China Healthcare:Prescription drugs likely not for sale on-line

类别:行业研究 机构:国信证券(香港)金融控股有限公司 研究员:Jason Siu 日期:2017-11-30

On 14 Nov 2017, China’s FDA (CFDA) (国家食品药品监督管理总局) drafted aconsultation paper on the surveillance and management of internet sales formedicines. This requires the relevant parties to reply the CFDA by 30 Nov 2017.

    In the consultation paper’s chapter 2 of item #8, if the on-line medicines sellers arethose drug-makers or wholesalers, drug products are restricted not to be sold toindividual customers (patients). At the same time, prescription medicines or drugswith special requirement from government cannot be sold on internet, if thesellers are on-line drugstore chain companies.

    The same chapter of item #9 stressed that, on-line medicine sales from theseenterprises should emphasize on (1) the needs and safety guarantee of theirsoftware applications, internet security and database system; (2) establishing moresafety management measures for on-line drug sales; (3) ensuring the quality anddistribution accuracy of these medicines to their customers; (4) setting up a systemfor customers to complain which protects their rights; and (5) having thesurveillance report available for the side effects of these drugs to be sold on-line.

    As we flagged in our 26 Feb 2016 note, consistent with government policy ofsupplying cheaper medicines to Chinese masses safely, we reckon that, the currentdevelopment would (1) enforce and improve the existing surveillance system foron-line drug sales; and (2) ensure accurate delivery to the end-users (customers)especially for prescription drugs. Note that, only the over-the-counter drugs andhealth supplement are officially allowed to sell on-line.

    HK stock impact: This development will likely limit the amount and type ofmedicines to be sold on-line, for instance prescription drugs. HK-listed stock thatmostly involves in this matter would be Ali Health (241.HK, Non-rated). In 3/FY17,its 54% of profit was derived from drug sales through e-commerce platform suchas Tmall to customers, while the rest of its profit (46% of total) was from drugtracking platform services to customers. The former business includes on-line drugsales to offline collection points, whose coverage is over 20,000 pharmacy outletsin more than 100 cities of China (also associated with 200 offline drugstore chains).

    Whereas the tracking system service had a much wider gross margin at 89.6% in3/FY17 compared to the on-line drug sales of a mere 26.7%.

    On the other hand, during 3/FY17, Ali Health already carried out a properoperation of its Drug PIATS* (an electronic identification and tracker system fordrugs). In addition, the company also launched its Ma Shang Fang Xin (码上放心)tracking platform. This comprehensive platform helps (1) drug-makers establishtheir product tracking systems as required by the CFDA and (2) realize qualityassurance and marketing control for both the drug-makers and the middlemenamong the supply chain. Same as our previous note, we re-iterate our view thatthe government will likely introduce a more elegant and cheaper on-lineverification system, without any significant markup charges and data disclosurerisk from a third party system operator (such as Ali Health) to other drug retailers.

    *The Drug PIATS stands for the Drug Product Identification, Authentication andTracking System. Each medicine should be assigned with an electronic monitoringcode to identify itself for real-time monitoring in hospitals’ or drugstores’ purchase.

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