Chinese authorities are reportedly planning to suspend all online pharmaceutical sales only days after e-commerce giant Alibaba (China) ordered all medicine vendors on its online shopping platform to halt sales, according to Caixin and Reuters.
Implications | Chinese authorities reportedly issued the abrupt directive due to concerns over the challenges of regulating online drug sales. |
Outlook | The sudden regulatory reversal is expected to have the greatest immediate impact on online drug vendors, particularly those operating on Alibaba's online Tmall platform. |
According to the source, Alibaba's online shopping platform, Tmall, is not the sole retailer targeted by the China Food and Drug Administration (CFDA), with other online vendors expected to receive similar orders to halt pharmaceutical sales.
Late last week, Alibaba issued an announcement stating that a local regulator had issued an "urgent" order to halt all pharmaceutical sales utilising third-party platforms, according to Reuters. According to the report, Alibaba cited a directive from the local CFDA branch of Hebei province, which detailed "urgent control measures relating to drug products", without elaboration. The CFDA order applied only to drugs sold online, and not to other medical products.
According to Reuters, a spokeswoman for Alibaba confirmed that the company was "co-operating and complying with the government's new policy to block online drug sales on third-party platforms", adding: "While the policy change might affect the whole medicine e-commerce business including Yao.Tmall.com, industry players are exploring new ways to use internet technology to help improve the traditional drug-retail system."
Other companies that operate direct-to-consumer online pharmaceutical sales platforms include Yihaodian.com (owned by Walmart Stores, US), which also declined to give an immediate comment; meanwhile, the CFDA branch in Hebei province declined to comment, according to Reuters. Although pharmaceutical sales in China remain dominated by public hospitals, online retailers are expected to contribute significantly to over-the-counter (OTC) sales, which are forecast to double to almost CNY200 billion (USD30.4 billion) by 2025 (source: BMI).
Outlook and implications
According to local media reports, Chinese authorities issued the abrupt directives due to concerns over the challenges of regulating online drug sales. However, the sudden turnaround is highly surprising, particularly given the seeming lack of prior consultation with major online vendors, including the Alibaba Group.
The CFDA's decision comes just days after Alibaba announced, to considerable public fanfare, that its health-services subsidiary Alibaba Health Information Technology (AliHealth) had launched a healthcare alliance with 65 major Chinese drugstore chains. The aim of the China Healthcare and Drug Pioneer Alliance was to shake up China's drug retailing and distribution system, as well as to integrate healthcare services such as health consultations, chronic-disease management, and health-insurance programmes. The announcement appeared to mark a turnaround after the CFDA suspended AliHealth's online drug-monitoring system as it drafted changes to regulations for online pharmaceutical sales (see China: 24 February 2016: China's FDA suspends online drug-monitoring system while drafting regulations amendments).
The latest developments appear contradictory to the Chinese government's ostensible aim of modernising its healthcare system and moving towards allowing the sale of prescription drugs online (see China: 22 May 2015: Launch of online pharmacies expected to boost pharmaceutical sales in China). At present, a mere 0.1% of medicines are sold online in the country (source: Xinhua); China authorised online sales of OTC drugs in 2013.
The immediate impact of the CFDA's directive is expected to affect online vendors operating on Tmall, with wider repercussions for the overall pharmaceutical industry in terms of corporate strategy related to online sales. The lack of visibility and transparency around sudden regulatory changes is a major factor in terms of China's market-access landscape, and does not mark the first example of a sudden reversal in policy.