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China regulator set to allow prescription medicine to be sold on Internet 2014-09-30
By Chu Daye

As China prepares to grant permits to online stores to sell prescription drugs, drug prices may be reduced with the help of this new business model, benefiting millions of patients.

China Food and Drug Administration, the country's top food and drug watchdog, will probably roll out a regulation governing the sales of prescription drugs on online shops in October, media reports said.

Drugs are typical standardized products and are suitable for being sold online. If the current online ban on prescribed drug sales were lifted, the nature of e-commerce will greatly reduce the cost of drugs, by eliminating the need for sales representatives and channels, experts said.

Ding Jiaqi, an analyst with Internet consulting firm iResearch, said the opening-up is a sign of deeper market-oriented reform in the sector.

China banned online sales of prescription drugs in 2004, primarily due to safety concerns.

Efforts to lower prices

Expensive drugs have always been one of the top items on the public's list of concerns in China.

To lower drug prices, from 2000 to 2014, the National Development and Reform Commission mandated 32 drug price reductions. These are estimated to have impacted between nine and over 400 drugs each time, with price reductions in the range of 10 percent to 40 percent, according a report by the European Chamber of Commerce in China.

However, these administrative policies failed to really reduce drug prices and instead only caused some drugs to disappear from the market, as drug makers circumvented the policy by "reinventing" drugs and then releasing those again in the market but under new names.

Meanwhile, e-commerce in China grew significantly in the past decade, with official data showing that China's e-commerce revenue in 2013 surpassed 10 trillion yuan ($1.63 trillion).

The central government aims to tap the online market as leverage to lower drug prices.

"Years of development have made online shopping a widely accepted idea among Chinese and the market demand for drugs has always been there," Ding told the Global Times Thursday.

Since 2005, over 200 drugstores have obtained the license to sell over-the-counter (OTC) drugs over the Internet.

However, only less than 30 of these stores chose to set up a website and start an online business, stated a report in the Guangzhou-based Southern Weekly newspaper on September 11. In comparison, there are 360,000 brick-and-mortar drugstores in the country.

The websites that do exist are backed by brick-and-mortar shops. For instance, Beijing-based yaofang.com, the first-ever online drugstore granted approval by the authorities, is backed by over 4,000 drug chain stores in 93 cities, according to the company's website.

Experts said that official regulations, which forbid the sales of prescribed drugs online, are the main reason for low enthusiasm by drugstores for the online market.

Zhang Buyong, chief researcher of industry portal menet.com.cn, told the Global Times Sunday that a large number of countries have chosen not to open this sector.

"The central government believes that there is still no way to regulate the online sector, and there are also issues such as how to warn people about the side effects of some drugs when the doctor is absent," Zhang said.

The government is concerned that the people are not ready enough to buy drug online with their own knowledge and discretion, Zhang noted.

Over 90 percent of prescription drugs are solely obtained through medical institutions, read the Southern Weekly report.

Third-party online platforms

Unlike websites such as yaofang.com, there are also third-party business-to-consumer (B2C) online platforms, which allow all drug makers to put their products on the platforms.

Guangzhou-based 800pharm.com was granted approval to trial-run the third-party B2C model in July 2014. The company was one of the earliest third-party platforms that were given a green light to trial-run the business and served as a reference model for the local food and drug safety watchdog.

"Some of our business practices, including triple security processes in vendor verification and management, and quadruple security processes in the approval and management of products and orders have provided a reference and hands-on experience for the provincial food and drug safety watchdog in formulating new regulations on selling prescribed drugs online," Hu Feiqin, a PR manager of 800pharm.com, told the Global Times.

Hu said two months after the trial run started, the number of pharmacies and drug makers that have approached and sought cooperation with 800pharm.com has increased.

However, 800pharm.com's product category is limited to OTC drugs.These drugs only account for a small portion of the market.

On May 28, China Food and Drug Administration publicized a draft on the regulation of e-commerce for food and drugs to solicit public opinion. This news gives the market hope that the government will launch the revised regulation in the upcoming months.

Hu said the opening-up of prescribed drugs would be great news.

"The pharmaceutical retail market is now estimated to be worth 255.8 billion yuan. If you consider the market share of prescription medication, if the regulator allows prescribed drugs to be sold over the Internet, they are opening up a market worth more than 200 billion yuan," Hu said Friday.

Prescription drugs accounted for about 80 percent of all drugs on the market.

Hu noted that patients suffering from chronic diseases, which require long-term spending, could benefit the most from the lifting of the ban.

Internet giants

On January 23, Internet giant Alibaba Group Holding, together with Yunfeng Fund, purchased a controlling stake in CITIC 21 CN.

CITIC 21 CN is a pharmaceutical information platform developer, and the deal revealed to some extent Alibaba's intention to build technology standards for medical and health information.

Alibaba's investment in CITIC 21 CN aims to benefit from Big Data and access to databases, Ding said.

Even without prescribed drugs, various healthcare products, OTC drugs, and healthcare equipment have already helped some drugstores earn annual sales of over 100 million yuan in 2013, according to Ding.

"For Tmall and jd.com, due to their enormous user base, the benefit can only be greater," Ding said. 

Patent Pending:   60/481641
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