Pharmaceutical Enterprises to Build a New Industrial System Over the Next Decade as DTP Pharmacies Set for Explosive Growth
On December 12, the 11th China Growth-Oriented Pharmaceutical Enterprise Development Forum and the 2016 5th Pharmacy (International) Expo were held in Kunshan, Jiangsu Province. Organized by the China Medical Pharmaceutical Materials Association and co-organized by its Chain Pharmacy Branch, Growth-Oriented Pharmacy Branch, and other branches, the event brought together renowned pharmaceutical manufacturers, chain pharmacies, pharmaceutical distribution companies, healthcare IT enterprises, and pharmaceutical e-commerce platforms. The conference provided a periodic review of China’s pharmaceutical industry and featured sub-forums on topics including the growth of chain pharmacies, the new decade of China’s pharmaceutical industry, DTP (Direct-to-Patient) models, and how internet hospitals are facilitating the reconstruction of the pharmacy ecosystem.
VCBeat (WeChat ID: vcbeat) was invited to participate in this event. Beyond the vibrant atmosphere on site, a key highlight was the pharmaceutical industry professionals’ insights into the sector and their judgments on future trends. We attended several sub-forums and will be curating and sharing the most compelling perspectives in subsequent updates. Stay tuned for more.
In fact, this Growth Forum takes place against a highly significant backdrop: the rapid transformation of the pharmaceutical and healthcare industry. From a macro perspective, China’s growing population and the pronounced trend toward an aging society have propelled the medical and health sector into a phase of high-speed development, attracting widespread attention and investment. Under the new healthcare reform framework, initiatives such as the separation of prescribing from dispensing, the two-invoice system, the elimination of drug markups, the rise of pharmaceutical e-commerce, and online-to-offline (O2O) pharmaceutical services all present both opportunities and challenges for industry professionals. From the emergence of “Internet Plus Healthcare” to the surging interest in both generic and originator drugs, the pharmaceutical industry is undergoing a profound transformation spanning manufacturing and distribution. Meanwhile, capital continues to flock to the pharmaceutical and healthcare sector. Data shows that financing and investment in this industry exceeded RMB 10 billion this year, concentrated in biopharmaceuticals, pharmaceutical distribution, and pharmaceutical retail. Mergers and acquisitions involving domestic and foreign pharmaceutical companies surpassed RMB 4 billion. As China’s manufacturing sector undergoes deep domestic reforms, it is also accelerating its integration into the global wave of pharmaceutical manufacturing.
Given the overall landscape of the pharmaceutical industry, it is crucial to reflect on the sector and assess future trends. The Growth Forum can be seen not only as a collective response by the industry to a changing environment but also as preparation for moving forward once again.
There is a saying in the venture capital and startup community: “"Even a pig can fly in the wind."”, amid the industry’s rapid transformation, it has become a consensus among practitioners to move beyond passively “waiting for the wind” and instead actively engage in creating new opportunities.
Gao Yi, Chairman of Yifeng Pharmacy Chain Joint Stock Company, stated, “Innovation, vitality, connectivity, and inclusiveness are the themes of this event. Since its inception in 2006, the Growth Conference has become a central platform for the pharmaceutical industry to jointly address the rapidly evolving landscape. In an era of swift transformation, pharmaceutical enterprises must prioritize mutual connectivity and collaboration to collectively adapt to environmental changes and embark on a new journey.”
As we understand, the Pharmaceutical Supplies Association has enrolled thousands of corporate members and established 33 branch chapters, thereby wielding substantial influence and strong execution capabilities.
In recently released plans such as the “Guidelines for the Development of the Pharmaceutical Industry” and “Healthy China 2030,” new and higher requirements have been put forward for the pharmaceutical industry, calling for the establishment of a cohort of innovative pharmaceutical enterprises to ensure drug supply and meet the public’s pharmaceutical needs.Policy oversight is also a key focus for the development of pharmaceutical companies. Ren Dequan, former Deputy Director of the State Food and Drug Administration, stated at a conference, “The separation of prescribing from dispensing, the two-invoice system, and tiered diagnosis and treatment are systemic policies that have been proposed since early on. Their purpose is to regulate the pharmaceutical industry and establish a comprehensive pharmaceutical supply and healthcare system. Policy-driven changes present both opportunities and challenges for the pharmaceutical industry. As the sector embraces these opportunities, it must continuously adapt to policy developments, adjust its business models, and accurately position itself within the process of pharmaceutical and healthcare reform.”
Shen Jianguo, Vice Chairman of the All-China Federation of Industry and Commerce, stated that a niche segment within the pharmaceutical industry—the broader health industry—also warrants attention. The “Healthy China 2030” initiative explicitly calls for the development of this broader health industry, highlighting a shift among residents from passive medical treatment to proactive health management, which presents significant growth opportunities for the health sector. Pharmaceutical companies should strategically focus on the broader health industry to build a comprehensive ecosystem and industrial chain.
The past decade has witnessed the pharmaceutical industry’s transition from a fragmented, unregulated landscape to a standardized one. In the coming decade, the sector must evolve from standardization toward industrialization and clustering—a shift deeply felt by pharmaceutical manufacturers, distributors, and retailers. Zhao Tao, Chairman of Shandong Buchang Pharmaceuticals, stated, “The pharmaceutical industry is ushering in unprecedented opportunities, yet it continues to face significant challenges, including market fragmentation and severe product homogenization. Over the next ten years, pharmaceutical companies must leverage ‘Internet Plus’ strategies to integrate diverse resources, enhance industry consolidation, improve specialized services, and establish a new industrial system aligned with the drug demands of the new era.”
At a breakout session of the Growth Forum—the Chain Pharmacy Forum—guests involved in chain pharmacy operations each delivered a TED-style talk of approximately ten minutes, marking one of the event’s highlights. During their presentations, pharmacy professionals shared their insights on pharmaceutical retail and distribution.
Xie Zilong, Chairman of Laobaixing Pharmacy Chain Co., Ltd., stated that the rise of new specialty drugs and the outflow of prescription drug sales from hospitals represent a significant trend in the future pharmaceutical market. The historical dominance of hospital channels in prescription drug distribution is set to change. This shift is driven not only by healthcare reforms but also by hospitals’ increasing willingness to release prescription drug sales, motivated by factors such as cost control, challenges in storage and logistics, and evolving consumer trends. Consequently, this transformation will create substantial opportunities and a lucrative market share for pharmaceutical retailers operating outside the hospital sector.
In terms of market size, China’s prescription drug market is valued at approximately RMB 1.5–1.7 trillion. If 20% to 30% of prescriptions are diverted to other channels, this would create a market opportunity exceeding RMB 300 billion. A primary destination for such prescription outflow is offline chain pharmacies. Consequently, the diversion of prescription drugs is poised to reshape the chain pharmacy sector; companies that capitalize on this trend will undergo profound transformation.
Based on its existing experience and exchanges with peers and other pharmaceutical-related industries, Laobaixing Pharmacy attaches great importance to the business of prescription outflow. It has established a dedicated business unit to handle prescription drug outflow, with Xie Zilong personally serving as the head of the unit, underscoring the significance placed on this sector. The company also emphasizes training for employees and store managers, having organized multiple industry exchanges and training sessions on adapting to changes in prescription drug outflow, thereby initially establishing its own systematic framework.
These initiatives included communicating with prescription drug manufacturers, strengthening the layout of hospital-affiliated pharmacies based on existing stores, and establishing a new specialty pharmaceuticals division. The company reported engaging in multiple rounds of discussions with Shanghai-based foreign-invested prescription drug manufacturers, touring their production facilities, and expressing its willingness to collaborate following the outflow of prescription drugs from hospitals. A preliminary consensus was reached with these pharmaceutical companies.
From the perspective of prescription drug manufacturers, they are also willing to collaborate with retailers, making this a key focus area for the next one to two years. On the other hand, prescription drug manufacturers hope to expand channels beyond hospitals and diversify their channel mix in order to better achieve their sales targets.
Amidst this landscape, one term is increasingly prominent: DTP (Direct-to-Patient) pharmacies. Whether chain pharmacies, independent pharmacies, or internet-based O2O platforms, all are poised to engage in fierce competition for the DTP model. It is foreseeable that the number of DTP pharmacies will experience explosive growth in the near future.
Finally, Zhao Tao concluded that a less obvious reason behind the strategic positioning of various stakeholders in the DTP (Direct-to-Patient) sector is that the level of specialization will determine the direct market standing of retail and other pharmaceutical retail enterprises. This is primarily driven by consumer trends; future pharmaceutical consumption will inevitably be built upon proactive health management and a high degree of health literacy. As consumers demand increasingly higher levels of service and professional expertise, pharmaceutical companies must take note of this shift.
Another aspect is that pharmaceutical retail enterprises are not merely competing with other players within the industry; a critical factor is their need for continuous self-improvement to remain competitive amid evolving market trends. Meanwhile, it should be noted that the relationship among chain pharmacies and across different distribution channels is not entirely zero-sum. The market for outpatient prescription drug dispensing is sufficiently large to support diverse business models, enabling the coexistence of various types of enterprises.
Editor’s Note: In addition to Xie Zilong, many other industry leaders delivered speeches on a variety of themes. VCBeat (WeChat ID: vcbeat) will continue to compile and release these talks. We welcome your continued attention.