Tmall Health Halts OTC Drug Sales Amid Regulatory Crackdown on Third-Party Pharma E-commerce Platforms
On May 27, reports emerged that the China Food and Drug Administration (CFDA) had issued the “Notice on Emergency Control Measures for Drug Categories” (hereinafter referred to as the “Notice”), stating that merchants on Tmall’s Pharmacy Channel would suspend sales of drug products effective immediately. Under current policy regulations, drugs sold by existing online pharmacies are limited to over-the-counter (OTC) medications; other medical devices and health supplements remain unaffected. Data show that out of RMB 1 billion in total sales on Tmall’s Pharmacy Channel last year, OTC drug sales amounted to RMB 280 million, accounting for 26.60% of the total, with the share of OTC sales gradually increasing.
According to statistics from VCBeat, there are currently 258 flagship pharmacy stores on Tmall Medical Hall, all of which are pharmaceutical e-commerce companies holding B2C licenses. With a total of 456 enterprises currently licensed for B2C operations, more than half of all pharmaceutical B2C companies have established a presence on Tmall Medical Hall.
Tmall Pharmacy responded as follows:
Tmall Pharmacy will actively cooperate in suspending online retail of pharmaceuticals on its third-party platform, in accordance with the notice issued by the Hebei Provincial Medical Products Administration, while other business operations will continue as normal.
Since its establishment in 2012, Tmall Pharmacy has been committed to exploring innovation and achieving sustainable development. Although the current policy adjustments have impacted the pharmaceutical e-commerce industry, including Tmall Pharmacy, we observe that stakeholders across all sectors are actively seeking ways to integrate internet technologies with pharmaceutical distribution and retail. Through the “Internet + Healthcare” model, the industry is striving to advance the new healthcare reform initiatives advocated by the state.
Tmall Health has consistently maintained its industry leadership, supported by agile operational capabilities and a solid user base. In response to recent policy changes, we are confident and motivated to adjust our business model accordingly, serving partner merchants and consumers more effectively through lawful and compliant practices. Meanwhile, Tmall Health will continue to actively collaborate with Alibaba Health, the Group’s flagship healthcare business, to jointly explore development opportunities.
According to informed sources, the China Food and Drug Administration (CFDA) has separately issued relevant notices to the Hebei, Guangdong, and Shanghai Food and Drug Administrations. Currently, there are three merchants that have obtained pilot qualifications for B2C third-party platforms: 95095 (located in Hebei), 800 Fang (located in Guangdong), and Yihaodian (located in Shanghai).
In fact, this is not the first time the China Food and Drug Administration (CFDA) has cracked down on Tmall’s Pharmacy Channel. As early as 2011, Tmall’s Pharmacy Channel was suspended due to a lack of proper legal qualifications, only to resume operations six months later. Based on past experience, it can be inferred that the CFDA’s current action is likely limited to rectifying B2C third-party platforms. VCBeat attempted to purchase relevant medications from Tmall’s Pharmacy Channel, Yihaodian, and 800 Fang, and found that sales were still proceeding normally.
VCBeat contacted 800 Fang and Yihaodian to inquire about the specifics of this notice. A relevant representative from Yihaodian stated that they were unclear about the specific situation, while 800 Fang did not respond.
Why Did the CFDA Suddenly Issue This Notice?
Following the release of this notice, many people have raised such questions. The previous suspension of Tmall’s Pharmacy Pavilion was due to a lack of proper legal qualifications; as for the current instance, no official explanation has been provided thus far.
VCBeat speculates that the expiration of pilot qualifications for B2C third-party platforms may be a primary reason.
On November 12, 2013, the China Food and Drug Administration (CFDA) approved “95095” as the first pilot third-party platform for pharmaceutical sales, granting it a Class A Business-to-Consumer (B2C) license. The 95095 platform is owned by Hebei Huiyan Pharmaceutical Technology Co., Ltd. This approval also indirectly legitimized Tmall’s Pharmacy Channel, which is under Alibaba Group. Previously, the Tmall Pharmacy Channel had been suspended twice by the drug regulatory authorities due to qualification issues. After resuming operations, it adopted a transaction-redirection model to mitigate policy risks. The 95095 platform is regarded as Alibaba’s most significant strategic asset in its entry into the pharmaceutical sector. Since then, all transactions on the Tmall Pharmacy Channel have been conducted through redirection to the 95095 platform.
On May 28, 2014, the China Food and Drug Administration (CFDA) issued the Interim Provisions on Online Drug Sales Policies (Draft for Comments), proposing for the first time to allow the online sale of prescription drugs. This news, which sparked great enthusiasm across the integrated pharmaceutical e-commerce industry, ultimately remained unimplemented and has yet to take effect to date. At that time, it was reported that the approval authority for Class A Internet Drug Transaction Service Qualification Certificates would be further delegated to provincial regulatory bureaus in conjunction with the liberalization of policies governing the online sale of prescription drugs.
In accordance with the provisions of the documents previously issued by the China Food and Drug Administration (CFDA), “the pilot program for B2C third-party platforms shall have a duration of one year. During this period, pilot enterprises are required to submit regular reports on the progress of the pilot program to the General Administration. Upon expiration of the pilot period, a comprehensive summary report shall be submitted.”
VCBeat previously interviewed Zhang Xiaobing, founder of 800 Fang, on the future development of B2C third-party platforms after the one-year pilot period expired. Zhang stated that in August last year, representatives from three third-party platforms reported their work to regulators in Beijing, at which time the China Food and Drug Administration (CFDA) indicated that these three pilot programs would continue operations.
However, Zhang Xiaobing stated that the CFDA has been actively promoting the development of the pharmaceutical e-commerce industry. “From the perspective of resource conservation, platforms are certainly a future direction. However, national policies regarding pharmaceutical e-commerce are relatively lagging.”
Why Has the Policy on Online Sales of Prescription Drugs Been Delayed? Analysts Attribute It to Two Factors: First, Leadership Changes. In January 2015, Bi Jingquan assumed the roles of Director and Party Secretary of the China Food and Drug Administration (CFDA), succeeding Zhang Yong. This change in senior leadership is considered one of the primary reasons for the delayed liberalization of the policy on online sales of prescription drugs. Second, the CFDA’s Shift in Priorities. Compared with the online sale of prescription drugs, pharmaceutical price reform was more urgent. The frequent issuance of drug procurement policies in 2015 serves as strong evidence of this shift.
Under current policy regulations, online drug sales platforms must hold both the "Internet Drug Information Service Qualification Certificate" and the "Internet Drug Transaction Service Qualification Certificate." If the pilot program for third-party B2C pharmaceutical platforms is suspended, Tmall Pharmacy, which currently only holds the "Internet Drug Information Service Qualification Certificate," will be restricted to displaying product information and prohibited from facilitating direct transactions on its platform. Consequently, it may adopt a redirect model, whereby drug information is displayed on the Tmall Pharmacy platform, while transactions are completed by redirecting users to corresponding licensed online pharmacy platforms. However, some industry insiders suggest that this operational model is unlikely to be feasible.
So, will B2C third-party platforms continue to exist in the future?
VCBeat Analysis will undoubtedly continue to exist, albeit with a revised operational model. Following the CFDA’s adjustment of qualification standards for B2C third-party trading platforms, third-party platforms such as Tmall Pharmacy have resumed pharmaceutical sales operations.
Industry insiders stated that O2O will become a future direction. “The O2O model offers two major advantages: First, it facilitates regulatory oversight, as services are localized and delivered by physical stores. Second, it revitalizes brick-and-mortar stores by leveraging their existing capabilities. The platform’s role is to drive traffic or provide corresponding technical services.” To some extent, this also represents the China Food and Drug Administration (CFDA) preparing in advance for the future liberalization of policies regarding online sales of prescription drugs.
In fact, the national government has consistently encouraged the development of e-commerce, particularly the Online-to-Offline (O2O) model that integrates online and offline operations. In early 2015, the State Council issued the Several Opinions on Promoting the Healthy Development of Domestic Trade Circulation, which proposed actively fostering e-commerce growth and explicitly called for promoting the integration of online and offline channels. It advocated for new delivery models such as “online order, in-store pickup” and “online order, store-based delivery.” The document also required enhancing the socialization of logistics, supporting large chain retail enterprises in providing third-party logistics services to the public, and facilitating the coordinated development of e-commerce and express delivery services.
On May 25, Ali Health joined forces with 65 domestic chain pharmacy companies to establish the O2O Pioneer Alliance, aiming to leverage mobile internet and data technologies to integrate the upstream and downstream segments of the healthcare and pharmaceutical services industry, thereby redefining the future development of pharmaceutical O2O. It is reported that Ali Health will provide three types of services to alliance members: First, it will utilize the physical offline stores of all alliance members as key entry points to deliver chronic disease management and online hospital services; Second, it will share data from its existing platform with all alliance members; Third, it will consolidate the collective strength of alliance members to negotiate joint procurement with upstream enterprises, offering consumers high-quality, affordable medications. As a result, the service capabilities of offline pharmacies will be enhanced, thereby increasing user stickiness and facilitating their transformation from mere sales terminals into comprehensive health and lifestyle service hubs.
If the establishment of the Pioneer Alliance yesterday was a coincidence, then Alibaba Health and these chain pharmacies can be said to have planned ahead.
(VCBeat will continue to monitor the subsequent developments of the “Pilot Program for B2C Third-Party Platforms in Online Drug Trading.” Industry professionals are welcome to share relevant updates and insights. For further discussion, please feel free to add WeChat ID: angelyaya121.)