In 2016, the pharmaceutical industry experienced both the growing pains of transformation and the joy of reaping rewards. In particular, the rollout of a series of policies had a profound impact on the industry’s development, with distinct keywords emerging across pharmaceutical manufacturing, distribution, hospitals, and chain pharmacies. Amidst the deep-seated changes driven by technology, investment, consolidation, and transformation, seizing trends has undoubtedly become the key to success.

We reviewed the key pharmaceutical policies and practices of 2016. “If you can improve yourself in a day, do so each day, forever building on improvement.” By carefully analyzing past events, we have clarified the essence of changes in the pharmaceutical industry and made predictions regarding industry trends for 2017.

1. Accelerated Overseas Mergers and Acquisitions

Affected by the consistency evaluation of generic drugs, medical insurance cost containment, and the two-invoice system, pharmaceutical manufacturers are facing pressures on products and marketing. Leveraging accumulated capital for overseas expansion through “borrowing a ship to go to sea” has become a common choice for large pharmaceutical manufacturers.

In 2016, overseas mergers and acquisitions by Chinese-funded enterprises reached record highs. Notable examples include CITIC Private Equity Funds’ $1.05 billion acquisition of Biosensors International, the world’s fourth-largest manufacturer of cardiac stents, based in Singapore; Fosun Pharma’s $1.26 billion acquisition of Indian pharmaceutical company Gland Pharma; Humanwell Healthcare’s $550 million acquisition of U.S.-based Epic Pharma; Luye Pharma’s €245 million acquisition of European company Acino AG; Sinocare’s acquisition of Trividia Health and PTS Diagnostics for over $1.5 billion; and Shanghai Pharmaceuticals’ A$900 million acquisition of Australian company Vitaco.

In the first month of 2017, Sanpower Group acquired 100% equity in the U.S. biopharmaceutical company Dendreon for approximately RMB 5.7 billion; additionally, Fosun Pharma recently announced an agreement to introduce Kite Pharma’s cellular immunotherapy from the United States, with a deal value of up to USD 80 million. These moves by Sanpower Group and Fosun Pharma have kicked off the wave of overseas mergers and acquisitions by Chinese pharmaceutical companies in 2017.

Analysis suggests three reasons for the trend of Chinese capital toward overseas M&A.First, influenced by domestic policies, idle funds urgently need to find a breakthrough;Second, foreign pharmaceuticals and medical technologies are superior to those in China., there are many high-quality targets; third, post-merger integration can introduce leading foreign technologies and management expertise,Strengthening Internal Business Capabilities. Therefore, with these three conditions remaining largely unchanged, overseas mergers and acquisitions by Chinese pharmaceutical companies will continue to accelerate, with acquisition targets concentrated inNew drug development, tech-driven healthcare, artificial intelligence, hospitals, and other sectors.

For a long time, new drug research and development (R&D) has been a major “weakness” in China’s pharmaceutical industry. Enhancing the innovation capacity for original drugs is a shared aspiration of both the government and the pharmaceutical sector. Government authorities have also provided numerous favorable conditions to support new drug R&D. For instance, the National Medical Products Administration (NMPA) has reformed the drug review and approval system by implementing measures such as the Marketing Authorization Holder (MAH) system, consistency evaluation for generic drugs, reform of chemical drug registration classification, and priority review and approval policies. Meanwhile, local governments have introduced subsidies and tax incentives for investment in new drug R&D, thereby ensuring robust institutional support.

Meanwhile, the aforementionedA major objective of overseas M&A by Chinese investors is to introduce overseas scientific research and innovation capabilities., aiming to generate synergies with its existing R&D platform, facilitating the introduction of outstanding overseas drugs and therapies into China while strengthening its own innovation capabilities.

Analysis suggests that R&D investment in the pharmaceutical industry will surge in 2017, characterized by deep integration with leading overseas models in innovative drugs and therapies, as well as open innovation through project licensing collaborations among different pharmaceutical companies to share the dividends of innovation.

As a unique diagnostic, therapeutic, and pharmaceutical approach in China, Traditional Chinese Medicine (TCM) is receiving increasing attention from the government and pharmaceutical enterprises. In terms of policy, several important laws and guidelines were released last year, including the Outline of the Strategic Plan for the Development of Traditional Chinese Medicine (2016–2030), the Law on Traditional Chinese Medicine, White Paper on Traditional Chinese Medicine in China, and the 13th Five-Year Plan for the International Development of Traditional Chinese Medicine under the Belt and Road Initiative (2016–2020). These documents emphasize the establishment of standardized clinical diagnosis and treatment protocols for TCM, the improvement of quality standards for Chinese herbal medicines, and the acceleration of TCM’s integration into the international mainstream.

From a corporate perspective, companies such as Tasly, Shenwei Pharmaceutical, Hainan Haiyao, and Baiyunshan have all proposed in their strategic plans to accelerate the modernization of Traditional Chinese Medicine (TCM). They aim to establish a system that complies with modern pharmaceutical standards, covering aspects including authentic medicinal materials, decoction pieces, preparations, and proprietary Chinese medicines, while also accelerating clinical research.

Analysis suggests that,The Modernization of Traditional Chinese Medicine Begins with Standardization, with a focus on addressing issues such as missing or outdated technical specifications and standards throughout the entire production process, including the cultivation of Chinese herbal medicines, processing and preparation of raw materials, production of prepared slices (Yinpian), and quality improvement of proprietary Chinese medicines. Efforts are concentrated on optimizing technical specifications for various stages of TCM production, establishing standards for TCM products, and building traceability systems. A batch of standards covering the full TCM production workflow will be improved and revised, while methods for the supervision, identification, and authentication of TCM products will be strengthened. Secondly, clinical research will be accelerated to refine the theoretical system of Traditional Chinese Medicine using scientific approaches. Thirdly, emphasis will be placed on building a tiered talent pool to ensure the inheritance and development of TCM.

Sales outsourcing refers to the practice whereby pharmaceutical manufacturers fully delegate their sales and marketing activities to external companies. These third-party providers offer a suite of services, including product planning, brand promotion, and brand awareness enhancement. Leveraging their specialized expertise, they deliver customized solutions that help pharmaceutical companies reduce their investment in product marketing.

In fact, some domestic pharmaceutical manufacturers have already embarked on similar initiatives. These companies typically adopt a hybrid model combining in-house operations with outsourced sales, which enables them to maintain control over the sales promotion process while reducing investments in building their own sales infrastructure.

Analysis suggests that, in terms of broad social division of labor, specialization and refinement have become increasingly prominent trends, a pattern also evident in the pharmaceutical industry. Meanwhile, given the numerous shortcomings in marketing within the pharmaceutical manufacturing sector, the outsourced sales model is expected to garner growing attention from pharmaceutical manufacturers in the future.

E-commerce in the pharmaceutical sector is an unavoidable topic for pharmaceutical manufacturers. Recently, news has emerged that several pharmaceutical manufacturers have announced plans to establish or jointly operate e-commerce platforms. From a business planning perspective, e-commerce channels can help pharmaceutical manufacturers build a platform that directly engages demand-side entities, including hospitals, retail pharmacy chains, and independent pharmacies, enabling them to better liaise with pharmaceutical companies. Additionally, new drugs can be launched and distributed more rapidly.

However, at present, the e-commerce platforms established by pharmaceutical manufacturers have not yet formed a systematic framework, resulting in limited impact on their business systems. If pharmaceutical manufacturers intend to strengthen their e-commerce capabilities, they often choose to form alliances among multiple pharmaceutical enterprises to build B2B e-commerce platforms. In the long term, e-commerce may bring about transformative changes to marketing channels in the pharmaceutical industry. Furthermore, it can be integrated with production systems, achieving deep integration with SAP and SaaS systems, thereby establishing an integrated system for both products and distribution.

Analysis suggests that e-commerce channels will play an increasingly significant role in the distribution systems of pharmaceutical manufacturers, poised for explosive growth in the coming years. In particular, B2B pharmaceutical e-commerce is expected to profoundly reshape the pharmaceutical distribution landscape. Pharmaceutical manufacturers are actively embracing e-commerce not only to align with this prevailing trend but also to secure strategic market positions, thereby mitigating the risk of falling behind in competitive dynamics.

Pharmaceutical manufacturing enterprises are also actively extending their reach downstream into areas such as pharmaceutical distribution, pharmaceutical retail, general health and wellness, and internet-based healthcare. Their expansion strategies primarily include internal incubation, investment through industrial funds, and mergers and acquisitions. Notable reference cases include Tasly’s investments in Gansu Zhongyou and Shandong Lijian, as well as Hainan Haiyao’s investment in New Medicine International and its acquisition of hospitals.

It should be noted that the extension paths of industrial enterprises still revolve around the core of “drugs,” which is not unrelated to the current sales-oriented orientation of the pharmaceutical industry.

Analysis suggests that,The downstream expansion of the pharmaceutical industry will exhibit increasingly diversified trends, penetrating the entire big health sector, particularly in primary healthcare. Driven by policies related to “tiered diagnosis and treatment,” the roles of urban community health service centers, rural township health centers, and small clinics are gaining greater prominence, likely attracting increased focus and investment from the pharmaceutical industry.Secondly, information systems centered on telemedicine and online consultations naturally attract significant traffic from the pharmaceutical industry. Pharmaceutical companies may leverage their accumulated capital to invest and establish a presence in these sectors, thereby seizing the market advantages created by policy initiatives.

7. Unprecedented Increase in Industry Concentration

On January 9, the long-anticipated “Two-Invoice System” was finally implemented, forcing the pharmaceutical distribution industry to undergo consolidation and business transformation.

According to relevant data, the pharmaceutical distribution industry boasts a huge market, with total sales exceeding RMB 1.66 trillion last year and maintaining a growth rate of over 10%. However, issues such as low industry concentration, excessive layers in distribution channels, and market irregularities should not be overlooked. In response, macro policies have focused on “control,” regulating the quantity and quality of distribution enterprises. According to the Plan for Deepening the Reform of the Medical and Health Care System during the 13th Five-Year Plan Period and the National Development Plan for the Pharmaceutical Distribution Industry (2016–2020), the goal is to cultivate large-scale enterprises with revenues exceeding RMB 500 billion, several nationwide pharmaceutical distribution enterprises with revenues exceeding RMB 100 billion, and regional distribution enterprises with sales exceeding RMB 10 billion in the coming years. This has also driven mergers and acquisitions among pharmaceutical distribution companies, with numerous cases raising funds through capital markets to facilitate such consolidations.

According to the plan, by 2020, the top 100 pharmaceutical commercial companies in China were to account for 90% of the market share, whereas there are currently over 13,000 pharmaceutical distribution enterprises.This means that the elimination rate in the pharmaceutical distribution industry will be as high as 100:1., in addition to facing the fate of being acquired, spontaneous restructuring among small-scale distribution enterprises is also an important direction.

8. B2B E-commerce Platforms Gain Popularity

It is generally believed that the development of China’s pharmaceutical e-commerce sector began in 2005. In September of that year, the China Food and Drug Administration (CFDA) issued the Interim Provisions on the Approval of Internet Drug Transaction Services, ushering in the era of pharmaceutical e-commerce, although few enterprises were involved at the time.

However, in recent years, the pharmaceutical e-commerce sector has experienced rapid growth. According to data from the China Food and Drug Administration (CFDA), as of January 22, a total of 831 enterprises held the "Internet Drug Transaction Service Qualification Certificate." Among them, 41 enterprises held Class A certificates, 195 held Class B certificates, and 598 held Class C certificates.

According to statistics, the ratio of B2B to B2C transaction volumes in pharmaceutical e-commerce is approximately 9:1. In 2015, the B2C transaction scale was around RMB 15 billion, implying that the pharmaceutical B2B e-commerce market exceeded RMB 100 billion (this refers to matchmaking transactions facilitated via internet platforms, not necessarily transactions completed entirely online). Particularly in the pharmaceutical distribution sector, many companies have begun establishing e-commerce channels as the industry continues to develop.

The “13th Five-Year Plan for Pharmaceutical Distribution,” released recently, also points out the need to advance “Internet + Pharmaceutical Distribution.” It calls for promoting the widespread application of information technologies such as mobile internet and the Internet of Things (IoT) in the pharmaceutical distribution sector, encouraging enterprises to carry out service innovations based on the internet, and diversifying pharmaceutical distribution channels and business models. It supports collaboration between pharmaceutical distribution enterprises, medical institutions, medical insurance departments, and e-commerce companies to develop pharmaceutical e-commerce services, providing patients with convenient services such as “online ordering and in-store pickup” and “online ordering and in-store delivery” for over-the-counter drugs, thereby promoting the integrated development of online and offline channels.

As previously mentioned, the pharmaceutical distribution industry will undergo thorough M&A consolidation this year. In this context, pharmaceutical e-commerce serves as a key driver of such consolidation and a reflection of market competitiveness. Amid the robust growth of pharmaceutical e-commerce, those who can master its channels will hold significant sway in the integration process.

9. Diversified Sales Categories

One notable trend is that the proportion of pharmaceuticals in retail pharmacy sales has been declining, while a diverse range of products—including health supplements, health foods, maternal and infant items, and medical aesthetics offerings—are increasingly appearing on retail pharmacy shelves. This shift is closely linked to evolving consumer demands. As the consumer base becomes younger and demand grows more diversified and personalized, chain pharmacies face the challenge of attracting customers and increasing purchase frequency. Consequently, health-centric products are naturally being integrated into their sales systems. Leveraging the professional endorsement of pharmacies can further enhance consumer trust.

It is not uncommon for chain pharmacies to introduce products from the broader health and wellness sector. Taking the U.S. retail giant Walgreens as an example, it can essentially be described as a pharmacy-themed supermarket. In addition to pharmaceuticals, it offers grocery shopping and even dining services. “Go to Walgreens; they have everything.” With stores located every two to three kilometers in urban centers, Walgreens centers its operations on pharmaceutical care services, effectively meeting the health-related consumption needs of residents within its coverage area.

Analysis suggests that transforming pharmacies into supermarket-style outlets can address the issue of customer foot traffic. The professional service background of pharmacies also significantly enhances consumer trust. However, the product categories introduced in such pharmacy-supermarket hybrids should primarily focus on the “big health” sector, which not only diversifies the product offerings but also improves the utilization rate of individual stores.

10. DTP Pharmacies Achieve Scale

In fact, the DTP model is not a new concept in pharmaceutical retail. At least three years ago, companies were already discussing whether DTP would become a trend in the sector. Over the past two years, various enterprises have been exploring how to effectively implement the DTP model. For instance, after acquiring Yaofang.com, Renhe Pharmaceutical began promoting a system centered on “medication + medical services + membership,” while Laobaixing Pharmacy established a New and Specialty Drugs Division.

From two perspectives, the DTP model will be in high demand.First, the degree of specialization will determine the market position of retail enterprises., this is determined by consumption trends; future pharmaceutical consumption will inevitably be built upon proactive health management and a high level of understanding;Secondly, retail enterprises should focus on enhancing their professional capabilities beyond market competition.。

Analysis suggests that the DTP (Direct-to-Patient) model will experience a quantitative leap this year. Both retail pharmacy chains and pharmaceutical manufacturers have previously explored business models suited to China’s pharmaceutical consumption environment. Following the implementation of the Two-Invoice System, pharmaceutical manufacturers have placed increasing emphasis on retail channels. DTP pharmacies have established a platform that directly serves end-users, playing a significant role in the promotion of new specialty drugs and prescription medications. In terms of execution, the key to the DTP model lies in deep integration with pharmaceutical companies, as well as securing prescriptions from key hospitals and physicians, thereby ensuring sufficient coverage and scale. Regarding product assortment, new specialty drugs and out-of-pocket prescription medications (those not covered by national medical insurance) represent two major strategic directions, with further segmentation into therapeutic areas such as oncology and cardiovascular diseases.

11. Pharmacy + Clinic

The success of CVS MinuteClinic in the United States has provided valuable insights for chain pharmacies, propelling CVS to the top position among retail pharmacy chains nationwide. By operating more than 1,000 clinics across the country, CVS MinuteClinic enables patients to receive convenient care for minor conditions without the need for registration or appointments. Furthermore, CVS MinuteClinic collaborates with dozens of hospitals to share patient resources, thereby facilitating seamless referrals between primary and specialty care settings.

In China, many enterprises are actively exploring the model of chain pharmacy clinics, including Guangdong Provincial Online Hospital, Ali Health, and WeDoctor, particularlyWeDoctor’s “Pharmacy-Clinic” model has achieved significant scale, covering more than 10,000 pharmacies over the past year and handling over 20,000 consultations per day.By deploying remote consultation equipment in pharmacies, patients can remotely access WeDoctor Wuzhen Internet Hospital and obtain prescriptions. If a condition cannot be managed through remote consultation, appointments can also be scheduled via this platform.

From an implementation perspective, the exploration of the “Internet Hospital + Pharmacy” model is worth pursuing. First, it does not require significant restructuring of existing pharmacy business systems, allowing for rapid replication. Additionally, telemedicine enables maximized utilization of physician resources. Second, the integration of “medical care and pharmaceuticals” can drive incremental foot traffic to pharmacies, while the Internet hospital’s membership system and electronic prescriptions can help boost pharmacy revenue.

Analysis suggests that the “pharmacy + clinic” model is a key strategic direction for chain pharmacy operations in 2017. Internet healthcare platforms such as WeDoctor, mentioned earlier, will also actively engage in related collaborations with this model to achieve mutual benefits. Through these partnerships, internet healthcare platforms establish offline entry points, while chain pharmacies realize incremental growth in foot traffic and order volume.

12. Entering the Era of Chronic Disease Management

Chronic disease management refers to the long-term medication and daily health monitoring for chronic conditions such as diabetes and hypertension. Chronic disease medications account for a significant proportion of pharmacy sales categories and are characterized by stable demand. Therefore, providing high-quality services to this patient population has become a key focus of pharmacy operations.

Chronic disease management should prioritize the effective integration of prevention, treatment, and education, guiding patients to strengthen self-management and improve lifestyle habits. It should foster communication and collaboration among physicians, patients, and third-party health service providers (such as health management firms, pharmacies, and Traditional Chinese Medicine wellness clinics), enhance disease control, prevent deterioration, and ultimately curb overall healthcare costs, thereby maximizing the assurance of patients’ high-quality life expectancy.

This also reveals the complete business landscape of chronic disease management in pharmacies: it begins with rational medication use and nutritional supplements as adjunctive therapy, followed by health management guidance, and ultimately establishes collaboration with hospitals, traditional Chinese medicine clinics, and other institutions to create a closed loop encompassing treatment, medication, and rehabilitation.

Analysis suggests that the advent of the chronic disease management era is characterized by several key features. First, the rising chain affiliation rate of pharmacies necessitates business breakthroughs to maintain competitiveness. Second, patients with chronic diseases represent a significant profit source for pharmacies that cannot be overlooked, particularly amid slowing growth in pharmacy profit margins. Third, as national policies promoting tiered diagnosis and treatment and primary healthcare advance, pharmacies should play a more substantial role within the healthcare system. Fourth, and most importantly, driven by the trend of proactive health consumption among residents, there is immense room for development and significant potential for upgrading in pharmacy-based chronic disease management.

13. Service Upgrade

Over the past decade, the retail pharmacy sector has undergone a consolidation phase characterized by larger players acquiring smaller ones. This trend has recently reached an inflection point, as independent pharmacies and small chains form alliances, acting as a pause in the rapid march toward higher chain affiliation rates. Beyond changes in scale, significant shifts have also occurred at the operational level: pharmacies are transitioning from purely sales-driven models to service-oriented, and even health management-focused approaches. Consequently, scale is no longer the sole competitive advantage for retail pharmacies.

The elimination of hospital reliance on drug markups, the separation of prescribing from dispensing, and the outflow of prescriptions have brought significant benefits to the retail pharmacy sector. In terms of market size, the distribution ratio between hospitals and retail channels in the previous RMB 1.4 trillion pharmaceutical market was highly unreasonable, with the total retail market size amounting to less than RMB 350 billion. As the proportion of drug revenue declines, the market volume shifting away from hospitals will exceed RMB 100 billion. How retail pharmacies can absorb this market, the methods they employ, and their capacity to do so are driving a functional transformation in the retail pharmacy business.

Pharmacies as the Entry Point for Health Management Services. In fact, multiple companies have already proposed this concept, including “Smart Pharmacy” introduced by Dingdang Kuaiyao, a subsidiary of Renhe Pharmaceutical, and “Health Service Points” launched by Haoyaoshi Pharmacy. Both strategies position physical pharmacies as the entry point and carrier for future business operations. From the perspective of pharmaceutical care services provided by pharmacies, it is only natural to serve as an entry point for health management. By establishing users’ health records in this way and subsequently engaging in full-cycle health management services, pharmacies can not only enhance user stickiness but also achieve a functional closed loop.

What services can health management encompass? It includes a range of offerings such as basic medication services, chronic disease monitoring, personal health records, and personalized medical care. These services can be further expanded into several key segments—“healthcare, pharmaceuticals, and insurance”—to truly enable comprehensive health management for residents. Moreover, driven by the trend toward “proactive health,” there will be substantial demand for daily health management. By integrating pharmaceutical care services, retail pharmacies can identify strategic opportunities for growth.

From a broader perspective, driven by favorable policies, the upgrading of the medical and health industry, shifting consumer demands, and the rising trend of proactive health management, retail pharmacies are extending their business models toward service-oriented and medical-focused offerings. While aggressively expanding their market share, pharmacies are also actively seeking new growth drivers, with emerging business models gradually gaining favor from both capital markets and the industry.