30 Major Pharma Companies Collaborate to Capture the Out-of-Hospital Market: Integrated Healthcare Emerges as the Solution for Prescription Diversion

Original Title: 30 Major Pharmaceutical Companies Join Forces to Seize the Out-of-Hospital Market; Collaborative Healthcare Becomes the Way Forward for Prescription Outflow

Recently, in 2019China PharmaAt the Retail Industry Conference, with the support of the China Pharmaceutical Commerce Association and led by BAHEAL PHARMACEUTICAL GROUP, nearly 30 globally renowned mainstream pharmaceutical manufacturing enterprises, including Takeda, Xian Janssen, and MSD, jointly announced the launch of the “100 Billion Prescription Drug Retail Platform.”

China is the world’s second-largest pharmaceutical market. A series of new healthcare reform policies, including the consistency evaluation, the two-invoice system, and the “4+7” volume-based procurement program, have brought about significant changes to industry development. As a result, many pharmaceutical companies are facing severe challenges in hospital-based sales and are increasingly targeting the out-of-hospital prescription fulfillment market.

Lou Yu, Vice President of Takeda’s Greater China Region, believes that amid transformations in the pharmaceutical market, drug brands gradually losing their hospital market share need innovative operational strategies, and retail channels are likely to become one of the ways for originator drug products to maintain their product value.

Recently, the practice of using photos of pet dogs as prescriptions to purchase prescription drugs online has once again drawn industry attention, sparking intense debate over the compliance and safety of online sales of prescription medications. According to Fu Gang, Vice President of the China Pharmaceutical Commerce Association and Chairman of BAHEAL PHARMACEUTICAL GROUP, the primary issue to address for out-of-hospital prescriptions is their source verification. The other three core issues are integration with medical insurance, standardized logistics, and pharmaceutical care services. Meanwhile, China’s drug retail industry is undergoing iterative upgrades and accelerating its market expansion. In this context, collaborative healthcare may ultimately be the way forward.

Pharmaceutical Companies Forming Alliances

A series of new healthcare reform policies have brought significant changes to the pharmaceutical industry. The commercial value chain of China’s pharmaceutical sector is being reshaped, and pharmaceutical manufacturers are facing severe challenges.

In particular, the introduction of the new “4+7” volume-based procurement policy has had a significant impact on pharmaceutical companies.ConbaChairman Hu Jiqiang stated that this marks the official launch of the “generic drug model” in China’s generic pharmaceutical market, bringing an end to the era when Chinese generics followed the high-price, high-margin, and high-cost marketing strategies of innovative drugs, and when off-patent originator drugs were sold at premium prices, gained reimbursement coverage at high prices, and dominated the vast majority of the Chinese market.

The era of "high premium" for pharmaceuticals is coming to an end. With widespread price reductions, shrinking profit margins for pharmaceutical companies, and high marketing costs, drug manufacturers must seek new market opportunities amid fierce competition while confronting the inevitable challenges of the "patent cliff" and "channel barriers."

Lou Yu, Vice President of Takeda’s Greater China Region, believes that retail channels are likely to become one of the key means for originator drug products to maintain their product value. The integration of two licenses, streamlined processes, the liberalization of qualifications for designated medical insurance providers, the expansion of pilot programs for pooled medical insurance funds, and the outflow of prescriptions will all benefit sales growth in the retail market in the long term.

Amid sluggish growth in hospital prescription drug sales, numerous renowned pharmaceutical companies have turned their attention to retail pharmacies. Multinational pharmaceutical giants such as Pfizer, Merck Sharp & Dohme (MSD), and Roche have all increased their market investments in retail pharmacies, with MSD even establishing a dedicated team for retail pharmacy development.

Fan Jie, Senior Director of Channel and Business Management at Xian Janssen, candidly stated that under the traditional medical channel model, three major challenges persist: difficulties for hospitals in stocking medications, for physicians in prescribing them, and for patients in accessing them. However, with policy support and national encouragement, the retail channel holds significant advantages—designated pharmacies offer reimbursement for medication purchases, boast extensive store networks, and provide easier patient access. By innovating value-added services, the retail channel can facilitate comprehensive disease management throughout the entire patient journey.

Meanwhile, the return to value in hospitals has given rise to an out-of-hospital prescription drug sales market, with the expansion of retail prescription drugs being an inevitable outcome of the new healthcare reform. Some institutions predict that by 2020, the total size of China's prescription drug market could reach 1.89 trillion yuan, with hospital prescriptions accounting for approximately one-fifth of the total volume. The scale of China's prescription outflow market will approach 400 billion yuan, of which the retail prescription drug market will exceed 150 billion yuan in sales.

It is precisely on this basis that, at the 2019 China Pharmaceutical Retail Industry Conference, with the support of the China Pharmaceutical Commerce Association and led by BAHEAL PHARMACEUTICAL GROUP, nearly 30 mainstream pharmaceutical manufacturing enterprises jointly announced the launch of the “Trillion-Yuan Prescription Drug Retail Platform.” This platform will leverage the supply capabilities and efficient coordination strengths of global mainstream pharmaceutical companies in prescription drug categories, promote specialized division of labor to enhance quality and efficiency, improve patient accessibility to prescription drugs across all regions and categories as well as terminal pharmaceutical care services, compliantly embrace incremental growth in the retail market, and facilitate the in-depth implementation of China’s healthcare reform policies.

Opportunities and Challenges for DTP Pharmacies

The aforementioned conference selected the first batch of 60 pharmacies that met the “Specialty Drug Pharmacy Standards” (commonly known in the industry as DTP, or Direct-to-Patient, pharmacies). It is understood that, starting from November 2018, the China Pharmaceutical Commerce Association initiated pilot standard-implementation assessments among its member enterprises, and these pharmacies were selected through inspection and evaluation by the end of May 2019.

In recent years, with the in-depth advancement of healthcare reform policies, the outflow of hospital drug prescriptions has become a trend. With support from various manufacturers, pharmaceutical retail enterprises have established specialty pharmacies to meet the medication purchasing and pharmaceutical care needs of patients with special diseases.

At the aforementioned forum, Doug Long, Vice President of Industry Relations at IQVIA, pointed out that oncology, diabetes, autoimmune, and respiratory drugs account for one-third of global pharmaceutical sales and contribute to over 70% of global sales growth. Meanwhile, the sales growth of generic drugs is expected to slow down by 2022, with specialty drugs driving market expansion. Furthermore, e-commerce pharmacies are becoming increasingly significant within the overall pharmacy market and are experiencing rapid growth, presenting both opportunities and challenges for pharmaceutical retail enterprises.

In fact, many industrial enterprises have multiple specifications for chronic disease treatment drugs. They not only need to compete with other companies for this position but also select suitable varieties internally to enter hospitals. Meanwhile, the "unselected" varieties will flow to DTP pharmacies near the hospitals.

However, retail pharmacies are also undergoing significant transformation.the general publicXie Zilong, Chairman of the Grand Pharmacy, stated that the era of high gross margins in the pharmaceutical retail industry has passed. While the retail pharmacy terminal continues to maintain a growth trend, its growth rate has been continuously declining.

“Pharmacies must be able to provide high-quality, professional pharmaceutical care services, and pharmacy staff must be capable of delivering follow-up medication monitoring services. New retail models demand a significant enhancement in the professionalism of pharmacies. Direct-to-Patient (DTP) specialty pharmacies are currently the primary model adopted by chains such as LBX Pharmacy to accommodate the outflow of prescriptions from hospitals. This requires in-depth collaboration with relevant pharmaceutical enterprises to elevate the professionalism of pharmacy services,” pointed out Xie Zilong.

In this regard, Fu Gang pointed out that China’s pharmaceutical retail market is currently relatively fragmented and represents an immature industry. One development direction is toward consolidation, such as through large-scale chain stores; another direction involves specialized categorization, with classified management applied to formats like specialty pharmacies and community convenience stores.

“During this process, the pharmaceutical retail industry is also facing significant opportunities, as the majority of future prescription drug sales are expected to be completed in pharmacies. This trend places higher demands on the professional service capabilities of retail pharmacies. While professional pharmacies or Direct-to-Patient (DTP) pharmacies cannot determine which prescription drugs are prescribed, they can help patients use these medications correctly,” said Fu Gang.

(Editor: Bao Fangming)

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