The Chinese pharmaceutical market consist of biologics, generics, OTC drugs, and traditional Chinese medicine. The traditional Chinese medicine market comprises about 30-40% of drug sales in China. It also displays more rapid growth than other segments of the pharmaceutical market in China. Yangtze River Pharmaceutical Group, Shanghai Pharmaceutical Co Ltd, and Yunan Baiyao Group take up over one-third of the market share, indicating a highly consolidated market. They all provide traditional Chinese medicines. Regarding the traditional Chinese medicine market specifically, key players involve China TCM, Yunnan Baiyao, Beijing Tong Ren Tang, Guangzhou BYS, and Pien Tzhe Huang. TCM products are generally categorized into Chinese patent medicines, decoction pieces, and Chinese herbs.

The traditional Chinese medicine market in China will keep growing in the new normal

Though often controversial in modern times, Traditional Chinese Medicine’s (TCM) has played a significant role in the health care system in China since ancient times. It is predicted that TCM will continue to grow in significance in the post-COVID-19 era in China. A survey about public trust in TCM in China showed that, as of November 2019, 49% of Chinese respondents prefer traditional Chinese medicine to Western medicine treatment (51%). Recent years have also witnessed a steady growth in the volume of diagnosis and treatment of medical institutions specializing in TCM. Such a phenomenon is a result of political, economic, socio-cultural, and technological implications. An increasingly aging population, rising GDP per capita, expanding health insurance programs and urbanization, technological advancement in TCM industry, and very importantly, favorable government policies support as well as promotion of TCM in mass media jointly contribute to the TCM market growth.

Notably, the Chinese government has set TCM as a strategic priority to support the development of the medical industry. The policies issued will facilitate progress in TCM medical care, scientific research, education, and culture. It will encourage the establishment of a more sophisticated TCM service network that covers both urban and rural areas. Furthermore, the State Council called for the protection and industrialization of TCM herbs and innovation in the TCM industry.     

Chinese herbal decoction pieces and Chinese medicine formula granules are growing in popularity

Among the subcategories of TCM, Chinese herbal decoction pieces (中药饮片) and TCM formula granules (中药配方颗粒) are growing in popularity. TCM decoction pieces are mainly Chinese herbs that have been processed. It uses decoction technology such as ultra-fine pulverization to processed raw materials (e.g. herb, insect, shell, dried plants) based on Chinese medicine theories and Chinese medicine processing methods, which can be taken directly as a pharmaceutical formula or taken directly, or further processed into Chinese patent medicine products. Chinse decoction pieces can be used directly in clinical treatment. Development of modernized decoction technology has led to the strong growth. The TCM formula granule grew steadily in the past ten years and will also continue to display an upward trend in the future.

Upon doctors’ prescription, the assistants do not give patients raw materials, but processed recipes, patients will have to use these powders or liquid to make a Chinese medicinal soup. With the policy dividend, the Chinese decoction pieces sector has developed steadily. The revenue growth rate bottomed out in 2018 and reached 210.49 billion yuan, an increase of 14.2% year-on-year. It shows a prospect for growth in the coming years. General hospitals and TCM hospitals are the major consumer markets for processed TCM, with revenue accounting for 48%, followed by clinics with revenue accounting for 22.5%.  

The discussion of TCM efficacy polarizes into two competing positions

Before the COVID-19 outbreak, analysts had predicted the strong growth of TCM market revenue. Given that TCM was said to be used to treat over 90% of patients in China during the COVID-19, it is predictable that public trust in TCM will increase, leading to growing demand in the market. The demand here refers not only to the treatment of confirmed diseases but also to general health optimization. TCM is known for optimizing health by balancing the entire body system, hence it is a preventative medicine. Many Chinese believe TCM is effective for general health optimization and treating minor or chronic ailments. Compared to western medicine, they believe TCM does less harm to one’s body  because it’s side effects are minimal. These perceptions have been rooted in the minds and hearts of the majority of individuals in China. 

What TCM Skeptics say

There are also a large number of TCM. Some say the theoretical foundation of TCM was much weaker than that of western medicine which is backed by sound physiochemical studies and research data. TCM is an experience-based subject and has a high level of ambiguity and uncertainty. That is why TCM is still not fully accepted as part of the modern medical science system. The status quo of TCM is that there is a lack of evidence to prove its efficacy due to its complexity. A traditional Chinese medicine prescription may have dozens of medicines, thus it’s hard to tell which one(s) are effective, what is the effective dosage, and whether it remains effective if we single out each ingredient. Even though it has been used in clinical diagnosis and treatment for centuries, it remains an issue to explain TCM’s pharmacological mechanism.    

In short, it does not come to a simple conclusion to say whether TCM is effective or not. The core of this discussion is not TCM itself, but the research framework and system. Tu Youyou’s achievement in the area of TCM is a stark example of the truth that with an evidence-based research method, TCM is proved to have high value in health care. Tu Youyou (屠呦呦) is a Chinese pharmaceutical chemist, studied traditional herbal medicines and managed to extract a substance, artemisinin (also known as 青蒿素), which inhibits the malaria parasite. She received the 2015 Nobel Prize in Physiology or Medicine for her work and brought TCM into the limelight. 

The role of TCM during COVID-19 remains uncertain

Talking about  COVID-19, while there is still no vaccine for COVID-19, western drugs like Remdesivir and Avigan are said to be effective. In China, during the early stage of the pandemic outbreak, there were news informing that the Chinese Academy of Sciences Shanghai Institute of Materia Medica (SIMM) along with the Wuhan Institute of Virology have had preliminary findings showing that Shuanghuanglian liquid, a traditional Chinese patent medicine, can inhibit the novel coronavirus. Suddenly people set off on a panic buying spree. Amid the buying spree were rebuttals to the rumor, saying that there was no strong evidence to prove that Shuanhuanglian can effectively inhibit the virus.

According to the National Medical Products Administration, by 15 March 2020, TCM was said to be used to treat 91.64% cases in Hubei Province, 89.10% in Wuhan. The proportion of Chinese medicine participating in treatment nationwide is 92.41%. Apparently, with the statistics released, there is a heated discussion on TCM on the Internet. Searches for Chinese medicine on Baidu have increased significantly during the COVID-19. While the mass media keeps promoting TCM, a lot of people are questioning the credibility of the statistics and the link between TCM and COVID-19 treatment based on the statistical approach as well as pathology.  

[Baidu Index, Search frequency for ‘Traditional Chinese Medicine’ spiked during the COVID-19 outbreak in China]

Will TCM products be accepted abroad?

Meanwhile, China has sent TCM drugs like Lianhua Qingwen abroad as part of humanitarian aids. It seems like a step forward of TCM on a global scale. However, there is still a long way for TCM to go to be accepted overseas. The key is an evidence-based modern medicine approach, determining the efficacy by comparing the existing evidence, not just the impression and the individual. It is a process from roughness to preciseness. In other words, for TCM to be accepted in the western world, using a western “ruler” in investigations is crucial, just like Tu Youyou’s case. It is going to be tough for TCM to enter the western culture using Chinese standards because it is by nature a complex and unfamiliar oriental mechanism to the western ideology. 

The public opinions call for a scientific approach in TCM investigation   

Zhong Nanshan, an advisor in managing the COVID-19 pandemic, once written in his autobiography that traditional Chinese medicine, as an accumulation of empirical medicine, must follow the path of evidence-based medicine, truly convince people of its efficacy in the clinic, and then further explore the mechanism. To tackle the bottleneck of empirical medicine in traditional Chinese medicine, practitioners must transform effective individual patient cases of traditional Chinese medicine into generic and effective solutions to the disease groups through modern evidence-based medicine research models.

Therefore, although TCM is raised to a high strategic position in domestic settings, it still has a long way to go in global settings. It is too early to say TCM is a step closer to an alternative to Western medicine, given that there are still various unresolved doubts in its cradle. To compliment or to undermine, there are complicated factors involved. Under the COVID-19 pandemic, it is hard to justify the role of TCM in a phenomenal event like this. Admittedly, it does facilitate people’s thinking about TCM, which will contribute to the development of TCM investigation in the health care system in China. Perhaps in the “new normal”, we will witness a transformational journey of TCM in China, endorsed by the government’s initiative and leading practitioners coming out of the pandemic.  

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The vaccine market in China has been expanding rapidly and is predicted to continue growing. The market size has grown to 25.7 billion RMB in 2017 and is expected to reach 100 billion RMB by 2030.

In part thanks to the loosening of the one child policy in China, there were 16.7 million new-borns in 2018 and the number is expected to increase. Between 2007 and 2015, the annual supply of vaccines in China went from 666 million to 1,190 million doses, most of which are produced domestically. China is one of the world’s largest producers of vaccines, approximately 700 million vaccine doses are produced annually in China. The estimated growth rate for overall vaccination market in China is 11.7%, and the growth rate for category II vaccines in China is 12.7%.

[Source: Statista  ‘Size of vaccine market in China by category I and II]

One Chinese vaccine market, two types of vaccines

China is a well-regulated producer of vaccines, but some vaccines that are important globally are not included in China’s Expanded Program on Immunization (EPI) system. Sustained and coordinated effort will be required to bring the vaccines industry in China and the EPI system into an era of global leadership.

The huge vaccine market in China appears to be easy to enter and stay. However, the Chinese vaccination system creates an uneven playground for different types of vaccines.

Category I vaccines in China

Category I vaccines in China belongs to the public sector, which means they are compulsory and free of charge. Two examples include measles and hepatitis. Six major domestic institute dominates the market of category I vaccines in China, and only very few foreign-made vaccines in China are available.

Category II vaccines in China

Category II vaccines in China such as Rabies, varicella, pneumonia, and human papillomavirus (HPV) vaccines, are a part of the private sector. They are voluntary vaccines that Chinese citizens pay at their own expense, and hence are made-for-profit. Most category II vaccines in China are foreign-made.

[Source: The Japan Times, Category I vaccines in China are free of charge for all children under 14 years ]

The Chinese government manages category I vaccines in China and provides them free of charge to all children under 14 years of age. The Provincial Center for Disease Control and Prevention (CDCs) purchases vaccine from the manufacturers and report the demand and supply data to the central government. The suppliers, which are vaccine manufacturers, have to strictly follow procurement contracts to provide category I vaccines to provincial or other CDCs.

Vaccine manufacturers could sell category II vaccines to multiple parties such as Wholesalers County or district CDCs, vaccination clinics and other healthcare providers prior to April 2016. The Chinese government later revised regulation in 2016, stating that category II vaccines in China must be procured using government procurement platforms. By integrating the two types of vaccines into one management system, the Chinese government can exercise greater control over the quality of category II vaccines in China as other channels such as the internet and wholesalers are banned. In 2017, the Chinese State Council updated the Vaccine Circulation and Immunization regulation, which requested establishment of a national advisory committee of experts to review category II vaccines in China based on safety, cost-efficiency, effectiveness and production capacity, and make recommendations for inclusion of vaccines into the current EPI system. This means more category II vaccines in China will be included in the free-of-charge category I vaccines in China, leaving less market share for foreign companies and making it more difficult for foreign-made vaccines to stay in the Chinese vaccine market.

Pricing of the vaccine market in China

In China, the contract prices for EPI program vaccines ranged from $0.1 to $5.7 US dollars per dose – similar to UNICEF prices. Contract prices for private-market vaccines ranged from $2.4 to $102.9 US dollars per dose – often higher than prices of comparable US, European, and UNICEF vaccines.

The prices for Category I vaccines in China are similar to UNICEF prices, but lower than the US and European countries. The low vaccine prices may give less incentive for manufacturers to invest in production improvement and development. Therefore, therefore, results in a lack of domestic production of large combination vaccines

The prices of Category II vaccines in China were high enough to attract more competition and thus more investment in research and development. However, the demand volumes are not large enough to achieve an economic of scale. Therefore, finding a balance between manufacturers’ profit needs and the general public’s health needs is challenging.

Leading Competitors in the Chinese vaccine market: international and domestic institutes

Although the number of Category I vaccines in China accounted for 65% of the total number of all vaccines in China, it was mainly occupied by the six major research institutes of China Biotechnology Co., Ltd. (Changchun, Beijing, Shanghai, Wuhan, Lanzhou, Chengdu). As Category I vaccines in China are dominated by the local competitors, foreign competitors can only enter the Chinese vaccine market with category II vaccines.

There are more than 30 companies in the vaccination market in China. Apart from major foreign players like GSK, MSD, Novartis, Sanofi Pasteur and Pfizer, local players such as Chang Sheng, Zhi Fei, Kang Tai, and Wo Sen are strong competitors..

Foreign vaccine companies in China’s vaccine market in China: GSK, MSD, Pfizer, Sanofi Pasteur, Novartis

GSK in China: Shingrix leading the way to expand in the Chinese vaccine market

[Source: GSK-China official website, ‘GSK-China has innovated 24 products between 2011 to 2016]

GSK has invested more than 500 million USD in China and its revenue reached almost 40  million USD in 2018. GSK products cover 250 cities in China. It has five business hubs: Beijing, Shanghai, Guangzhou, Chengdu and Hangzhou; five manufacturing hubs: Shanghai, Suzhou, Hangzhou and Tianjin; one global research and development center in Shanghai.

The growth rate of GSK vaccines in China was 12% in 2017. “I’m very confident in a long-term thriving vaccine industry in China, we want GSK to be part of it and to be a partner to bring new vaccines into the market.” said Walmsley, CEO of GSK since April 2017. She believes in prevention philosophically, in which vaccines have been the most powerful protector for human life aprart form clearn water.

Since Cervarix has entered the Chinese vaccine market, its growth rate has increased from 8% in 2016 to 65%. Meanwhile, GSK has developed Shingrix, a newly approved herpes vaccine in October 2017. This vaccine has achieved sales of £22 million in 2017, which suggests a huge market potential. Shingrix’s approval of Zostavax, which has been a monopoly in the Merck market for many years, has ushered in new competitors. It is worth mentioning that the Centers for Disease Control and Prevention (CDC) Advisory Committee on Immunization Practices (ACIP) issued a recommendation recommending Shinglix to replace herpes zoster, the vaccine Zostavax used for immunization of the elderly population aged 50 years and over. According to EvaluatePharma, by 2022, GSK will be the world’s vaccine market leader with more than $8 billion in sales with its new herpes zoster vaccine Shingrix (Sanofi second, Pfizer third, MSD fourth).

MSD in China: Explosive demand for Gardasil 9 in China

[Source: Xinhua, Merck Sharp and Dohme (MSD) introduces Gardasil 9 in China]

Merck Sharp and Dohme (MSD) is a global research-driven pharmaceutical company dedicated to putting patients first. MSD China formed in 1994 in partnership with Hangzhou Hua-dong Medicine Group Co. Ltd. From the beginning, MSD China has been a socially responsible, innovative company contributing to improved health and economic growth. With more than 5000 highly skilled, motivated employees throughout the country, MSD China is committed to bringing its high quality medicines and vaccines to the Chinese people. MSD has 10 operation areas, manufacturing plants and R&D centers. It has invested 1.5 billion USD in Beijing to establish a research center in 2011. In April 2013, it invested 120 million for MSD new plant in Hangzhou. The plant is the biggest and with most advanced technology pharmaceutical production packaging plant in APAC area.

One of the highlight products from MSD is its 9-valence cervical cancer vaccine: Gardasil 9. It has become so popular in China that there is not enough supply of vaccines to meet the demand. In 2018, MSD Gardasil 9 cervical cancer vaccine sales reached 3.15 billion USD in China. However, Gardasil 9 in China grew only by 37% due to the production capacity constraints. It is clear that in the future, China is one of the most important consumer markets for MSD cervical cancer vaccine.

Local Giants of the Chinese vaccine market: Changsheng, Zhifei, Kangtai, Walvax

Changsheng

[Source: Changsheng biotechnology Changsheng biotechnology’s vaccine products maintained good market sales]

According to the company’s annual report data, 2017 Changsheng Biological’s vaccine products maintained good market sales, achieving sales revenue growth of 51.67%. The growth is mainly attributed to the company’s significant increase in the sales revenue of category II vaccines, which totaled an operating income of ¥115 million yuan representing an increase of 59.57% from 2016. The sales of category I vaccines however decreased by 5.89%.

Zhifei

[Source: Chongqing Zhifei Biological Products Zhifei Biotech derived its sales mainly from Category II vaccines in China]

Zhifei Biotech’s revenue is mainly derived from the sales and promotion of Category II vaccines in China, including self-developed vaccines and agent-imported vaccines. According to the company’s annual report data, in 2017, Zhifei Biotech generated a sales of ¥1.263 billion yuan from vaccine products, an increase of 205.36% from 2016. Among all vaccines sold, the sales revenue of its self-developed category II vaccines has increased by 140.84%. The total sales of the Category II vaccines in China as a proxy was 274 million yuan, a year-on-year increase of 9231.67%.

From the company’s own analysis, its full-invested subsidiary Zhifei Green Bamboo’s self-produced global exclusive product: AC-Hib triple vaccine, is the most important contributor to the profit growth. At the same time, Zhifei Airport, another full-invested subsidiary of the company, successfully renewed the agency distribution contract for the 23-valence pneumonia with vaccine and inactivated hepatitis A vaccine last year, and the agent’s 4-valence HPV vaccine also successfully passed the drug registration approval, driving the company’s revenue growth.

Kangtai

[Source: Bio Kangtai Changsheng, The sales revenue of Kangtai Bio continue to grow]

Taking close to the market opportunity of the recovery of the vaccine industry in China, Kangtai Bio intensified its sales and promotion of vaccine products in 2017. According to the company’s annual report data, the sales revenue of Kangtai Bio’s vaccine products increased by 113.07% in 2017, among which, the second-class vaccine products. In 2017, the sales revenue was approximately ¥1.034 billion yuan, a year-on-year increase of 148.26%, attributing to the sales growth of its hepatitis B vaccine, Hib vaccine and quadruple vaccine. However, the sales revenue of one class of vaccine products has decreased slightly by 2.00% year-on-year.

Walvax

[Source: Walvax Biotechnology, Walvax Bio’s self-produced vaccines resumed growth]

In 2017, Walvax Bio’s original self-produced vaccine product sales resumed growth, and the sales revenue of various vaccine products increased significantly in 2017, especially the Haemophilus influenza type b conjugate vaccine and the freeze-dried AC vaccine group meningitis. The cocci-polysaccharide conjugate vaccine increased by 169.73% and 108.92% compared with 2016. At the same time,  Walvax Bio’s 23-valent pneumococcal polysaccharide vaccine annual sales was ¥102 million yuan in 2017, accounting for 15.30% of operating income.

Scandals of the Chinese vaccine market and lessons learned

Faulty Vaccines: scandals of local giants making Chinese consumers lose confidence in the domestic vaccine companies

[Source: Changchun Chang Sheng filed bankruptcy after been find making faulty vaccines]

In July 2018, Changchun Chang Sheng Biotechnology, one of China’s largest vaccine makers, was exposed for selling and distributing hundreds of thousands of faulty vaccines to the Chinese vaccines market. The number of rabies vaccines involved is about 113,000 batches. The government’s investigation showed in August 2018 that the company also produced nearly 500,000 non-compliant diphtheria, tetanus and pertussis vaccines.

As this news spreads through the country, the public is outraged as the affected vaccines are intended for babies, not to mention many Chinese families only have one child. Therefore, infant parents began to look for safer sources of vaccines by travelling to Hong Kong and Macao to take foreign-made vaccinations.

Chinese authority stepped into investigation immediately, removed dozens of senior officials and fined ¥9.1 billion yuan on Changchun Chang sheng, placing the company in a difficult situation. Changchun Changsheng announced its bankruptcy in Nov 2019 has sent a strong signal to the vaccine industry in China, indicating that it is likely to face a much stricter legal environment in the near future.

Chinese perceptions of vaccines

Are there ant-vaxxers in China?

Research in 2015 by Hangzhou’s Center of Disease Control and Prevention suggests that the media has swayed Chinese netizen perception of vaccines. Social media activity on Weibo and Zhihu do show that some Chinese netizens are hesitant to use vaccines. Although during the time of the research, some provinces showed a 30% decline in hepatitis B vaccinations, government officials quickly dispelled anti-vax sentiment. Compared to the west, anti-vaccination sentiment in China is more due to fear of contamination rather than distrust of the science of vaccines. Additionally, anti-vaccination sentiment in China tends to arise only after vaccines scandals, and more contained then in the west.

Chinese perceptions of vaccines in 2020

[Source: Zhihu, Consumer on Zhihu asking if the HPV vaccine is worthy and effective]

Although the market for the HPV vaccine in China is booming, many consumers still doubt the necessity of taking the expensive category II vaccine. There are many similar questions posted on Zhihu, a Chinese question-answer forum, asking for detailed information on HPV vaccines. This indicates that the Chinese consumers are aware of the HPV vaccine, but the amount of information available on such vaccines is fairly low. Many are still judging between the needs and the costs.

[Source: Zhihu Chinese consumers asking the necessity of taking vaccines and the types of vaccines required]

As anti-vaccination theories become increasingly prevalent, many consumers are seeking to gain more knowledge on the importance and the necessity for taking vaccines. Moreover, the above question is posted after Changchun Chang Sheng’s faulty vaccines scandal, which indicates Chinese consumers’ concern over the Chinese vaccine market.

Opportunities in the vaccine market in China

Increasing number of newborns as China’s ‘one-child policy’ loosens

In 2015, the “Population and Family Planning Law of China” was amended in which China’s one-child policy became two-child policy. This change will lead to an increase in the birth cohort size and hence an aggregate increase in vaccine demand.

Growing demand for quality vaccinations

Many common vaccines that are currently used in China has been outdated compared to international markets. To fulfil the growing demand, there are more quality vaccines developed and will replace the first generation vaccines. For example, Prevnar 13 and Gardasil 9 approved in 2016 and 2017 by CFDA. Furthermore, the concern over domestic manufacturers made many parents fly all the way to Hong Kong to get foreign-made vaccinations for their children. However, this may also serve an opportunity for foreign-made vaccines to enter the Chinese vaccine market directly.

Growth potential of the adult vaccine market in China

The adult vaccine market in China is also developing along with the aging population. Vaccine for common diseases is proven to be the one of the most effective ways to prevent elderly from getting the diseases. In China, the population of those aged 65 and older is expected to raise to 16.6% by 2030 and thus increase demand for such types of vaccines in China.

Increased purchasing power leading to higher demand of foreign-made vaccinations

With greater purchasing power, more Chinese consumers are willing to buy foreign-made vaccines in China. Disposable income is expected to increase to ¥50,900 yuan for households in the cities and to ¥22,200 yuan for households in countryside, with compound growth rates of 7.1% and 9.5%.

Loosened requirement for clinical trials allowing more room for future development

Historically, China has required clinical trials to be conducted in China before a drug can be approved for use. Reforms in the Chinese Food and Drug Administration (CFDA) in 2017 have removed this requirement and in which makes it easier for companies to receive approval.

Pfizer faced this issue when its Prevenar 7 (pneumococcal 7-valent conjugate), the only pneumococcal vaccine available in China at that time, was up for license renewal in 2015. The government did not approve the renewal, resulting in Pfizer abruptly ceasing their vaccine sales in China and prompting significant changes in the company’s operations, as well as leading to a shortage of the vaccine for Chinese children. Pfizer did not comment on why its license was not renewed, but the Beijing-based finance magazine CaiJin reported on an anonymous source who suggested that the license was not renewed in order to allow domestic pneumococcal vaccine development more time free from competition.

Companies are subject to less regulations. Therefore, the long research and development time they have go through will more likely be realized than ever before.

The vaccine market in China has a long future of growth

Overall, there is still a huge potential for the Chinese vaccine market to further expand in the foreseeable future. The increasing amount of awareness and demand for category II vaccines in China will bring more opportunities and open doors to more foreign companies to provide vaccines in China. Although competition with domestic brands is tight, there is still a displayed interest among Chinese consumers for foreign made products. Additionally, the awareness of diseases is increasing, and as the middle class grows, so will the demand for vaccinations.

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E-pharmacy, also called “internet pharmacy” (网上药店) are online platforms that act as intermediaries or retailers to facilitate the sales of medicine, and are becoming increasingly popular across the world. China is currently facing many of the same regulatory and security challenges with their e-pharmacies as many other developing countries. Despite this, China has many unique market forces and players that make its e-pharmacy development different, and as Daxue Consulting has observed in the past, those agents often contribute and interact in unusual ways.

The Chinese e-pharmacy market has been growing substantially in the last six years according to Sinohealth CMH (中康 CMH). Sinohealth’s study shows that B2C e-pharmacy sales reached almost 28 billion CNY in 2016, which is a 93% YOY increase since 2015 and is over 17 times the sales amount in 2012.  With its rapidly expanding size, China’s e-pharmacy market is already becoming one of the world’s most important sectors of the healthcare industry.

E-pharmacies allow for pharmaceutical to be conveniently delivered to a patient’s doorstep. Photo credit: Daxue Consulting.

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Today, the largest Chinese cities are experiencing a massive increase in demand for health care goods and services, averaging roughly 30% every year. According to China Internet Network Information Center (CNNIC,中国互联网络信息中心), over half of the Chinese population are internet users, with 5.14 million Chinese expected to regularly purchase products online through platforms such as Tmall and Jing Dong (京东), and those numbers will continue to rise in coming years. As a result, the combination of two major trends in China, healthcare and e-commerce, is powering the development of the e-pharmacy alternative at a tremendous pace. In 2016, China overtook Japan and became the world’s second largest pharmaceutical market, with over 914 enterprises approved to sell over-the-counter (OTC) medicines online in China as of January 2017, according to China Food and Drug Administration (CFDA,国家食品药品监督管理总局).

Succeeding in e-pharmacy in China: practicality over risk

One of the reasons for the success of e-pharmacy in China stems from the fact that many Chinese are being drawn into a busy lifestyle where short holidays, rigorous work environments, and long hours are all too common. This results in high levels of stress and pressure within the population and fueling the demand for consumer health products, particularly vitamins and dietary supplements (VDS). The average consumer’s purchasing power is rising quickly in China, and so too is the demand for healthier products to boost their immune systems, delay aging, and fight fatigue. Lack of free time leads the Chinese to value convenient round-the-clock shopping and the fast home-delivery services provided by e-pharmacies.

[ctt template=”2″ link=”g8Pap” via=”no” ]B2C e-pharmacy sales reached almost 28 billion CNY in 2016, a 93% YOY increase since 2015[/ctt]

In many cases, many Chinese citizens are increasingly finding less time to navigate a complex healthcare market, and are off-put by expensive medical services. It is only natural then that self-medication and traditional medicine have remained very common methods of healthcare in China. E-pharmacy services offer a clear solution to the current Chinese lifestyle and desire for rapid product delivery.

E-pharmacy platforms show that herbal and natural ingredients are the most popular medicines. The general Chinese consensus on non-herbal and non-natural medicines such as prescription drugs is quite poor, as they believe these medicines to cause unwanted side-effects and are generally less safe. Thus, OTC products intended for fighting allergies, colds and coughs saw strong growth in 2016, along with dermatological creams in Chinese e-pharmacies.

China’s air quality leads to dryness and other symptoms that are remedied with topical ointments. Calamine Lotion (炉甘石洗剂), developed by Winguide Huangpu Pharmaceutical Ltd (上海运佳黄埔制药有限公司), is an itch-relieving medication and one of the best sellers on Taobao and Tmall. Photo source: Tmall.

Skin products are getting sold faster than other OTC products in China because the highly polluted and often humid air is particularly damaging to skin. Also, Chinese consumers view dermatological products much more favorably, as they are perceived as less dangerous than ingested medicines when it comes to the use of potentially toxic substances.

 Topical medication products, such as this one which can cure skin infections, are very popular on Chinese e-pharmacy platforms. Photo source: Tmall.

This e-pharmacy phenomenon is being primarily driven by China’s younger, tech-savvy demographic groups. Consumer reviews, websites ratings, discussion boards, blogs, and other social media platforms are used frequently by these younger consumers. Firms wanting to sell their products through an e-pharmacy in China must ensure they have a sufficient online presence and the capability to manage online business operations. E-pharmacy user purchases in China depend highly on the opinions of key internet influencers and on the experiences of other customers.

Black market e-pharmacy presence in Mainland China

The rise of e-pharmacies has been mirrored by the surge of illegal sales as well, and the situation has reached a critical point. In China, according to Legit Script, only 3% of e-pharmacy websites comply with local laws and regulations. This means that 97% of e-pharmacies in China are operating somewhat illegally, and most likely with hazardous practices. Rogue e-pharmacies has become a genuine problem in China as these websites are not managed by qualified pharmacies or pharmacists, do not require prescriptions or medical examinations, and sell unapproved and falsified drugs. The public health of citizens is directly threatened by the high saturation of criminal entities in the pharmaceutical industry.

To fight the proliferation of these firms, agencies such as the Chinese Food and Drug Administration are building a drug database for public awareness. Ideally, the Chinese government will also be executing regular campaigns to shut down non-compliant sites and mitigate consumer risk. Furthermore, packaging will be improved, including clear color codes which let patients know if their medicine requires a medical consultation or a prescription.

New perspectives on diversification of e-pharmacy in China

Recent research conducted by Frost & Sullivan shows that there is a large gap between U.S. and China when it comes to the development of the e-pharmacy market. The report states that e-pharmacies accounts for over 30% of the total retail sales in U.S., but in China e-pharmacy sales only account for 1.5% of total market sales. Frost & Sullivan, therefore, concluded that foreign multinationals would be well-positioned to exploit the market differences.

[ctt template=”2″ link=”4GeeE” via=”no” ]China could legalize the selling of prescription drugs online within five years[/ctt]

The leading consumer health players haven’t missed out on the e-commerce and e-retailing trends in China. Chinese pharmacies and international players have started selling online though the most popular e-commerce Chinese websites. For example, Guangzhou-based health giant By-Health (汤臣倍键) opened its flagship store on Tmall (天猫) in 2011. After 12 months, that had already realized over 600 million CNY on the platform. This new channel of e-pharmacy is letting large firms reach more customers than ever before.

Protein powder (蛋白粉), liquid calcium supplements (液体钙), fish oil supplements (鱼油) and folic acid vitamins (叶酸) are the top-selling categories on By-Health (汤臣倍键)  Tmall store. Source: Tmall (天猫).

As online reputations are of paramount importance in Chinese e-pharmacy, direct selling companies are offering consumers various experience centers to review products. In this way, customer needs are targeted far more effectively, products can be segmented, the company’s internet image stands to improve, and brands can engage with consumers more directly. Amway (安利) and Infinitus (无限极) for example, both have implemented successful strategies with this in mind. By creating and maintaining a strong brand presence on WeChat and other top platforms, both brands could quickly garner helpful feedback and respond in kind. Other e-pharmacies should explore how to advertise in China, as mobile advertising is still one of the best solutions to boost sales in China, since mobile internet-based formats are skyrocketing at a yearly rate of 600%.

Amway and Infinitus have both created an online presence through successful branding and marketing. Bichen Zhang (张碧晨), a Chinese singer, is seen promoting an essence lotion product on Amway’s official WeChat account. Photo Source: Infinitus and Amway’s official WeChat account.

Most importantly, however, is the fact that China could legalize the selling of prescription drugs online within five years. As of May 2016, the CFDA has halted all online, third-party platform trial periods of prescription drug sales. However, the Chinese have also been looking to reintegrate those services into the economy. On December 2016, the Ministry of Commerce of China issued “The National Development Plan for Drug Circulation Industry (2016-2020)” (全国药品流通行业发展规划2016年-2020年) in which the government stated that China should cultivate many large-scale pharmaceutical enterprises with high-quality, standardized practices that extend all over mainland China.

At the same time, the government stated it would “support the cooperation between existing drug distribution enterprises and medical institutions and healthcare department, e-commerce enterprises to promote the medical e-commerce business services.” In January 2017, the Chinese government issued another series of documents, which aimed to provide a more comprehensive framework for growing the e-pharmacy industry, as well as encouraged the exploration of other prescription drug e-commerce operations.

However, the legalization of online prescription drugs sales is mainly targeted towards self-operated e-pharmacies, as they usually have the correct qualifications and certificates which allow them to sell drugs without being impacted by the policies. In that case, the investment in self-operated e-pharmacies will become a new trend. Although internet third party platforms, like Tmall, were forbidden to sell online in May 2016, those platform’s distribution channels are still stronger and more established than those of self-operated e-pharmacies.

According to the National Health and Family Planning Commission’s magazine (中华人民共和国国家卫生和计划生育委员会, China Pharmacy (中国药店), the sales of self-operated e-pharmacies and the third-party platforms account for 32% and 59% of the total online sales respectively. However, since the government is planning to standardize the market, there will be more restrictions for third-party platforms. From here, it is highly possible that self-operated e-pharmacies may overtake those third-party platforms in the future.

E-pharmacy consumers mainly consist of younger demographics. However, its convenience is also marketed to elders who have difficulties leaving the house.

In the past two years, many established pharmaceutical firms have begun to purchase self-operated e-pharmacies. For example, Renhe pharmacy (仁和药业) has purchased 56% of Yaofangwang’s (药房网) stock in 2016 for 600 million CNY, which lead Yaofangwang to realize 192 million in revenue during their first year of joint operations. Seeing successful acquisitions like Renhe’s, many third-party platforms have followed suit. AliHealth (阿里健康) purchased Guangzhou Wuqiannian Medicine (广州五千年医药) for 16.8 million CNY in 2016 to get the selling certification that Guangzhou Wuqiannian had been using.

Regulations have forced many small business operations to be acquired by large companies capable of meeting industry standards. Photo source: Alihealth.

What are the new trends for medical e-commerce in modern China?

With the competition of online pharmacies becoming more and more fierce, it becomes hard for a medical online platform to be differentiated from others and gain profits from sales. To break the ceiling, some platforms start to provide personalized products and services like online clinical services, medication guidance, and health management. Advanced technologies are also applied to improve services in different ways. This trend is called medical e-commerce 2.0. Furthermore, e-commerce 4.0 sheds light on the latest advanced technology which may have a big impact on the prospect of medical e-commerce.  Technologies like voice assistance search, artificial intelligence, augmented reality and so forth likely improve consumers’ purchase journey experience and thus, online pharmacies could take initiatives to stay ahead of their competition.

So as to differentiate the specialized platforms from normal online pharmacies that only provide products, online medical stores draw much attention on professionalization which provides additional services for customers on specialized medical advice and their applications. Many e-pharmacies such as Yiyaowang (1药网), Jianke (健客), Kangaiduo (康爱多) have launched a “medicine + doctor” model. For example, the Yizhen (1诊) app developed by Yiyaowang is effective in driving customers by providing a series of additional services, such as clinical service and medication guidance from Xinan internet hospital. The objective is to ensure the quality consistency of online and offline service so that a larger market share can be reached.

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O2O strategy being widely adopted in medical e-commerce 2.0 in China

As a core part of the transition to medical e-commerce 2.0, O2O strategy helps medical e-commerce platforms to offer better medical service, shorten delivery time and cover more customers, which will improve the competitiveness of the industry.

The O2O model aims to combine online information and offline services. For customers, they can place an order online and pick up the products in offline stores where they can get additional services like medication guidance. Customers can also place their order in offline stores even if the goods are sold out. The products will be sent from another store or the warehouse directly to the customers’ home.

Online pharmacies, such as Kangaiduo, have built offline stores on the basis of online platforms of a self-built official website, flagship stores on JD and Tmall, mobile WAP website, WeChat store, and Kangaiduo App. Some traditional offline pharmacy chains after years of operation and development have also established their presence online based on their professional service that relies on the community.

“Web-based hospital + Drugstore” is another type of O2O strategy practiced by AliHealth. It founded China Medical O2O Pioneer League with many offline pharmacies and tried to use mobile internet technology and big data technology to realize data interaction, build customer profiles, and get through the upstream and downstream industry service. Online medical service “One-minute clinic” is offered in member store of the league, providing personalized health management services.

Active social media presence in China is a clear feature shared by main platforms

Weibo and WeChat public account is their main focus on social media. Knowledge popularization by professionals and health advice are provided to the general population in the form of articles and videos. Meanwhile, product recommendation and purchase links are attached to promote sales.

For example, the official account of Haoyaoshi on Weibo, which has 459 thousand followers, provides a variety of information including public health events, health advice, and refutation to rumors. In addition, lottery events are held regularly to attract followers and increase exposure. On WeChat platform, original articles and serial caricatures about health knowledge and recommended products are sent. And customers can make purchases in Haoyaoshi online store through WeChat Mini program.

Daxue Consulting expertise on the Chinese healthcare market

A major pharmaceutical player in Europe was looking to expand their operations in China and reached out to Daxue to gain a better understanding of the Chinese market, specifically in respiratory health. Many highly-industrialized regions and cities in China, like Beijing, regularly experience poor air quality. As a result, citizens of these areas are being affected by air quality related health concerns in record numbers. Daxue’s team provided the insight and research into these critical locations so that the client could best tailor their products and services for the Chinese market.

Our project managers approached the problem from multiple angles. Qualitative interviews with medical professionals, patients, and other industry insiders helped create a picture of the scope and implications of the problem. With extensive quantitative research using advanced analytics techniques, our team was able to discern key areas of focus for the client’s expansion. Ultimately, Daxue’s recommendations helped our client design the optimal strategy for increased profitability and addressing one of China’s greatest health concerns.

In the healthcare industry and other practices, our clients share our passion for results and success. For more on our expert insights and our work in the Chinese market, reach out to learn more.

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This article E-pharmacy in Mainland China: the health shift online is the first one to appear on Daxue Consulting - Market Research China.

B2C medical e-commerce market will keep growing in China

Intensifying aging and higher demand for medical service drive the growth of the healthcare industry

Due to the effect of a one-child policy, an imbalanced population structure is emerging. As the population aged over 65 keeps growing, more medical products and services will be needed, which provides a good environment for the growth of medical e-commerce.

Meanwhile, the improvement of the economic condition and growing concern over health and diseases lead to a higher demand for health products and medical services. One demonstration is the health expenditure’s keeping growing despite the government’s effort on cutting down medical costs. In the future, better services provided by medical e-commerce platforms will be attractive and lower prices will make them even more competitive.

Solid foundation: Prosperity of e-commerce in China

As shown below, the scale of e-commerce and online shopping is growing. The prosperity of e-commerce will benefit the growth of medical e-commerce market in two ways: customers’ behavior and whole-process operation support.

The development of e-commerce has greatly changed customers’ behavior in China. Giant e-commerce platforms like Tmall and JD which have a wide range of product portfolio offer cheap and fine goods with excellent customer services, fast delivery, and quality assurance, making online shopping care-free and convenient. Nowadays, trust has been built between the platforms and the customers and people are getting used to making purchases online. So, online pharmacies are also acceptable as long as the same quality and service as offline stores are assured.

Moreover, almost all mainstream e-commerce platforms provide simple and quick entry process for sellers and there are various operation supports offered by platforms and third-party companies, simplifying store operation. Meanwhile, the delivery services in China, credit to the prosperity of e-commerce, is fast and reliable. In brief, all these factors make up an excellent development environment for medical e-commerce.

Good prospect for B2C medical e-commerce: Low market share and high growth rate

According to health-care information company IQVIA, China was the world’s second-largest national pharmaceutical market in 2017 — worth $122.6 billion. By 2017, the market of total medicine sales reached 1,600 billion RMB, while the market for online medicine sales was only 121.1 billion RMB, accounting for 7.4% of the total sales. Compared with America, whose market share of online medicine sales was 33.3% in 2015, the China market has plenty of room for the growth of online pharmacies. The CAGR (Compound annual growth rate) of online sales share in China from 2012 to 2017 was 37.6%, indicating a rapid growth rate and a large market potential.

To look into the medical e-commerce market, B2B and B2C markets are growing at a different pace. In the past few years, B2B market share accounts for more than 50% due to the large purchase amount from hospitals, primary health care institutions and terminal pharmacies. However, the share of the B2C market has been increasing every year, indicating that more customers are buying medicines and health products online. In addition, OTC (Over-the-counter trading) is taking a larger proportion in the sales of online pharmacies, showing the customers’ acceptance for medical e-commerce. In the future, OTC online distribution will keep growing and become the main part of medical e-commerce in China.

More chances are springing up from the transition to medical e-commerce 2.0 in China

The limitation of traditional e-commerce methodology has appeared

In the first several years, online pharmacies were just online drug retailers, following the same methodology as other e-commerce sellers. Medical e-commerce 1.0 is the simple online sales service model which provides medicine transaction service for customers using the internet and information technology. They generally reached their growth and market share through their advantages of price and home delivery service over offline pharmacies. But with more competitors joining in, it becomes hard for an online pharmacy to be differentiated from others and gain profits from sales. To break the ceiling, some platforms start to provide personalized products and services like online clinical services, medication guidance, and health management. Advanced technologies are also applied to improve services in different ways. This trend is called medical e-commerce 2.0.

The focus is put on mobile applications

Mobilization is one of the main features of medical e-commerce 2.0. Medical e-commerce transactions on mobile devices started to exceed transactions on PC devices in 2015 and mobile devices will be the mainstream in the future. This is to a large extent due to the widespread of smartphones and the development and optimization of mobile applications. Data from Yiyaowang (1药网), Kangaiduo (康爱多) is to develop their own websites and applications specialized in medical products and services. This requires them to attract their own customers and maintain user activity. Either way is of importance to increase exposure and attract customers on mobile devices.

Professionalization is the driving factor of the transition to medical e-commerce 2.0

Professionalization is to provide additional services for customers on specialized medical platforms and their applications. It differentiates the specialized platforms from normal online pharmacies that only provide products. Many e-pharmacies such as Yiyaowang (1药网), Jianke (健客), Kangaiduo (康爱多) have launched a “medicine + doctor” model. They have included health management, clinical service, and medication guidance to attract customers. For example, the Yizhen (1诊) app developed by Yiyaowang is effective in driving customers by providing a series of additional services. The objective is to ensure the quality consistency of online and offline service so that a larger market share can be reached.

O2O model in medical e-commerce: One step ahead for better service and wider coverage

O2O model is still being explored in medical e-commerce with a good prospect.

The O2O model aims to combine online information and offline services. For customers, they can place an order online and pick up the products in offline stores where they can get additional services like medication guidance. Customers can also place their order in offline stores even if the goods are sold out. The products will be sent from another store or the warehouse directly to the customers’ home.

Online pharmacies, such as Kangaiduo, have built offline stores on the basis of online platforms of a self-built official website, flagship stores on JD and Tmall, mobile WAP website, WeChat store, and Kangaiduo App. Some traditional offline pharmacy chains after years of operation and development have also established their presence online based on their professional service that relies on the community.

“Web-based hospital + Drugstore” is another type of O2O strategy practiced by AliHealth. It founded China Medical O2O Pioneer League with many offline pharmacies and tried to use mobile internet technology and big data technology to realize data interaction, build customer profiles, and get through the upstream and downstream industry service. Online medical service “One-minute clinic” is offered in member store of the league, providing personalized health management services.

Medical e-commerce platforms are quickly developing and forwarding their O2O strategy

Different entries to the medical e-commerce and their features

There are mainly two types of medical e-commerce platforms:

General e-commerce platforms such as Tmall and JD run medical e-commerce platforms as a segment. They have a large and steady population which can be easily transferred to customers of medicine and health products. In Tmall’s 2017 double eleven shopping festival, Tmall pharmacy reached sales value of 100 million RMB in 3 minutes and 300 million RMB in 6 minutes. Ali’s financial statement showed that the annual revenue of AliHealth in 2017 was 475 million RMB and it reached a year to year growth of 739.4%. This type of platforms has a variety of SKUs operated by themselves but retailers can set up their flagship stores as well.

The others are specialized platforms run by medical e-commerce verticals, such as Yiyaowang and Jianke. They offer both products and services on their websites and mobile applications. They do not have a regular population as general platforms but their specialized services and comprehensive product portfolio help them maintain a number of core customers.

Specialized e-pharmacies are gaining advantages in the increasingly fierce competitive environment

The market size of online pharmacies has gone through rapid growth, reached 6.1 billion RMB in 2017. But the competition is also tough: the number of online pharmacies has been growing fast, reaching 678 in 2016.

Of all online pharmacies, specialized online pharmacies are having a better performance. The Chinese Medical E-commerce Competitiveness Report ranked B2C e-pharmacy competitiveness on the basis of the platforms’ product range, financing capability, and service capability. Yiyaowang, Jianke, and Haoyaoshi, three medical e-commerce verticals were ranked at the top. They belong to three professional medical enterprises respectively, indicating that specialized platforms are more preferred by customers.

Yiyaowang (1药网)

• Parent company: Guangdong No.1 Pharmacy Chain Co., Ltd. (广东壹号大药房连锁有限公司) owned by Guangdong No.1 pharmaceutical group. The 111 group has the B2C medical platform Yiyaowang, digital hospital (1诊) and B2B platform Yiyaocheng (1药城).
• It was established in July 2010. It is one of the largest online pharmaceutical platforms and one of the first to upgrade to an O2O pharmaceutical platform driven by technology.
• Coverage across the country: main 23 provinces. The thorough warehouse and logistics system allows delivery within 24 hours.
• Yiyaowang and the digital hospital 1 Zhen (1诊) have more than 2000 in-house and third-party medical professionals who provide clinical and pharmaceutical services.

Recent activities:

• On the rank of China Pharmacy Chains Comprehensive Strengths Top 100 (中国连锁药店综合实力百强);
• Received $50 million in financing from 6 Dimensions Capital (通和毓承) in April 2018;
• Cooperation with Jiuzhoutong (九州通) on purchasing channels, co-marketing on the internet, logistics etc.

Jianke (健客网)

• Parent company: Jianke Pharmaceutical Co., Ltd. (广东健客医药有限公司) was founded in 2006. After 10 years of rapid development, it has become a famous Internet + pharmaceutical health service platform. It is listed as a unicorn company in the e-pharmacy industry by i-research Consulting.
• Recent activities
• In July 2018, Jianke has realized intelligent medicine purchasing by cooperating with JD Alpha, the intelligent service platform.
• In August 2018, Jianke announced that it will build 10,000 square meters industrial base in Guangdong for Internet pharmaceutical supply chains. The project is invested with 0.2 billion RMB and is expected to bring 2 billion RMB sales revenue.

Haoyaoshi (好药师)

• Haoyaoshi is the medical e-commerce platform owned by Jointown Pharmaceutical group (九州通). In 2016, Jointown integrated its internet business sections, including Haoyaoshi, and built Health 998 E-commerce group, realizing its O2O strategy.
• 2017 revenue: 1.078 billion RMB. It ranks the second among the platforms that revealed their revenue.

A brief summary of the top 3 platforms

Active social media presence is a clear feature shared by main platforms

Weibo and WeChat public account is their main focus on social media. Knowledge popularization by professionals and health advice are provided to the general population in the form of articles and videos. Meanwhile, product recommendation and purchase links are attached to promote sales.

For example, the official account of Haoyaoshi on Weibo, which has 459 thousand followers, provides a variety of information including public health events, health advice, and refutation to rumors. In addition, lottery events are held regularly to attract followers and increase exposure. On WeChat platform, original articles and serial caricatures about health knowledge and recommended products are sent. And customers can make purchases in Haoyaoshi online store through WeChat Mini program.

Popularity has been raised through online advertising

Baidu ranking is a widely used tool for online advertising. Relevant advertisements are showed on the result page of Baidu, which will greatly increase exposure. Many online pharmacies also purchased an online advertisement to raise popularity.

Below is the search result of “online drugstore” on Baidu APP. Haoyaoshi pays for better position and it is the second result. Also, Yiyaowang and Jianke can be found just under Haoyaoshi.

To have a brief look at the platforms’ popularity, Baidu index shows the rising or decreasing interest for specific brands. 2015 and 2016 are the peak for most platforms indicating that medical e-commerce had a rapid development in these two years.

Baidu index of “Yiyaowang”

The peak of the search is in 2015, which is estimated to be owing to following activities happened in this year:

• The website changed its name from “壹药网“ to “1药网” with a focus on 1.
• Its first O2O offline experience store was launched in Chengdu.
• Yiyaowang received 0.45 billion RMB financing, which was the largest financing for medical e-commerce
• The financing was used on supply chain construction and mobile device investment.

Baidu index of “Jiankewang”

The peak of the search is in 2016, which is estimated to be mainly owing to its DTP strategy starting in that year.

Baidu index of “Haoyaoshi”

The peak of the search is in 2015, which is estimated to be owing to its active O2O strategy this year – cooperation with medical institutions to realize hospital + medicine e-commerce.

O2O model has been applied widely and will be the dominant operation mode of medical e-commerce

As a core part of the transition to medical e-commerce 2.0, O2O strategy helps medical e-commerce platforms to offer better medical service, shorten delivery time and cover more customers, which will improve the competitiveness of the industry. No wonder that all top 3 medical e-commerce platforms have been forwarding their O2O strategy.

Yiyaowang

• Established cooperation with Jointown pharmaceutical group (九州通) on purchasing channels, co-marketing on the internet, logistics etc. With the help of offline pharmacies of Jiuzhoutong, Yiyaowang is able to increase coverage and shorten the delivery time.
• Established cooperation with Beijing Tongrentang (同仁堂) to integrate online and offline resources. Tongrentang has entered Yiyaowang and become the first traditional Chinese medicine brand on Yiyaowang. Consumers can purchase online and then get online service for further advice in Tongrentang offline stores.
• Launched an O2O experience store in Chengdu in 2015, marking a new step for Yiyaowang’s O2O strategy. Consumers can choose medicine online and make purchases offline. The store also provides clinical service and delivery service.

Jianke

• Has opened 8 DTP (direct-to-patient) pharmacies so far, which is an important part for Jianke O2O strategy. DTP model is going to be a good solution given the separation of hospital and medicine and the outflow of prescription.
• Plans to locate the digital hospital in Guangdong. Jianke will work with offline medical institutions to realize the digitalization of the whole process except for face-to-face diagnose and physical examination.
• Acquired a hospital in Wuhan in 2017 and has been working with a hospital in Guangdong.

Haoyaoshi

• Possessed over 300 stores in 12 cities across the country, over 100 of which have O2O medicine delivery service. Haoyaoshi app has 160 members, 310,000 active users, and over 3000 orders per day. Jointown has built a nationwide supply chain and logistics information service system.
• Uses offline pharmacies as delivery points. In the future, Haoyaoshi plans to cover over 30 cities, satisfying the needs in all tier1, tier2, and tier3 cities.
• Has been working with a hospital in Beijing to build its digital hospital.

Brightness under uncertainty: Be prepared for the promising future

A huge opportunity is to be released with the deregulation of medical policy

Due to the particularity of the medical industry itself and the medical system in China, strict laws and regulations are set to ensure medication safety. Companies have to acquire a license for online drug sales and prescription medicines are forbidden to be sold on e-commerce platforms. But the government is also pushing forward the application of Internet technology to improve medical services in China. And it is said that restrictions on online sales of prescription drugs are going to be loosened in the near future. Once the policy is enacted, medical e-commerce will face another boom because the medicine market in China in 2016 was 1,490 billion RMB, 85% of which came from prescription drugs. At present, hospitals are the main sales channels of prescription drugs. This is going to change in the future and a large portion of sales will go to online pharmacies, which will benefit online pharmacies a lot.

Limitation of licensed pharmacists is still to be overcome

Pharmacists are responsible for examining the prescriptions and providing medication suggestions for patients. However, pharmacists seldom play their due role in China. They only follow the prescriptions rather than provide professional insights. But online sales of prescription medicines to a large extent rely on the assurance of pharmacists’ services. So, it’s of importance to overcome the limitation of pharmacists for the development of medical e-commerce. This requires the licensed pharmacists to have clinical pharmacy knowledge and practical working experience so that they are capable of providing professional pharmaceutical services.

Medical insurance is another challenge faced by medical e-commerce in China

The medical insurance in China is regulated by areas. Although the government has already been forwarding the integration of medical insurance, there are still obstacles due to different medical policies in different areas. So, it’s still uncertain if customers can use medical insurance to buy medicines online, which has a significant influence on the medical e-commerce market.

Customers’ main concern about online pharmacies calls for the perfection of government regulation

Medical consumption is different from other consumer goods because the quality and authenticity of medicines have a direct influence on one’s health. In hospitals and offline chain pharmacies, the safety of medicines is ensured, but for online pharmacies, customers will have more doubts about the qualification of the platforms.

On Zhihu, a question and answer platform in China, top-rated questions regarding “online pharmacy” and “buy drugs online” are:

• Are online pharmacies on Tmall reliable?
• Which online pharmacy is reliable?
• Are there any recommendations for apps for buying drugs?

Most of the answers are positive regarding the online pharmacies. They also provided methods to identify formal platforms.

One of the top-rated answers says:

• The government is very strict at the qualification of online pharmacies. Therefore, it’s actually safe to buy drugs on online pharmacies, including pharmacies on JD and Tmall.
• It’s important to choose an online pharmacy that is approved by the government, which can be checked by the China Food and Drug Administration or the operation certificate issued by the government.
• Recommended online pharmacies: Jianyiwang, Haoyaoshi, Tmall Yiyaoguan, Qilekang, and Yiyaowang.

According to Baidu behavior search, keywords associated with the search of “online pharmacy” are “formal”, “Which is the best online pharmacy”, “top ten formal online pharmacies in China”, etc. indicating that consumers are extremely concerned about the reliability of online channels of buying drugs as they can’t take the risks when it comes to medicine.

Indeed, further development of the medical e-commerce industry relies on the looser regulation of the government but when it comes to the supervision of the platforms’ qualification and the assurance of medical safety, present regulations are still not enough. Uncertainty will still exist due to the contradiction and complexity of the medical industry. But what is certain is that the industry has a promising future and big development space with the perfection of government regulation.

Daxue Consulting can help with the analysis of any market in China, including the medical e-commerce market

Daxue Consulting, as a market research company, provides the adapted data in one of the most challenging markets in the world, China.  We have a wide range of services to deliver competitive market research. To know more about the online pharmacy market in China, do not hesitate to contact our project managers at dx@daxueconsulting.com.

This article Medical e-commerce in China: Get ready for the anticipated opportunity | Daxue Consulting is the first one to appear on Daxue Consulting - Market Research China.

Overview of Shandong Dong-E E-Jiao in China

Shandong Dong-E E-Jiao is part of China Resources Holdings Co Ltd, with China Resources holds 23% of the company’s shares through the co-founded company China Resources Dong-E E-Jiao Co Ltd.

With flagship brand E-Jiao, a traditional Chinese medicine-based product, Shandong Dong-E E-Jiao operates business of many kinds, mainly vitamins and dietary supplements, as well as others including biotech medicine, health food and etc.

Shandong Dong-E E-Jiao’s sales network is quite extensive, with over 75,000 points of sales covering 31 provinces and municipalities across China, with 33 branch offices in 10 cities including Beijing, Jinan and Guangdong.

Company Profile of Shandong Dong-E E-Jiao in China

Production of Shandong Dong-E E-Jiao in China

All production and even all the 9 raw material centers of Shandong Dong-E E-Jiao are located within China. The 9 raw material centers are located in Xinjiang, Liaoning, Inner Mongolia, Shandong, Henan, Gansu and Yunnan.

Shandong Dong-E E-Jiao never manufacture products for third parties, neither under license nor as private label for large-scale retail groups.

Market Position of Shandong Dong-E E-Jiao in China

Shandong Dong-E E-Jiao dominated the sales market of the E-jiao market in China, having almost 70% of the total market, owning to its near monopoly in donkey skin resources, the raw materials for E-jiao. Actually, according to a recent conducted market research in China, Shandong Dong-E E-Jiao controls over 90% of donkey skin resources in China.

Shandong Dong-E E-Jiao’s market positioning is at the high-end market and hence its price is much higher than other brands. As is indicated by a market report in China, Shandong Dong-E E-Jiao priced 710 yuan for 500g E-jiao while Fujiao, the second brand in the market of E-jiao in China, only priced 487 yuan in 2011.

Competitive Position of Shandong Dong-E E-Jiao in China in 2011

Strategies and Future Plans of Shandong Dong-E E-Jiao in China

• Shandong Dong-E E-Jiao invested 200 million yuan building 13 donkey farms in China, since raw materials of E-jiao come from donkey skins.
• Shandong Dong-E E-Jiao launched a donkey raising and selling program in the Kashi area of Xinjiang and Qiangyang in Gansu.
• Shandong Dong-E E-Jiao made tis entry into the international market focusing on demand for Chinese herbal products in the international markets.
• Shandong Dong-E E-Jiao established subsidiaries in Germany and Malaysia, exporting products to Southeast Asia, North America and Europe.
• Shandong Dong-E E-Jiao launched 5 new E-jiao products at an international exhibition in Hangzhou in 2010.
• Shandong Dong-E E-Jiao eslabilshed several new production lines to expand its production capacity in order to cater to consumers’ needs.
• Shandong Dong-E E-Jiao started internet retailing by running its B2C platform: www.edongeejiao.cn.

• Shandong Dong-E E-Jiao plans to concentrate on its multi-brand strategy in the coming years.
• Shandong Dong-E E-Jiao has its plan of investing heavily in innovation and new product development for modern female consumers.

Edited by Amy Wang from Daxue China consulting (Focus Groups in China)

Picture source: baidu, baidu, baidu

This article Market Research for Shandong Dong-E E-Jiao in China is the first one to appear on Daxue Consulting - Market Research China.

Jiangzhong Pharmaceutical is part of Jiangzhong Group which holds 6,374.4 million shares and represents 43.63% of the total share capital.

Jiangzhong Pharmaceutical has national coverage, distributing its products across the entire country. The company’s net profits decreased by 24% in the first half of 2011, compared to the same period in 2010.

Jiangzhong Pharmaceutical is also taking part in the development of an anti-AIDS drugs in cooperation with the Chinese Military Academy of Medical Sciences.

Overview Indicators of Jiangzhong Pharmaceutical Co Ltd

Sectors within Jiangzhong Pharmaceutical

The company operates in multiple sectors of the Chinese pharmaceutical industry including herbal and traditional products, healthcare products and pharmaceutical distribution, as is shown by a related market research study in China.

The herbal and traditional products account for more than 50% of the company’s total profit.

The pharmaceutical distribution business and healthcare business bring in high returns for the company.

Production of Jiangzhong Pharmaceutical in China

Jiangzhong Pharmaceutical has set up a production centre, Jiangzhong Pharmaceutical Valley, covering an area of 1,100 hectacres in Nanchang.

• The company produces pharyngeal preparations such as Liang Sang and Cao Sshan Hu lozenges
• The Chueum Composite Peptide Specialized Diet grew 20% in 2011 compared to 2010, according to a recent market analysis in China.
• The company reduced supply of Taizishen because a rise in production costs, including the main raw materials, reduced margins for the company
• The company is trying to expand the production and market share of Shen Ling Cao Oral, a relatively new product at the end of 2010

Market Position of Jiangzhong Pharmaceutical in China

Jiangzhong Pharmaceutical, thanks to its years of advertising and accurate market positioning, has become one of the most recognized digestive remedy producing companies in China.

Jiangzhong Pharmaceutical offers a narrow products portfolio in OTC products, with the help of its two national engineering research centres in the pharmaceutical industry.

 Competitive Position of Jiangzhong Pharmaceutical in 2011

Adopted Strategy and Future Direction of Jiangzhong Pharmaceutical in China

• Jiangzhong Pharmaceutical has been concentrating on marketing and advertising to improve its brand awareness and reputation
• The company has been enhancing its production capacity
• To gain stronger market power in the Chinese pharmaceutical industry, Jiangzhong Pharmaceutical has been introducing new healthcare products, like Shen Ling Cao Oral
• By introducing innovative sales channels such as the Da Yu Program, the company has enabled consumers to buy its products more easily and conveniently
• Jiangzhong Pharmaceutical plans to respond to the profit decrease by raising prices and launching new products

Daxue China consulting (Mystery Shopping in China)

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