Online sales help firms stay healthy

The Internet is a shot in the arm for retail drug industry.

When Shi Zhenyang was running nine drugstores in China five years ago, he struggled to compete with major chain Changsha Baixing Pharmacy. 7LK, his company, was a latecomer to the market and Shi felt he had missed his opportunity.

"We were barely making profits, while the Changsha Baixing Pharmacy had achieved consolidated sales of about 3 billion yuan ($487 million) in 2009. I could not dream of catching up with Baixing even if I got enough financing," said Shi.

Today, he is getting much closer to his dream as he rides China's online drug retailing wave.

At the end of 2013, China had 202 licensed online pharmacies, 85 more than in 2012.

Online pharmaceutical transactions totaled more than 100 billion yuan in 2013, with more than 90 percent generated from the business-to-business segment, the Ministry of Commerce said in June.

Some online drug retailers that started out small, including Yhd and 360 kxr, have witnessed strong growth.

Shi's confidence and ambition also have grown because of the increasing popularity of online drugstores with the younger generation in the country, as well as the government's support.

"In 2010, online purchases accounted for 30 percent of all pharmaceutical sales in the United States, and even 90 percent in some European countries. However, in China, the figure is no more than 1 percent," Shi said, adding that it is a promising industry.

From his brick-and-mortar Qilekang store, 7LK became his Internet retailer. In 2012, it launched an online store on Tmall, a leading Chinese business-to-customer e-commerce website.

"We got the approval for an online pharmacy in 2010," Shi said. "Since then, the year-on-year average growth in sales has been 200 percent to 300 percent."

In 2013, 7LK achieved total sales of about 400 million yuan and is targeting a consolidated sales of 1 billion yuan in 2014. Baixing Pharmacy said it expects to achieve online sales volume of 200 million yuan ($32.29 million) this year.

Most online sales are derived from non-prescription drugs and health supplements, according to Bruce Liu, a pharmaceutical industry expert with an international consultancy.

But that may change. In May, the State Food and Drug Administration said that online drug operators can start selling prescription drugs.

"It is an interesting development and a bold one, to some extent," Liu said.

Like e-commerce, online drug sales give consumers more choices, convenience and price transparency, he said.

But there are many implications for hospitals, physicians, pharma companies, pharmacies and distributors. It even raises questions with government agencies as how to ensure quality and safety while minimizing misuse or abuse, according to Liu.

"Opening up online sales of prescription drugs is a pleasant surprise for many of them, although many are still trying to figure out how to capitalize on this move," he said.

Just after the release of the statement by the administration, J1, a medical e-commerce platform of China Resources (Holdings) Co Ltd, became the first online drugstore to complete financing in China. It declared completion of Around financing of 300 million yuan - including 110 million yuan for the early stage - by Shanghai International Group Venture Capital.