Online sales help firms stay healthy(2)

The capital will mainly be used for its data management center, online-to-offline system and call center to speed up the shift of J1 from an e-commerce service provider to a health management service provider.

"Since the launch of the website in October 2011, home-use medical devices, common drugs, vitamins and health tonics are among the most popular products at J1," said He Tao, J1's general manager.

"Prompted by the new policy, J1 is defined as a manager for customers' long-term medication, "He said.

As for Shi, though 7LK's current core businesses are in medical devices, family planning products and contact lenses, he said he will start focusing on pharmaceuticals.

"Turnover from drugs now accounts for 20 percent of our total revenue," he said.

Other e-commerce platform giants are also targeting the market.

Yhd, a Shanghai-based online supermarket controlled by Wal-Mart Stores Inc, has been given permission to sell over-the-counter medicines online.

Alibaba Group Holding Ltd paid $170 million in January for a stake in CITIC 21st Century, a Hong Kong-listed company that focuses on medical product data accumulation.

E-commerce company JD.com Inc is also awaiting approval of its pharmaceutical practice.

"Leading e-commerce players like Alibaba and JD have existing customer bases and a ready infrastructure going for-ward," Liu said.

However, Yu Zhibin, deputy director of the Chinese medicine department of the China Chamber of Commerce for Import and Export of Medicines and Health Products, said that unlike other products, medicine is a much more highly regulated category.

"Customers' purchasing process and selection criteria will be different, and delivery requirements more strict," Yu said.

Compared with traditional chain pharmacies, which have experience with medical logistics, third-party logistics companies do not have a dedicated drug distribution system.

"For online giants, they are much bigger in size and stronger in capital. It is easy for e-commerce platforms to meet the standards of logistics and storage of medical e-business," Yu said.

Yu also warned that the online pharmaceutical industry must be strictly supervised and regulated, as trust has been a focal point for China's e-commerce.

Liu echoed that assessment. "Prescription drug sales online will face a number of challenges in the near term, ranging from verification of doctors' prescriptions to delivery standards that need to meet GSP (good supply practices) requirements."

And for now, customers will not be able to use their medical insurance surplus toward online transactions, under-mining a price advantage that was key for e-commerce in the first place.

"These challenges are not insurmountable, though," said Liu.

Nevertheless, the blossoming online medical sector is also testing e-commerce channels with pharmaceutical manufacturers.

"It may soon be recognized as the fourth channel and a force to be reckoned with," Liu said.

Consumers will be more empowered, and direct-to-consumer education as well as online patient community will play an increasingly important role, he said.

Li Guoqing, a senior official at the State Food and Drug Administration, said earlier that Chinese online drug sellers were not profitable and were limited by the source of prescription and health insurance reimbursement.