China Foundation News reporter Nanshen
On June 4, the official website of the Hong Kong Stock Exchange showed that the pharmacist gang, a pharmaceutical B2B e-commerce platform from Guangzhou, passed the listing hearing. The Company previously filed two statements on 28 November 2022 and 24 May 2022, both of which were invalidated by the prospectus.
According to the listing materials, the GMV of pharmacists will reach 37.8 billion yuan in 2022, accounting for 21% of the market share of China's out-of-hospital digital pharmaceutical circulation service market. In terms of financial data, the company is a typical "Internet thinking" method, GMV, monthly active buyers, and operating income have all grown rapidly, but the loss has continued to expand, with a cumulative loss of more than 4.4 billion yuan since its establishment in 2015.
What does the company rely on to support cash flow? Mainly financing, of course. Since its establishment in 2015, the company has carried out 8 rounds of financing, an average of one per year, with a total financing of more than 3 billion yuan, and the participants include well-known enterprises and institutions such as Shunwei Capital, Fosun Pharma, Global Tiger, Baidu, as well as the Zhu Mengyi family and Guangzhou Fund, which represent the local forces in Guangzhou. However, unlike each previous round of financing, the valuation of the company introduced Baidu and Sunshine Insurance in the last round of financing in April 2022, and the valuation has no premium to the previous round (February 2021).
It is worth mentioning that on May 9 last year, the State Food and Drug Administration issued the Regulations for the Implementation of the Drug Administration Law of the People's Republic of China (Draft Amendment for Solicitation of Comments), which stated that "third-party platform providers shall not directly participate in drug online sales activities". At present, the regulations have not yet been finalized, and there are still certain policy variables in the business model of "platform + self-operation" of pharmacists.
"Second" + "Second" = "First"
At present, China's pharmaceutical e-commerce platforms can be roughly divided into three types of models, one is O2O platform, online to offline, such as Dingdong Fast Medicine, Jingdong Drug Express Delivery, etc.; The second is the B2C platform, business-to-customer, such as Ali Health, JD Health, etc.; The third is B2B platform, business-to-business, pharmacist gang belongs to this category.
In the updated prospectus, Pharmacist Gang stated that "we are China's out-of-hospital digital pharmaceutical industry service platform", and developed technology-backed solutions to connect and empower upstream pharmaceutical companies and distributors, as well as downstream pharmacies and primary medical institutions. Primary medical institutions include private clinics, township health centers, village clinics and community health service centers.
According to the data cited by the company, in terms of GMV, the market size of China's out-of-hospital digital pharmaceutical circulation service market will be 180.2 billion yuan in 2022, accounting for about 28.2% of the overall out-of-hospital pharmaceutical circulation market size of 639.7 billion yuan. In 2022, Pharmacist Bang recorded a GMV of 37.8 billion yuan, accounting for 21% of the market share in China's out-of-hospital digital medicine circulation service market, ranking first in the industry.
As of December 31, 2022, the company's platform network includes about 6,000 sellers, 354,000 downstream pharmacies and about 173,000 primary medical institutions. In 2022, the average monthly number of available stock-keeping units ("SKUs") traded on the platform was approximately 3.3 million.
However, it should be pointed out that although the overall GMV company ranks first in the sub-industry, from the perspective of platform business and self-operated business, the company is only the second in the industry, and it is the first after combined calculation. The platform business provides registered sellers and buyers with a digital platform for transactions, and charges a certain percentage of commission to sellers; Self-operated business is to directly participate in the purchase and sale of drugs and earn the difference in drug prices.
As far as the platform business is concerned, the number of upstream suppliers of the platform reached 6,000 in 2022, and the GMV of the platform business reached 22.632 billion yuan in 2022. As far as self-operated business is concerned, Pharmacist Bang has established 20 strategic center warehouses in 19 cities across the country, and the GMV of self-operated business reached 15.201 billion yuan in 2022. It is not difficult to find that from the GMV point of view, the company's platform business and self-operated business are about the ratio of six to four.
In addition to the two major businesses of platform and self-operation, the company has also derived a series of innovative businesses, mainly including the spectral cloud inspection business of placing testing equipment and testing results in primary medical institutions, the small and micro-warehouse business of 24-hour unmanned smart pharmacies, the SaaS solution business providing inventory management and sales management services for pharmacies, and the pharmacist training business providing online courses for pharmacist qualification examinations. However, at present, the above-mentioned innovative businesses are in their infancy as a whole and contribute very little to revenue.
Accumulated a loss of 4.4 billion yuan in eight rounds of financing
From the perspective of operating and financial data, the B2B model of pharmacist gang belongs to a typical "Internet thinking" method, during the reporting period, the company's GMV, number of users, operating income, all recorded rapid growth, but losses continued to expand.
In terms of total GMV, the three-year reporting period was 19.69 billion, 27.5 billion and 37.8 billion yuan, respectively, with a compound growth rate of nearly 40%, and the GMV of self-operated business increased from 6.05 billion yuan to 15.2 billion yuan, with a compound growth rate of nearly 60%. In terms of the number of users, the number of registered buyers in the three years of the reporting period was 332,000, 434,000 and 527,000, and the average number of monthly active buyers was 202,000, 256,000 and 308,000 respectively, with a slightly lower compound growth rate, but also about 25%.
The expansion of the number of users and GMV also led to a high increase in the company's operating income, with its total revenue increasing by 66.4% from 6.1 billion yuan in 2020 to 10.1 billion yuan in 2021, and further increasing by 41.4% from 10.1 billion yuan in 2021 to 14.3 billion yuan in 2022. In 2020, 2021 and 2022, the company's gross profit margin was 10%, 9.1% and 10.1% respectively, which remained basically stable.
However, looking at the net profit, it continued to expand the loss, with losses recorded by Pharmacist Bang in 2020, 2021 and 2022 being $5.72, $502 million and $1.5 billion respectively. The Company explained that the losses recorded in 2020, 2021 and 2022 were mainly due to the costs and expenses associated with the expansion of the proprietary business, the development of other businesses and changes in the fair value of financial liabilities related to preferred shares measured at fair value and the changes of which are recorded in profit or loss for the period.
Since its establishment in 2015, the Company recorded cumulative losses of $2.47 billion, $2,965 million and $4.45 billion as of December 31, 2020, 2021 and 2022 respectively. The Company expects to continue to lose money in 2023 and "we cannot assure you that we will not incur aggregate losses in the future, which could limit our working capital for operational purposes or funds used for expansion plans and materially and adversely affect our business, financial condition and results of operations."
Under the "Internet thinking" method, the cash flow generated by the company's operating activities is also very "mini" compared with tens of billions of revenues, and the cash from operating activities in the three years from 2020 to 2022 is 124 million, 487 million and 98 million yuan, respectively. Operating activities cannot provide sufficient cash flow, so it can only be supplemented by financing, and since its inception in 2015, the company has raised eight rounds of financing, an average of one per year.
Fosun Pharma led the investment in its Series A and Series B financing, and in the Series C and Series D financing, Lei Jun's Shunwei Capital and Tiger Global Fund were also listed. Baidu and Sunshine Life Insurance entered in the E2 round. In addition, there are Baiying Development of the Zhu Mengyi family, which represents the local forces in Guangzhou, and Guangzhou Xinxing Huacheng Venture Capital Partnership (Limited Partnership), a subsidiary of Guangzhou State-owned Assets.
It is not difficult to find that the valuation of the company's financing has been in a state of rapid expansion from the angel round in 2015 to the D round in 2019, and the post-investment valuation has increased from 100 million yuan to 533 million US dollars (about 3.7 billion yuan) in just four years, an increase of 36 times, and this period is also the most brilliant years of China's "mass entrepreneurship, mass innovation" and Internet thinking.
By the E1 round of financing in February 2021, the valuation growth rate of Pharmacist Gang slowed down significantly, indicating that venture capital institutions have also become cautious. By the E2 round of financing in April 2022, although after more than a year of rapid development (mainly revenue and GMV), its valuation has not changed, the consideration for the investment is also $8.64 per share, and the post-investment valuation has increased by $85 million, which is completely due to the increased financing amount.
The "platform + self-operated" model has certain policy variables
In addition to business development and finance, the "platform + self-operation" business model of pharmacists also has certain risks from the policy side.
On May 9, 2022, the State Food and Drug Administration issued the Regulations for the Implementation of the Drug Administration Law of the People's Republic of China (Revised Draft for Comment) for public comment. According to the draft regulations, the entity engaged in online drug sales activities shall be the lawfully established drug marketing authorization holder or pharmaceutical trading enterprise, and third-party platform providers shall not directly participate in drug online sales activities.
It was the sentence in the clause that "third-party platform providers shall not directly participate in drug online sales activities" that caused widespread discussion and once rushed to the hot search. In the secondary market, the stock prices of B2C e-commerce platforms with related business layouts such as Ali Health and JD Health plummeted, with intraday declines of more than 16%.
Pharmacist Bang is also apparently a third-party platform provider, and the company stated in its prospectus that "we currently set up different corporate entities within the group to carry out our platform business and self-operated business separately", but "if the document is interpreted in the strictest interpretation, we may only be able to carry out platform business or self-operated business, and not two businesses at the same time, resulting in the cessation of one of the businesses". That is, in the worst-case scenario, the pharmacist gang may have to terminate one of its businesses.
However, the Pharmacists Gang believes that "the probability of such a worst-case scenario is very low". "According to our PRC legal counsel, the main purpose of the Consultation Paper is not to explicitly prohibit the separation of business arrangements and the above regulations under the Consultation Paper to reiterate that third-party platforms must not directly participate in the online sales of pharmaceuticals when providing platform services."
At present, the implementation regulations of the Drug Administration Law have not been finally implemented. On March 30 this year, the National Drug Regulatory Policy and Regulation Work Conference was held in Beijing in the form of video, and Xu Jinghe, member of the Party Group and deputy director of the State Food and Drug Administration, attended the meeting and delivered a speech. The meeting talked about the key work in 2023, the first of which is to improve the construction of the regulatory legal system, "fully promote the revision of the implementation regulations of the Drug Administration Law and the regulations on the protection of traditional Chinese medicines, accelerate the pace of the formulation and revision of supporting rules and regulations, continue to pay attention to the effect of law implementation, and timely study and deal with key and difficult issues".
It should be pointed out that most of the top five platforms in the industry are mainly platforms or self-operated businesses, and only the pharmacist gang is a situation of six or four opens, and is moving towards five or five opens. According to its prospectus, "Competitor A" and "Competitor B", which rank second and third in the industry in terms of total GMV, are mainly platform models, and almost 100% are platform businesses; "Competitor C" and "Competitor D", which ranked fourth and fifth in the industry in terms of total GMV, are mainly self-operated, with self-operated GMV accounting for 75% and 95% respectively.
Editor: Joey
Review: Xu Wen