China Web Pharmacies Would Have Alibaba Vying With Legacy Firms

Tmall.com

On the website of Alibaba’s Tmall, the health-care section — yao.tmall.com — currently only offers over-the-counter products like condoms, vitamins, and throat lozenges. Photographer: Brent Lewin/Bloomberg

(Bloomberg) — The Chinese are prolific Internet shoppers,
buying everything from diamond rings to toilet seats online. E-retailers like Alibaba Group Holding Ltd. may soon be able to
gain a foothold in yet another area: prescription drugs.

While China hasn’t specified when it might allow
prescription medicines to be sold via the Internet, analysts
expect the government to permit web sales this year.

The shift could gradually reshape the country’s $149
billion market for such drugs, by moving sales to web retailers
and away from hospitals, which sell almost three quarters of
medicines prescribed in the country. That monopoly often leads
to higher prices for patients and contributes to corruption in
the public health system, according to Yanzhong Huang, author of
the book ’Governing Health in Contemporary China.’

The Asian country presently only allows online sales of
some treatments and products that don’t require prescriptions.
For companies that have scale, permission to sell prescription
therapies online would “definitely be good news,” said Liu
Lei, chief executive officer at China Jo-Jo Drugstores Inc.,
which says it has an agreement with Alibaba’s health subsidiary
to sell medicines through its platforms after approvals come
through. “With this change, even though our stores are in
Hangzhou, eventually anyone across China who has a mobile or
Internet connection can become a potential customer.”

China’s second biggest medicine distributor — Shanghai
Pharmaceuticals Holding Co. — this month announced its plans to
build its own Internet drug company to position itself “at the
key time when the gate of online sales of prescription drugs is
about to be opened.” It didn’t immediately respond to e-mails
seeking comment. Its stock traded as much as 8.8 percent higher
in Hong Kong trading today.

Gradual Reform

The China Food and Drug Administration didn’t immediately
respond to calls and a fax seeking comment on when it might
approve Internet sales of prescription drugs.

Opening up the market “can indirectly decrease corruption
by dispersing the power as more players will have control,”
Angus Cole, a consultant at Deloitte China, said via e-mail.
Patients will also benefit from the increased competition
through lower prices, better service, and more convenience, he
said.

China has for years sought to clean up its public health
system and make it more efficient. Last month, the National
Health and Family Planning Commission said in a statement that
new rules had been issued on medicine procurement at public
hospitals to address problems including “medicine kickbacks and
commercial bribery cases happening frequently.” The agency,
which oversees public hospital reform, did not respond to a fax
seeking comment.

Former chief drug regulator Zheng Xiaoyu was executed in
2007 for taking bribes amid a clampdown on fake medicine.
Drugmaker GlaxoSmithKline Plc was fined 3 billion yuan ($483
million) in September after Chinese judicial authorities found
it guilty of bribing non-government personnel. Glaxo at the time
said it “fully accepts the facts and evidence” of the
investigation and that it had taken steps to rectify the issues
identified in its China operations. A Glaxo spokeswoman said the
company has no updates on the case or on the fine.

In China, doctors who work for hospitals write
prescriptions that are then filled at the hospital pharmacy. So,
a shift to the Internet would be “a fresh effort from China to
try and separate doctors’ prescriptions from the supply of
medicines,” Huang said. The Chinese Medical Doctor Association
did not respond to a fax seeking comment.

Approval on web sales may come “very soon,” Huang said.
“I think it should be this year.”

Internet Pharmaceuticals

On the website of Alibaba’s Tmall, the health-care section
— yao.tmall.com — currently only offers over-the-counter
products like condoms, vitamins, and throat lozenges. Alibaba
Health Information Technology Ltd., a separately listed
subsidiary of Alibaba Group, has a mobile application that
allows prescription uploads to match the user with nearby
pharmacies.

Alibaba declined to comment further on its plans through a
spokeswoman as “the Chinese government has not yet opened up
the market for the online sale of prescription medicines.” The
company is keeping an eye on policy developments, it said in an
e-mail.

Some Challenges

Industry experts predict it will take years to iron out the
details and build a workable, trusted model. Along the way,
Chinese regulators and companies will be faced with some tough
questions: How to ensure the drugs are real? What mechanism to
use for prescription authentication? Will patients be willing to
wait for their medicines?

Alex Zuo, spokesman for the Beijing-based industry group
R&D-based Pharmaceutical Association Committee, says there will
be many challenges, including issues with reimbursement and the
threat to hospitals of declining drug sales. The association
hasn’t done research in the field of public hospitals and
corruption there, and can’t comment on that aspect, he said.

In China’s 925 billion yuan ($149 billion) prescription
drug market, 71 percent of sales were through hospitals, 16
percent through retail pharmacies, and the rest were via other
channels, according to IMS Health Inc.

“It’s like throwing a stone in the water: it’s the
beginning of a ripple effect and everyone will have to innovate
the way they do business,” said Andrew Chen, a Shanghai-based
health-care practice leader at PwC Strategy& Consulting.

To contact Bloomberg News staff for this story:
Natasha Khan in Hong Kong at
nkhan51@bloomberg.net;
Li Hui in Beijing at
hli355@bloomberg.net

To contact the editors responsible for this story:
Anjali Cordeiro at
acordeiro2@bloomberg.net
Phil Serafino

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