General Biologic's  Instablog

Medical E-commerce is not a new concept for most people. However, several recent transactions in the pharmaceutical industry are compelling observers to take another look.

 Back in May, an online shopping website owned by Tencent, Paipai.com, launched its online drug store. Then, on June 20th, Taobao announced that its Taobao Mall B2C platform was opening a new online pharmacy channel. Next, on July 6th, Jointown Pharmaceutical reportedly entered the online drug sales market in cooperation with 360buy.com. Most recently, on July 12th, news broke that Dangdang.com had applied for an SFDA license to sell medicine online, after having finalized an exclusive partnership deal with Sinopharm.

 According to statistics released by the China Association of Pharmaceutical Commerce, the Chinese retail market hit RMB 173.9 billion in 2010, a year-on-year increase of 17%. Nevertheless, internet sales of pharmaceutical products represented only a paltry RMB 100 million of that total.

In comparison to the potential of medical e-commerce, the number of enterprises active in this space remains relatively small. According to SFDA data, only 67 companies have obtained online trading licenses, of which 36 are B2C, 23 are B2B, and 8 are third-party trading platforms.

 At present, there are three issues to be considered in medical e-commerce: (1) the availability of online trading licenses; (2) medical product distribution; and, (3) online sales reimbursement rates.

 Due to restrictions on online trading licenses, Taobao and other third-party online trading websites that hold online medical information service licenses are permitted to display medical information, but not to sell medicines. Websites expecting to join the online drug sales market must comply with the Online Medical Product Sales and Services Permit regulations.

 Drug distribution is another obstacle to the development of online trading. On one hand, distributing online retail pharmaceuticals carries higher costs than traditional wholesale pharmaceuticals; but on the other hand, medical e-commerce websites must retain only legally qualified GSP distributors to deliver drugs, since no third party may distribute drugs without proper certification.

On the issue of medical reimbursements, despite annual increases in the number of reimbursed drugs and the greater acceptance of electronic payment methods, it will remain an impossible task for online drug sellers to be certified as designated drug stores for the purposes of medical insurance.

 And yet, despite these drawbacks, online drugstores have obvious price advantages over traditional bricks-and-mortar drugstores. Average online drug prices will always be lower due to significantly lower management and overhead costs.

 Meanwhile, the development of e-commerce will eliminate the boundaries of traditional distribution channels, and it will provide greater access to drugs for those consumers living in remote or rural areas. While the SFDA and other watchdogs have (rightfully) increased their scrutiny of the medical e-commerce area, the sector will likely continue to be an area of interest, investment, and controversy.