‘With Chinese Characteristics’ – TCM Driving Rx-To-OTC Switch In China
Executive Summary
Traditional Chinese Medicine and regulatory reform are driving Rx-to-OTC switch in China, the country's non-prescription medicines industry association says. Furthermore, Alibaba's "new retail" model of blending online and bricks-and-mortar shopping is fostering innovation in the Chinese market, creating opportunities for international OTC players. However, there is still room for improvement, according to the Global Self-Care Federation's recently published Self-Care readiness Index.
Regulatory reform and a strong demand for traditional Chinese medicines (TCM) will help drive Rx-to-OTC switch in China, according to the country’s non-prescription medicines industry association, the CNMA.
“With the improvement of regulations and technical guidelines, it can be anticipated that more and more OTC products will appear in the future,” the CNMA told HBW Insight.
“However, the rate of increase may be slower than before,” it warned.
According to the Global Self-Care Federation’s (GSCF's) recently published Self-Care Readiness Index, 18 drugs and 59 TCM products were switched to OTC status between 2014 and 2019.
Today, most switched OTC products are TCM (over 80%), the CNMA explained. Out of the few chemical drugs that have been recently switched, most of them are specification changes of existing OTCs, for example different dosage forms.
“This shows a Chinese characteristic in our switching profile,” the CNMA added.
Room For Improvement
According to the GSCF, “recent developments suggest China is gradually aligning its system with global best practices: the number of Rx-to-OTC switches is rising as the government seeks to reduce spending and encourage consumers to take responsibility for their health.”
However, one of the factors holding back switch in China is a lack of exclusivity for companies that do manage to negotiate the country’s reclassification process.
China’s National Medical Products Administration (NMPA) does not offer legal protections for data submitted in support of Rx-to-OTC switch applications, the GSCF notes in its analysis of the country’s regulatory system.
While this “simplifies the switching process,” it also “disincentivizes innovation,” GSCF notes.
In general, greater transparency and alignment with other countries would help widen access to medicines, the organisation argues.
“The Provisions for Drug Registration outline the application process and the timeline for approval decisions for both prescription and non-prescription drugs,” the GSCF says. “However, these provisions are buried in the NMPA website news stream, and performance tracking data is not readily available.”
“Draft technical guidelines for OTC chemical drugs, if implemented, could mitigate this lack of transparency, as well as speed up and simplify the approval process by easing requirements for pre-clinical trials,” it suggests.
New Retail Phenomenon
An area where Chinese innovation cannot be denied is in its unique integration of e-commerce and bricks-and-mortar retail channels.
“The 'online to offline' (O2O) sales channel, through which customers can consult with a doctor and order self-care products to be delivered from a bricks-and-mortar store, is growing quickly,” the GSCF notes.
Driving this “new retail” phenomenon is Alibaba. In Alibaba co-founder Jack Ma’s utopian vision of future shopping, the “boundary between offline and online commerce disappears as we focus on fulfilling the personalized needs of each customer.”
“It’s a fascinating market,” reflected Vitabiotics’ China and South Asia director, Benji Lamb, in an exclusive interview with HBW Insight earlier this year. “New retail is the digitization of every level of the chain, every component in the consumer journey and retail ecosystem.”
While in some respects, new retail is merely omnichannel retail in new clothes – or perhaps more accurately, with in-store conveyor belts, personalized shopping apps and ultra-fast delivery – it is the digital part of this integrated ecosystem that opens up entirely new ways of engaging with consumers.
“New retail also applies to the way that consumers are engaging, and how they are engaged with,” Lamb pointed out. “Digital immersion is a pithy way of putting it. It’s what Chinese consumers have come to expect, it’s the environment they have grown up in.”
Work With Local Partners
Companies like the UK’s Vitabiotics – and also Ireland’s Solvotrin Therapeutics – are taking advantage of China's growing e-commerce opportunity as well as Chinese consumers' heavy reliance on dietary supplements.
“A majority of Chinese consumer survey respondents say they take vitamins, minerals or supplements on a regular basis in order to prevent illness,” the GSCF reports.
“They report feeling well educated and empowered to seek out self-care products and practices because of supportive campaigns and programs in their communities,” it adds.
Most exports to China find their way into consumers’ hands via the internet, through cross-border platforms like Alibaba's Tmall Global.
While the online sales channel has grown massively in the last decade, it still represents only about a third of China’s $40bn dietary supplements market, according to e-commerce consultancy, TMO Group.
The remaining two-thirds is made up of pharmacies, supermarkets and “direct selling,” where selling is done person-to-person rather than business-to-person.
Working with local players is key to moving from online to physical stores, found Ireland's Solvotrin, which sells its Active Iron flagship brand into China via Chinese conglomerate Fosun International.