Jianke CEO Xie Fangmin: Exploring the Integration of Products and Services in Pharmaceutical E-commerce

Currently, the pharmaceutical e-commerce sector is facing external pessimism and internal divergence. From an outside perspective, China’s pharmaceutical e-commerce industry appears to have vanished, under the mistaken belief that online drug sales are prohibited and illegal, thereby rendering such business models nonexistent. Judging by superficial industry indicators—such as slowing growth rates, the arrival of a “winter” period, and tighter government regulations—the sector seems to be in decline. However, within the industry, three or four pharmaceutical e-commerce platforms have announced profitability, with revenues exceeding RMB 600 million in the first half of the year. These platforms include Kangaiduo and Haoyaoshi, among others, which are affiliated with listed companies.

So, how does Xie Fangmin, CEO of Jianke, view the landscape of pharmaceutical e-commerce?

The Trend of Polarization Is Evident: Pharmaceutical E-Commerce Is Not in a Winter Slump but Thriving. As a private company, Jianke.com has seen its sales increase by 200% year-on-year this year. The pharmaceutical e-commerce sector is now showing a clear trend of polarization. One pole is decline, exemplified by pharmaceutical e-commerce platforms transitioning from traditional brick-and-mortar pharmacies; the other pole is rapid growth, primarily referring to platforms that focus exclusively on the pharmaceutical e-commerce sector.

More than 600 pharmaceutical e-commerce companies, situated at the “winter” extreme, are experiencing declining sales and mounting losses. In contrast, companies at the other end of the spectrum are faring differently; pharmaceutical e-commerce platforms affiliated with listed companies have reported strong sales figures and have already announced profitability.

Taking Jianke.com as an example, it was the first company in Guangdong Province to obtain an online pharmacy license in 2009, becoming the first pharmaceutical e-commerce enterprise. It achieved profitability in December 2011 and maintained continuous profitability for the following three years.

Many people believe that if prescription drugs are not deregulated,Pharmaceutical E-commerceStepping down from the pedestal. However, the reality within the industry is that while prescription drugs have long been prohibited, numerous well-known pharmaceutical e-commerce enterprises have emerged, such as Kangaiduo, Haoyaoshi, and Jianke.com. The pharmaceutical e-commerce sector is undergoing consolidation amidst turbulence, with outstanding companies poised to emerge.

Currently, there are 752 pharmaceutical e-commerce companies holding Internet Drug Transaction Service Qualification Certificates, including 29 with Class A certificates, 170 with Class B certificates, and 553 with Class C certificates. Additionally, there are 159 companies awaiting the issuance of Class C certificates, 90% of which are considered “zombie platforms.” Given the current landscape, we believe that outstanding enterprises will enter a period of rapid growth following this industry consolidation. In fact, no more than 10 pharmaceutical e-commerce platforms remain truly active in the market. Each of these has achieved a certain scale, secured capital support, and is actively attracting top talent.

Below is a brief review of the development history of pharmaceutical e-commerce:

Phase I:From 2005 to 2009, the industry was in an unregulated development phase characterized by high profit margins and limited competition. For instance, Baiji Xinte Pharmacy Network achieved a tenfold return on investment despite placing high-cost advertisements on Baidu.

Phase II:From 2009 to 2012, China gradually liberalized the issuance of licenses for pharmaceutical e-commerce, entering a phase of orderly operations. Jianke.com obtained the Internet Drug Transaction Service License issued by the State Food and Drug Administration in December 2009. The period from 2009 to 2012 marked the foundational and profit-generating stage for pharmaceutical e-commerce, during which competition remained mild and profit margins were substantial.

Phase III:2012–2015: The Pharmaceutical E-commerce Sector Entered a Phase of Rapid Growth. This period was characterized by three key features: 1) The number of pharmaceutical e-commerce platforms surged from single digits to triple digits; 2) The entire industry operated at a loss amid intense competition; 3) Strategic investors were genuinely introduced for the first time.

Phase IV:2016 to Present: A Phase of Exploration and Uncertainty. After more than five years of cutthroat competition, fewer than 10% of the over 600 pharmaceutical e-commerce platforms have survived. Although most held proper licenses, they have become “zombie platforms.” Plagued by an inability to attract investment, excessively high personnel costs, low sales volumes, and lack of profitability, even some of the surviving 10% are struggling on the brink of collapse.

I. Insufficient product categories in offline pharmacies. In China, the typical pharmacy stocks 700–800 types of medications. Due to physical space constraints, large-scale pharmacies may carry over 2,000 varieties, butLarge Pharmacy; the proportion is very low;

2. Severe homogenization: The product offerings across China’s 400,000 pharmacies are highly homogeneous. The top 100 offline pharmacy chains carry no more than 4,000 SKUs, indicating that all 400,000 pharmacies are competing within the same product categories. Consequently, the category diversity in China’s offline pharmacy sector is significantly insufficient.

3. Inadequate coverage of medical institutions, particularly in third- and fourth-tier cities. When patients in these regions suffer from severe conditions, they often cannot obtain necessary medications at local county-level hospitals. Hospitals serving counties with populations of several hundred thousand typically stock only 2,000–3,000 types of drugs. Medications beyond this range must be purchased in major cities, thereby incurring additional costs such as transportation, accommodation, meals, and lost wages. In contrast, pharmaceutical e-commerce platforms enable patients to search for and order medications online, with delivery directly to their homes via courier services, effectively replacing the previous necessity of traveling to major cities to access these drugs.

IV. Uneven Distribution of Medical Institutions: Currently, 15% of high-quality medical resources are concentrated in Beijing and 8% in Shanghai, with the remainder distributed across the rest of China. Many medications are only available in major cities.

Currently, there are three main channels in pharmaceutical distribution. The first is medical institutions, which account for more than 70% of the market share; the second is offline pharmacies, which hold over 20% of the market share; and the third channel, which has yet to fully take shape, is pharmaceutical e-commerce.

In five to ten years, hospitals will remain the primary channel for drug purchases, accounting for approximately 50% of the market share. Meanwhile, pharmaceutical e-commerce will rise rapidly, capturing the remaining 20%-30%, while offline pharmacies will hold only around 20%. China will form a tripartite landscape where three distribution channels—offline medical institutions, offline pharmacies, and online pharmacies—coexist.

Integration of Pharmaceuticals with Online Medical Consultations:Jianke.com launched the Palm Doctor app in 2011, achieving a monthly drug transaction volume of RMB 200,000 in its first month. It has since introduced the Jianke Online Consultation WeChat official account, which now handles tens of thousands of consultations daily.

Integration of Pharmaceuticals with Online Health Management:Jianke.com has been engaged in health management since its inception, initially operating through a call center; it has now evolved to offer various app-based solutions that integrate with patient care.

Integration of Pharmaceuticals and Insurance:The integration of pharmaceuticals and insurance is currently being explored, with a joint service launch planned with Taikang in October; preparations are underway.

This article is excerpted from the keynote speech delivered by Xie Fangmin at the 2016 Internet Innovative Healthcare Forum.