Policy Tightening Has Limited Impact on Pharma E-commerce: Industry Leaders Unanimous in Outlook, Divergent in Strategies

Last August, at the “2015 Xipu Conference” held in Boao, Hainan, industry leaders optimistically predicted that the boom period for pharmaceutical e-commerce had arrived, and relevant policies were swiftly introduced thereafter. However, by the time of the “2016 Xipu Conference,” the topic had taken on a somber tone; no one had anticipated that, against the backdrop of broader reforms, regulatory policies would instead regress.

Not long ago, the China Food and Drug Administration (CFDA) separately notified the food and drug regulatory authorities of Hebei Province, Shanghai Municipality, and Guangdong Province to terminate the pilot program for online retail of pharmaceuticals via third-party internet platforms. Effective August 1, e-commerce platforms in the pharmaceutical sector, including Tmall Pharmacy, Yihaodian, and 800 Fang Online Pharmacy, officially ceased the direct sale of over-the-counter (OTC) drugs. This development further underscores a key principle: the pharmaceutical industry is a cornerstone of national importance, where it is preferable to exercise restraint than to risk errors.

Although policies are tightening regulations on pharmaceutical e-commerce, this has not deterred industry players from continuing to invest heavily in the sector. On August 24, at the “Rui Forum” on industry status during the 2016 West China Pharmaceutical Conference (Xipu Hui), Huang Xiaoding, General Manager of the E-commerce Business Group at Yifeng Pharmacy; Chen Hua, CEO of 360 Health; Chen Zhouhua, General Manager of Chengdu Quanyuantang Pharmacy; Wei Kai, General Manager of the Health Division at JD Medicine City; Xie Fangmin, CEO of Guangdong Jianke Pharmaceutical; and Shi Zhenyang, Chairman of Guangdong Qilekang Pharmaceutical, gathered together to discuss the topic of “pharmaceutical e-commerce.”

How do they view the issue of tightening policies? And how do they plan to continue developing pharmaceutical e-commerce? The guests all provided their own answers. A reporter from VCBeat (WeChat ID: vcbeat) has compiled and edited the highlights.

360 Health CEO Chen Hua: The tightening of policies is merely a minor adjustment targeting three companies, not a national restriction on the development of pharmaceutical e-commerce.

360 Health has recently planned two products: establishing 360 E-commerce Cloud and 360 Cloud Hospital.

It is extremely challenging to digitize the healthcare and pharmaceutical industries. The key question is how to incentivize the main market participants—manufacturers, distributors, and even medical institutions and physicians—to become drivers of “Internet Plus” and e-commerce initiatives. From the current perspective, technological collaboration appears to be a promising point of integration. Leveraging technology to help enterprises enhance profitability, reduce costs, and improve operational efficiency serves as an excellent entry point. On a broader scale, this approach enables the entire industry to embrace the opportunities presented by “Internet Plus.” This is precisely the mission of 360 E-Commerce Cloud: to facilitate the informatization transformation and upgrading of manufacturers and distributors across the industry, support the development of pharmaceutical e-commerce platforms through technological empowerment, and engage in deep collaboration with production and sales enterprises.

In the healthcare sector, we plan to engage in deep, comprehensive collaborations with medical institutions to launch the 360 Cloud Hospital. Both our cooperation model and products adopt an asset-heavy approach. Given today’s internet technologies, there is a significant opportunity to implement such an asset-heavy model—one that is substantial enough to earn physicians’ trust. Only when doctors perceive the industry as credible will they regard our products as reliable.

Regarding the policy, it merely involves minor adjustments targeting three platforms operated by three companies, with limited impact on overall drug sales. The primary force driving pharmaceutical sales remains the more than 500 companies holding C-license certifications. The greatest concern is that some individuals, upon seeing only a headline, may mistakenly believe that the state has explicitly prohibited and opposed the development of pharmaceutical e-commerce—a notion that is profoundly incorrect.

Huang Xiaoding, General Manager of the E-commerce Business Group at Yifeng Pharmacy: Yifeng’s strategic focus is O2O, and it will remain a key priority.

Yifeng has completed its layout in pharmaceutical e-commerce, but it is not yet realistic to compare itself with Tmall and JD.com. Our advantages lie in our extensive store network and high-quality resources, including a workforce of 10,000 employees and a robust supply chain; therefore, we formulated an O2O (Online-to-Offline) strategy from the outset. Meanwhile, selling medicines is merely the outcome. Yifeng believes that the “medical” aspect should take precedence in healthcare; thus, we are establishing a medical services platform online and have developed initial plans for future expansion in this area.

As for the fine-tuning of policies, it is an unavoidable topic. First, we do not advocate for such policies, given that the internet is a tool designed to provide convenience and improve efficiency. Second, after the policy was introduced, widespread misunderstandings arose, causing significant harm to pharmaceutical e-commerce. Third, even if third-party pharmaceutical e-commerce platforms lack value in patient education, their development should not be hindered. After all, we still have physician care services, O2O (Online-to-Offline) businesses, medical services, and the broader internet ecosystem underpinning mobile health.

Many feel disheartened, primarily because industries once viewed favorably have suddenly come under pressure due to minor policy adjustments, causing years of accumulated stress and negative sentiment to surface at this juncture. The root cause remains the imperfection of the healthcare industry’s business model, which makes it highly sensitive to even slight changes. However, from a long-term perspective, timely adjustments are clearly necessary.

Shi Zhenyang, Chairman of Guangdong Qilekang Pharmaceutical: There is no future for pharmaceutical e-commerce platforms relying solely on the B2C model; more than 90% of them should shut down.

The national government’s policy adjustments to regulate pharmaceutical e-commerce are a positive development, as oversight is essential before standardizing this market. Prior to attending the Xipu Conference, 7lecare had just established the “Liwan 7lecare Internet Hospital,” enabling the online sale of prescription drugs and creating a complete closed-loop ecosystem through the integration of its internet hospital and prescription drug sales. For those unfamiliar with the relevant policy issues, consultation with the 7lecare team is recommended. As for pharmaceutical e-commerce platforms operating solely on a B2C model, there is no viable path forward; at least 90% of such B2C enterprises should shut down. The rationale for closure is twofold: first, these businesses are unprofitable; second, they are unable to secure financing, making continued operations a dead end.

The U.S. pharmaceutical sales model, particularly for prescription drugs, represents a promising approach. By requiring purchases to be made under the guidance of doctors or physicians, it forms a complete closed loop. This is precisely what our entire pharmaceutical industry needs to learn from, and now is the optimal time to enter this field. Why? First, there are opportunities to secure financing. Second, the combination of internet hospitals and prescription drug sales can establish a complete closed loop. Third, within the broader pharmaceutical sales market, prescription drugs account for approximately 80% of total revenue. Regulatory requirements mandating prescriptions for purchasing prescription drugs are a positive development, and these regulations are certain to become even stricter in the future.

Xie Fangmin, CEO of Guangdong Jianke Pharmaceutical: E-commerce is a historical inevitability; the twists and turns in pharmaceutical development will not affect the industry’s healthy growth.

The topic of policy has been discussed for over two months. However, the wheels of history always roll forward despite any twists and turns; therefore, the setbacks in the history of pharmaceutical development will not hinder the healthy growth of the pharmaceutical industry. All enterprises should embrace the Internet and keep pace with the times. In accordance with policy requirements, different companies need to make differentiated adjustments. Rapid response not only secures survival space but also serves as a key factor testing core corporate capabilities; those that survive are precisely the ones courageous enough to embrace change. The e-commerce transformation of society as a whole is a historical inevitability. E-commerce is an important channel for improving efficiency, offering advantages to all commodities, including pharmaceuticals. Companies that thrive are those that have chosen the right direction, embraced change, and moved forward proactively. They are fully capable of providing better online services to the Chinese people. I believe that all enterprises present here will strive diligently toward this goal.

The integration of pharmaceuticals and medical services is inevitable. For instance, Qilekang has established an internet-based pharmaceutical and medical platform, and some companies have even acquired hospitals, reflecting a multi-faceted approach to integration. Internet hospitals represent one form of such integration, offline DTP (Direct-to-Patient) pharmacies another, and direct sales yet another. This integration is essential, as standalone medication retail operations face inherent limitations. The development of pharmaceutical e-commerce requires embracing the combination of e-commerce with medical services. However, each company should select its integration strategy based on its unique characteristics and resources. Acquiring hospitals is a promising direction.

Chen Zhouhua, General Manager of Chengdu Quanyuantang Pharmacy: E-commerce companies are engaged in hyper-competition, but this does not mean the industry lacks promise.

Quanyuantang is not a new company. As early as 1902, the first generation of Quanyuantang opened a clinic and practiced medicine in Chengdu. Having weathered a century of wars and political upheavals, the company remains on this stage today, having never left the pharmaceutical and healthcare industry. With pharmaceuticals at its core, the internet as its tool, and health insurance products as a complementary mechanism, Quanyuantang has formed a closed-loop system for pharmaceutical distribution. Regardless of how the industry evolves or channels change, Quanyuantang remains steadfast in its commitment. Whether discussing issues related to pharmaceutical e-commerce or future topics such as VR and AR, we hope that Quanyuantang will still be here.

First, to address the policy-related concerns: when the tighter regulations for medical e-commerce were initially introduced, many may have been taken aback. Traditional industry players might have even rejoiced, believing that pharmaceutical e-commerce was doomed. However, we do not share this view. The issuance of Class A Internet Drug Transaction Service Qualification Certificates and the pilot programs have not ceased. Just last week, Sichuan Province issued the third such Class A license to TCMCai.com (Zhongyaocai Tiandi Wang), and it is reported that the fourth will be awarded next week. This clearly demonstrates that the pilot program for pharmaceutical e-commerce is still ongoing, and we are confident that the national government will remain steadfast in advancing its reforms.

Issues surrounding online payments and the online sale of prescription drugs are no longer confined to the e-commerce sector; they also pose significant challenges for the pharmaceutical industry. Key questions—such as how to capture prescriptions flowing out of hospitals and how to encourage dominant hospitals to release prescription drugs back into the market—require collaborative solutions. Therefore, we do not believe that pharmaceutical e-commerce will face substantial disruption; the wheel of history will continue to roll forward. As mentioned earlier, while it may be true that 90% of B2C platforms will fail, this outcome merely reflects excessive competition among e-commerce enterprises and does not imply that the industry lacks a promising future.

Last September, Quanyuantang listed on the New Third Board for trading. Capital has provided us with greater leverage to achieve rapid growth and accomplish things that smaller enterprises cannot. However, capital is inherently profit-driven. We respect capital and understand when to deliver returns to investors, rather than stubbornly clinging to entrepreneurial ideals. As Quanyuantang has developed to its current stage, it needs to strike a balance between capital involvement and corporate development, depending on whether the enterprise requires sustained long-term capital support. The best approach at this juncture is to partner with capital that aligns with the company’s vision, rather than allowing capital to work against the business.

Wei Kai, General Manager of the Health Division at JD Medicine City: Self-operated and third-party businesses are not in competition but rather develop together, each with its own focus.

Across all industries, a reversion to intrinsic value is underway. In terms of the essence of commerce, value tends to revert to two extremes: one is toward manufacturers and brand owners, who need to secure profits for research and development, quality control, and brand promotion; the other is toward consumers. However, in the pharmaceutical industry, intermediate links do hold value. For instance, after obtaining its C-license (Pharmaceutical Operation License), JD Pharmacy underwent optimizations including warehouse and store renovations, system reconstruction, and full-process acceptance checks, thereby ensuring quality control for consumers.

Regarding the policy-driven suspension of pilot programs, the halted initiatives all adopted the third-party platform model due to ambiguities in liability. Furthermore, the suspension specifically targeted over-the-counter (OTC) drugs. With more than 2,000 OTC drug varieties available in China, there is a high degree of product overlap across major platforms, inevitably leading to price wars. The mission of pharmaceutical e-commerce is to help consumers curb artificially inflated drug prices, rather than fostering price wars among pharmaceutical companies for similar products. Such competition only encourages the proliferation of low-quality medications, offering no benefits to either pharmaceutical companies or consumers. Therefore, this policy adjustment is beneficial for industry development, enabling the pharmaceutical sector to return to its intrinsic value.

Taking JD.com’s pharmaceutical business as an example, many buyers have asked JD.com how it balances the relationship between its self-operated model and third-party sellers. Imagine if one day JD.com eliminated its self-operated segment entirely and adopted only a third-party marketplace model; would JD.com still be trustworthy in the eyes of consumers? The reputation and loyal customer base that JD.com has built over many years, particularly among high-end users, stem primarily from its self-operated platform. Thus, the self-operated platform is akin to JD.com’s “left hand.” However, JD.com cannot cover every area; its procurement and sales teams have limited capacity, and certain product categories fall outside their scope. Therefore, in the healthcare and pharmaceutical sector, JD.com also provides personalized services to consumers, even customizing orders based on specific needs. When purchasing health supplements, many consumers seek bundled purchases tailored to sub-health conditions. In such cases, the self-operated platform alone cannot meet these demands; only through third-party sellers can more diversified services, better recommendations, and optimized product combinations be offered to consumers.

After obtaining the C license, offline chain pharmacies are also permitted to sell drugs online. For a period, the online flagship stores of these large pharmacies were even the only legal platforms for selling medical devices. Therefore, these pharmacy flagship stores are also part of JD.com’s third-party seller ecosystem. Leveraging their offline operational foundation, many pharmacy flagship stores have cultivated exclusive customer bases and possess strong customer service capabilities; some even offer private-label products. All of this serves as a valuable complement to JD.com’s overall healthcare platform.