100 billion online prescription drug market is lifted, drug companies fail to control prices, and pharmacies lose money if they don't do it

The online prescription drug policy, which has lingered between "ban" and "cannot help" for 7 years, finally broke the topic this time.

On April 15, the State Council announced that under the premise of ensuring the authenticity of the source of electronic prescriptions, online sales of prescription drugs other than those under special administration by the state will be allowed. And 7 days ago, China's first electronic prescription center just landed in the Boao Lecheng Pioneer Zone in Hainan.

"The opening of online prescription drugs is the general trend, and it will indeed provide convenience for patients with chronic diseases. We are very supportive. The key is to standardize the review of prescriptions." The 2021 Taihu Bay Life and Health Future Conference held on April 22 On the above, AstraZeneca Global Executive Vice President, International Business and China President Wang Lei said.

"Only the legality of Internet hospitals and the compliance of electronic prescriptions can support the opening of the drug market, and only the opening of the drug market can stand the prescription outflow and graded diagnosis and treatment. The logic of this series of policies are actually interlinked, and we must find An export, the lifting of the ban on online sales of prescription drugs is just such an export." Antidote Consulting Chairman Liao Guanghui said in an analysis.

The lifting of the ban on online sales of prescription drugs has released a market of 100 billion yuan. If combined with the also loosened medical insurance payment policy and the country’s recent anti-monopoly issues, the regulatory authorities have been determined to build an open and transparent drug market. It speaks for itself.

In such a policy context, the existing pharmaceutical retail structure will surely be reshuffled.

And another proposition worth thinking about is, in an increasingly transparent main consumer market, can the gray drug prices be maintained? Is there a risk of a crash? Can the price control system of pharmaceutical companies still work?

01 Can the price of medicine be kept?

The prescription drug business in China has always been conducted in a relatively closed circle. Due to policy restrictions, the proportion of online retail of prescription drugs has also been very low.

Data show that in 2018, China's prescription drug sales reached 1.13 trillion yuan, accounting for 66% of total drug sales. From the perspective of sales channels, hospitals have long occupied a large share of the prescription drug sales market, accounting for 72.2% in 2018, and online retailing only accounted for 0.5%.

Although the proportion is not high, the online sales of prescription drugs have grown rapidly, significantly higher than that of over-the-counter drugs.

In 2019, China's online sales of prescription drugs reached 1.507 billion, an increase of 42.42% year-on-year, and the compound growth rate from 2016 to 2019 was as high as 219.71%.

According to IQVIA's calculations, China's prescription drug market may reach 1.21 trillion yuan in 2020, of which 32% of hospital prescription outflows, and the prescription outflow market will reach 392.5 billion. As for online channels, with the liberalization of online sales of prescription drugs, if the medical insurance system, including the online public medical insurance system and commercial insurance, can be connected, the market size will reach 150 billion yuan.



Data source: CITIC Securities Research Department

In fact, our "medical insurance payment" policy has begun to loosen last year.

In March 2020, the government included eligible Internet medical services into the scope of medical insurance payment and encouraged direct settlement and payment through designated retail pharmacies. This makes it an inevitable trend for online drug purchases to be connected to medical insurance payments.

So the question is, once online prescription drugs and medical insurance payments can be solved one-stop, can drug prices still be maintained?

"The online payment of medical insurance has been liberalized, and the prices of the products in the medical insurance catalog must be compliant and cannot be sold too high; the online sales of prescription drugs are liberalized, and the long-term price trend is also falling; coupled with the recent penalties imposed by the regulatory authorities on monopolistic enterprises The signal released, the "controlled sales" model will not work. When these restrictions are all released, our pharmaceutical consumer market will be free. Then in such a free market,

 what kind of price changes will happen in the future? Will it collapse? This requires our special attention." Liao Guanghui said.

For a long time, pharmaceutical companies have faced the dilemma of online and offline collaboration. Starting this year, the impact of online sales channels on the prices of physical drugs has even been put on the table. The case of pharmaceutical companies cutting off the supply of e-commerce platforms two months ago is an example.

On February 23, Sichuan Meidakang Pharmaceutical announced that the online retail price of the company’s well-known drug "Compound Pearl Mouth Granules" was disrupted, which seriously affected the upscaling work of offline chain pharmacies, so it decided to stop selling to JD’s self-operated pharmacies. And Ali Health supplies.

It is reported that the lowest online quotation for this drug is only one-third of that of offline pharmacies, which has caused the loss of many customers in offline pharmacies.

What the "cutting off supply" reflects is the inability of pharmaceutical companies to control online channel pricing. Under the heavy blow of the state's anti-monopoly, it is almost impossible to reverse this trend.

Since the beginning of this year, pharmaceutical companies have been fined for monopoly. In this Yangtze River incident, the biggest aspect of its blame was also its manipulation of prices. Beginning in 2019, it began monitoring the online retail prices of five key drugs including Lanqin Oral Liquid and Bailemian Capsules. Since then, the number of low-priced merchants on each platform has significantly decreased, and Lanqin Oral Liquid has even increased in price. . The punishment of Yangtze River by the supervisory authorities shows the determination of anti-monopoly-even the top sheep cannot be an exception.

The Internet has broken through the barriers of drug price information, and transparency of drug prices will become a foregone conclusion. How should pharmaceutical companies and pharmacies respond?

"Over-the-counter drugs may have some price-related issues, but I think that the lifting of the ban on online prescription drugs will not have much impact on the prices of prescription drugs." Pharmaceutical marketer Li Zhiqiang analyzed.

There are three reasons for Li Zhiqiang:

First, although the lifting of the ban on online sales of prescription drugs is of great significance and is in line with the trend, from the current point of view, its policy has just been implemented, and the online sales channel is only a supplement to the pharmaceutical marketing of pharmaceutical companies, and it is far from being able to replace the hospital channel.

Second, from the perspective of pharmaceutical companies themselves, they don’t care whether the online sales are too cheap. Many drugs themselves are collectively sourced products. The patent period has expired. If you sell a box, you can make a profit. Then it doesn’t need to maintain it. Price, just embrace this policy.

Third, the policy also excludes some drugs that require special management. Many prescription drugs, such as anesthesia and psychiatric drugs, simply cannot be sold online. There are also some specific tumor-related innovative products. Now, what pharmaceutical companies want to pursue is patient management, and they will not sell them on online platforms, so the impact will be even smaller.

In his view, because the policy has just been promulgated, there will be many detailed plans in the future, and there will be targeted plans for different prescription drug online sales. When the policy is fully released, everyone will see it more clearly. "In the initial stage, it should still be based on mild and chronic disease drugs."

The data also shows that in the future, the main consumer of China's online prescription drug market will be a large number of patients with chronic diseases. According to the BCG medical e-commerce survey, 70% of patients hope to buy chronic disease drugs that need to be taken for a long time online.

The demand for a frequent re-examination of chronic diseases and long-term medication is also in line with the service scenarios of Internet hospitals, and the price advantage of e-commerce platforms can also reduce the burden on patients.

Regarding the online and offline share of pharmaceutical companies, Wang Lei’s view is that “there is no need to be persistent, and the two are not contradictory.”

In Wang Lei's view, online is a trend, but what happens offline will still happen offline. We should adjust our strategy according to our needs. The most important thing is to follow the trend.

02 Can the pharmacy sit down?

Shao Qing, CEO of Pharm Empowerment, believes that there are three main reasons for the hesitation of the regulatory authorities over the online prescription drug policy.

"The first is the collective boycott of offline chains. Once prescription drugs are sold online, it will inevitably affect the interests of related parties. Everyone has different demands, which will cause a policy dilemma. The second is safety. Everyone is worried that online prescription drugs will cause drugs. The abuse of pharmacy e-commerce has amplified risks, and the innovation speed of pharmaceutical e-commerce is much faster than the innovation of regulatory policies. It takes time for regulatory concepts and technologies to keep up. The third is that the past few years have also happened to be years full of changes in the pharmaceutical industry. Institutions and related policies have changed, which objectively delayed the introduction of this policy."

Over the past seven years, although the O2O model has incorporated the benefits of offline pharmacies and mobilized their enthusiasm to a certain extent, the entanglement of physical pharmacies on the online business has not diminished.

At this year's West Lake Forum, Wang Zhiqiang, chairman of the Anhui Drugstore Alliance, expressed the anxiety of pharmacies. He admitted that nowadays, pharmacies account for a high percentage of sales on the third-party platforms of Meituan and Ele. me. The high percentage can reach 50%. If you don't do it, you can't do it, but the problem is that you lose money after doing it.

"It turned out that when we were working on new retail and third-party platforms, we thought it should be an increase. But the current situation is that the money you sell more online is almost exactly the money you sell less offline, but it is more in vain. A lot of expenditures, such as distribution fees, platform extraction points, etc., our distribution fee is nearly 2 million in one year, and we still don’t make money in the end. Once the online sales of prescription drugs are released, customers will not come to your store. Coupled with the '4+7' volume purchase, and the policy of chronic disease medical insurance, some customers have returned to the hospital. We are also weak against this downward trend."

Su Yuanhua, deputy general manager of Beijing Zizhu Pharmaceutical Management Co., Ltd., also said: "We have been doing price maintenance work. The price is not easy to maintain, and it collapses quickly. For industrial enterprises, although the share of online O2O is quite high, but Offline is still smaller than quantity."

Su Yuanhua believes that no chain of brands hopes to be famous for its low prices, but it still hopes to shift from pure price competition to richer and more gameplay and services, to better meet the needs of consumers and enable the chain to grow in the long run. There is a place.

The proportion of sales of physical pharmacies and online pharmacies in my country



Data source: Beijing Capital Securities

Nowadays, pharmaceutical O2O has gradually become a red sea. The flow of chain exchanges for low prices seems to be booming, and how much can actually settle down and turn it into its own customers. Pharmacies are obviously still looking for a path.

Liao Guanghui bluntly said that it is definitely too late to deploy online prescription drugs. The window has been closed, and the flow of traffic has changed from aggregation to decentralization. It will take about 15 years to wait for aggregation again. "So even if you are a person with vested interests, you should have a sense of innovation when your position is the most secure. You can't always follow the policy and follow the seam. In the future, I don't recommend small and medium-sized chains to come in and make electricity. Business, but should extend inward, steadily do a good job in the area of ​​the share, and then go to the largest pharmacy on the street, the largest pharmacy in the county."

Besides, he also predicts that the online sales of prescription drugs will not have a particularly big blowout in the initial volume.

"Although the policy has just been implemented, the industry has already anticipated this in the past one or two years, and many platforms have been slowly experimenting. The greater significance of the lifting of the ban is to make the market more honest and make it more convenient for consumers to buy medicines. , So that the stock of the channel grows faster. After all, it turned out to be very fast, and it is already very exciting to be able to maintain annual growth of 80%."

Shao Qing also analyzed that although policy liberalization has long been a consensus, the implementation of the policy will still make pharmaceutical companies and platforms less worried and perplexed, and more daring to invest wholeheartedly. "In the future, a new ecology based on online sales will be formed around a professional field such as prescription drugs, including how prescriptions come from, how to supervise them, how to do membership marketing, etc. Generally speaking, this is a problem for consumers and for e-commerce. The platform, something that is good for practitioners, will also promote the further deepening of medical reform."

Industry insiders generally believe that both the policy and the industrial environment in the pharmaceutical industry are continuing to improve. These accumulations have not only made the lifting of the ban on online prescription drug sales smoothly, but also made more policy innovations possible.

"The Medical Insurance Bureau has greatly eased the pressure on the medical insurance fund through centralized procurement. The cancellation of the individual medical insurance accounts of the new rural cooperative medical insurance system for more than 600 million farmers has not produced a big rebound. The biggest commendation for reform. Based on this achievement, our policy can accept more innovation." Liao Guanghui said.

He believes that in recent years, a series of policies, including the lifting of the ban on online prescription drugs, are the most extensive and deepest cyclical adjustments for the pharmaceutical industry. "This adjustment may affect the pattern of the pharmaceutical distribution industry in the next 30 to 40 years."

03 Does the supervision hold live?

Among the series of problems that may be faced after the liberalization of online sales of prescription drugs, the most concerned is the issue of supervision.

In fact, to provide a fairer and more transparent environment for the liberalization of online sales of prescription drugs, local drug regulatory bureaus have begun special rectifications for online drug sales.

On April 20, the Beijing Municipal Food and Drug Administration held a meeting on key tasks in drug and medical device supervision and quality and safety inspections, and announced that it would carry out an 8-month quality and safety inspection of drugs and medical devices.

Among them, in response to the rapid development of the online drug sales model of "online ordering to store delivery", to prevent problems such as inadequate management of third-party platforms and incomplete Internet information service qualification certificates, relevant units will conduct unannounced inspections and interviews with key enterprises. Various measures such as compacting the main responsibilities of third-party platforms and operating companies, and mitigating risks from the source.

This inspection is only five days after the implementation of the online prescription drug policy.

Since April, the Food and Drug Administration of Shanxi, Anhui, and other provinces have begun to deploy special rectification actions for illegal drug online sales. The intention of the regulators to protect online prescription drugs and clean up the environment is self-evident.

"The localized management of drug circulation has not changed. The provincial drug regulatory department is responsible for the supervision of drug online trading platforms, and the local drug regulatory department at or above the county level is responsible for the supervision of regional drug online sales." Liao Guanghui pointed out.

Shao Qing also said that the regulatory technology of the competent authority has been very mature, and it also has its own regulatory platform that can monitor the entire network through channels. "Besides, the platform's ability to supervise merchants should still be emphasized, and the platform needs to bear corresponding responsibilities throughout the process.

In China, online sales of prescription drugs have just started, and everything is full of unknowns.

In the United States, it has formed a mature model. Although its medical and health system is different from that of our country, there are still lessons to be learned from the experience of online prescription drugs.

Out-of-prescription sales in the United States accounted for almost 45% of total prescription sales. This is also due to the full realization of electronic case prescription resource sharing among online pharmacies, offline pharmacies, medical institutions, medical insurance institutions, and physicians. Beginning in March 2016, doctors, dentists, and other medical professionals in the United States can send prescriptions directly to pharmacies electronically, rather than handing paper prescriptions to patients.

A few days ago, my country’s Hainan Lecheng Electronic Prescription Center also officially started to promote this matter.

As China's first electronic prescription center, it will be connected to Internet hospitals, Hainan medical institution prescription systems, various prescription drug sales platforms, medical insurance information platforms, payment and settlement agencies, and commercial insurance agencies to achieve a unified collection of prescription-related information and prescription drug purchases, Information security certification, medical insurance settlement, and other matters are "one network to handle".

The pivotal role of the e-prescription center



Besides, for pharmaceutical companies registered in Hainan to complete phase I-III clinical trials in China and obtain a marketing license for innovative drugs, medical institutions in Hainan are also encouraged to use them directly by the principle of "following the approval" principle. , No additional market access requirements may be set.

The series of policy innovations in Hainan not only accumulate experience for the full liberalization of online prescription drugs

, but also provide trtremendous support for China's pharmaceutical innovation.

Regarding the supervision of online prescription drugs that everyone is very concerned about, online pharmacies in the United States are also jointly monitored by federal agencies, state governments, and agency coordination mechanisms. The coordination mechanism members include the FDA, the Department of Justice, the Drug Enforcement Administration, the Federal Bureau of Investigation, and the U.S. Postal Inspection. Services, customs, etc. The PBM (Pharmacy Benefit Manager), as a third-party intermediary agency that manages prescription drugs, is mainly responsible for processing and paying prescription drug claims.

Judging from the experience of the United States, its online prescription drug delivery seems to be achieved under the conditions of joint endorsement by multiple parties. This is also instructive for our supervision.

In the early days, CCID Research Institute believed that for China’s online prescription drugs, the State Food and Drug Administration as the leader could be established in the future, with the participation of various provinces and cities, and multiple departments such as industry and commerce, quality inspection, health, industry and commerce, public security, and transportation. Cooperative joint supervision mechanism.

And because online pharmacies sell more frequently across regions, it is necessary to establish a cross-departmental national unified information system supervision and at the same time improve the legal system and punishment mechanism for cross-regional sales in my country.

It also suggested speeding up the legislation of the Internet Drug Transaction Law, improving the legal and regulatory system and industry guidelines for Internet drug transactions, to better guide and standardize the development of online pharmacies and protect the legitimate rights and interests of consumers.

Original title: The 100 billion online prescription drug market is lifted, drug companies fail to control prices, and pharmacies lose money if they do it or not. Will drug prices collapse?