Online health care platform operator 111 Inc plans to team up with generic drug makers that have failed to win public hospital tenders in a bid to help them survive by cutting distribution costs.
A pricing reform introduced recently by Beijing led to an average 60 per cent fall in winning bid prices at last month’s pilot centralised bulk drugs procurement in 11 cities. This coupled with the stipulation that up to 70 per cent of the purchase volume be given to a single winner mean that the losers will be under pressure to cut costs to stay competitive, according to Yu Gang, co-founder and executive chairman of 111.
“The [reform] means pharmaceutical companies will face a series of challenges including lower prices and restrictions on traditional distribution channels … we are the natural and desired distribution channel for them,” said Yu.
“They want transparency and efficiency which are criteria we can meet,” he told the Post in an interview on the sidelines of the JP Morgan healthcare conference in San Francisco earlier this month.
Beijing’s drugs pricing reform is aimed at slashing patients’ costs by cutting out layers of hefty marketing and distribution costs – including kickbacks to hospital workers, and forcing drug makers to vie for contracts.
Losers will not only be subject to price caps set by the winning bids, they will also have to contend with the need to compete among themselves for the remaining 30 per cent of the market that requires significant marketing and distribution costs to serve.
On Monday, 111 announced it had signed a “strategic cooperation” agreement with Indiana, US-based pharmaceutical giant Eli Lilly.
Lilly will use 111’s cloud computing solutions in areas including online diagnosis, online prescription, warehousing, distribution, patient services and support programmes.
“Working with 111 will allow Lilly to develop distribution channels outside the traditional channels of public hospitals, [bricks-and-mortar] pharmacies and primary care physicians,” 111 said in a statement.
Launched in 2010, Shanghai-based 111 operates 1 Drugstore, China’s largest direct-to-consumer online pharmacy by gross merchandise value since 2016, according to consultancy Frost & Sullivan hired by 111 to research the industry for its IPO prospectus.
111 also runs 1 Clinic, an online medical consultation and drugs prescription platform giving consumers access to over 2,000 doctors, and 1 Drugmall, a drugs wholesaler to over 130,000 bricks-and-mortar pharmacies.
The company, which raised US$100 million by listing on the US Nasdaq market five months ago, offers pharmacies merchandise procurement, assortment and inventory management services to help them reduce costs and better meet customers’ needs.
China’s online drug sales accounted for only 7.4 per cent of the total market in 2017, compared to 33 per cent in the US in 2015, but its growth is much faster in China, Yu said, citing data from digital health care portal vcbeat.
Online sales of drugs to consumers is projected by Frost & Sullivan to surge over tenfold to 323.5 billion yuan (US$48 billion) in 2022 from 29.1 billion yuan in 2017, while sales via retail pharmacies is tipped to more than double to 832.3 billion yuan from 409.8 billion yuan in the same period.