Digital Transformation Spreads across the Pharmaceutical Industry
The hottest subsectors in the Industry Internet landscape are auto aftermarkets, food & agriculture, commodities, education and healthcare. In this article, we introduced vertical SaaS and B2B e-commerce marketplaces in healthcare.
Spurred by policies, China’s embarking on the digital transformation to restructure value chains and drive R&D innovation across the pharmaceutical industry. In 2018, Premier Li Keqiang urged regulators to “speed up price cuts for drugs” and CFDA (the Chinese Food and Drugs Administration) implemented a range of policies to support generic versions of drugs. These types of generics will also be eligible for expedited review during the CFDA’s regulatory process. As CFDA joined ICH becoming a member of the International Council for Harmonization of Technical Requirements for Pharmaceuticals for Human Use (ICH), the country is set to catch up with the U.S. and Europe to improve and streamline regulatory procedures. These factors combined provided a massive opportunity for SaaS innovation, value chain restructuring, and AI adoption. The drive the digital revolution in pharma, contributing to reduced cost and improved quality of pharma R&D and transaction.
Technology made medicine transaction easy
While public hospital sales channels remain the dominant position among the three channels, it is losing momentum now. It contributed USD 162.64 billion of sales last year with a 5% year-on-year growth; Retail pharmacies and public clinics and generated USD 55.23 billion and USD 23.55 billion in 2018, with a 7.5% and 10.2% YoY growth, respectively. The shift will create opportunities for B2B online pharmacy platforms to provide access to affordable medication for retail stores with a guarantee of safety and security.
According to the National Medical Products Administrative, as of November 2018, the chain pharmacies in total increased to 508,000. Meanwhile, the number of standalone and franchise pharmacies in China increased to 489,000 from 454,00 the year before.
These small- and medium- businesses solve customers’ fragmented needs of drugs and are scattered at the corners of communities.
Since 2016, B2B transaction has become capital’s new darling. While high-profile investors pouring money into the industry, the upstream pharmaceutical companies are unwilling to those changes, which traditionally make sale contracts with end retailers to control the price and volume. It is also caused by the path dependence of the old development model: pharma firms adopt indirect sales and rely on participating dealers to sell drugs. Though disrupting shareholders’ interest along the value chain is hard, some players have proven its value proposition. One representative in the sector is SaaS-enable marketplace firm Yaoshibang. It offers new sales channels that traditional pharma can not expand before and enables downstream distributors with pharma to reach price agreements. For some innovation pharma firms which lack experiences in sales channel management, the platform serves as a perfect channel to touch upon end-retailers while saving their marketing budgets. Yaoshibang claimed to achieve CNY 10 billion GMV last year, connecting 200,000 pharma retailers with pharma suppliers. Its B2B trading site has 150,000 SKUs and generates monthly order of 1 million.
Machine learning, SaaS and cloud find a place in medical research and development
Though the traction that AI pharma solutions have yet to gain in China’s pharma market, AI software that caters to three applications (medical transcription, Binding affinity prediction and Small molecule discovery) looks promising. Many observe the nascency of AI initiatives in these years as AI companies don’t provide any benchmarking case studies or a clear path to commercialization. Nevertheless, companies offering or using AI for drug discovery or clinical trial process will create added value for pharma R&D clients. Software and cloud, as well, seem to make their ways into the pharmaceutical space in China.
Life sciences overseas firms (Medidata, Veeva, etc. ) are leading players globally; big multinational software players (IBM, Oracle, etc. ) offer comprehensive software suites. China’s market is also seeing the rise of software and AI adoption as research conducted by Peking University showed that 17% of private pharma companies leveraged EDC to accelerate clinical trials among 141 investigated sample plots in 2016. There are opportunities for startups to unbundle big players’ full-process solutions and upgrade these solutions. While enabling intellectualization of pharma companies, CROs, and third-party organizations with AI technologies and software, domestic players are easier to meet compliance requirements and understand local markets compare with their overseas competitors. Executives said that software penetration in China amounted to 20% in 2018 from 5% in 2014.