Online prescription drug sales are to be legalized in China
Internet sales of prescription drugs are expected to be legalized in China under the new regulations set to become effective around Jan. 1, 2015, reports the Chinese-language Securities Times.
Since its launch four years ago, the scale of China's pharmaceutical e-commerce market has ballooned at an average annual rate of 250.35%, reaching 4 billion yuan (US$646 million) in 2013 alone. The figure, however, is small compared with the scale of the entire pharmaceutical retail market, which was valued at 1.3 trillion yuan (US$210 billion) last year. Of this amount, over-the-counter drugs accounted for just 178.3 billion yuan (US$48.4 billion).
Third-party e-commerce platforms such as Tmall , which is owned by Alibaba Group Holding Limited (BABA), have also launched dedicated drug selling sites to tap into the pharmaceutical retail market. Tmall predicts that an online prescription drug market will provide a significant boost to its sales, which topped US$326 million in 2013, from the 120 online pharmacies on its platform.
China Jo-Jo Drugstores (NASDAQ:CJJD)
China Jo-Jo Drugstores, Inc. operates as a retailer and distributor of pharmaceutical and other healthcare products in the Peoples Republic of China. It operates a retail pharmacy chain that provides pharmaceutical products. In addition, the company operates dada360.com, an online drugstore that retails OTC drugs and nutritional supplements.
CJJD online pharmacy sales are surging for this small cap stock even prior to the ability to sell prescription drugs online.
- Retail pharmacy sales increased by $3.0 million, or 31.3%, to $12.4 million from the comparable quarter of the prior year, largely due to a 28.79% increase in same-store sales;
- Online pharmacy revenue surged by 84.2% to nearly $3.0 million, as compared to $1.6 million in the same quarter last year;
- Wholesale revenue, which accounted for approximately 16.7% of total revenue, decreased to $3.1 million from $5.8 million for the comparable quarter of the prior year;
- Net loss attributable to the Company narrowed to $36,193 from $546,062 for the comparable quarter of the prior year;
- As of September 30, 2014, the Company had cash and restricted cash balance of approximately $12.8 million, $49.5 million in total assets and $34.4 million in total liabilities.
CJJD Collaborates With Industry Giants Alibaba Group Holding Limited and JD.com, Inc. (NASDAQ:JD)
"Our online pharmacy sales continued to grow dramatically during the most recent quarter largely thanks to our efforts in expanding collaboration with various large Chinese e-commerce platforms such as Tmall.com under Alibaba group and JD.com," stated Mr. Lei Liu, the Chairman and CEO of the Company.
CJJD Mentioned Legalization Of Online Prescription Drugs & Government Insurance Reimbursement As Explosive Market Opportunities
"Looking ahead to next year, other than OTC drugs, nutritional supplement and medical equipment, Chinese government may begin to allow online sale of prescription drugs. Furthermore, local government is planning to apply government medical insurance to online purchases. In preparation for these coming explosive market opportunities, we plan to further strengthen our workforce so as to expand our online operation."
On December 4, 2014, CJJD announced that its sales reimbursed by health insurance companies grew significantly both online and offline. From January to October 2014, the management estimates the online private insurance reimbursed revenue have reached approximately $1.62 million (RMB10 million), a 260% increase over the same period in 2013; the reimbursed sales of offline retail drugstores have reached approximately $0.89 million (RMB 5.5 million), a 50% increase year over year.
As with any US listed company from China the question always persist about the accuracy of the financial statements and the potential for fraud. However, CJJD has been listed since 2009 and has thus far made it through the period where every Chinese listed small cap has been questioned. Additionally, CJJD has a tradeable float of approximately 7 million shares. Low float stocks can be subject to extreme and rapid moves.
CJJD was almost breakeven last quarter due to growing sales. CJJD trades at an Enterprise Value/Revenue (TTM) of .54. Larger pharmacy chains like Walgreen Co. (WAG) and CVS Health Corporation (NYSE:CVS) trade at Enterprise Value/Revenue of .93 and .87 for a point of reference.
For small cap traders looking to get exposure to the legalization of online prescription sales in China, CJJD has an online pharmacy with growing sales and collaborates with industry giants BABA and JD.
Disclaimer: I am long CJJD. This is not investment advice. The valuation section does not represent price target predictions whatsoever. The stock in this article may never appreciate in price. Do not make investment decisions based on this article. This article is for information only. I am not an investment advisor. I am not responsible for your investment decisions. I may sell my position in CJJD at any time. Low float stocks can be risky and you could lose all of your investment.
I released this article at 8:15 am EST Tuesday December 30, 2014 on my blog at super-trades.com and to my subscription newsletter service on profit.ly at 8:15 am EST Tuesday December 30, 2014.
Disclosure: The author is long CJJD.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.
Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.