Accelerated healthcare reform and industry deregulation is transforming China Jo-Jo’s future. The PRC has made unprecedented moves to improve the quality of healthcare for its citizens while containing costs thought free market competition and accessibility. China is expected to begin allowing online sales of drugs opening up a $161 billion market to online pharmacy operators in the near future. As such China Jo-Jo intends to capitalize on these strategic initiatives over the next 3 to 5 years in order to enhance and grow revenues organically while seeking opportunities to grow inorganically as well.
From 2010 to 2014, total drug sales revenue in PRC grew at a compound annual rate of 16.6%, increasing from approximately US$107 billion to US$198 billion. It’s expected that pharmacy sales will continue to grow at a higher than China’s GDP growth in the upcoming years due to increasing consumer demand. PRC consumers are not only affording more healthcare products, but also demanding higher quality products. Overall, the growing demand will benefit our drugstores growth.
In late 2015, the PRC approved further healthcare reform. A new proposal has been approved intended to reward large chain drugstore operators who can standardize and accelerate the development of the pharmacy market in China into a mature model that is best able to service the growing demands of consumers both in retail stores and online storefront formats. The new mode of doing business starting in 2016 is expected to promote industry consolidation meant to inhibit unauthorized sale and production of counterfeit or mislabelled products while promoting and accelerating chain pharmacy growth for those businesses who can adhere to strict quality standards. The new model allows for chain drugstores to enter into contractual agreements with the State Council, allowing for quicker start-up times of newly acquired storefronts. In exchange for this accelerated process, chain drugstores will have to transform the operations of new storefronts into modern, standardized operations promising to adhere to the highest standards of safety and regulatory oversight subject to periodic inspections by the PRC. China Jo-Jo continues to explore avenues to take advantage of further healthcare reform in the PRC.
In addition, continued medical reforms such as segregation of drug sales from doctor diagnosis at hospitals creates a potential growth space for retail drugstores. As more hospitals have restricted the ratio of in-hospital drug sale revenue versus medical services revenue to a lower level, a higher share of drug sales may potentially flow to retail drugstores.
The China Food and Drug Administration (CFDA) continues to expand the list of authorized products that can be sold online. Currently, online pharmacies are allowed to sell over-the-counter medicines and healthcare products such as cough remedies and vitamin tablets to consumers. Online pharmacies have not been permitted to sell prescription drugs, which accounts for the majority of the drug market. The new policy will eventually allow for free competition where online pharmacies will compete with local hospitals who currently account for over 80% of drugs sold to consumers.
A major driver of China Jo-Jo’s e-business is the rapid expansion of private health insurance and reform in China. Private commercial health insurance in China accounts for only about 1% of the market for which the Chinese government is encouraging to grow. The Company has cooperated with multiple private health insurance companies and as well as certain health insurance management companies which are driving transactions to the Company's official online pharmacy sites as well as retail stores.
The Chinese Ministry of Commerce has encouraged pharmacies to move forward with online to offline, "Online 2Offline,"sales strategies in order to meet the growing demands and ability to efficiently distribute pharmaceutical products to consumers. O2O services encourages consumers to search and pay for products online that are available for pickup "offline" locally. China Jo-Jo has become the first Hangzhou based pharmacy to launch stores on Tencent's WeChat platform, China's dominant mobile messaging app and social network with over 500 million active users.