China's 111 Inc Still in Crisis Mode, CEO Says

In this interview, Junling Liu, the head of an online healthcare company in China, tells how it mobilized in the fight against COVID-19.
Anna VodMar 01,2020,13:00

This week, more countries reported cases of infection and the World Health Organization (WHO) issued a “pandemic potential” warning on the outbreak of COVID-19. As of Saturday, the number of infections exceeded 85,000 people and the number of deaths reached 2,835. At least 47 countries were affected, including South Korea, Iran, Italy, Nigeria, and Norway.

China’s Wuhan in Hubei province, where the coronavirus originated in December, continues to be on quarantine. And “no city in the world would have enough specialist equipment to cope,” as Dr. Xie Jiang, onsite in a Wuhan hospital, said in an interview to BBC released on Thursday evening. Meanwhile, some companies have been working hard to deliver drugs and other medical products nationwide as pharmacies experience closures and run short on supplies.

Among these medical product suppliers was 111 Inc. (Nasdaq: YI). The online healthcare provider worked through the eve of Chinese New Year to set up a virtual command center and deliver supplies to Wuhan. It also quickly mobilized to provide prescription drug delivery to chronic patients and free online medical consultation in partnerships with medical institutions, among other measures to help withstand the crisis.

“We feel very proud to join forces with the rest of the nation to fight the outbreak of the virus and we are still operating in the crisis mode,” Junling Liu, the co-founder, chairman and chief executive officer of 111, told CapitalWatch.

The Shanghai-based 111 Inc. became publicly traded in New York in September 2018, raising $130.2 million in its initial public offering. Since then, the company advanced in its mission to consolidate China’s pharmaceutical industry and become the largest drug retailer connecting patients, pharmacies, and pharma companies. Its long-term goal is to build the largest online-offline integrated healthcare platform in China powered by technology. On Friday, shares in 111 closed at $6.51 per American depositary share.

In an interview with CapitalWatch this week, Liu talked about the actions 111 took amid the coronavirus outbreak and the products that have been flying off the shelves in recent weeks.

CapitalWatch: 111 Inc. recently announced it is now helping factories and offices re-open by delivering epidemic emergency supplies. What were some other measures the company took to deal with the crisis?

CEO Junling Liu: This is a terrible thing that happened. Our staff canceled the New Year holidays – which is rather unusual – and established a virtual command center. On New Year’s Eve, we managed to deliver 100,000 masks to Wuhan under the rain – that is rather extraordinary.

We also initiated the free consultation through our online hospital and our first-party supply chain played a key role in delivering the most-needed goods to customers and institutions.

Our cloud-based applications such as cloud clinic and cloud pharmacy really enabled the badly needed services so that patients don’t have to physically visit doctors and hospitals, thus minimizing the risk of getting infected.

We have also partnered with quite a few pharmaceutical companies and got doctors to join our platform to provide the refill services for their customers.

As more and more businesses are opening, we are providing those essential bundles and packages so that companies can work in a relatively safe environment.

As we are progressing, it is great to see the improvement of the situation and I think we are going to continue to operate with the current mode with many, many calls and decisions made in real-time.

CW: Will 111 continue to provide free online medical consultation after the crisis?

CEO Liu: We don’t know when the crisis is going to end, though we certainly have seen improvement in the number of infected people. We are also seeing more and more people discharged from the hospitals and that is extremely encouraging.

As far as free consultation services, it is too early to say. We will continue to monitor the situation and we are going to make the appropriate decision in due cause.

CW: Does 111’s delivery service work nationwide, including Hubei province?

CEO Liu: Great question. We deliver nationwide, and we have our own first-party supply chain – this is one of the core strengths of 111. Currently, we have five fulfillment centers, which are strategically located across the country. Actually, one of the big fulfillment centers is right in Wuhan. 

That network provides adequate coverage for us to deliver to pretty much every corner of the country. We operate the fulfillment centers ourselves and we partner with quite a number of the last-mile companies that have a better network. Today, Chinese e-commerce is so well-developed that it is not necessary for you to provide your own fleet like what we did in our first business [Yihaodian – online retailer bought out by Walmart in 2015 - CW].

In addition, we were granted a green channel by the government in Hubei province, so – even within Wuhan – we managed to deliver all those necessary goods and all medicines to the customers. That really demonstrated the strength and the vital role we’re playing in this outbreak.

CW: How was the supply of drugs affected by the virus, specifically, by prolonged factory closures?

CEO Liu: It was challenging for everybody when the outbreak took place. The supplies were certainly challenged, some of the factories were closed to minimize the infection, and in this whole process, we actually played a very important role between the manufacturer and the end-user.

In this special period, we as a company really stepped up. Our supply chain really kicked in to help out the customers and the upstream suppliers. If the factory is shut down, there’s not much we could do, but as soon as they have the inventory, we are the one who can find the most efficient way to get drugs from the factory to the end-user just because we have a pretty robust ecosystem within our business model. We have all those necessary modules.

Given the circumstances, the overall disruption to the drug supply was not as bad as we initially thought. We experienced a little bit of the out-of-stock rate but it’s actually very manageable.

CW: Have any of your pharmacies experienced shortages of drugs since the outbreak and how did 111 cope with that?

CEO Liu: All pharmacies absolutely experienced shortages of drugs.

In a funny way, it was good for our business. As we speak, some of the pharmacies are still shut down, depending on the province where they operate. Some of the provinces are under more strenuous circumstances than others, and – obviously – they all experience shortages of drugs.

Usually, a pharmacy only has 2,000 to 4,000 SKUs in offer. This is where we are very uniquely positioned to help out. Even if a particular SKU is out-of-stock, we are able to find an equivalent to substitute. We have more than 300,000 SKUs in offer, we have the necessary selection to help out the pharmacies in terms of their selection and assortment.

CW: Were the drug prices affected by the virus and if so, how?

CEO Liu: This is not the moment to think about making money. We are extremely conscious of our social responsibility.

In many cases, we sold our products – including masks – for under our regular prices. Later on, the country issued a policy to govern the prices, but we actually sold a lot of our products for under our usual cost.

I don’t personally see any price fluctuation and I will not see that in the future either. I think we’re proud of what we did and this is the moment to join forces with the nation and overcome this critical moment.

The good news is that our business has been really robust and the demand is high, so in a way, that is good for our business.

CW: What are some products, in addition to masks, that have become especially popular as a result of COVID-19?

CEO Liu: First of all, the protective products, such as the masks and gloves, were in tremendous demand. And we also see an uptake in disinfectants, such as alcohol, hand-carry sterilizers, and other types of sterilizers.

There is another category worth noticing – that is the respiratory and fever drugs people take just in precaution. And another category in products we’ve seen in pretty good surge in demand is products aimed at boosting the immune system, such as nutritional supplements, vitamins, etc.

CW: In this situation of an epidemic, what are some biggest challenges and biggest opportunities in the drug sales industry?

CEO Liu: That’s a big question. Obviously, we are very comfortable where we are in terms of our strategy in the market position.

Out of the 450,000 pharmacies in china, as of the third quarter, we have already taken up 210,000. By now, I can say that we are servicing more than half the pharmacies in China and our technology platform is stronger, with many more modules being built and that really created a robust business model for us. Our supply chain was further strengthened.

Those are the things that will propel our growth and if you look at the regulatory tailwind and if you look at the overall number of chronic patients, those are the factors that will continue to propel our growth.

What hinders the growth could be competition – the traditional players and other online players. But we believe we are unique enough to perform well regardless.

If you look at our performance in the last five quarters since IPO, we have clearly demonstrated our ability to execute. We are looking forward to taking even a bigger leadership position and playing an even more important role in China’s healthcare space.

CW: What can you say about the measures that China’s central authorities have taken in the crisis?

CEO Liu: I think it could have been much, much worse if the government took actions any later. The outbreak became rampant during the Chinese New Year and I think the authorities took very swift actions. Given that we have 1.4 billion people living in China, you have to have drastic measures to contain the outbreak.

I would say that they have done a tremendous job in containing it and I just saw a report from the WHO saying that the country saved hundreds of thousands of people from catching the virus.

I sincerely hope, with fingers crossed, that the worst is over and that we’re going to see continuous improvement.