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"In 2021, China's pharmaceutical economy will resume growth, the upstream pharmaceutical industry will be operating steadily upwards, and downstream terminal businesses will undergo fission and differentiation
.

On the afternoon of July 22, at the China Medical and Health Industry Symbiosis Conference (Miss Conference) held in Kunming, Lin Jianning, Secretary of the Party Committee of the Southern Institute of Pharmaceutical Economics of the State Drug Administration, looked forward to the drug retail line with the title of "Resonance in the New Era of Competition and Cooperation" New changes online and offline
.

Lin Jianning, Secretary of the Party Committee of the Southern Institute of Pharmaceutical Economics, State Food and Drug Administration

Opening: Restarting the growth turning point upwards

Lin Jianning first analyzed the industrial economic environment for the development of the pharmaceutical retail industry
.

Figure 1 Operating income and growth of the pharmaceutical manufacturing industry

Figure 2 Total profit and growth of the pharmaceutical manufacturing industry

From the demand side, the number of terminal visits in hospitals has rebounded significantly.

Figure 3 Online prescription drug sales on selected platforms

(Statistical scope: sales data of more than 200 pharmacies on Tmall and JD.

"In the latest statistics released by the Internet Society of China, the number of Internet users in China has exceeded 989 million, and the total size of the Internet healthcare market will reach 283.

Figure 4 Online pharmaceutical sales scale

Under the new normal after the epidemic, a new ecosystem of online and offline medical retail competition and cooperation has taken shape
.

Change 1: Polarization and deep fission

Judging from the changes in the number of pharmacies, a new round of "horse racing" has begun: in the first quarter of this year alone, the number of retail pharmacies increased by 7,104 compared to the end of 2020
.

In the first quarter of 2011-2021, the ratio of the number of chain stores in China to the number of single pharmacies changed from 1:2 to 13:10
.

In the first quarter of 2021, there were more than 7,600 new monomer pharmacies compared to the end of 2019.
The original expectation of the collapse of monomer pharmacies after the epidemic did not appear
.

Figure 5 Changes in the number of retail pharmacies over the years

Figure 6 Chain rate of retail pharmacies nationwide

The increase in the number of pharmacies has intensified offline competition, and the polarization has become prominent
.
During the five years from 2016 to 2020, the retail pharmacy monitoring data of Punctuation Information showed that the compound annual growth rate of the sample single store's sales volume decreased by 0.
26%, and the compound annual growth rate of the sample chain pharmacies was 2.
67%
.
In 2020, the four major listed chains, Yixintang, Lao People, Dashenlin, and Yifeng, achieved a combined revenue of 54.
35 billion yuan, a year-on-year increase of 24.
8%
.
The sales growth rate of the top chain is much higher than the national average of 6% of retail pharmacies
.
At present, the average gross profit margin of the top 100 chains is 32.
08% and the average net profit margin is 5.
03%, while the average gross profit margin of the US drugstore giant is 26% and the net profit margin is less than 3%
.

Lin Jianning pointed out that in the fission of competition among physical pharmacies, giants are expanding rapidly, but structural differentiation has also emerged
.
In 2020, the four major listed drugstores will have a total of 25,749 stores, a 23.
2% increase in the number; in the first quarter of 2021, the total number of stores will be 27,535, a year-on-year increase of 27.
5%
.
However, the revenue growth rate (15.
5%) in the first quarter of 2021 was significantly slower than the growth in the number of stores.
The revenue growth of large chain pharmacies mainly came from the expansion of the number of pharmacies opened
.
In the first quarter of 2021, the average revenue of the four major listed chain stores was 536,000 yuan, a year-on-year decrease of 9.
4%, prompting physical pharmacies to optimize management to avoid problems of diseconomies of scale
.
In addition, comparing the growth rate of online and offline sales of the four major listed chains in 2020, Lin Jianning pointed out that the online growth rate reached 111%, which was more than 5 times that of offline.
Yixintang's online sales growth rate was even 13% offline.
Times more
.
The competitive differentiation of pharmacies has spread from offline to online
.

Change two: head power circuit reset

The retail industry is currently undergoing integration.
In 2020, the five major listed chain companies will add 5,721 new stores.
The size of the new stores is equivalent to adding a pharmacy equivalent to the size of the "Four Masters"
.

While the large chains continue to expand and diversify their business formats, non-industry capital enters the market
.
The most typical example is the transfer of 100 million health shares under Cornerstone to KKR, an international private equity investment institution
.
This is the birth of China's largest drugstore chain M&A transaction .
"On the whole, due to differences in medical insurance policies and consumption habits in different regions, retail pharmacies are very regional, so that the chain rate is slowly increasing.
If you want to further increase the concentration, you need to break the geographical restrictions and conduct mergers and acquisitions
.
" With a chain rate of over 80% of retail pharmacies in the United States, there is still a lot of room for intensive integration of pharmacies in China.
The most important driving force is capital
.

Judging from the performance of listed companies, investment in biological products and medical equipment is very active, and medicine has become a capital safe haven during the global economic turmoil during the epidemic
.
In the past, capital favored the field of innovative drugs, chasing to follow suit among PD-1 inhibitors
.
As of the first quarter, there were a total of 154 research projects in the world, of which 85 were developed or jointly developed by Chinese companies, accounting for as high as 55%.
The high level of duplication is obvious
.
Innovative drugs are overvalued and have a long return period, prompting capital to create a new track
.
The field of Internet + retail has received increasing attention from capital
.

Lin Jianning pointed out that after the capital entered the market, the integration of retail pharmacies has shifted from a simple "big eat small" type of annexation to a new trend of strong alliances and coordinated online and offline layouts
.
A typical example is Gaoji Medical, a subsidiary of Hillhouse Capital, which has acquired nearly 12,000 pharmacies offline, relying on smart medicine modules to realize online transfers intercepted by terminals
.

With the opening of online prescription drug sales approaching, the loosening of prescription outflows has brought new volume of DTP pharmacies, and various capitals have more optimistic expectations for the online traffic dividend of retail pharmacies
.
At present, according to the annual report data, the online sales of listed pharmaceutical chain companies account for only 10.
3% of the online sales, which is far from the 30% online sales of the US chain giants and there is still a lot of potential to tap
.
However, Lin Jianning also analyzed: “The pharmacy industry must hold on to the core while embracing changes
.
” In the United States, online drug sales are only a technical means to improve convenience, and companies are more focused on providing offline-centric professional health value-added O2O.
Service
.
Lin Jianning pointed out: "We judge that mergers and acquisitions will continue, but with the deployment of non-industry capital such as Hillhouse Capital in place, the valuation of pharmacies by capital will gradually return to rationality
.
"

Change three: deep reform of medical insurance, stable and long-term development

From a policy perspective, in 2021, the four key points of deepening the medical reform work especially emphasize the promotion of Sanming’s medical reform experience, advance the reform of medical insurance payment methods, and promote the high-quality development of public hospitals; the normalization and institutionalization of centralized procurement policies, and the price of pharmacies will be affected by centralized procurement.
The impact is bound to increase
.
In this context, pharmacies' follow-up and centralized procurement has become a must
.

At present, the designated retail pharmacies of medical insurance participate in national procurement in Yunnan, Zhejiang, Hunan and other places.
The sales price increase space of pharmacies that collect drugs is not more than 15%.
This may not be able to offset the comprehensive cost of more than 24% such as store rent and labor costs.
Forcing pharmacies to adjust the category structure in a timely manner, and balance the marketing ratio of centralized and non-centralized varieties
.

The advancement of the centralized procurement policy has also brought new opportunities for retail pharmacies to negotiate "dual channel" sales in drug hospitals, which puts forward higher requirements for the informatization, drug management and medical insurance fund supervision of medical insurance designated pharmacies
.
On June 18, the National Medical Insurance Administration issued a list of institutions that negotiated drug allocation (the second batch), of which 52,000 designated retail pharmacies, accounting for 61.
9%
.
The launch of negotiated drugs in pharmacies means that the outflow of prescriptions has entered a substantive stage of development
.

In general, medical insurance continues to expand, outpatient mutual assistance guarantees, outpatient settlements are expanded in different places, and the "dual channel" of negotiated drugs covers more than 25 provinces.
After the epidemic, medical insurance online payment pilots continue to be explored to limit the rapid growth of online drug sales.
The solution to the pain points of the medical insurance payment has been put on the agenda.
The main tone of the medical insurance is to change the main tone of the bureau.
It is to ensure the convenience of consumers on the retail demand side to purchase drugs and improve the availability of high-quality new drugs.
This is an upgrade to the professionalization of pharmacies.
Also put forward higher requirements
.

Change four: online sales competition, cooperation and compliance

The epidemic has changed the public’s drug purchase habits.
In 2020, online drug retail sales increased by 59.
1 billion yuan over the previous year, a growth rate of 59%, while offline drugstore sales reached 431.
6 billion yuan, a growth rate of only 6%.
The absolute value of the online increment is approximately 2.
4 times that of the offline
.

Currently, the main channels of medical online sellers are on B2C third-party platforms
.
During the epidemic, pharmaceutical e-commerce prescription drug sales growth accelerated.
Sales data of more than 200 pharmacies on Tmall and JD.
com showed that starting from May 2020, online prescription drug sales have soared, with average monthly sales reaching about 500 million yuan in 2021.
The highest in May was close to 1.
51 billion yuan
.
The number of online pharmacies such as Pinduoduo and Pharmacy.
com has exceeded 1,200, and the majority of them are small and medium-sized chain or single pharmacies
.

In June this year, the General Office of the State Council issued the "Opinions on Promoting the High-Quality Development of Public Hospitals", which clearly explored the interconnection of prescription information and drug retail consumption information in public hospitals
.
The "Measures for the Supervision and Administration of Online Drug Sales", which has attracted much attention from the industry, will soon be promulgated.
There is ample room for the outflow of electronic prescriptions, and specialized pharmacies will become the biggest beneficiaries
.
The dispute between physical pharmacies and platform e-commerce companies on the "online ordering", the competition between industry and commerce for e-prescription resources, and whether online direct sales will be lifted, a series of conjectures are causing great concern in the industry
.

In the general trend of online sales competition and cooperation, the development momentum of new retail O2O is generally optimistic
.
A few days ago, the National Medical Insurance Administration issued the "Opinions on Optimizing the Convenience of Medical Insurance", which emphasized the promotion of Internet + medical services, realizing prescription drug circulation, online payment and settlement, and home-to-door integrated services to promote the development of Internet medical services
.
Although Internet healthcare is also facing development difficulties and transformation, policy encouragement has released many benefits
.
Judging from the existing data, Meituan and Ele.
me quickly docked with pharmacies, and O2O traffic competition is more cruel than offline
.
So, how to get rid of the zero-sum game, online and offline competition and symbiosis? Lin Jianning said that since the impact of online sales has hit, it is better to actively embrace changes and look forward to offline mainstream pharmacies to actively explore online solutions
.
Facing the uncertainty of the future, look for a new fulcrum for sustainable growth
.

Finally, Lin Jianning pointed out that compared with the mature physical pharmacy format, the online terminal of Chinese medicine is still a new growth pole.
The inherent characteristics of the Internet have brought many new problems to the compliance of online sales.
Irregular electronic prescriptions and Violations of online sales occur from time to time
.
In order to ensure the safety of consumers buying drugs online, the country is comprehensively upgrading its online sales supervision capabilities, and the monitoring platform for online sales of pharmaceutical equipment undertaken by the South will become a powerful technical support for the standardized development of the pharmaceutical retail industry
.

Conclusion: Looking ahead, at the beginning of the "14th Five-Year Plan" period, China's pharmaceutical retail industry will embark on a new journey
.
The deep integration of Internet + big health, new industry + new technology has spawned the ecological reconstruction of new retail online and offline omni-channel
.
Business integration, capital aggregation, store-network integration, and polarization accelerate the intensification of the retail industry.
Capital boosts the leading forces to gather competitive advantages.
The new medical insurance policy guides the optimal allocation of resources, and new intelligent regulatory assistance is added for compliance operations
.
The new era of competition and cooperation requires the resonant interconnection of the industrial chain, as well as the coordinated development of traffic, channels, logistics, and technology
.
The new wave of medical and health consumption upgrades will promote the mainstream force of China's pharmaceutical retail to expand and develop new tracks
.