The over-reliance on the drug sales business of Internet medical treatment is about to peak

Image source @ Visual China

Wen | Beijing Maritime Certificate

Internet Medical = Selling Drugs? This is the intuitive feeling of the outside world on this industry at present!

Those who can sell drugs online have run to sell drugs, and the income from selling drugs accounts for almost 80% of the entire Internet medical and health income. According to the 2021 interim report of Alibaba Health (Hong Kong Chinese stock: 00241), during the reporting period, the company's revenue was 9.358 billion yuan, and the revenue of the pharmaceutical e-commerce business accounted for more than 97% of the total revenue.

According to the 2021 financial report of JD Health (Hong Kong Chinese stock: 06618), the company's revenue from the sale of drugs and health products in that year was 26.2 billion yuan, accounting for 85.3% of the total revenue of JD Health of 30.682 billion yuan. Less than 15% of revenue remains, and part of the business is also related to the sale of pharmaceuticals. For example, the advertising costs of cooperative enterprises, the commissions extracted by the JD health platform, etc.

In fact, it is not that the profit of selling drugs online is greater, but that selling drugs is the simplest. It is easier to monetize other services than Internet medical care. However, we do not think that Internet medical care can continue to drive revenue growth by selling drugs for a long time, especially in the prescription drug market, and it is casually facing the situation of being taken offline! Why?

01, accidentally became a "medicine god"

In order to sell drugs, the Internet medical platform can be said to be painstaking, and gradually derived three models of drug sales. The first category is the pharmaceutical e-commerce represented by Ali Health, JD Health, and Dingdang Fast Medicine. Its core feature is: take the platform model, self-operation as the mainstream. This model is more of a test of the supply chain capabilities of these companies, the richness of drugs, and the cost of compliance.

Among them, the core business of Alibaba Health (Hong Kong Chinese stock: 00241) lies in pharmaceutical e-commerce, which can be divided into two major sectors: self-operated business and e-commerce platform. With the help of Alibaba Health Pharmacy, Alibaba Health Overseas Flagship Store, Tmall Pharmaceutical Platform and Pharmaceutical 020, it will carry out full-line operation. In addition to the layout of the online, Ali Health has successively opened up online and offline omni-channel scenarios by investing in a number of offline chain pharmacies such as YuminDa Pharmacy, Chinese Health, Guizhou Yishu, and Deshengtang.

Taking the first quarter of 2021 as an example, Alibaba Health's Tmall Pharma GMW exceeded 123.2 billion yuan, with more than 23,000 cooperative merchants and 280 million annual active users. It is worth noting that Ali Health's mid-year report last year showed that the company turned from profit to loss in net profit, and the adjusted profit loss was 280 million yuan, down 163.6% from the same period.

JD Health (Hong Kong Chinese stock: 06618) is mainly engaged in the wholesale and retail of drugs, medical devices and pan-health goods, and its business mainly passes through the three models of self-operation + platform + omni-channel. Among them, the self-operation mainly relies on channels such as Jingdong Pharmacy, Jingdong Health Alliance Pharmacy, and unmanned intelligent medicine cabinet. At present, there are more than 2,000 kinds of Jingdong health products and 12,000 cooperative merchants. 123 million active users at the end of the year.

Relying on JD.com's self-operated logistics system, JD Health can provide door-to-door drug delivery services such as 30 minutes, same-day delivery, and next-day delivery, covering more than 200 cities. Under the non-international financial reporting standards, JD Health's profit in 2021 was 1.4 billion yuan, an increase of 91.5% over the same period.

The second category is the health management and service category represented by Ping An Good Doctor, Yuanxin Technology, and Zhiyun Health. Its core features are: focus on the characteristics of the population, and offline pharmacies for linkage. However, due to the fact that pharmaceutical insurance is still in its infancy, there are many challenges.

Taking Yuanxin Technology as an example, at the doctor's end, Yuanxin Technology provides comprehensive services for patients outside the hospital. On the insurance side, Yuanxin Technology provides innovative medical and health services. On the pharmaceutical side, Yuanxin Technology mainly focuses on the field of prescription drugs, but the problem is that most of the prescription drugs sold by Yuanxin Technology are not within the scope of national medical insurance. Although Yuanxin Technology has three major businesses, the comprehensive service of out-of-hospital patients is still the majority of Yuanxin Technology.

According to the prospectus of Yuanxin Technology, the proportion of revenue of out-of-hospital patient comprehensive services in 2018-2020 was 98.8%, 97.9% and 97.5%, respectively. The other two businesses add up and account for only about 2% of revenue. In a short period of time, it is difficult for The Center Technology to achieve the effect of 1+1+1>3.

The third category is digital marketing represented by Baidu Health and Lilac Garden. Its core features: mainly connecting the two ends of patients and doctors to improve the efficiency of pharmaceutical promotion, and digital marketing and operation capabilities are the core of testing enterprises.

Taking Baidu Health as an example, the outbreak of events such as "Hemophilia Sticker Bar" and "Death of Wei Zexi" destroyed Baidu's health business in one fell swoop. In order to calm the pressure of public opinion, Baidu chose to shut down the medical and health business sector. In March 2020, Baidu restarted this business.

Baidu Health's business in the field of pharmaceutical e-commerce mainly includes online drug purchase, vaccine reservation, health insurance, experience reservation, etc. With the help of Baidu Medical Brain, we have completed the deep cultivation of the field of chronic disease management services. Relying on Baidu's powerful search function, it provides health science content.

We say that although the drug sales model of the Internet health platform is different, it returns to the drug itself. The drugs it sells can be roughly divided into prescription drugs, OTC, proprietary Chinese medicines, health care products, medical devices, etc. Behind the seemingly wide variety, its crisis is also coming.

02, prescription drugs: at any time to face the possibility of offline

Because prescription drugs have the characteristics of rapid effect and large side effects, patients must purchase and take them under the guidance of a licensed pharmacist. Unlike other types of drugs, prescription drugs have a strong rigidity. For example, for many patients with chronic diseases, they must rely on long-term use of special drugs for treatment. If the prescription drug is not properly disposed of, it is easy to trigger the doctor-patient relationship and bring serious negative effects to society.

It is based on the above considerations that the state has always been cautious about online prescription drugs. Although last year the state issued the "Opinions on Serving the "Six Stability" and "Six Guarantees" and Further Doing a Good Job in the Reform of the "Decentralization Service"," it allows online platforms to sell prescription drugs. But we don't think prescription drugs will form a big incremental market online.

First of all, online goods are cheaper than offline, which is the perception of many people. But prescription drugs do not apply here. After the purchase of 4+7 with volume, the price of the first batch of 25 winning varieties of 4+7 was reduced by as much as 52% by exchanging prices for volume. Many netizens also said that in the prescription drug market, the price of pharmacies is actually cheaper than online.

Although the domestic Internet medical platform has also developed for many years, it is still unable to break the traditional offline consultation and drug purchase model, 45-year-old Aunt Zhang said that even if she goes to the hospital to queue for several hours, she will also go to the doctor to see a doctor and buy drugs. On the Internet medical platform, can you know your condition by relying on a few pictures and chatting with the doctor? Even if the drugs sold online are real, I don't dare to buy them myself.

In fact, Aunt Zhang's worry is the biggest concern of many middle-aged and elderly people about the Internet medical platform. With the advent of the domestic deep population aging society, the demand for prescription drugs for middle-aged and elderly groups will also increase. However, it is difficult for Internet medical platforms to please this part of the population. With the completion of the Internet medical platform for young users, it is difficult for this part of users to break through in the future.

Second, prescription drugs have always been linked to Medicare. Although the National Medical Insurance Bureau also clarifies that Internet medical internet medical care can be included in medical insurance payments. However, domestic medical insurance currently has a strong off-site attribute, it can be said that the current domestic medical insurance is actually based on the province (city) as the unit to artificially divide the mainland's medical insurance policy into 31 small units. In the short term, it is difficult to establish a nationwide medical insurance settlement platform.

In addition, according to the national policy requirements for medical insurance this year, the mainland will gradually cancel the personal account of medical insurance and integrate all medical insurance into the overall account to improve the outpatient mutual assistance capacity of medical insurance. This means that patients will gradually transfer to offline hospitals in the future, which will be a big impact on the Internet medical platform.

Finally, we believe that in the future, the state may cancel the sale of prescription drugs on online platforms on the Internet at any time. On the one hand, Internet medical platforms are more likely to trigger a doctor-patient relationship than offline traditional medical treatment. For example, the patient's description of the condition is highly subjective, and it is easy to misdiagnose and misjudge, and the possibility of causing medical risks will directly increase.

On the other hand, the management of prescription drugs online is quite confusing. Patients can buy a prescription drug from other places, which is actually not responsible for the patient. When the two are superimposed, it is likely that several major medical accidents will break out in the future. It would also force countries to become more and more strict about prescription drugs. The prescription drugs of the future are the real incremental market, but it is difficult for Internet medical platforms to share from the huge cake.

03, other business: the future will encounter bottlenecks

In fact, in addition to prescription drugs, the instability of other types of drugs sold by e-commerce medicines will increase in the future. From the perspective of OTC drugs, we believe that the increase in OTC drugs in the future is limited. First of all, OTC drugs were indeed 20%-30% cheaper than offline pharmacies. However, this price has constituted a serious conflict with the prices of pharmaceutical companies. Drugs have strong regional attributes, and pharmaceutical companies often only cooperate with a few regional agents for a long time, which is a very closed circle.

Although some pharmaceutical companies are already cooperating with Internet platforms, they are worried that online prices will disrupt offline prices, affect the interests of offline agents, and have strong price requirements for Internet platforms, which means that the price advantages relied on by Internet medical platforms in the early stage will gradually disappear. However, many users buy OTC drugs online more because of the price advantage of the Internet.

Secondly, if the Internet medical platform wants to increase the revenue occupied by OTC drugs, it must increase the types of OTC drugs. However, compared with some large chain pharmacies, the bargaining power of Internet platforms for pharmaceutical companies is limited. Under the premise of quantity and price, if the Internet medical platform wants to get a lower price, it can only increase the purchase volume, but this will lead to an increase in liquidity risk and inventory pressure of enterprises.

In addition, unlike drugs and FMCG, new drug development itself is relatively slow. Even after the successful development of new drugs, whether pharmaceutical companies will choose to sell them online is full of unknowns. After all, the offline market is the core market of pharmaceutical companies. It should be known that at present, the core drugs of many pharmaceutical companies will not be sold online at will.

From the perspective of the field of proprietary Chinese medicine, similar situations will still be encountered in the future. At present, traditional Chinese medicine enterprises, such as Gushengtang, Junhetang, Taikuntang, Yiqingtang, etc., relying on offline chain clinics and medical centers, are actively promoting the Internetization of enterprises. Compared with traditional Chinese medicine enterprises, the Internet medical platform has little advantage.

At the same time, we believe that the proprietary Chinese medicine sold on the Internet is itself a false proposition. Traditional Chinese medicine pays attention to looking, smelling, asking, cutting, treating according to the person, personalized treatment. The reason why many people will seek TCM treatment is more important to value this. Some senior Chinese medicine practitioners can find diseases that are not known to patients by taking the pulse of patients.

However, on the Internet platform, it is completely impossible to achieve the pulse, and its therapeutic effect is difficult to control. Even under the premise of the same Chinese medicine prescription, Chinese herbal medicines from different origins and different decoction processes will affect the effect of proprietary Chinese medicines. This will inevitably make many people see the essence of online proprietary Chinese medicines clearly, and then flow into the offline.

Some people think that the market sales of online health care products will continue to increase, but we hold the opposite opinion. At present, the domestic offline health care products industry has also entered strict supervision, and many pharmacies have posted health care products in the health products special area that do not have therapeutic effects, and health care products are not equivalent to pills. In the future, online health care products will enter strict supervision like offline.

At the same time, many of the current online health products are some young people. But this year's situation has also been seen, the epidemic is making a comeback, large factories are laying off employees, and young people's consumption concepts are gradually changing. Health care products are not similar to prescription drugs, and have a strong demand. In the context of continuous consumption decline, young people's demand for health care products will be further inhibited.

In the future, the increment may only be concentrated in the field of medical devices, after all, compared with drugs, the price of small medical devices is relatively large. However, the increase cannot offset the reduction, and it is difficult to maintain the sustainable growth of profits achieved by selling drugs in the future.

04, control the relationship with the doctor

Whether in the present or in the future, the Internet medical industry must deal with the relationship with doctors. We say that socialist countries give priority to the protection of national resources. If internet private enterprises rob doctors too much, this will make domestic medical resources more tense, and the problem of people's difficulty in seeing a doctor will be more difficult to solve.

In order to protect the interests of the people, the state will inevitably introduce stricter policies to suppress the development of Internet medical platforms. The previous Internet education industry from its peak to its decline, is not it because it has encroached on teacher resources to a certain extent?

Internet medical business by selling drugs can achieve profitability in the short term, but this is by no means a long-term solution, the industry must find a new profit "good medicine" in advance!