VB Group Interview No.10 | Tang DeKai of Luye Pharma: Traditional Pharma Meets Internet

Guest of this issue: Tang Dekai, General Manager of Mobile Healthcare at Luye Pharma Group
Time: September 16, 2015, 20:00–21:30
Moderator: Zhao Zhanshi

Tang Dekai

Guest Introduction: Tang Dekai, male, a senior professional in the healthcare industry. He formerly served as General Manager of Shenzhen Lifesense Medical Electronics and CEO of Dingdang under Renhe Group. He is currently the General Manager of Mobile Healthcare at Luye Pharma Group.

Topic Sharing:
When discussing the internet, the terms “Internet+” and “+Internet” are frequently mentioned. Generally speaking, “Internet+” refers to established internet companies leveraging their competitive advantages to make strategic moves in the pharmaceutical and healthcare sector. In contrast, “+Internet” typically denotes traditional pharmaceutical enterprises adopting internet-based thinking to integrate digital technologies with their core businesses, thereby optimizing existing marketing models or exploring new sales channels.

Whether it is “Internet Plus” or “Plus Internet,” the distinction lies merely in the starting point. Traditional pharmaceutical companies tend to favor the “Plus Internet” approach. While some pharmaceutical enterprises have pursued “Internet Plus,” essentially discarding their traditional advantages to start anew, most ultimately return to leveraging their core strengths. What is certain is that, regardless of the approach, the fundamental nature of internet commerce remains unchanged: at its core, it is about how a company can utilize the internet to generate profit.

What Are Chinese Pharmaceutical Companies Doing?
Domestic pharmaceutical companies often approach digital transformation from an “Internet-plus” perspective, with varying strategic focuses. Some leverage their strengths across upstream and downstream segments of the industry chain, others capitalize on brand and channel advantages accumulated over many years, while still others build their internet presence by drawing on logistics and supply chain capabilities.

In terms of product form, pharmaceutical companies generally pursue two major directions in the internet space: pharmaceutical e-commerce and comprehensive health platforms. It is common for domestic pharmaceutical companies to engage in pharmaceutical e-commerce; however, in my opinion, this approach is open to debate. Since a pharmaceutical company’s own drug portfolio is inherently limited, achieving a certain scale in e-commerce necessarily requires collaboration with other pharmaceutical firms to list their products on its platform. This arrangement may cause confusion among partner companies regarding the distinction between proprietary products and those sold through cooperation. In my view, traditional pharmaceutical companies aiming to build a large-scale pharmaceutical e-commerce business must carefully consider how to balance the advantages of their existing proprietary products with the conflicts inherent in operating as a third-party sales platform.

Integrated health service platforms are also widespread, such as the diabetes project by Tencent and Guizhou Yibai, Renhe’s Dingdang Cloud Health, and the Cloud Health Platform of XYWY (Xun Yi Wen Yao), among others. However, these integrated health platforms are currently too broad in scope and comprehensive in functionality, forming a complete ecosystem. At present, it is extremely challenging for such platforms to identify precise entry points to attract more users and achieve effective operations.

How Foreign or Multinational Pharmaceutical Companies Operate
Although the internet is a hot topic of discussion, there are still relatively few original domestic internet initiatives. In the pharmaceutical sector, it is instructive to examine the internet-related endeavors of multinational and foreign pharmaceutical companies, as their approaches may offer valuable insights. A study of these multinational corporations reveals several typical strategies in the digital space: developing specialized vertical mobile applications; collaborating with healthcare internet companies; and leveraging corporate venture capital arms to invest in and incubate promising startups. These startups typically maintain strategic relevance to the pharmaceutical companies’ core businesses, enabling the latter to leverage their competitive advantages to support the startups’ growth while simultaneously driving their own primary business operations.

Strangely enough, based on the information I currently have, foreign pharmaceutical companies have not independently engaged in e-commerce. This offers some food for thought: whether pharmaceutical companies are truly suited to operate in the pharmaceutical e-commerce sector is a question worth careful consideration.

Upon closer examination of the integration between multinational pharmaceutical companies and the internet, it is evident that their approaches are highly defined and professional, primarily focusing on several vertical areas: clinical trials, disease management applications, digital therapeutics, drug efficacy monitoring, and big data applications. These observations reveal that multinational pharmaceutical enterprises are essentially implementing an “Internet Plus” strategy centered around their core product expertise.

How to “+Internet”
We have just discussed how pharmaceutical companies are increasingly embracing the internet. But why are they doing so? In my view, there are several key reasons. First, driven by the overarching trend of the internet’s impact on the industry, significant changes are likely to occur in drug marketing and even in medical consultation and diagnosis methods in the foreseeable future. Adopting an “Internet Plus” strategy serves as foundational preparation for this major trend. Second, given this inevitable trend, competition is intensifying; no company wants to fall behind, prompting them to join the fray and identify suitable niche markets. Finally, policy directives play a crucial role. Policies such as allowing prescription drugs to be sold online, enabling online reimbursement through medical insurance, and prohibiting hospitals from marking up drug prices have created numerous opportunities for pharmaceutical companies to integrate with the internet, thereby encouraging them to actively embrace digital transformation.

From my perspective, any enterprise integrating with the Internet must consider several key aspects: resources, core competencies, the rationale for undertaking the initiative, and the likelihood of its successful execution. If a pharmaceutical company holds advantages in a specific medical department or therapeutic area, should it pursue pharmaceutical e-commerce or develop vertical applications? What are the specific objectives behind this choice—is it for drug marketing, R&D, efficacy tracking, or improving doctor-patient relationships? Or does the aim involve building a large-scale platform to disrupt even the fundamental models of pharmaceuticals and healthcare? These questions warrant careful consideration and strategic decision-making.

Q&A Highlights

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I. Beyond pharmaceutical e-commerce, what other initiatives can pharmaceutical companies undertake using the internet?
Tang Dekai:In essence, JD.com and Taobao are traffic-driven platforms. If pharmaceutical companies fail to establish their own competitive advantages in other areas, such as therapeutic efficacy, they will have no choice but to purchase traffic like any other product, gradually converting e-commerce traffic into brand equity. Therefore, I believe that for pharmaceutical companies, the critical efforts should be directed outside of e-commerce platforms. This is particularly true for prescription drugs, where the focus should be on enhancing therapeutic outcomes and building a brand that gains recognition from both physicians and patients. As for over-the-counter (OTC) drugs, it is widely understood that many successful brands have been built through substantial brand investment and deep channel penetration, which gives them an advantage in leveraging JD.com and Taobao for e-commerce operations.

II. Which Independent Pharmaceutical E-commerce Platform Is Favored?
Tang Dekai:Currently, the top ten independent pharmaceutical e-commerce enterprises all have opportunities. The competition ahead will hinge on capital and operational capabilities. Any of these companies could fall behind or rise in the rankings; therefore, I believe any of the top ten pharmaceutical e-commerce players has the potential to take the lead.

III. In the realm of pharmaceutical companies plus the Internet, what opportunities do startups have in this segment? Whether in the broader health sector or pharmaceutical e-commerce?
Tang Dekai:If a company were to start from scratch today, the opportunities would be slim in both the broader health and wellness sector and pharmaceutical e-commerce, particularly in the former. Achieving success in the health and wellness space demands substantial resources, sophisticated operational capabilities, and top-tier talent. For startups, the challenge is even greater, as they typically lack advantages in terms of resources, capital, and human talent.

IV. Do pharmaceutical companies have the incentive to innovate? Should they focus their efforts on sales or on the research and development of new drugs?
Tang Dekai: A high-quality enterprise must possess intrinsic value drivers that fuel innovation. For a successful company, it is not appropriate to simply prioritize R&D over sales, or vice versa. That said, I am more optimistic about pharmaceutical companies that will devote greater resources to the research and development of new drugs in the future.

V. Is the fundamental interest driving pharmaceutical companies to engage with the internet simply to sell drugs?
Tang Dekai:Different enterprises have different demands. Fundamentally, pharmaceutical companies engage in internet-based initiatives to address their future survival and development space within the overarching trend of digitalization. In the short term, some pharmaceutical companies’ primary objective is drug sales, which is understandable; high sales volume of effective medicines carries social value.

VI. How to View the Separation of Medical Services and Pharmaceutical Sales, and Prescription Circulation?
Tang Dekai:The separation of pharmaceutical services from medical services and the circulation of prescriptions are major trends. Current policies are increasingly guiding the industry in this direction, such as by reducing the drug-to-revenue ratio and prohibiting hospitals from marking up drug prices. Hospitals may also be losing interest in selling certain drugs, as they bear management costs without being able to add markups. All these factors are promoting the separation of pharmaceuticals from medical services. While the full implementation of this separation and prescription circulation may take some time, it is undoubtedly a prevailing trend, leading many pharmaceutical companies to closely monitor this development.

VII. How can smart hardware products collaborate with pharmaceutical companies after collecting user data?
Tang Dekai:To my knowledge, no smart hardware currently collects data sufficient to support big data analytics, and significant issues often persist, such as concerns regarding the accuracy and completeness of data collection, as well as whether the data is acquired in strict adherence to medical standards. Ideally, with adequate data, close collaboration with pharmaceutical companies could be established in areas such as marketing and product development; however, I believe there is still a long road ahead in this regard.