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1、RxTrainBringing Healthcare to the BillionA Proposal for e-commerce in ChinaKam H. LeungContentsPageMarket Analysis31.3 Billion People Buys $18 Billion of Drugs Annually3The Government Needs Someone else to pay for These Drugs3Internet Usage in China4e-Commerce in China4Competition and Threats4Uneven
2、 Quality of Care5Advertisement6Distributors6Three-legged Debts6Wholly Owned Foreign Enterprise6The Business Model8Business Plan8Business Plan: Technology8Business Plan: Content8Business Plan: Distribution (Fulfillment)9Business Plan: Payment10Execution10Assumptions11Risks11Management Team12IPO Sched
3、ule12Ten Year Pro forma13Pro forma P&L: RxTrain Owns no Inventory14Pro forma P&L: RxTrain Owns 80% of its Sales16Appendix:I. Newspaper Coverage of Katrina Leung18II. , February 12, 200019Market AnalysisWhile the discussion applies to 1.3 billion people in China, it can apply to the 55 million overse
4、as Chinese in South East Asia, Hong Kong, and Taiwan. As the discussion applies to the pharmaceutical market, it plays equally well with home care, clinics, and hospital supplies. Similarly, once the e-commerce brand name of RxTrain is established, the strategy applies equally well to high-end globa
5、l consumer products throughout Greater China.1.3 Billion People Buys $18 Billion of Drugs AnnuallyRxTrain seeks to provide world class medical content to Chinese consumers so that they can make informed decision to purchase Western drugs, nutritionals, and Chinese medicines over the web. Sale of the
6、se classes in 1998 were: drugs $12.5 Billion, nutritionals $2.5B, and traditional Chinese medicine (TCM) $3B. While classification of health supplements into nutritionals and TCMs make the $5.5B figure unreliable, there is little argument that Western drugs are enormously popular. Joint- ventures wi
7、th multinational drug companies (MNC) capture one-third of the market but account for half of the profits. Names like Xian Janssen, Shanghai Squibb, and Smith Kline are practical household names and their products easily available in store-front pharmacies.The thin line between prescription and over
8、-the-counter medicine in China bodes well for RxTrain. The store-front approach creates need for consumer education and breeds “fake medicine.” As an authoritative website providing the latest global healthcare advance, RxTrain will create instantaneous credibility and brand recognition. A user-frie
9、ndly graphic interface will help (Chinese) consumers to make informed choices amongst drugs, nutritionals, and TCMs for their ailment. Direct shipment or pickup from designated pharmacies will guarantee customers freedom from “fake medicines.”The Government Needs Someone else to pay for These DrugsC
10、hina enjoys universal healthcare coverage. The work unit negotiates a level of care with a designated hospital. The worker and family members seen at that hospital and its outpatient clinic pay for only extras beyond that level of care. Basic care usually includes the cost of drugs. In the cities, a
11、pproximately 70% of the population is covered by such work unit (government) sponsored health insurance, with the balance self-paid patients at open hospitals. In the rural areas, the ratio is reversed.As elsewhere in the world, such third-party insurance invites abuse: for doctors to prescribe more
12、, and more expensive drugs. With drug prices spiraling out of control, Shanghai published a “1000-drug list” in 1996. It detailed the 1000 drugs approved for reimbursement under the medical insurance system and limited their use. Generally regarded as successful, the model is much watched and copied
13、 throughout the country.The “1000-drug list” controls government expenditure while shifting the cost to the consumer. In compliance with the regulations, and in response to marketing pressure from the drug companies, doctors suggest more often that patients pay for name drugs out of pocket. On the o
14、ther hand, with economic reforms implemented since 1998, all work units have to be profitable without Government subsidies. As a result, many workers from bankrupt work units are left without health coverage. Those from the solvent units face lowered coverage. In December 1999, the Chinese governmen
15、t issued a directive: “(all should establish a) nationwide urban healthcare community service system by 2010to be shared by the state, employers and individuals.” RxTrain meets the Governments need to contain healthcare cost by shifting the drug costs to educated consumers.Internet Usage in ChinaInt
16、ernet users in China have been placed between 2 to 10 million. Another estimate places a computer in 1/3 of the families in Guangzhou (population 8 million.) On January 25, 2000, the website, opened with “You are 1,434,944th visitor since February 18, 1998.” Another estimate placed most areas wired
17、by fiber optics within five years. There appears to be a base for, and room to grow for Internet usage in China. With entry into the World Trade Organization, telecommunication will grow and might match the proliferation rate of cellular phones in China.RxTrains Silver membership (see below) is desi
18、gned to encourage controlled Internet proliferation. Work units pay a nominal monthly fee so that their workers can gain e-mail access to RxTrains doctors and join periodic health conferences. Thusly one computer at the workplace can provide many “eyeballs” for RxTrain, the work units can shift heal
19、thcare costs to consumers, and the Government can allow Internet growth in a controlled environment.e-Commerce in ChinaCurrently trade is conducted over the web by picking up at designated store-fronts, prepayment at the bank, cash on delivery, debit cards, prepaid “phone” cards, or credit cards. Su
20、ch is the descending order of prevalence, which also suggests the growth potential. The business model below will describe ways to quickly reach and surpass the current state of affairs.Competition and ThreatsLess than 20% of the health specific sites in China conduct e-commerce, and not very well.
21、The difference between the existing sites and RxTrain is not unlike logging onto a “Chinese A” which starts with the first printed Guggenheim Bible, difference between offset and laser printing, merits of hardbound versus paperback, and then ask, “which book you like?” In contrast, RxTrain starts wi
22、th a picture which quickly helps the consumer chose an ailment and buy one of the drugs, nutritionals, or TCM for that ailment.Even if the existing sites copy the RxTrain format, they cannot rival the “outward window” provided by the U.S. mirror site. “Outward window” is a Chinese phrase for being a
23、ble to assess global (United States) technology and information. It implies the latest and best. More important, it provides a means for Gold members (see below) a venue to train in world class medical centers for Continuing Medical Education (CME) credits. RxTrain is in discussion with a major heal
24、th maintenance organization which can provide the patient self-care and life style issue, drug information base, health actuary and statistics, and such CME training.RxTrains U.S. roots also contribute to likelihood of Government approval. The recent 5-year plan has identified developing TCM as Chin
25、as goal. Mass propaganda and education is alive and well in China. According to this lesson, China, the home of TCM lags behind Korea, Japan, and even U.S. (e.g. gingko, St. Johns wart) in TCM commerce. The Government will be supportive of RxTrains effort to promote TCM use through the global websit
26、e.RxTrains U.S. roots will contribute to commercial success. The few allowed to travel outside of China are replete with request to buy “foreign nutritionals.” These come in fads and high prices, such as gluconate for diabetes, calcium supplement for osteoporosis, and Alaskan cod liver oil for healt
27、hy heart. The authoritative medical content and “outward window” of RxTrain will immediately become the only authentic source for such “foreign nutritionals.”Uneven Quality of CareOverheating of the Chinese economy in the 90s brought strange phenomena. The coastal development zone is rumored to be o
28、verflowing with surplus U.S. MRI machines, and Beijing has over ten Gamma knives. Within the same city, hospitals are classified as first through third tier with great discrepancy in training, equipment and technology. The difference between the rural inland and the dozen of major cities can be extr
29、eme. For this reason, the Government is encouraging “telemedicine” in an effort to bring healthcare to the remote areas. RxTrains Gold membership supports such Government initiative. It will provide an “equalizer” to the third tier hospitals within the city so that they can share resources with the
30、first tier, and gain an “outward window.” By joining RxTrains Gold membership, third tier and remote hospitals, their doctors, and patients alike can gain access to the latest global medical development.Doctors, though low paid, can be cash rich. This is because the society holds the profession in h
31、igh esteem and pays gratitude money (“red envelopes”) when treatment is successful. Patient often show their gratitude before surgery, in proportion to the complexity of the operation. Thusly doctors can be supportive of Gold membership in RxTrain so as to obtain the latest CME credits at world clas
32、s training centers.AdvertisementConsidering the inefficient inland transport network, and reduced to commodity terms, over-the-counter medicine in China can be very regional. “Watermelon extract from Guilin, Trauma medicine from Yulan, 999 Stomach Tonic, and 101 hair lotion from Beijing” could achie
33、ve regional fame without national distribution. (Think McIlhennys Louisiana Tabasco sauce and Members of Parliament Worchester Sauce before modern commerce.) Advertising and sponsorship in RxTrain can gain national credibility and exposure for such regional products. These producers are likely sourc
34、es of advertising revenue.On the other hand, MNCs have spent much to register drugs with the Ministry of Public Health (MOPH.) However, efficient distribution of all these items cannot be assured due to local conditions. Advertisement, detailing, and sales through RxTrain can add incremental sales w
35、ithout disturbing the existing local infrastructure. MNCs are likely sources of advertising revenue and Gold memberships.DistributorsDistribution of drugs in China can be regional. Traditionally, they are organized in each province under the Chemical Company or the Food Import Export Branch. Drug ma
36、nufacturers within each province will sell direct and supply the distributors at the same time. The amorphous nature is held over from the state-planned economy trying to transition to free market. Depending on the Province, the “main distributor company” can be very influential. They are all trying
37、 to expand beyond the provincial boundary. RxTrain is in discussion with several major distributors to blend into the existing cost structure. By emphasizing the incremental nature of web sales, RxTrain is hopeful of partnership with most major distributors for the fulfillment aspects.Three-legged D
38、ebtsIn the planned economy a decade ago, manufacturers produce according to quota and must supply the distributor, who in turn must supply to the hospital. Payment can become incidental. As the country moved to free market economy, the hospital became the only cash collector. They will pay the distr
39、ibutor as the inventory is sold to the patient and money collected from “out-of-pocket” or from the work unit on contract. Hence the term 3-legged debt between producers, distributors, and the hospital. Dealing directly with a reputable Government approved e-commerce like RxTrain is a likely relief
40、to all concerned. RxTrain in turn will secure prepayment from customers and control accounts payable to achieve cash flow through operational excellence.Wholly Owned Foreign EnterpriseChina is a “socialist economy with democratic characteristics.” Allowing wholly owned foreign enterprises (WOFE) int
41、o direct business to consumer retail trade would further emphasize those characteristics. For this reason, granting of a retail license to Japanese Yaohan Department store was news in Shanghai five years ago. Today, WOFE regulations are more relaxed and Wal-Mart and Primtemp dot several cities.As in
42、 retail trade, WOFEs in telecommunication needs special license. Obtaining a b2c e-commerce to WOFE or a joint venture would have appeared unlikely five years ago. However the management team of RxTrain has excellent track record in both telecommunication and health areas. They and Mr. Charles Wang,
43、 Chairman of the technology partner Computer Associates are known “patriotic” overseas Chinese dedicated to improvement of U.S. China relations. Their relationship will get RxTrain in the door, and the business model of bringing healthcare to the masses, reducing healthcare costs, and blending in wi
44、th the status quo will keep RxTrain there. For the reason that bad debt (see 3-legged above) will not be tolerated in a WOFE, RxTrain may be welcome to bring modern management and distribution to China. As b2c e-commerce with an “outward window” to global medical advances, RxTrain virtually excludes
45、 near term Chinese or foreign competition.The Business ModelRxTrain brings the latest medical information to empower Chinese consumers to purchase drugs, nutritionals, and TCMs over the Internet. Anyone can purchase, but work units can become Silver members to gain enhanced care for their workers, a
46、nd hospitals and drug manufacturers can become Gold members to gain latest technology and CME credits. Major sources of revenue are from direct drug purchase, import of nutritionals, and Gold membership fees. Viewership (“eyeballs”) are from work units which provide the computer and a nominal Silver
47、 membership fee. The model will be successful due to its global nature, controlled introduction of the Internet, shifting healthcare dollars to consumers, and proviso of latest medical technology and training to all geography of China.Business PlanThe pieces required for success are technology, content, distribution, and payment. Computer Associates and a major HMO (under discussion) provide the first two. The management teams experience in healthcare in China and preliminary discussion with several distributors bode well for the fulf
