Sichuan Zhixiang Files IPO Prospectus: Empowering 50,000 Pharmacies and 150 Million Users Through Its 'Pharmacy Cloud' Platform

Sichuan Zhixiang Network Co., Ltd. is a company engaged in the development and operation of pharmaceutical websites, providing internet solutions for the drug retail industry. In 2016, Sichuan Zhixiang officially launched the “Pharmacy Cloud” project. According to official statements, this represents an unprecedented business model that has the potential to transform the entire drug retail sector.

“Pharmacy Cloud”: Is it truly unique in the industry, as claimed? With this question in mind, VCBeat interviewed Yang Xiao, Co-founder and General Manager of Sichuan Zhixiang Network Co., Ltd.

For a long time, the pharmaceutical industry has been plagued by several unresolved issues: channel management, control over distributors, allocation of profits, and tracking of drug distribution flows. These challenges have proven difficult to address through traditional methods.

Yang Xiao stated, “The original intention of Sichuan Zhixiang was to determine who sold the medications and who purchased them. Understanding the former helps assess whether sales channels are unobstructed, while understanding the latter helps identify where users are located. Only in this way can targeted marketing be implemented.”

It is understood that several years ago, Sichuan Zhixiang developed a simple online pharmacy platform, through which it established cooperative relationships with numerous pharmacies. With the rise of mobile healthcare, precise user targeting has become feasible. Consequently, in 2012, Sichuan Zhixiang began conceptualizing its Pharmacy Cloud Initiative.

During the conceptualization phase, Sichuan Zhixiang discovered that pharmacies had significant deficiencies in member management, and the data of members within pharmacy systems failed to realize its full value. For this reason, Sichuan Zhixiang began planning to provide management services to pharmacies, thereby enabling them to better serve users and ultimately capture user information. In 2016, this management system was successfully developed, becoming what is now known as Pharmacy Steward.

“Users of internet healthcare services are primarily found in two settings: hospitals and pharmacies. Acquiring hospital-based users involves high barriers and costs, whereas pharmacies present a different opportunity. Patients who visit hospitals typically purchase medications at pharmacies, indicating an interconnected relationship between these two channels. By capturing pharmacy users, we effectively reach the core demographic,” Yang Xiao told VCBeat.

The Pharmacy Cloud System consists of two components: the Pharmacy Membership Card app for customers and the Pharmacy Steward app for pharmacies. “We aim to build a platform that facilitates interaction between customers and pharmacies, rather than between customers and the platform itself. Therefore, we developed these two apps—Pharmacy Membership Card and Pharmacy Steward—to enable pharmacy staff to provide more comprehensive and higher-quality services. One product targets consumers (C-end), while the other serves businesses (B-end), thereby connecting B and C,” said Yang Xiao.

Currently, over 15,000 pharmacies have signed cloud-based agreements with the platform, of which 3,000 are already live. Following full integration with their ERP systems, the remaining 12,000 pharmacies will gradually complete their onboarding to the platform.

Pharmacy Membership Card App

Pharmacy Steward APP

Many Internet companies are entering the pharmacy business.O2OThe underlying logic is to have pharmacies open stores on their platforms, claiming they can drive significant traffic. However, this often results in minimal sales due to the low-frequency nature of medication purchases. Without sufficient traffic support, it is difficult for platforms to deliver a substantial increase in sales for pharmacies.

Yaodian Cloud initially faced the same issue: if it merely drove traffic from offline channels, it would only reach offline users, making it difficult to expand its service radius. Meanwhile, individual pharmacy chains, due to their small scale, found it challenging to negotiate partnerships with tech giants like BAT.

Wang Muyuan, General Manager of Baidu’s “Yaozhida” (Medicine Direct), once stated, “What Baidu Yaozhida aims to do is to better serve C-end users.” This logic is also reflected in other Baidu products, such as Baidu Maps, the Baidu Mobile App, and Baidu Nuomi. Yang Xiao believes, “What Sichuan Zhixiang aims to do is to serve B-end clients, for example, by providing services for chain pharmacies, store management, and staff training. Therefore, our relationship with Baidu is one of mutual connectivity and complementarity.”

Coincidentally, since the launch of Baidu Zhida Hao and Yao Zhida, there has also been an urgent desire to rapidlyO2OAlthough Baidu has sought to establish its own influence, it has struggled to gain a strong foothold in the pharmaceutical sector due to the industry’s inherent resistance to internet companies and the negative impact that some drug price-comparison apps have had on pharmacy sales. By leveraging the pharmacy resources accumulated by Sichuan Zhixiang, Baidu’s “Yao Zhi Da” (Medicine Direct) service can rapidly build up its offline presence.

Yang Xiao told VCBeat, “Baidu has an extensive product line and hundreds of millions of mobile users, many of whom have medication purchasing needs. Therefore, if Sichuan Zhixiang can establish a partnership with Baidu to convert its users into our customers, the value generated would be enormous.”

Based on these factors, in 2016, Sichuan Zhixiang successfully established a partnership with Baidu’s “Yaozhida” platform. Through this collaboration, Sichuan Zhixiang not only seamlessly integrated pharmacy membership cards with Baidu Yaozhida but also became an ecosystem operator for the platform.

“By driving incremental transactions through massive traffic, a virtuous cycle is ultimately formed. Baidu has completed its O2O puzzle via offline pharmacies; driven by this traffic, pharmacies are willing to provide better services to users, who in turn indirectly benefit. It is precisely for this reason that we can connect Baidu, pharmacies, and patients,” said Yang Xiao.

Baidu Yaozhida and Pharmacy Membership Cards Share the Pharmacy Mall Interface

Currently, many pharmacy platforms feature price-comparison systems. While these systems offer some value to consumers, the resulting price wars have severely undermined pharmacies’ profitability, which is a major reason why the pharmacy industry remains resistant to internet-based enterprises. Yang Xiao, who has extensive experience in the pharmaceutical sector, is well aware of this issue. Therefore, Yaodian Cloud has completely eliminated its price-comparison system.

There are reasons for the price differences of medicines among pharmacies. For example, if a pharmacy’s information is listed on an app and the pharmacy is located in the southern part of the city, where costs such as rent and labor are higher than in the northern part, the overall drug prices at this southern pharmacy will be higher than those in the north. If sales are conducted via an e-commerce platform, with both the southern and northern pharmacies offering the same prices and delivery services, their profits would differ significantly.

Under these circumstances, small pharmacy chains struggle to set prices in line with e-commerce models. Only large-scale chain giants have the capacity to operate according to e-commerce rules. As a result, very few pharmacy companies manage to achieve profitability through online sales; most are burning cash to establish their market presence.

In another scenario, consider a platform featuring three pharmacies—A, B, and C—each selling the same medication at different prices: Pharmacy A at 15 yuan, Pharmacy B at 14 yuan, and Pharmacy C at 13 yuan. Obviously, all customers would choose to purchase from Pharmacy C. This is because, in most cases, users do not take into account factors such as the physical distance to the pharmacy or the urgency of medication needs; instead, they are highly price-sensitive.

Pharmacy Cloud, however, completely avoids these scenarios, treating each individual store as aO2O...units, rather than treating the entire chain pharmacy as a single sales unit. This is the single-store management and differential pricing mechanism of Pharmacy Cloud.

For example: A user needs to purchase a specific medication. Within the pharmacy’s membership system, Pharmacy A is located more than five kilometers away from the user’s residential community, while Pharmacy B is situated directly downstairs. Due to differences in cost-based pricing, the medication at Pharmacy A is 4 yuan cheaper than at Pharmacy B. However, because Pharmacy A is farther away, its delivery fee is 5 yuan higher than that of Pharmacy B. After weighing the total cost and delivery time, the user ultimately chooses to purchase from Pharmacy B, despite its higher price.

Therefore, the pharmacy cloud platform hosts over 10,000 sales outlets, with each outlet’s selling price determined by local cost conditions, enabling every pharmacy to formulate reasonable pricing strategies based on its own circumstances.

For pharmaceutical companies, accessing user information related to specific diseases or long-term purchases of certain medication types plays a crucial role in drug sales. Leveraging the extensive user and pharmacy base of Pharmacy Cloud, along with its pharmacy data management system, enables the generation of detailed user profiles. This, in turn, facilitates high conversion rates in drug sales through targeted advertising and promotional campaigns.

Three Key Functions of the Pharmacy Cloud Precision Membership System:

First, this approach enables precise control over pharmaceutical companies’ advertising placements, yielding conversion rates far superior to those of the broad, untargeted campaigns typical of television advertising.

Point 2: The platform integration model, akin to direct sales, significantly reduces intermediaries in pharmaceutical distribution, thereby enabling pharmaceutical companies to lower drug prices.

Third: The relationships that pharmaceutical companies establish with users through Pharmacy Cloud play a positive role in shaping their brand image.

Given the platform’s extensive user base and large network of pharmacies, Yaodian Cloud has established partnerships with numerous pharmaceutical companies, enabling them to list their products for sale and promotion across various pharmacies on the Yaodian Cloud platform. Pharmaceutical companies gain broad sales channels through the Yaodian Cloud platform, while pharmacies secure more favorable drug pricing from manufacturers via the platform, ultimately allowing consumers to benefit from lower prices. This creates a triple-win scenario for pharmaceutical companies, pharmacies, and users.

For pharmacies, there is a strong desire to implement refined pharmaceutical marketing management, which simply means tracking who sold each medication. By leveraging data analytics through the “Pharmacy Cloud” backend, pharmacy managers can clearly identify which staff members sold specific drugs, in what quantities, which customers made the purchases, and whether any rebates were applied. These scientifically grounded and rational decision-making insights can boost a pharmacy’s annual operational performance by 20%.

Additionally, Pharmacy Steward can perform "vampire customer" analysis, identifying users who exclusively purchase products with negative gross margins. It also offers seasonal analysis; for instance, as spring is a peak season for influenza, the system can alert pharmacies to stock up on relevant products accordingly.

Currently, pharmaceutical companies invest billions of yuan annually in educating pharmacy staff. Through the “Pharmacy Cloud” staff management system, pharmaceutical companies can easily implement online training for pharmacy staff. Staff members can receive subsidies from pharmaceutical companies based on their learning progress, thereby improving their professional competence and driving sales revenue. Additionally, with this pharmacy management system, pharmaceutical companies no longer need to dispatch sales representatives to individually visit each pharmacy to monitor sales performance.

Regarding the business model, Yang Xiao told VCBeat: “Sichuan Zhixiang’s goal is to aggregate one-third of high-quality pharmacies in large and medium-sized cities (50,000 stores) by 2018, convert the 150 million members of these pharmacies into users of the ‘Pharmacy Membership Card’ app, turn the 250,000 staff members across these 50,000 pharmacies into users of the ‘Pharmacy Steward’ app, and help the 50,000 pharmacies increase their annual profits by 20%.”

“Leveraging Sichuan Zhixiang’s network of 50,000 pharmacies and 150 million users, we generate revenue through targeted advertising via products under Yidu Advertising Media Company. This enables Pharmacy Cloud to integrate advertising services, with revenue shared between the platform and the pharmacies. The advertising business primarily serves pharmaceutical companies. By organizing data collected from pharmacies, we create user profiles to achieve precision marketing, charging fees based on the number of users reached,” said Yang Xiao.

It is reported that Sichuan Yidu Advertising & Media Co., Ltd., established in August 2015, is jointly invested and operated by Sina and Zhixiang Network. Each party holds a 50% equity stake. The core team consists of 50 members, jointly formed by personnel from Sina’s Health Division and Sichuan Zhixiang. Its products include the “Sina Medicine” platform and the “Sina Medicine News” mobile app.

In addition to precision advertising, patient education services and pharmacy staff training services are also significant revenue streams for Pharmacy Cloud.

During the interview, Yang Xiao consistently emphasized that Sichuan Zhixiang is a company that originated from pharmaceutical sales. “We do not come from the internet industry, but we have an in-depth understanding of the healthcare sector. Therefore, we position Sichuan Zhixiang as ‘Healthcare + Internet,’ rather than ‘Internet + Healthcare,’ a distinction determined by our inherent DNA. Sichuan Zhixiang will not blindly apply internet logic to healthcare practices; instead, we integrate internet elements into healthcare principles to optimize the industry rather than disrupt it. We have observed many internet companies attempting to disrupt this sector with internet-centric thinking, but in most cases, they merely impose hollow internet concepts onto the healthcare industry, which actually harms the sector. Pharmacy O2O is not simply about listing offline pharmaceutical products on online platforms for sale; rather, it requires analyzing and addressing issues based on the genuine needs of pharmacies,” Yang Xiao told VCBeat.

In addition, VCBeat has learned that Sichuan Zhixiang is responsible for operating all of JD.com’s self-operated contact lens stores, the Hydron flagship store, and the Yuwell flagship store on Tmall.

Yang Xiao stated, “Sichuan Zhixiang’s operational capabilities are widely recognized within the industry. We collaborate with partners to co-create product brands, with Sichuan Zhixiang handling operations and partners providing the products. We prioritize whether a product holds competitive advantages in the industry, as this allows us to fully leverage Sichuan Zhixiang’s marketing strengths. Consequently, we often secure exclusive rights to distribute high-quality products, which is the most critical factor behind our profitability.”

According to Yang Xiao, the sales revenue of Sichuan Zhixiang’s e-commerce platform reached RMB 100 million in 2015, with a net profit of RMB 1.8 million. Sales are projected to exceed RMB 200 million in 2016, with a net profit of RMB 5 million.

Sichuan Zhixiang’s operational DNA is closely tied to the composition of its founding team. Many senior executives within the founding team boast over 10 years of marketing experience in the pharmaceutical industry, with some even being “veterans” with more than 30 years of expertise.

• Xiao Yitian, Founder and Chairman of Sichuan Zhixiang. With over a decade of experience in the pharmaceutical industry, he previously invested in and established Chengdu Chiral Pharmaceutical Co., Ltd., and served as a senior executive at Sichuan Noah Medical Technology Co., Ltd., a joint venture with Tibet Rhodiola Pharmaceutical Holding Co., Ltd. In 2008, he founded Sichuan Zhixiang Network Co., Ltd.

  
  

• Yang Xiao, Co-founder and General Manager of Sichuan Zhixiang. Majoring in Pharmacy, he is a member of the Sichuan Pharmaceutical Association; he is also the co-founder of Chengdu Chiral Pharmaceutical Co., Ltd. and Sichuan Noah Medical Technology Co., Ltd. In 2008, he co-founded Sichuan Zhixiang Network Co., Ltd.

  
  

• Zhong Sheng, Operations Director of Sichuan Zhixiang. He holds a degree in Business Administration and has over twenty years of experience in the OTC industry. His previous roles include Sales Director at Xi’an Yangtian Pharmaceutical, Deputy General Manager and Sales Director at Gansu Duyiwei Biological Pharmaceutical. He joined Sichuan Zhixiang Co., Ltd. in 2015.

  
  

• Mi Yi, Operations Director at Zhixiang in Sichuan Province. Holding a degree in Business Administration, he has over ten years of experience in pharmaceutical retail. He previously worked at Tibet Rhodiola Pharmaceutical Holding Co., Ltd., serving as General Manager for the Yunnan and Guizhou regions. In 2013, he served as Managing Director at Yunnan Bolian Pharmaceutical Co., Ltd. He joined Zhixiang Network Company in 2015.

  
  

• Zhao Yin, Deputy General Manager of Sichuan Zhixiang, has over two decades of experience in the pharmaceutical industry. He has previously held positions at the Sichuan Pharmaceutical Exhibition and Sales Center, the Sichuan Pharmaceutical Procurement and Supply Company, and Tibet Rhodiola Pharmaceutical Holding Co., Ltd.

According to Yang Xiao, Sichuan Zhixiang is striving to build an ecosystem comprising three interconnected pillars: healthcare, pharmaceuticals, and media.

• Doctor: To help the general public address their treatment needs, with future integration of appointment scheduling platforms, light consultation services, and specialized dental care platforms.

• Medications: By partnering with pharmacies and Yaozhida, we help the general public address their medication purchasing needs.

• Media: Facilitating and Oversight Roles, Providing Services to Pharmaceutical Companies in Brand Building, Industry Information, and Access to the Latest Research Findings.