(This article was first published in the "Future Benchmarking Lab" public account, welcome to subscribe to the "Future Benchmarking Lab" public account)
Foreword: Introduction to Pryce
On February 16, 2022, it was approved by the CSRC, and Pryce has made an online subscription on the Growth Enterprise Market of the Shenzhen Stock Exchange on May 6. The IPO adopts a pricing offering, the issue price is 46.80 yuan / share, corresponding to the price-earnings ratio of 48.75 times, the number of shares issued is 15 million shares, and the raised funds are 702 million yuan, which are used for clinical trial site expansion projects, big data analysis platform projects, ABP construction projects and supplementary working capital, investing 244 million yuan, 102 million yuan, 156 million yuan and 200 million yuan respectively. As early as October 2020, Prius (Shanghai) Pharmaceutical Technology Development Co., Ltd. has submitted a listing application to the Growth Enterprise Market of the Shenzhen Stock Exchange.
Prius is a pharmaceutical SMO company, and the shareholders behind it are hillhouse capital, Hui every health and so on. The main business is to provide SMO services for the clinical research and development of domestic and foreign pharmaceutical companies, medical device companies and some health-related products, providing customers with clinical trial on-site management services including pre-preparation plan, test site start-up, on-site execution, project whole-process management and so on.
First, why is there so much doubt about the road to listing?
1. The main business is single, the gross profit margin is too low, and the ability to resist risks is questioned
According to the Prys prospectus, the main business is SMO services, and this business accounts for 100% of the operating income (see Table 1). We can understand that for enterprises in their own business strategy to carry out "one meter wide and one kilometer deep" business positioning choice, its main business is single, it is difficult to produce synergistic effects with other businesses, in the future industry competition intensified, the main business single business characteristics are bound to be in the business cost, business resource allocation and other aspects of the weak effect will be further amplified. In contrast, other clinical trial outsourcing management competitors are more diversified in their businesses, and the synergies between different businesses will be more competitive.
Table 1: Revenue from Prys's main business
From the perspective of profit, from 2017 to 2020, the gross profit margin of Pryss SMOs services was 34.28%, 32.53%, 32.88% and 29.12%, respectively (see Table 2). The performance at the gross profit margin level is acceptable, but the gross profit margin of the enterprise has declined year by year, and the gross profit margin of the enterprise is at a low level compared with the same industry. (See Table 3)
Table 2: Prys Gross Margin
Table 3: Press gross margin is still at a low level compared to peers
Although Prys explains that the gross profit margin of the company's main business is relatively low compared to the level of comparable (proposed) listed companies in the same industry, the reason is that there is a large difference between the main business structure of the comparable (proposed) listed companies in the same industry and the company, the SMO business is only one of the main businesses of the comparable (proposed) listed companies in the same industry, and the comparable (proposed) listed companies in the same industry are also engaged in other businesses with relatively high gross profit margins. However, this also proves once again the characteristics of insufficient comprehensive competitiveness and weak anti-risk ability of enterprises caused by the single main business of the industry.
Here, you may ask, is the business positioning of enterprises choosing "one meter wide and one kilometer deep" not good? For the current main business of Prys, based on the satisfaction of the demand side of the industry, there is a problem that the proportion of a single business is too high. First of all, from the perspective of enterprise marketing, in the process of developing the market, the product is a weapon in the hands of the sales staff, for the downstream medical enterprise users, their needs are generally diversified, the more products can meet the needs of customers; for enterprises, in the process of marketing customers, the marketing costs paid are fixed, rich products at the same time sales reach, can help enterprises share costs, in such a demand market, too single product business sales will have more drawbacks. As Priss stated in the prospectus, most salespeople do not take on more business development functions, but coordinate comprehensive work such as project quotations, bidding, and tracking business contracts. It is also an important reason for the generally low per capita sales compared with the same industry.
2. The backlog of accounts receivable is high, and the high liquidity risk of enterprises is questioned
According to the PRUSS business mostly using the characteristics of the project system, as we all know, the project system itself has the characteristics of slow payment collection, coupled with the FACT that the SMO business is a high-risk, high-input and long-term system engineering, there is also a risk of postponement or early termination due to the results of clinical trials or changes in the direction of research and development, so the company needs more abundant cash flow to maintain operations, if the accounts receivable, the amount of contract assets and the proportion remain high, Then there will inevitably be certain liquidity risks in the capital of enterprises.
Table 4: The proportion of Pres accounts receivable to current assets
The importance of a company's cash flow to a company is needless to say, and the payment of wages is a problem, and the heavy may cause the company to close its doors. From the perspective of the enterprise project system model, there are many drawbacks.
First, the project system service has no depth, the depth of service is limited, and there is no opportunity for business model upgrade, which means that this model is not big, as long as it is large, the management cost is not economical.
The second disadvantage of the project system is that the project system management cost is high, the small project team is difficult to become large, the large company is easy to split into a small team, and the large project team can easily lead the project leader (core backbone) to lead the team to run away alone while the management cost surges.
This is also the fundamental problem that when we counsel enterprises on innovation strategies, many project-based enterprises urgently need to break through and seek innovation and transformation.
3. Low net profit, part of the profit depends on the government's "blood transfusion"
From 2018 to 2021, the net profit of Prestige was 30.2797 million yuan, 52.3559 million yuan, 35.3165 million yuan and 57.769 million yuan, respectively. Through the perspective of net profit income in 4 years, the net profit of enterprises in 2020 fell by 17 million yuan compared with 2019, although the net profit in 2021 returned to more than 50 million, but the amplitude during the period was larger.
In addition, from 2018 to 2020, the amount of Government subsidies from Pryce was 911,800 yuan, 3,636,200 yuan and 4,826,300 yuan respectively (see Table 5), accounting for 2.65%, 6.00% and 11.63% of the total profit of the current period, respectively. The amount of government subsidies has exceeded 10% of the net profit of enterprises, which once again verifies that the company's operational capacity is limited and its dependence on the government's "blood transfusion" is high.
Table 5: The amount of Government Grants in Prysia
4. Employee turnover rates remain high, and "clinical trial" service companies do not have a single R&D staff
According to the prospectus, the company's employee turnover rates for 2019-2021 are 26.12%, 30.50% and 35.49%, respectively. Since the SMO industry to which the company belongs is a personnel-intensive industry, talent is a key production factor for the company to provide operational services. Although the number of employees in the company increased from 2186 at the end of 2019 to 3343 at the end of 2021, an increase of 52.93%, the turnover rate of up to 35% had a very negative impact on the cost of training team personnel and the sustainability of the project.
Table 6: Turnover rate of Prys employees
At the same time, we also noticed that in the past three years, enterprises have increased their investment in R& D expenses, and the R& D expenses in 2019-2021 are 16.3836 million yuan, 14.9855 million yuan and 21.1868 million yuan, and the investment in R&D expenses accounts for a low proportion of the overall revenue of the enterprise, and the company does not have full-time R & D personnel, but some business personnel also undertake the development responsibilities of R&D projects. As a pharmaceutical service enterprise, without a professional R & D team is difficult to form their own competitive barriers, from the long-term development of the enterprise, the core competitiveness of the enterprise has not yet been formed, the urgent need to build a R & D team.
5. The IPO price is inflated, and the rationality of the use of the fundraising is questioned
The issue price of Prysus's IPO is 46.80 yuan / share, corresponding to the price-earnings ratio of 48.75 times, tigermed, which is also in the M73 industry, is 37.88 yuan / share, and WuXi AppTec's issue price is only 21.60 yuan / share. As an SMO service company, the issue price is more than 2 times higher than WuXi AppTec, why? This is not to be questioned.
At the level of the amount of funds raised, Prys intends to raise 702 million yuan this time, but by the end of 2021, the total assets of the company have just exceeded the 400 million mark, and the total amount of funds raised can almost recreate a Pres, and the pricing is not inflated, which is debatable.
At the level of the use of the raised funds, the prospectus shows that 156 million yuan was used for the construction of the ABP, of which 118 million yuan was used for site expenses, accounting for 75.42% of the total investment in the project, and the construction cost of the training center was 20.0665 million yuan, accounting for 12.88%. Although investors can understand that building a building is also part of the comprehensive long-term development of the company, but the company's turnover rate is high, in the special industry of talent-intensive enterprises, the cost of the training center is only 20 million, which makes investors a little chilly.
Table 7: Use of Funds Raised by Pryce
Second, my opinion written at the end:
Overall feeling: 1, the company was founded in 2013, the main business SMO services, the main model is to use project management to provide customers with clinical trial site management services, so as to obtain revenue, profits and cash flow, in 2022 the mainland SMO market size of about 10 billion, Pres in 2021 revenue of 50296.67 million yuan, 2021 net profit of 57.769 million yuan, compared with the same industry, the gross profit margin of the enterprise is at a low level.
2, from the perspective of industry selection, the industry selected by the enterprise is the national key support for the biomedical industry, SMO business from 1970 in the United States began to rise, just through the embryonic period in the country, the mainland SMO industry started late, in 2007 or so began to develop, is still in the stage of rapid development, the current competition track in the entire SMO industry is not crowded; the total number of SMOs in China in 2020 is more than 100. With the continuous increase in demand in the pharmaceutical industry, the imagination space of the industry market size is vast.
Viewpoint 1: Continuous construction of innovation systems
With the rapid development of the industry, the intensification of competition, relying on the continuous years of practical operation of enterprises to accumulate rich project execution and management experience, the precipitation of a large number of project execution data and data, requiring enterprises to need to be based on the development trend of the SMO industry and customer demand changes, can constantly update, iterate their own standardized management and quality control system to innovate the service model to improve the company's competitiveness, the company needs to continue to think about the product category innovation, model innovation and format innovation on the continuous layout, To solve the problem of a single business accounting for too high, a single product operation is not only the high cost of the enterprise, but also not conducive to stimulating the enthusiasm of employees, but also an important factor leading to the loss of talent, in the long run, enterprises also need to actively cultivate new growth points; in order to cope with the listing of a public company, need to respond to the latest changes in a timely manner, so that the company can continue to build the latest and optimal operating system, through the advanced business model to drive the rapid development of enterprises, and can meet the latest regulatory requirements, Leading the industry on cutting-edge trends.
Viewpoint 2, technology industrialization iteration
Based on the description of the prospectus, the company has formed a number of core technologies after years of industry practice and continuous research and development, including a project management system based on Internet platform technology, a perfect SOP process system, a rapid talent replication system, a big data for the execution of clinical trials, and the ability to continuously integrate and expand clinical trial resources. Enterprises should set up their own professional R & D team as soon as possible, through the breakthrough of R & D capabilities, to build a moat of the enterprise. And constantly upgrade and iterate these core technologies in a timely manner according to the development trend of the industry and changes in customer needs to achieve technology industrialization.
Viewpoint 3: Business management upgrades
From the perspective of internal management, there are still many problems that need to be solved urgently. At present, the employee turnover rate of enterprises remains high, which reflects the urgent need to improve the internal management capabilities of enterprises; enterprise development relies on talents, no core talents, low efficiency of enterprises, project management capabilities, project execution experience and clinical trial institution coverage capabilities are one of the main criteria for project sponsors to choose SMO enterprises. The design of clinical trial projects is becoming more and more complex, and the organization and management of projects are becoming more and more detailed. By establishing an effective project management system to make the cumbersome transactional workflow, decomposition and efficiency, and forming a standardized operation process, the executive personnel of all institutions involved in clinical trials can be at the same level of technical quality, and then promote the progress and quality of the trial. SMO enterprises with a sound project management system can quickly copy the standard operating procedures to other clinical trial projects and improve the efficiency of clinical trial projects.