久谦-施乐辉医疗OTC零售战略-SNRetailChannelStudy-PhaseII-Final

ExploringRetailChanelBusinessOpportunitiesforS&NAWMbusinessunitCONFIDENTIALInterimdiscussionThisreportissolelyfortheuseofclientpersonnel.Nopartofitmaybecirculated,quoted,orreproducedfordistributionoutsidetheclientorganizationwithoutpriorwrittenapprovalfromMeritcoServices.ThismaterialwasusedbyMeritcoServicesduringanoralpresentation;itisnotacompleterecordofthediscussion.

Workplan–AWMRetailchannel03070605040201AprMarFebWorkstreamsProgressreviewJackie/JialuDesignimplementationplanforS&NretailchannelbuildupIn-chargeDesigndetailedtimelineandmilestonetobuildupS&NretailteamwithrightcapabilitiesIdentifythecapabilityandresourcesrequiredEvaluatedifferentbusinessmodelandbusinesspartneroptionsBenchmarkbestpracticetounderstandchannelcollaborationmodelandresourcesrequiredUnderstandtheirinterestlevelforAWMproductsandcollaborationpossibilitiesUnderstanddifferenttypeofchannelplayersandtheirgrowthleversWeekUnderstandkeyplayersforeachretailchannelandtheirkeystrengthSummarizethesurveyresultanddriveimplicationforAWMbusinessLaunchcustomersurveyforcustomerbehaviorandunmetneedsunderstandingDesignquestionnaireandrunpilotforcustomersurveyTaipeng/XiangfeiUnderstandthecustomer/patientstructure,buyingbehaviorandunmetneedsDriveimplicationforAWMbusinessTaipeng/XiangfeiConductstorevisitandexpertinterviewstounderstandthebusinessXiangfei/JackieAnalyzetheeconomicsofeachchannelsanddriveimplicationXiangfeiUnderstandtypeofretailchannelsandrelevanttrendsXiangfei/JackieUnderstandRetailchannelforAWMproductsAnalyzechanneleconomicsthroughanalysisofcooperation/store/SKUeconomics|2Source:Literatureresearch;Expertinterview;MeritcoanalysisIRetailChannelKeyTrendsandImplicationsIIWoundTreatmentRetailBusinessLandscapeIIIAWMretailchannelstrategyandpositioningconsiderationsContentsIIIAppendix|3%Source:Nationalstatistics;USNationalHealthStatisticsGroup;Literatureresearch;Expertinterview;MeritcoanalysisMedicaldeviceex-factorymarketsizebychannelUS$Billion,2012-17ERetailHospital2017E49Hospital

channel19Retail

channel5201224123100%=2012US12052%48%2017China4913%87%RetailchannelgrowthdriversMorechronicdiseasedrivenbyagingpopulation(e.g.diabetes,cardiovasculardisease)ImprovementofhealthcareconsciousandprevalenceofhomecareandselfcareconceptHealthcareconsciousisquicklyrising,leadingtherobustgrowthofhomeusedmedicaldevicesEldercareserviceisdevelopingwiththeagingpopulationrisingandincomegrowingDrugstoresareseekingtoimproveprofitbyincreasingnon-drugsaleslikemedicaldeviceHospitalchannelislimitedcomparingthequicklyrisingmedicaldeviceneedsFastgrowingretailchannelandchannelinnovationprovidesmoredistributionopportunitiesfordevicecompanies6Retailchannelgrowingtobecomemoresubstantialformedicaldeviceovernext5years,growingtoclosethegapvsdevelopedeconomics|4Currentbestsellingproductsinretailchannelsaremainlyhome-usedmedicaldevicesSource:Nationalstatistics;Literatureresearch;Expertinterview;MeritcoanalysisMajormedicaldevicecategoriesinretailchannelCategoryExampleDrivers123DiagnosisRehabilitationDailycareSphygmomanometerBlood-glucosemonitorFatanalyzerTherapeuticinstrumentOxygengeneratorMassagingmachineFirst-aidsIncreasinghealthcareawarenessWideeducatedconceptIncreasingdemandNeedoffrequentlyuseEasy-accessHuge#ofconsumersHighfrequencyofusageConsumerself-servewithlimitedhelpfromprofessionaldoctors/nursesWidelyeducatedhealthconceptSizablebusiness(bigconsumerbaseorhighusagefrequency)CharacteristicsofmedicaldevicesinretailchannelsDependencyCommondiagnosisSub-category“3High*”monitorinstrumentThermometerPhysiotherapyequipmentFunctionalaidsChronicdiseasetreatmentWalkingstickWheelchairHearingaidsNovopen(Insulininjections)WoundplastGauze,bandageAbsorbentcottonBirthcontrolContraceptiveproductPregnancytestpaperLeadingbrandOmronJ&JOmronOmronZihuanInvacareHomecareYuyueYuyueNewsoundBDBand-aidHainuoHualuDurexDavid*3High:Hypertension,hyperglycemiaandhyperlipemiaMainlyrelyonretailchannelMainlyrelyonhospitalchannel|5sDrugstoresstillthepredominantformatwithaverage100-400deviceSKUperoutletKeyfindingsMedicaldevicerevenuebreakdownbyretailchannel(2011)*US$mCos-med**~11025%5%50%5%5%<30On-lineFirstaidsBirthcontrol50%5%30%15%20%15%15%Diagnosis~3,2005%5%20%25%30%15%10%Rehabilitation/WalkingaidsOthers**Physiotherapyequipment~240MDstore*30%20%DrugstoreDevicegrowth(2011-12E)20%30%15%60%Drugstoreisthebiggestretailchannelformedicaldevicesandfirstaidsproducts,taking~90%medicaldevicesales,and~85%offirstaidsproductssalesMedicaldevicespecialtystoreisthesecondlargestretailchannel,butitsgrowthisstillrestrictedbylimitedoutletsOn-linemedicalstoreisthesmallestretailchannelcurrently,butitwilloutgrowotherchannel,drivenbythegrowthofE-commerceAverageMDSKUperstore100-400***~600~20~6,000LeadingplayersGuodadrugstoreNepstarLBXPharmFamilyofHealthOnlycareWatsonsManningsCosmedTmallEhaoyao111.comSource:Literatureresearch;Expertinterview;Meritcoanalysis

*Percentageofproductlineisfromexpertinterviewsofleadingplayers***Neighborhooddrugstorehas100-150SKUmedicaldevice,supermarkettypedrugstorehas~400SKU|6

Weobserve5relevantsegmentsofdrugsstoresbasedonlocationandassortmentFeaturesMorethan30%TCMsalesWithTCMpharmacistsIntegrationlevel~60%chainstoreRegionalchainorlocalchainValuepropositiontocustomersLonghistoryTrustableTCMconceptionTongrentangDashenlinExampleTraditionaldrugstoreHospitaldrugstoreBusinessdistrictdrugstoreLowpricesupermarketCommunity

drugstoreCommercialdistrictCommunityHospitalTraditionalModernAssortmentLocation12345Drugstoresegmentation1CapturehospitalprescriptionsWithnewandspecialdrugselling~30%chainstoreFragmentedCheappriceProfessionalLonghuadrugstore2~50%non-drugsproducts>200m2~80%chainstoreProfessionalGoodservicePremiumproductsNo.1PharmacyofShanghaiHuifeng3~50%optionalshelf100-200m2~80%chainstoreNationalchainCheappriceBroadportfolioOne-stopshoppingLaibaixingKaixinren4<100m2LimitedSKUnumber~30%chainstoreNational/regionalchainConvenienceGoodserviceNepstarGuoda5Source:Fieldvisit;Literatureresearch;Expertinterview;Meritcoanalysis|7

CustomerSourceofdifferentdrugstoresPercentCustomers’acceptancelevelonrecommendationindifferentdrugstoresPercentBusinessdistrictstoreandtraditionalstorehavemorebrandinfluencetocustomerButcustomersinthose2storetypeshavethelowestconversionleveltowardrecommendation40%HospitaldrugstoreCommunitydrugstore60%Lowpricesupermarket80%20%40%Traditionaldrugstore10%30%20%80%Businessdistrictdrugstore5%5%20%40%3020DoctorrecommendPharmacyadsWorknearbyLivenearbyPassingOldcustomerLowpricesupermarketCommunitydrugstoreHospitaldrugstoreTraditionaldrugstoreBusinessdistrictdrugstorePharmacistrecommendationShoppingguiderecommendationPopadsBulletinboardsofhealthAcceptancelevelofdifferentsellingmethodsindrugstorePercentSource:Customersurvey;MeritcoanalysisBusinessdistrictstorehavemostdiversifiedcustomersource,whilerecommendationbypharmacististhemosteffectivepromotionapproach|8Source:Literatureresearch;MeritcoanalysisDescriptionsSeparationofmedicalserviceandpharmaceuticalsalesbringsmorepatientflowtoprofessionaldrugstoresnearhospitalOtherswillbemoredifferentiatedtowintheirtargetmarketsegmentsChainstorepercentage(41%for2011)willfurtherriseinthenextcoupleyears,comparingUSchainstorepercentage70%RegionalchainswilloutgrowsothersegmentinstorenumbersduetothediversityofpolicesinhealthcaresectoramongprovincesRationaleNeweditionofGSPrequiresmorestrictlyondrugstores’hardware,softwareandtheowners’qualificationStrongerbargainpowertovendorsBrandingmoreimportantinconsumerdecisionsDrugstoressaturationleadstopricecompetitions,whichforcedrugstorestodiversifyinportfoliotoimprovegrossmarginrateDrivemorepatientflowbyportfolioextensionChinaB2CmarketboomingbringsanenormouspotentialonlinemedicinemarketPolicyrestrictionstendtobeliberalized,whichmaybringaboutatransformationofmedicinechannelNon-drugproducts(e.g.medicaldevice,cosmeceuticalandpersonalcareproducts)contributemoretodrugstore’sprofitLeadingchainsareseekingtocultivateownbrandproductsDrugstorewillfurtherdifferentiatetoformnewformatlikeprofessionaldrugstore,compounddrugstoreandconvenientdrugstoreOnlinechannelfordrugstorewilltakemoreimportantroleinthenext5yearsConsolidatePortfolioinnovationEvolutionofnewformatOnlinedrugstoresWeobserved4majortrendsshapingtheretailchannellandscapeinChina|951%Source:MeritcoanalysisEverydrugstorehaslicensedpharmacistsIncreasehumancostIncreasemanagementcostGSPrequirements(1Jun2013)People/SoftwareLegalrepresentativeorpersoninchargeofthedrugretailenterprisesshouldhavealicensedpharmacistqualificationRequiredatleast1licensedpharmacistperstoreEstablishaqualitymanagementdepartmentorstaffHardwareRequireautomaticmonitoringsysteminpharmaceuticalwarehouseRequiremorestricttransportingandstorageconditionsfordrugsCarryoutcomputerinformationmanagementsystemIncreasingleveloffixedinvestmentSmallenterprisesarelackoffundstoupgradehardwareDrugstorewillcontinuetointegrate2012200935%2017E42%49%ChainNon-chainChainstoreprojection2009-17EAmongthechainstore,regionalchainwilloutgrowothersegments*Localchains*Regional

chains*Nationalchains*PolicydiversityDifferentdrugstoreregulatorypoliciesacrosscitiesDifferentPRDLlistDifferentreimbursementthemesFuturepossibilitytounifythemedicalinsurancefundatprovinciallevelDifficulttoreplicatesinglemodelnationwidetolowtheoperationcostduetogeographicaldiversityCoststructureLowestlaborcostLowestoperationcostHighestCOGSLowerlaborcostLowestoperationcostLowerCOGSLowerlaborcostLowestoperationcostLowerCOGSBeneficial*Localchains-storescoverseveralcities;Regionalchains-storescover1to10provinces;Nationalchains-storescovermorethan10provincesNewGSPwillbringsouthigherdemandsfordrugstores,leadstotheconsolidationamongdrugstores,especiallyforregionalchains1.Consolidation|10

Source:MeritcoanalysisFeaturesLocationKeyvaluepropositionHospitalBusinessdistrictPossibilities/pre-conditionsOriginateformhospitaldrugstoreforoutpatientsPrescribedbyphysiciansProfessionalismCompletecategoryImplementationofseparationofmedicalserviceandpharmaceuticalsalesBusinessdistrictTransporthubRegionalchainscombinewesterndrugsandTCMTCMphysiciansinstoreTCMconceptionGoodservicePoliciestosupportthedevelopmentofTCMCommunityBusinessdistrictSimilarwithCVSandWalgreeninUSDiversifiedportfolioDrugsstillaccountformajorsales(~60%)ConvenienceNon-drugcategoriesLowpriceGDPpercapitacontinuestogrowPrevalenceofself-careanddiseasepreventionProfessionaldrugstore

(includingspecialistchains)CompounddrugstoreConvenientdrugstoreTraditionaldrugstoreHospitaldrugstoreBusinessdistrictstoreFuturesegmentationLowpricesupermarketCommunitydrugstoreOnlinestoresNAOne-stopserviceLowpricePoliciessupportConsumerbehavioralternationCurrentsegmentationNewtypesofdrugstorewillemergedshapingbythehealthcarepoliciesandpatients3.Formatsevolutions|11Source:Literatureresearch;MeritcoanalysisFirstdomesticchainspecialistpharmacyindiabetesestablishedin2006formShandongprovince~10specialtycounts/diabetesdrugstorebytheendof2011inShandongandJiangxiprovinceBantingdiabetesspecialistpharmacyBusinessmodelFuturestrategyTwomodelsdeployed:diabetesdrugstores/specialtycounterswithinpharmaciesProvidediabetespatientswithone-stopsolutionsincludingspecialfoods,drugs,insulin,BGMsanddiseaseeducationservicesProvidepharmacieswithintegratedresourcesindiabetesdiagnosis&treatmentareaPlanstobuildup~30,000diabetesdrugstores/countsin5-10yearsthroughcooperationwith300chainpharmaciesConstruct~30diabetesspecialtyhospitaltoprovidephysicalexaminationandcomplicationtreatmentfordiabetespatientsDiabetesdrugstoreSpecialtycounters(large)Specialtycounters(small)Specialistpharmaciesinchronicdisease(diabetesetc.)arebeginningtoemerge3.Formatsevolutions|12

Source:MeritcoanalysisNumberoflicensesandchannelsizequicklyrampingup+300%20121.60020112010Industryleaderofpharmaceuticale-commenceThereare55onlinedrugretailcompanies(B2C)approvedbytheSFDAin2012,outofwhich40companiesenteredT-mallTheappearanceofonlinedrugstoreinT-mallisaninfluentialeventinthedevelopmentofmedicale-commerce,resultinginexplosivegrowthofonlinedrugsalesTherevenueofthefirsttraderinT-mallmedicalhadexceeded10millionRMBintheinitialsixmonthsRevenuereach100millionRMBAveragemonthlysalesgrowthwas20%,withdailynumberofordersupto10,000byendof2012360buyplantoadoptT-mallmodel,abandoningcooperationwithJiuzhouProposetobuildthefirstaffordableonlinepharmaciesDeployslicensedpharmacisttoprovideonlinesupportThescaleofmedicale-commerce(B2C)millionRMB2011201020092008Numberofmedicale-commercelicense(B2C)#<1As%ofretail30UnitedStatesOnlinestoreareboominginrecent2years,andwillcontinuethehighgrowthrateinthenextcoupleofyears4.Onlineretailing|13Source:Literatureresearch;Expertinterview;MeritcoanalysisIRetailChannelKeyTrendsandImplicationsIIWoundTreatmentRetailBusinessLandscapeIIIAWMretailchannelstrategyandpositioningconsiderationsContentsIIIAppendix|144Source:Chinesehealthstatisticsyearbook;Literatureresearch;MeritcoanalysisWoundtreatmentmarketbreakdownbychannelUS$m,

%

(2011)43%2%Others*WoundplastAWCHospital26480%5%15%Retail17655%AWCWound-plastOthersCategorygrowthAveragepriceRMB~26%of2011-16E>100RMBforonepiece7-8%of2006-2011~3.5RMBforJ&J,5piecesperbox~6RMBforYunnanBaiyao,20piecesperboxN/A65RMBfor1kgindrugstore50-60RMBfor1kginhospitalAveragegrossmargin30-40%15-20%N/AExamplesofleadingplayerColoplast3MS&NConvatecJ&JYunnanBaiyaoMostarelocalbrands,e.g.Hualuthelargestabsorbentcottonmanufacturer*Includingordinarygauze,andothertraditionalwoundtreatmentmaterialChinawoundtreatmentmarketcurrentlydominatedbywoundplastandTCMs|153Source:Literatureresearch;Expertinterview;MeritcoanalysisDescription90%ofretailsalesarethroughdrugstoreMostofdistributorsinSouthChinahavebusinessinretailchannelNearly100%salesarethroughhospitalNointentiontoenterretailchannelinthenearfutureInretailchannel:drugstore(80%),MDstore(20%)Plantoincreaseon-linesales“…ThepatientsknowlittleaboutAWM.Besides,medicalstaffinhospitalstillusepreliminarymethodstotreatbedsore,technologyandconceptofEuropeanandtheUS.InAWMareaheadofusforatleasttwentyyears…--Ms.Xu,BusinessDevelopmentDirector,Molnlycke23OthersUrgoS&NHartmannConvatecMolnlyckeColoplast2012E56HospitalRetailS&N3100%0%Convatec690%10%Molnlycke1199%1%Colocplast2190%10%AWCleadingplayersrevenue(2012E)US$mChannelbreakdownofAWCleadingplayers(2012E)US$mLeadingAWCplayershavenotbuiltsizablepresenceinretailchannel–thereforepresentingamarketshapingopportunityforS&NAWMbusiness|16

Source:Literatureresearch;Expertinterview;MeritcoanalysisEnduser100*Retailer~20Tier2dist15-20Tier1dist15-20Ex-factory30-50Channeleconomicsbreakdownof2011%*50-80distributorscoverallthechannels,and10-20distributorscovertheretailchannel**CaseofBeijingJinxiangPharmacyConvaTecdistributionmodel(2011)ConvaTecHospital/retailerTier2distributorsTier1distributors(50-80*)60%40%ProductflowDirectcontrolRetailerrequirements**commercialterms:Channelfeeaccountsfor8%-9%oftotalrevenueAnnualsales&grossmarginrequirement:NorequirementforannualsalesOnlygive20%grossprofittodrugstoreduetogoodbrandawarenessandstrongbargainpowerRebate3-5%oftotalsales,iftotalrevenueisover100,000RMBperyearShelfspaceterms:OneIndependentcounterinBeijingXidanJinxiangDrugstoreThecounterrentis35,000RMBperyear,paidbythedistributor.ConvaTechires1-2sales,laborcostis40,000-80,000peryearAveragescaleofdistributors~1MnRMBperyearforallthedistributors2-3MnRMBperyearforthedistributorscoveringretailchannel,becauseretailchannelrequireslongeraccountperiodOrganizationMarketingheadcount:4Sales:70intotal,20ofthemcoverretailchannelMarketinginvestment20-25%oftotalrevenueinyear2011Retailtakes10%ofthetotalmarketinginvestmentRetailoutletsaccountforaround10%saleofConvaTec,despiteitsopportunisticnature|17

Source:Literatureresearch;Expertinterview;MeritcoanalysisRetailchannelbreakdownUS$m

(2011)PerstoresalesGeocoverageHaspenetratedintoTier3&4cities200-2,000RMBpermonthinareasthathavegoodsalesperformancesuchasShanghaiandHenan200-300RMBpermonthinBeijing(70%revenuecomesfromcommunityservicecenter)Revenuebreakdownbychannel(2011)FocusinTier1&2citiesEspeciallyinEastChinasuchasShanghaiandJiangsu~3,000RMBpermonthinWatsonsBrandHospitalRetail37%63%Drugstore5%100%=ConveniencestoreSpecialtyMDstore2%7393%Hospital10%Retail90%50Drugstore5%15%20%60%100%=ConveniencestoreWholesalerHypermarketDrugstores:Top100chainstoresinChinaandlocalwell-knownstoresSpecialtyMDstore:suchasKangfuzhijiaConveniencestoreandgrocerystoreDrugstore:Topnationalchainstoresandlocalwell-knownstoresHypermarket,supermarket:suchasWal-MartandTESCOWholesalerChainconveniencestore:suchasWatsonsRetailchannelTypeBaiyaoandBand-Aidhavemanagedtobuildsubstantialpresenceatretailchannels…|18Source:Literatureresearch;Expertinterview;Meritcoanalysis*InchaindrugstoredepartmentAveragescaleofdistributorsTier1distributoris0.1-0.15BnRMBTier2distributoris10-20MnRMBMinimumsalesvolumeoftier3distributoris0.2MnRMBOrganization:Marketingheadcount(14-15),commercial(20-30),sales(~210*)Marketinginvestment:7-8%oftotalrevenueinyear2012Averagescaleofdistributors:Tier1distributoris~6MnRMBOrganizationMarketingheadcount:1forBand-AidSalesheadcount:~400intotal,100fordrugstore,300forhypermarket/supermarketMarketinginvestment:<10%oftotalrevenueonaverage,dependingonannualbudgetProductflowDirectcontrolYunnanBaiyaoretailchanneldistributionmodel(2011)Band-Aidretailchanneldistributionmodel(2011)YunnanBaiyaoRetailerTier2distributorsTier1distributors(60-70)10-15%85-90%Tier3distributors70-80%5-10%BAND-AIDRetailerTier2distributorsTier1distributors(50-60)40%60%…throughmuchmorehand-onchannelmanagementandbrandpull,deliveredbyaround200headcountofin-housesalesandmarketingteams|19

Source:Literatureresearch;Expertinterview;MeritcoanalysisYunnanBaiyaochanneleconomicsbreakdown(2011,Percent)Band-Aidchanneleconomicsbreakdown(2011,Percent)RetailerEnduser25-30Tier3dist10-15Tier2dist5Tier1dist5Ex-factoryEx-factory45-60Enduser20-25RetailerTier2dist5-7Tier1dist15-20Retailerrequirement*Commercialterms500RMBchannelfeeperSKU1,300RMBlogisticsfeeperSKUAnnualsales&grossmarginrequirementNominimumsalesrequirementRequireatleast50%grossmarginShelfspacetermsNoextrafeeforshelfarrangementSpecialposition,e.g.onestandees,with70-80cmwidthand1mheight,is800-1,000RMBperstore*CaseofGuodaDrugStore**CaseofTesco.AsforBand-AidsalesrequirementinWatsons,seeWatsonsprofileRetailerrequirement**Commercialterms~50,000RMBchannelfeeBarcodeupdatefeeis2,000RMBperSKUperstoreUsuallycooperatewithdistributorswhohavealreadypaidthechannelfeeAnnualsales&grossmarginrequirementNominimumsalesrequirementRequire15-18%grossmarginShelfspacetermsNoextrafeeforshelfarrangementBaiyao’schannelincentivesleanstowardretailers,whichyieldbettermarketperformancescomparedtoBand-Aid’shigherT1incentiveapproach|20Source:Literatureresearch;Expertinterview;MeritcoanalysisIRetailChannelKeyTrendsandImplicationsIIWoundTreatmentRetailBusinessLandscapeIIIAWMretailchannelstrategyandpositioningconsiderationsContentsIVAppendix|21Source:Literatureresearch;Expertinterview;MeritcoanalysisS&NAWCproducts872,65520%10%10%10%75050%17,453175600109×=××==÷×××Aveprofitpoolperdrugstore(360,000)0.03%3.5%1.5%ShanghaiexampleOTCproducts20%125,000,0002,00012,50020%2,0005,30053,000,000××÷÷==SHpatientpoolforwoundtreatmentPenetrationrateforwoundcareproductsDrugstorepatientspoolAvgspending×=DrugstorepurchasingRate×GrossProfit%×Profitcontributionperstore==Drugstore#÷AWCpenetration×S&Nmarketshare×S&Npatientspool×Profitcontributionbenchmarkperdrugstore

AWCproductsvs.othersOTCproductsProfitcontributionperstoreCurrentlysalesthoughretailchannelisatitsearlystageduetoverylittleprofitcontributioncomparedtomatureproductssuchasanti-colddrugsandgastrointestinaldrugsForsomestrongbrandwithlargeraddressablemarket,onesingleproductcanreachtheprofitthresholdtosinglestore,forotherproducts,theapproachtoimproveGPcontributionistoBroadenproductline(Yunnanbaiyao,Omeron)Concentrateinspecialdrugstoretype(Siemens)1.9%1.1%20%3,0006,700×÷=15%2,0004,00054,000,000×÷=Medicaldevices4.4%60%10015,8002,600,000×÷=100,000,000GrossProfit%RevenueDrugstore#Profit/store×÷=MethodologyCurrentAWCretailsetupcontributeverymarginalGPtoretailersthereforehavenotbeenabletounleashitsfullmarketpotential(Dividedby)|22Source:Chinesehealthstatisticsyearbook;Literatureresearch;MeritcoanalysisMedicaldevicetypePostoperationFilmIV3000AWCScarIIOpsiteAllevynActicoatIntrasiteGelAlgisiteJelonetSureskinIIBactigrasOpsiteSprayCica-CareCica-CareGelDFUPSVUBurn

InfectionSuitableforOTCchannelIIIIIIIIIIIIIIIIIIIIIIIIIIIII

Fixing

Wideningproductportfoliotoaminimal6-7SKUsisneededtoincreaseaddressablemarketatretailchannelWidenproductportfolio|23

Mostpopularmedicaldevicepurchasedindrugstore100%=45,PercentMostpopularmedicaldeviceiswounddressing,

whilebusinessdistrictstorearethe1stchoiceCustomersinbusinessdistrictstoreandhospitalhavebetterawarenessforAWMproductsCustomerfromotherdrugstoresrarelyheardofAWMNeverheard75HeardBoughtLevelofunderstandingofAWMofcustomersatbusinessdistrictdrugstore100%=20,percentOthersRehabilitationproductsInpatientcareproductsBloodglucosemeterWounddressingLowpricesupermarketCommunitydrugstoreHospitaldrugstoreTraditionaldrugstoreBusinessdistrictdrugstoreComparingpurchasingchannelofwounddressing100%=28,PercentNeverheardHeardBoughtSource:Customersurvey;MeritcoanalysisInhospitaldrugstore100%=10,percentBusinessdistrictstoreisthe1stchoicetopurchasewounddressingandAWMproductsFocusedretailapproach|24

Source:MeritcoanalysisTier1/2citiesGeographicfocusRationaleFocusedpartnertypePotentialpartnerCriteriaHigherAWMawarenessPremiumaffordableDevelopedretailingmarketChaindrugstoreSpecializeddrugstore(e.g.diabetes,aging)EasytoapproachLowinvestmentforfiledsalesTop3intargetcitiesWiththecertificatefortypeII/IIIdevicesselling(singlestore)HigherpatientflowwithS&N’stargetcustomerMeetcompliancerequirementChainstoresAlldrugstoresinShanghaiTop3Drugstorewithdevicelicense340015001200200Estimated#DescriptionChainstoresaccountfor~45%oftotalnumbersScreenedbystore#ForMe,SinopharmandHuashiaretop3chains15-20%drugstoresarequalifiedformedicaldeviceretailShanghaiExamplePrioritizationapproachFocusingonamaximum200outletsinShanghaicanincreaseperstoreGPcontributionforchannelpartnersFocusedretailapproach|25

Source:Literatureresearch;Expertinterview;Meritcoanalysis2Penetration2POSMPromotion1TradeDisplay2Recommendation5FAeducationTradeinvestmenttopromotesalesMnyuanFieldassistanteducationfeeRebatetofieldassistantaftersuccessfulrecommendationDisplayfeecommittedtodrugstoretoensuretheproperdisplaypositioninstoreVerylimitedawarenessTypeIImedicaldeviceAspirestoachieve100msalesin3yearsPointofsalesmaterial,likePOP,AdsputtedupinstoreInvestmentinbuy2get1freeactivitiesinpilotcitiesSamplefeetodistributeproductsin~2,000drugstores~75%oftradeinvestmentfocusedonfieldassistant(FA),perceivedaskeyleveragepointstoaltercustomers’behaviorDuetolowproductawareness,investonproperairapproaches2-3monthsafterdrugstorepenetrationanddisplaytobuildupbrandandensurelong-termreturn~Achieved10mnrevenuein2012,1styearafterproductlaunch,i.e.,50%ROIinYear1Page21TVCSample1AdsSoftads