Sprinting for the first share of the Internet in the pharmaceutical industry

Zhitong Finance APP was informed that recently, Pharmacist, the largest digital comprehensive service platform for the out-of-hospital pharmaceutical industry in China, officially submitted a listing application to the main board of the Hong Kong Stock Exchange, with Goldman Sachs and CICC serving as joint sponsors.

According to the prospectus, according to Frost & Sullivan, Yaoshibang is China’s largest comprehensive digital service platform for the out-of-hospital pharmaceutical industry in terms of gross merchandise volume (“GMV”) in 2021. At the same time, as a promoter of the digitization of the out-of-hospital pharmaceutical and medical service market, Pharmacist has taken the lead in using technology to connect and empower upstream (including pharmaceutical companies, distributors and suppliers) and downstream (including pharmacies and primary medical institutions) to facilitate pharmaceutical transactions. Digitalization, standardization, and scale reinventing change with services.

This sprint to the first share of the Internet in the pharmaceutical industry, the Pharmacist Gang has attracted a lot of attention. In response to the relevant information disclosed in its prospectus, we have also summarized five highlights.

[Aspect 1] Scale: China’s largest digital comprehensive service platform for the out-of-hospital pharmaceutical industry, with 256,000 monthly active buyers

According to Frost & Sullivan, the total GMV of Yaoshibang will reach RMB 27.5 billion in 2021, with a compound annual growth rate of 42.9% compared with 2019, ranking first among Chinese outpatient digital service platforms. At the same time, as of the end of last year, Pharmacist has established the largest digital pharmaceutical transaction and service network, including about 305,000 downstream pharmacies and about 130,000 primary medical institutions.

In addition, according to Frost & Sullivan, the average monthly active buyers (“MAB”) of Pharmacist Gang in 2021 will be 256,000, which is the most active buyer group among the digital service platforms outside the hospital in China. And the average monthly order volume of paying buyers increased from 8.3 orders in 2019 to 21.7 orders in 2021, with a compound annual growth rate of 62.0%.

[Aspect 2] Model: Various business chains are improving day by day, forming a complete ecological closed loop of the Internet of the pharmaceutical industry

At present, Pharmacist has four business segments: platform, self-operated, first push and other innovative businesses.

The platform business is committed to solving the problem of incompatibility between supply and demand outside Chinese hospitals. Therefore, Pharmacist has built a digital platform for registered drug buyers and sellers to conduct transactions, and the online market based on mobile Internet has facilitated a large number of pharmaceutical suppliers and buyers. Direct transactions on the platform, and use this to solve the problem of mismatch between supply and demand outside Chinese hospitals.

In the field of self-operated business, Pharmacist has greatly improved the buyer’s experience. First of all, the self-operated business carefully selects high-quality SKUs, and the information of each SKU is complete and clear to meet the daily needs of buyers. Secondly, the self-operated business provides stable supply and contract performance through centralized management of inventory and distribution. Today, the company has 19 smart warehouses, which can process orders and issue distribution within an average of 3.39 hours, and the inventory turnover days are also controlled at 27 days, which is better than the industry average. Therefore, pharmacies and primary medical institutions can place orders flexibly, and their orders can be completed on time. The company helps it avoid overstocking, allowing it to sell medicines to end customers within their expiry dates.

The first brand launch is an innovative business under the self-operated business of Pharmacist Help, providing pharmaceutical companies with a “one-stop” direct-to-terminal drug marketing and distribution full-process solution. Through accurate market insights, it helps pharmaceutical companies launch products that are more suitable for downstream needs, and uses digital marketing methods to increase sales. The innovative business model has brought huge profit potential to the company. As of the end of last year, the company has cooperated with pharmaceutical companies to produce and promote more than 1,000 SKUs.

While improving the pharmaceutical distribution business, Pharmacist has provided more innovative services for ecosystem participants, such as the spectral cloud inspection business that improves the detection and diagnosis capabilities of primary medical terminals, and the smart pharmacy that provides 24-hour smart drug services for end customers. Gradually form a complete ecological closed loop of the Industrial Internet.

[Aspect 3] Financial performance: revenue and gross profit margin continued to grow, net loss ratio continued to narrow, and profit expectations improved

According to the prospectus, the total revenue of Pharmacist Bang has increased by 86.6% from about 3.3 billion yuan in 2019 to about 6.1 billion yuan in 2020, and further increased by 66.4% to about 10.1 billion yuan in 2021. From 2019 to 2021, the company’s gross profit margins were 7.0%, 10.0% and 9.1%, respectively, maintaining an overall upward trend. Among them, the overall gross profit margin of other innovative businesses in 2020 and 2021 will exceed 50%, and the innovative advantages are prominent.

During the reporting period, the net loss rate of Yaoshibang narrowed from 32.2% in 2019 to 5.0% in 2021, and the adjusted net loss rate narrowed from 14.3% in 2019 to 3.4% in 2021. It should be pointed out that under the scale effect, the company’s operating expenses as a percentage of total revenue will drop significantly from 22.4% in 2019 to 13.2% in 2021. In addition, general and administrative expenses as a percentage of revenue will also drop from 3.2% in 2019. To 2.1% in 2021, earnings expectations continue to improve.

[Aspect 4] Technology: Connecting and empowering upstream and downstream with technology, driving the digital transformation of out-of-hospital pharmaceutical transactions

According to the prospectus, Pharmacist Bang provides a series of SaaS solutions for the upstream and downstream of the pharmaceutical industry chain, including cloud business pain for upstream sellers, and palm shop easy for downstream pharmacies. Among them, Yunshangtong can provide a series of store management solutions, such as platform data connection, updating product and price information, inventory management and one-click printing. On the other hand, Easy Store helps pharmacies simplify inventory management and connect to the social security system, greatly improving the capabilities of downstream pharmacies and the efficiency of the entire process of pharmaceutical distribution.

Pharmacist has customized a supply chain management system for its own business. By combining advanced technology and supply chain optimization technology, the company integrates the front and back ends of the supply chain and optimizes inventory management. At present, the supply chain realizes on-demand inventory and timely distribution. Due to the advanced supply chain management system, the efficiency level of the company and the related pharmacies and primary medical institutions served by the company has been substantially improved. Today, the Pharmacistbang supply chain management system includes procurement, warehousing, delivery and settlement, which is designed to comply with the Good Manufacturing Practice for Pharmaceuticals (“GSP”) and is connected to provincial food and drug administrations for real-time monitoring.

Against this backdrop, Pharmacist has operated Galaxy+, a tech-enabled procurement system powered by digital solutions and monitoring the lifecycle of over 500,000 SKUs, enabling the entire procurement process to be completed in seconds, streamlining the process and improving Improve efficiency.

At the same time, in terms of warehousing management, Pharmacist Bang also manages the supply chain through the self-developed national warehousing system Xentrum. In general, the orders that companies receive are usually small in value and variable in frequency, so a tool that can effectively group orders and purchase in bulk is needed to achieve efficiency. Xentrum, on the other hand, was specially developed to solve this problem through a proprietary software architecture and algorithm solution, and the installation of the system can assist the entire operational process. By the end of last year, the company had established smart warehouses in 18 cities, and has been continuously improving the accuracy of models and the efficiency of algorithms.

In addition, on the IntelNex delivery management system, based on transaction records, algorithm-based solutions are derived for future orders, so that the delivery database acts as the infrastructure for IntelNex to operate efficiently. Today IntelNex has helped the company reduce logistics expenses to 1.54% of GMV, well below the industry average.

[Aspect 5] Operational efficiency: continue to reduce costs and increase efficiency, and promote the company’s stable operation

Through years of development, Pharmacist Gang has established an experienced and stable BD team. While planning to improve the efficiency of BD personnel through better digital support from pharmaceutical partners, it also plans to invest in academic and on-the-job training to enable BD The team has specialized pharmacology knowledge to improve the overall BD quality. Through these efforts, the company’s BD personnel will be able to gradually increase the number of terminals that each person can cover in the future, thereby reducing the corresponding percentage of wages and benefits to income.

At the same time, as Pharmacist continues to expand the network of sellers and buyers on the platform, it is expected that the company will continue to benefit from the network effect of the company’s extensive user base and its trustworthy brand image. The company expects to attract and retain more users through word-of-mouth, while reducing its reliance on extensive promotion and advertising programs. With more support from digital tools, Pharmacist’s future marketing activities are expected to be more personalized and precise, resulting in higher marketing efficiency.

Taken together, as of the end of last year, sales and marketing expenses for pharmacists as a percentage of total revenue decreased from 18.6% in 2019 to 12.0% in 2020, and further decreased to 10.5% in 2021. Selling and marketing expenses are expected to increase as the company’s business grows, while its percentage of revenue will continue to decline.

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