


Reportedly, the present-day total market value for medicine has exceeded one trillion yuan, in which the share of prescribed drugs accounts for 70 to 80 percent. Moreover, the profit of prescribed drugs exceeds far over OTC ones. Based on the statistics of foreign medical industry, the sales volume of US online drugstores has taken up about 30% of the total volume; in Japan, the figure is 17%, while in Europe, 23%.


Will the future leaping development of medical e-business hit the brick-and-mortar ones?


“The hit wave will not be too big”, said Yang Lianliang, chairman of Brick-and-Mortar Drugstore Branch under China Medical Pharmaceutical Material Association. Brick-and-mortar drugstores mainly face township markets and serve and solve medical problems of dwellers there, while online drugstores are directed at urban market.


Because of the particularity of brick-and-mortar drugstores’ location and service target, “there exists little overlapping or contradiction between online drugstores and offline ones. And the transformation and upgrading of brick-and-mortar stores will develop toward the direction of drugstore combination, which will help solve, through internet, some related problems in the future,” introduced by Yang Lianliang.


However, for those investors who own gigantic chain brick-and-mortar drugstores, they will face even greater challenge. Still, some of them have joined the opposition rank. A proprietor of a chain drugstore expresses that the plummeting lowering of the admittance threshold will put chain drugstores, a representative of traditional business model, into a situation where they have to face more challenges.


Where the Market will Lead to

“Once the policy on prescribed drugs loosens, the prescribed business in hospitals will bear the greatest impact. The sales volume, originally belongs to pharmacy, will flow to online drugstores and brick-and-mortar drugstores in a great measure,” said Li Caifen.


Faced with the imminent outbreak in the industry, insiders are optimistic of both Best Pharmacist Shop’s online drugstore model and JD’s medical e-business model.


Reportedly, medical e-business of JD is involved in NDRC’s medical separation trial program, making experiment in selling prescribed drugs online. And JD Mall has long ago launched O2O business for drugs both online and offline, its delivering capability among the best. Insiders analyze that, with the gradual loosening of medical insurance policy, “prescribed drugs + e-prescription + online medicare payment” will become a new point of growth for those e-business platforms who have acquired the qualification of medicine sales.


As a famous domestic private distribution enterprise for drugs, Jointown Pharmaceutical Group owns a complete industrial chain. Its subordinate, Best Pharmacist Shop, has already laid out both online and offline. The O2O model is under promotion in first-tier cities like Beijing, Shanghai and Guangzhou. The number of its physical stores has exceeded 1,000. Thus, thanks to Jointown’s logistic system, unique competitive advantages have taken shape.


“Once the policy loosens, the whole industry will undergo a transition period, and it will also take some time for customers to accept online-sold prescribed drugs. Compared with OTC, prescribed drugs are better fit for e-business, drugs for chronic diseases and drugs at customers’ own expense. These kinds of drugs will take the lead in flowing to online drug dealers,” said Li Caifen.


Shenyin & Wanguo Securities concerns that, in the short run, the lowering of admittance threshold for online drug dealers may make the competition more fierce; while in the long period, for online medical platforms will no longer be scarce in number, the level of the competition between online dealers will swiftly get upgraded in the future. This will improve, from every possible aspect, the efficiency of medical market, helping both the whole medical industry and online medical dealers develop into a regulatory, orderly and centralized period.


“The internet will finally present a situation where the winner sweeps the deck and different brands converge. The model of domestic large chain drugstores will resemble that of foreign ones, displaying some degree of centralization,” said Li Caifen. Every enterprise will then have an opportunity. After brand enterprises appear, there will be winners in subdivided areas. These online drugstores will pay more attention to medical service and health service in specific subdivided area, thus forging unique advantages there. However, these, in the end, all depend on how customers are satisfied with the service provided.


Insiders say that, once the policy is born, there will be an enormous increase in the number of products sold in online drugstores. Prescribed drugs, for its lasting demand and greater compatibility with online sales, will trigger the blockbuster growth of domestic online drug dealers, and at the same time greatly cut down the circulation period and lower drug price. Correspondingly, there will be observable polarization in the layout of online medical dealers, forming third-party e-business platforms, nationwide online drugstores, and online stores who focus on subdivided areas and regional businesses.


Source: China High-Tech Industry Herald

Time: June 16th, 2014

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