What is the background of the Hong Kong Stock Exchange in the three-year cumulative loss of more than 1.3 billion yuan?

On the evening of April 19, Beijing Yuanxin Technology Group Co., Ltd. (hereinafter referred to as "Yuanxin Technology") submitted an updated prospectus to the Hong Kong Stock Exchange, which also means that the company's listing matters are further advanced.

Yuanxin Technology, which has been established for more than six years, has grown rapidly in business scale with the first-mover advantage of "Internet + medical treatment", but its losses are also expanding. At the same time, revenue mainly depends on prescription drug sales, or there are policy risks. In addition, at the moment when giants such as Ali and JD.com have increased their layout and homogenized their business models, how to break through the circle center technology still needs more time to test. In this regard, the reporter sent a letter to Yuanxin Technology, and as of press time, the company has not replied.

Revenue mainly depends on "selling drugs"

Founded in 2015, Yuanxin Technology is headquartered in Beijing. According to the prospectus, Yuanxin Technology has three core business lines: out-of-hospital integrated patient services, supply-side empowerment services and innovative medical and health services.

Specifically, the supply-side empowerment service is to provide technical services for hospitals, and operate online medical service platforms in the form of mobile application APPS, WeChat mini programs or public accounts through cooperation with many hospitals.

In terms of innovative medical health, it mainly includes the innovative insurance platform Yuanxin Huibao, which focuses on four insurance types, namely innovative insurance products designed by new special drugs, HP-type commercial medical insurance, sick insurance and drug welfare insurance.

Out-of-hospital comprehensive patient services mainly include out-of-hospital pharmacy services, out-of-hospital medical services and wholesale drug services. That is, out-of-hospital pharmacy services focus on providing patients with convenient and multi-channel access to prescription drugs and a variety of medical and health products; the company's out-of-hospital medical services mainly include online consultation, infusion services, pharmacist consultation, medication management, compliance management and consulting services to complement its clinical diagnosis and treatment plan. In addition, it provides wholesale drug services to third-party retail pharmacies and drug distributors.

It can be seen that Yuanxin Technology intends to create a closed-loop ecology of "doctor-patient-medicine-insurance" through the coordinated efforts of hospitals, patients and medical insurance. The three business lines seem to complement each other, but from the perspective of revenue, only out-of-hospital comprehensive patient services currently account for a higher proportion of revenue.

According to the prospectus, from 2019 to 2021, the revenue of out-of-hospital comprehensive patient services was 2.303 billion yuan, 3.537 billion yuan and 5.615 billion yuan, accounting for 97.9%, 97.5% and 94.6% respectively. Among them, the revenue of out-of-hospital pharmacy services and out-of-hospital medical services in the same period was 1.533 billion yuan, 2.356 billion yuan and 3.608 billion yuan, accounting for 66.6%, 66.6% and 64.3% of the comprehensive patient services outside the hospital, respectively.

And Circle Center Technology is targeting the outflow market of prescription drugs. According to the prospectus, about 85% of Yuanxin Technology's drug sales are prescription drugs. As of December 31, 2021, Yuanxin Technology's product portfolio covers 60 of the 83 innovative oncology treatment drugs approved by the NmPA since 2015, and has more than 18 million inventory units for prescription drugs for cardiovascular diseases.

Although the dividends of the outflow of prescription drugs were "eaten", the business did not bring high gross profit margins to Yuanxin Technology.

According to the prospectus, the gross profit margin of Yuanxin Technology from 2019 to 2021 is: 10.6%, 9.2% and 9.0%, respectively. In the same period, the company's sales costs were 2.1 billion yuan, 3.3 billion yuan and 5.4 billion yuan, accounting for 89.4%, 90.8% and 91.0% of the revenue, respectively.

In fact, among the Listed Internet medical companies, there are not many whose revenue depends on "selling drugs". The three major domestic Internet medical enterprises JD Health, Ali Health, and Ping An Good Doctor each account for more than half of their pharmaceutical revenue. In particular, Alibaba Health, according to the 2020 financial report, the company's pharmaceutical self-operated business and pharmaceutical e-commerce platform business accounted for 97.8% of its total revenue.

In addition, the slow development of supply-side empowerment services and innovative medical and health services has also made the "doctor-patient-medicine-insurance" value chain unable to play a corresponding role, which in turn has led to the increasing operating costs of Yuanxin Technology.

The data shows that while the revenue and business of Yuanxin Technology are growing rapidly, the loss is also increasing. From 2019 to 2021, the operating income of Yuanxin Technology was 2.352 billion, 3.629 billion and 5.938 billion yuan, respectively, and the corresponding net losses were 201 million, 363 million and 757 million yuan, respectively, and the cumulative loss in the past three years exceeded 1.3 billion yuan.

There are policy risks

With the continuation of the epidemic and the gradual enhancement of national health awareness, Internet medical care has ushered in the development of the wind. According to data from the China Commercial Industry Research Institute, the scale of China's medical and health expenditure has increased from 4634.5 billion yuan in 2016 to 7325.3 billion yuan in 2020, with a compound annual growth rate of 12.13%, and it is expected to further expand in 2021 to reach 7999.2 billion yuan.

Keen capital also began to lay out the Internet medical track early. Affected by the epidemic, Internet medical care has ushered in a period of comprehensive development. Since the beginning of this year, including Yidu Technology and Yimaitong, WeDoctor, Dingdang Health, Zhiyun Health, etc. have submitted prospectuses.

According to the data, He Tao, the founder of Yuanxin Technology, graduated from the Central University of Finance and Economics, and before founding Yuanxin Technology, he served as the CEO of Jianyi Network for many years. In 2015, He Tao established Yuanxin Technology, which operates the "Magic Hand Doctor" brand.

Through the Magic Hand Doctor platform, Yuanxin Technology began to develop online consultation business, and in 2017, Magic Hand Doctor became one of the first Internet hospital service providers to obtain Internet hospital licenses.

Since then, capital has successively entered to further promote the development of circle center technology. As of the IPO, Yuanxin Technology has experienced 8 rounds of financing, with a valuation of 27.5 billion yuan. He Tao holds a total of 37.01% of the shares, through Tianjin Chuanyou and Yuanmiaoren holds 29.82% and 7.19% of the indirect interests respectively; Tencent holds 19.55% of the shares, the largest institutional investor; Sequoia Capital holds 16.21%, and Qiming holds 7.12% of the shares.

Creating a "doctor-patient-drug-insurance" ecological closed loop of pharmaceutical e-commerce, online consultation, Internet hospital and insurance construction is the main direction of most Internet medical enterprises in the market. In the industry, although the business models of Alibaba Health, JD Health or Ping An Good Doctor are not the same, they can be separated from the pharmaceutical e-commerce business and the online medical and health service business as a whole.

Compared with Ali Health, JD Health and Ping An Good Doctor, which rely on e-commerce, logistics and shareholder backgrounds, in a very similar operation model, it is not easy for Yuanxin Technology to break through in the Internet medical care where there are many giants. After all, for Yuanxin Technology, how to solve the problem of Internet medical commercialization is still the key to future development.

The development of Internet pharmacies, the main source of revenue of Circle Center Technology, is closely linked to the macro environment.

Benefiting from the introduction of a number of medical policies to benefit the people in recent years and the full implementation of "procurement with quantity", the quality of gross profit per unit of sales has naturally declined under the premise that the pickup cost of pharmacies has not changed.

In 2015, the General Office of the State Council issued the Guiding Opinions on the Pilot Comprehensive Reform of Urban Public Hospitals, which clearly requires all urban public hospitals and county-level public hospitals in the pilot cities of public hospital reform to cancel the drug surcharge and implement the reform of separating medicines. Subsequently, some drugs entered the market due to the increase in the threshold for entering the hospital.

In April 2021, the General Office of the State Council also proposed in the "Opinions on Serving the "Six Stability" and "Six Guarantees" to Further Improve the Work Related to the Reform of "Decentralization Service"" that under the premise of ensuring that the source of electronic prescriptions is true and reliable, it is allowed to sell prescription drugs other than drugs under special management by the state.

However, the regulation of prescription drugs has always been very strict.

In November 2020, the State Food and Drug Administration issued the Measures for the Supervision and Administration of Online Drug Sales (Draft for Solicitation of Comments), which aims to strengthen the supervision of online drug sales and related platform services.

On October 26, the National Health Commission issued the Announcement on the Detailed Rules for the Supervision of Internet Diagnosis and Treatment (Draft for Solicitation of Comments) for Public Comment, covering the supervision of medical institutions, personnel supervision, business supervision, quality and safety supervision, regulatory responsibilities and other aspects of Internet diagnosis and treatment.

Some insiders believe that the relevant provisions in the Draft Opinions will "isolate" Internet diagnosis and treatment from drug sales to a certain extent, and avoid Internet diagnosis and treatment platforms from becoming prescription drug marketing tools.

This also means that there are also uncertainties in the out-of-hospital integrated patient service business, which is an important source of income for Yuanxin Technology. The prospectus also mentions that the sale of prescription drugs requires strict review, and there is still great uncertainty about the subsequent changes in the relevant laws of prescription drugs, which will directly affect the sale of The Online Platform of Yuanxin Technology in the follow-up.

According to Frost & Sullivan data, in terms of 2020 revenue, Yuanxin Technology is the largest comprehensive medical delivery platform focusing on prescription drugs in China.

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