Supply chain digitalisation will not only allow China’s family-run pharmacies to survive, but also enjoy the advantages accessed by their chain-store rivals, according to Shanghai-based 111.
The Nasdaq-listed company, which manages supply chain operations for the world’s largest network of independently owned pharmacies, is pursuing a secondary listing on the Shanghai exchange’s Science and Technology Innovation Board, also known as Star Market.
“We can lower their procurement costs, speed up inventory turns and eliminate middle layers of distributors … [so that] even family-run shops can gain the same advantages enjoyed by larger chain stores,” Yu Gang, the company’s co-founder and executive chairman, told a webinar organised by SCMP Research on Tuesday.
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Family-run shops account for more than half of China’s 480,000 retail pharmacies. The rest of the market is held by chain stores, the largest of which only has a 2 per cent market share, Yu said. The sector is served by 14,000 distributors. Access to digital and cloud-based technology will stave off major consolidation in the world’s second-largest pharmaceutical market.
“The fragmentation will remain for a fairly long time – at least for the next three to five years,” Yu said, adding that it had “resulted in low efficiency and lack of transparency”.
He pointed out that the structure of China’s pharmacies sector was in sharp contrast to that found in the United States, for instance. Three retail chains – Walgreens, CVS Health and Rite Aid – together account for 82 per cent of total sales in the US, while three distributors – McKesson, AmerisourceBergen and Cardinal Health – controlled more than 90 per cent of the market, Yu said.
Besides helping its 280,000 small pharmacy partners cut costs through bulk purchases, the company also helps them build their own online presence on 111’s online marketplace. It also uses them as drug distribution points for an increasing number of patients of chronic diseases who opt for online consultations instead of queuing up at big hospitals for follow-up visits.
To better capture drug distribution opportunities, 111 also runs an online medical consultation platform that is serviced by 100 doctors that it employs, and 6,000 others who work independently. Patients can get their prescriptions filled and delivered on the same platform.
“China’s top-tier public hospitals have 20 per cent of the system’s resources, but have to care for half of its patients. It is typical for doctors to see 100 patients a day,” Yu said. “Online consultations can provide some efficiency gains and relief to … hospital manpower.”
111, which competes with other Chinese online health care platforms at the retail level, also seeks to differentiates itself on the wholesale level by forging deeper partnerships with pharmaceutical manufacturers. It uses its vast database and network of patients and doctors to help domestic and international drug makers launch new drugs, conduct patient education and enhance drug adherence rates through mobile apps.
With its share price trading below half that of its US initial public offering price of US$14 seen two years ago, 111 will pursue its secondary listing for a higher stock valuation, to broaden its investor base and to strengthen its brand recognition in China’s domestic market.
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When asked if the company will consider listing in Hong Kong, much like its fellow US-listed Chinese internet companies, Yu said: “Certainly, but for the next two years our focus will be on the Star Market.”
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