Jiangsu Zhiyuan Pharmaceutical Co., Ltd. (referred to as Zhiyuan Pharma) formally submitted its listing application to the Hong Kong Stock Exchange last month, with CITIC Securities serving as the sole sponsor. The company generated 13.24 billion yuan in revenue for 2025, and its Life (Lifu) metronidazole gel topped the overall drug sales ranking on the Alibaba Health platform. L'Oreal, Alibaba Health, and Sinovation Ventures all hold shareholder positions, with the company's post-money valuation reaching approximately 2.82 billion yuan following its pre-IPO financing round in 2025.
Yet beneath this glossy surface lie significant concerns: the company prioritizes marketing over research and development, with its selling expense ratio climbing to 43.7% while R&D spending hovers around just 5%. Profitability has been highly volatile—net profit plunged to 46 million yuan in 2024, then fell another 66.6% year-over-year in the first quarter of 2026. Meanwhile, cash reserves of 343 million yuan are insufficient to cover nearly 400 million yuan in repurchase liabilities, and the debt-to-asset ratio approaches 65%. After Zhiyuan Pharma withdrew its A-share listing attempt in 2023 following regulatory inquiries, the company is now pivoting to Hong Kong. Can the same business model yield a different outcome this time around?
Where Growth Really Comes From: A 1.3 Billion Yuan Revenue Built on Traffic
Looking at the revenue trajectory alone, Zhiyuan Pharma's growth story appears remarkably steady. From 2023 through 2025, the company recorded revenues of 1.031 billion yuan, 1.126 billion yuan, and 1.324 billion yuan respectively, with 2025 marking a 17.6% year-over-year increase. In the first quarter of 2026, revenue reached 337 million yuan, up 14.86% from the prior-year period.
Dermatology products serve as the absolute mainstay: this category generated sales of 779 million yuan, 968 million yuan, and 1.161 billion yuan from 2023 to 2025, with its share of total revenue expanding from 75.6% to 87.7%. In the first quarter of 2026, dermatology product revenue stood at 281 million yuan, representing 83.4% of the total. Among these, the nasofacial dermatology business segment—which includes the Life metronidazole gel—contributed 272 million yuan in 2025, accounting for 20.6% of the company's overall revenue.
However, the profit picture tells a far more turbulent story. Net profit reached 146 million yuan in 2023, then collapsed to 45.6 million yuan in 2024, a staggering 68.8% decline. While 2025 saw a rebound to 94.52 million yuan, the figure still has not recovered to 2023 levels. The first quarter of 2026 brought another disappointment, with net profit of just 12.63 million yuan, down 66.7% year-over-year.
Gross margins have also been compressing, sliding from 71.8% in 2023 to 66.8% in 2025, and further down to 66.1% in the first quarter of 2026. A five-percentage-point erosion in gross margin over three years signals that the company's pricing power or channel bargaining position is being steadily undermined—a concerning trend for a business built primarily on OTC topical medications and functional skincare products.
Zhiyuan Pharma's most defining characteristic is its heavy emphasis on marketing at the expense of research. Between 2023 and 2025, selling expenses grew from 407 million yuan to 475 million yuan, with the selling expense ratio ranging between 35.9% and 40.5%, before surging to 43.7% in the first quarter of 2026. Marketing and promotion expenditures now account for 80.7% of total selling expenses, up from 76.6%. During the same period, the R&D expense ratio remained stagnant at around 5%, with cumulative R&D investment over the past three years totaling just 180 million yuan. In other words, selling expenses run eight to nine times higher than R&D spending.
The channel structure presents another dimension worth examining. Online revenue's share of total revenue climbed from 46.4% in 2023 to 58% in 2025, and reached 61.8% in the first quarter of 2026. Tmall, Douyin, and JD Health serve as the company's core sales battlegrounds. The growth playbook is straightforward: generate buzz on Douyin, build presence on Xiaohongshu, leverage influencer带货 to drive traffic, and funnel users to e-commerce platforms for conversion. This approach proved highly effective during the traffic dividend era. The Life metronidazole gel, Luofu bifonazole solution, and Jinniuer compound clobetasol propionate ointment each claimed the top spot in their respective subcategories. In 2025, five of the company's products ranked first across all channels, with three achieving the top position online.
But traffic comes at a price. As platform competition intensifies and customer acquisition costs rise, the marginal efficiency of marketing investments is diminishing. The sharp profit decline in 2024 largely resulted from increased marketing spending combined with declining output efficiency. Should the company halt or reduce its promotional spending, whether revenue can be sustained remains the fundamental question hanging over this entire model.
After the A-Share Setback, Can the Hong Kong Path Succeed?
In April 2023, Zhiyuan Pharma filed its IPO application with the Shenzhen Stock Exchange, seeking to raise approximately 701 million yuan. Following two rounds of regulatory inquiries, the company voluntarily withdrew its application. The issues exposed during the A-share review process centered on several key areas.
First, the high selling expense ratio, particularly the disproportionate share of academic promotion fees, drew repeated scrutiny over the authenticity and compliance of these expenditures. Second, outsourced R&D accounted for over 40% of total R&D spending, raising doubts about the company's independent innovation capabilities. Third, approximately 130 million yuan in loan-transfer activities were identified, and a subsidiary had previously received administrative penalties for issuing false invoices. Under the tightening A-share review environment, these issues constituted substantial obstacles to approval.
However, switching to Hong Kong does not automatically make these problems disappear. While the HKEX applies different review criteria, its focus on business model sustainability, financial compliance, and corporate governance standards remains equally rigorous. Prior to filing its application, Zhiyuan Pharma completed a pre-IPO financing round of approximately 265 million yuan, achieving a post-money valuation of 2.82 billion yuan. Investors included Sinovation Ventures (holding 6.98%), L'Oreal's affiliated fund Cathay Capital Meiwei Future Fund (holding 3.37%), and Alibaba Health (holding 1.69%).
Yet this financing round carried rigid repurchase clauses. If the Hong Kong IPO fails or a change of control occurs, investors hold the right to demand the company repurchase their shares at the investment amount plus simple interest. As of the first quarter of 2026, this redemption right has been recognized as a financial liability totaling 397 million yuan—while the company's cash on hand stands at just 343 million yuan. In other words, if the IPO does not succeed, the company does not even have sufficient funds to settle its obligations to investors.
The Ceiling of the Dermatology Sector and the Search for a Second Growth Curve
Within the niche segment of OTC topical dermatology medications, Zhiyuan Pharma's position remains solid. According to Frost & Sullivan data, multiple company products rank among the top in their subcategories. Dermatology product revenue as a share of total revenue has risen from 75.6% in 2023 to 87.7% in 2025, reflecting increasing concentration.
However, the technical barriers to entry in topical dermatology medications are relatively low. Metronidazole gel and bifonazole solution are both mature generic drugs with numerous competing products available on the market. On the Alibaba Health platform, brands such as Hongke, 999, Renhe, and Besunyen all offer metronidazole gels, some at lower price points. The global OTC dermatology market is dominated by giants like Bayer, GlaxoSmithKline, and Galderma, with highly fragmented competition. Zhiyuan Pharma's leadership stems more from marketing investment and channel operational capabilities than from irreplaceable product advantages.
Consequently, the company is attempting to develop a second growth engine through its functional skincare brand Zhirun. Launched in 2021, Zhirun focuses on azelaic acid-based acne treatment and selenium disulfide hair care products, positioning itself as functional skincare with pharmaceutical heritage. Its 1% selenium disulfide shampoo has received certification as the top-selling product nationwide, surpassing 100 million yuan in sales within its first year on the market.
However, in 2025, Zhirun's brand revenue accounted for less than 8% of total company revenue, with GMV across the four major platforms reaching approximately 147 million yuan. Compared to the main brand's scale exceeding one billion yuan, Zhirun remains in its early cultivation stage. With product pricing concentrated in the 49 to 119 yuan range, the mid-to-low-end positioning limits brand premium potential. The category breadth remains narrow, and there is still considerable distance before it can independently support a listed company's second growth curve.
The core question Zhiyuan Pharma's IPO must answer is singular: when traffic becomes increasingly expensive and generic drugs become increasingly similar, how long can marketing-driven growth continue? The company has a pipeline of over thirty new products, but the path that made Life successful will be difficult to replicate. Online traffic has shifted from an incremental market to a zero-sum game, and customer acquisition costs will only climb higher. Offline channels represent a critical step in evolving from an e-commerce brand to an omnichannel brand, yet no clear strategic layout has been articulated thus far.
For Zhiyuan Pharma, going public is about raising capital—not finding a cure. A company with a 43.7% selling expense ratio and a 5% R&D expense ratio must ask itself: what will carry it through the next traffic cycle?