The Evolution of China's Pharmaceutical E-commerce: A Timeline of Key Milestones and the Onset of a Multi-player Competitive Second Half
VCBeat (WeChat: vcbeat) has compiled the development history of China’s pharmaceutical retail e-commerce based on public information and media reports. We have observed active initiatives from both pharmaceutical companies and pharmacies, strong interest from e-commerce platforms in the pharmaceutical retail sector, and fierce competition among startups in mobile healthcare and O2O medicine delivery services. As the scale of pharmaceutical e-commerce continues to expand, the competitive landscape is becoming increasingly intense.
However, due to the pharmaceutical sector’s unique reliance on policy, each new regulation triggers significant upheaval within the industry. Against the backdrop of the new healthcare reform, initiatives such as the “Two-Invoice System” for drug production and distribution, price negotiations for patented drugs, the allowance of prescription outflow, and the elimination of drug markups all present substantial opportunities for pharmaceutical e-commerce retailers.
In fact, even before the state promulgated relevant administrative measures, some enterprises had already attempted to sell pharmaceuticals online. The earliest such effort dates back to 1998, when Shanghai No. 1 Pharmacy launched the first pharmaceutical e-commerce platform in China; this initiative was later suspended due to qualification issues. Since then, attempts to sell medicines via the internet have continued uninterrupted, directly prompting regulatory authorities to establish corresponding laws and regulations.
2004: In May, the state promulgated the Administrative Measures for Internet Drug Information Services, permitting the provision of drug information services via the Internet;
In September 2005, the China Food and Drug Administration (CFDA) issued the Interim Provisions on the Approval of Online Drug Trading Services, launching online drug sales in China.
In early 2010, Yihaodian acquired offline pharmacies; in May, it obtained the C Certificate and established a self-operated pharmaceutical e-commerce channel.
In March 2011, Taobao obtained the "Certificate of Qualification for Internet Drug Information Services" issued by the Zhejiang Provincial Food and Drug Administration.
In May, Tencent Paipai launched pharmaceutical products;
In June, the “Pharmacy Pavilion” of Taobao Mall—the predecessor of Tmall—was launched. After only one month of operation, it received a rectification order from regulatory authorities, and transaction functions were prohibited.
In July, JD.com partnered with Jointown Pharmaceutical Group, a leading pharmaceutical wholesaler in which it holds a stake, to restructure the online pharmaceutical retail brand “Haoyaoshi” and develop its pharmaceutical e-commerce business;
In February 2012, Alibaba relaunched its pharmaceutical e-commerce platform as “Tmall Pharmacy Hall,” only to have it suspended twice by regulators within the same year due to licensing issues;
In May, Yu Gang, founder of Yihaodian, personally acquired equity in 111.com.
In May 2013, JD.com established JD Medicine City, introducing large chain pharmacies from the main pharmaceutical retail channels as merchants.
In November, Hebei Huiyan Pharmaceutical Technology Co., Ltd. (95095 Pharmaceutical Platform) was approved as the first institution to qualify for the “pilot program for online retail of pharmaceuticals via third-party internet platforms.”
In January 2014, Alibaba Group partnered with Yunfeng Capital to announce the subscription of a 54.3% stake in CITIC 21st Century for HK$1.327 billion, achieving joint control; the transaction was completed in April. In October of the same year, CITIC 21st Century was renamed “Alibaba Health.”
In April, Alibaba acquired Hebei Huiyan Technology Co., Ltd., enabling pharmacies listed on the Tmall Health platform to facilitate over-the-counter (OTC) drug retail transactions by redirecting users to the 95095 platform;
In July, 800 Fang Pharmaceutical Health Online Shopping Mall and Yihaodian became pilot enterprises for third-party platforms in online retail pharmaceuticals; later that year, 111.com was spun off from Yihaodian to operate as an independent legal entity.
In early 2015, a wave of O2O pharmaceutical delivery startups, represented by Yaogeili, Kuaifang Songyao, 360 Songyao, Yaoquna, and Dingdang Kuaiyao, emerged. With the relaxation of review criteria for Class C Internet Drug Information Service Qualification Certificates, applications from offline pharmacies surged, resulting in the issuance of more than 200 such licenses within the year.
In August, JD Daojia integrated with offline pharmacies to launch an O2O medication delivery service; Yu Gang departed from Yihaodian and took over 1 Drug Network.
In November, more than 280 offline chain pharmacies holding Drug Operation Licenses (Class C) successively joined Tmall Health Pavilion to participate in the Double 11 promotional campaign, resulting in a surge in sales;
In January 2016, Yangtianhe Pharmacy filed a lawsuit against the China Food and Drug Administration (CFDA), after which the nationwide integration of the entire process and supply chain for electronic drug supervision codes was suspended.
In May, Alibaba Health established the Pharmaceutical O2O Pioneer Alliance with 65 offline pharmacy chains; JD.com’s self-operated “JD Pharmacy” officially launched.
In late May, regulatory authorities issued a notice to halt the pilot programs for third-party online retail pharmaceutical platforms operated by 95095, 800 Fang, and Yihaodian.
In July, Alibaba Health acquired a chain of offline pharmacies and obtained the Class C retail license for pharmaceutical operations; its self-operated online pharmacy was launched on the Tmall platform.
In August, B2C online retail trading platforms successively suspended online pharmaceutical transaction services, limiting their function to drug information display only, with user purchases fulfilled through cash-on-delivery at offline pharmacies.
Three Service Categories and Their Scopes in Pharmaceutical E-Commerce
License A: A third-party service trading platform for B2B transactions among pharmaceutical manufacturers, drug wholesalers, and medical institutions; it is prohibited from selling drugs to individual consumers.
B License: Pharmaceutical manufacturing enterprises and pharmaceutical wholesale enterprises that establish their own e-commerce websites to engage in online pharmaceutical transactions with other similar enterprises.
C License: Permits internet pharmacies to sell over-the-counter (OTC) drugs to individual consumers; applicants are restricted to offline pharmacies.
According to data from the official website of the China Food and Drug Administration, as of September 12, 2016, a total of 752 Internet Drug Transaction Service Qualification Certificates were publicly retrievable, including 29 Class A certificates, 170 Class B certificates, and 553 Class C certificates. Among these, 159 Class C certificates were issued or renewed in 2015.
Since pharmaceutical sales are directly linked to the health and life safety of every consumer, a key principle of regulation is ensuring traceability and accountability. The underlying conflict behind the previous suspension of third-party drug sales stemmed from direct clashes between regulatory authorities and pharmacies operating on third-party drug sales platforms. Regulators mandated that electronic supervision codes be scanned at every stage of the pharmaceutical distribution process.
This directly impacts the interests of pharmacies. Full-process traceability means that drugs with unknown origins and restricted circulation can no longer be sold online. It will also increase the hardware and labor costs required for pharmacies to meet corresponding compliance requirements. Although it is unlikely to sell “substandard or counterfeit drugs” via internet channels, there are still significant concerns about being fully exposed under regulatory oversight.
Consequently, pharmacies refused to accept the situation and dared to sue the China Food and Drug Administration (CFDA) and Alibaba for “collusion between government officials and businesses”—Alibaba being a staunch advocate of full-process electronic regulatory scanning. The lawsuit initiated by Yangtianhe Pharmacy garnered support from the general public as well as 18 other pharmacy chains, including Yixintang and Yifeng Pharmacy.
The China Food and Drug Administration (CFDA) has simply halted the pilot program for third-party platforms (which began in 2014, with Tmall, JD.com, and Yihaodian successively approved). Starting August 1, consumers will no longer be able to purchase drugs directly on these platforms. Instead, they must submit their requests through the platforms, after which pharmacies will fulfill the orders via offline delivery with cash on delivery.
In reality, this amounts to little more than a superficial change, leaving the fundamental landscape of online pharmaceutical retail on platforms unchanged. According to VCBeat (WeChat ID: vcbeat), consumers accustomed to purchasing medications online have not abandoned this channel due to such distinctions, indicating that the suspension of drug sales by third-party platforms has had a limited impact.
However, the resulting industry shifts are quite intriguing: some pharmacies have withdrawn from third-party platforms to strengthen their own direct-to-consumer operations; platforms have entered the pharmaceutical market indirectly through acquisitions or in-house development; and on-demand medicine delivery (O2O) has seized new opportunities. While every company recognizes that pharmaceutical e-commerce is a vast market, all are grappling with how to effectively meet user needs—the key lies not in whether to act, but in how to execute.
It can be said that starting from August 1, the pharmaceutical e-commerce industry entered its second half. The conclusion of the pilot program for platforms that held more than half of the market share in pharmaceutical e-commerce also marked the end of orderly competition, bringing numerous pharmaceutical e-commerce companies back to the same starting line.
However, they are not engaged in cutthroat competition. Given the unique characteristics of the pharmaceutical industry, coupled with shifting consumer attention toward personal health and changes in purchasing behavior, there remains substantial room for growth in pharmaceutical e-commerce. This sector can sustain more than one company, with short-distance medication delivery and express courier services following distinct development trajectories tailored to different user needs.
From the perspective of collaborative partnerships, mobile healthcare exhibits a stronger correlation with pharmaceutical e-commerce. Mobile health platforms, which have already secured a certain market share, need to supplement their existing appointment registration and medical accompaniment services with pharmaceutical supply capabilities. This trend has become evident in the recent strategic alliances between mobile healthcare providers and pharmaceutical e-commerce platforms. For instance, Chunyu Doctor has partnered with Haoyaoshi and Dingdang Kuaiyao, while WeDoctor has launched an internet hospital and formed a partnership with Laobaixing Pharmacy.
It can be said that both mobile healthcare and pharmaceutical e-commerce are addressing the pain points users face in accessing medical services and purchasing medications. There is reason to believe that, driven by numerous pioneers, the pharmaceutical e-commerce industry will enter a phase of accelerated development.