2700 pharmaceutical wholesale enterprises evaporate the "small, scattered and disorderly" transformation of pharmaceutical circulation industry

Compared with the peak period in 2012, by 2018, the number of drug distribution enterprises has declined sharply by about 2700, and the overall number has declined to 13600 On the one hand, due to the decline in the growth rate of the pharmaceutical circulation industry and the intensification of related mergers and acquisitions, more importantly, the implementation of policies such as two vote system, zero plus, drug price reduction, and volume purchase has greatly improved the industry concentration The pharmaceutical distribution industry is undergoing rapid change Where is the future growth hotspot? Which subdivided circulation channels will stand out as the "growth king"? The author of this paper is Ye Yin and Zhang Xi, analysts of Ping An Securities The two vote system started in 2015, and the accelerated transformation period of drug distribution industry officially started In 2018, the scale of the national drug distribution market is 2158.6 billion yuan, with a growth rate of 7.7% With the expansion of the scale of the drug market, the growth rate of the national drug market is gradually decreasing The era that once "big water, big fish, large and small drug distribution enterprises shared the growth dividend has passed The situation of" small, scattered and disorderly "in the pharmaceutical distribution industry is accelerating the transformation, and the collection of the pharmaceutical distribution industry is also accelerating The medium is rising unprecedentedly As of 2018, there are 13598 drug wholesale enterprises in China During the peak period of 2012, the number of drug circulation enterprises once reached 16300, which fell down due to the decline of industry growth, merger and acquisition and other reasons The implementation of the two vote system in 2015 further promoted industry integration, with the number of enterprises falling to 13000, and then rebounded slightly By 2018, the top 10 enterprises in the pharmaceutical circulation industry have occupied 43% of the market share, the top 20 enterprises occupy 51% of the market share, and the top 50 enterprises occupy 58% of the market share It is particularly noteworthy that in the eight years from 2011 to 2018, the market share of the top 10 pharmaceutical circulation enterprises has increased from 34% to 43%, and the industry is concentrating to the leading enterprises Behind the industry reform, there are policy and industry change factors as the support In 2015, after the implementation of the two ticket system, the circulation chain was shortened, and large distributors with upstream and downstream resource advantages were more likely to obtain new business Policies such as volume purchase have led to a continuous decline in drug prices and lower distribution costs Large distributors have scale advantages and lower relative costs A large number of newly listed innovative drugs are biopharmaceuticals with high requirements for transportation and storage conditions The software and hardware equipment of large companies are better and they are easier to obtain this part of business From the perspective of large industrial trends, policies such as two vote system and volume purchase are changing the pattern of drug distribution channels It is more likely to increase the concentration in the industry and survive the stock concentration competition with the overall slowdown of the industry by seizing these large industrial policy opportunities In addition, some "small trends" in the field of pharmaceutical circulation can not be ignored In these small changes, the latecomers who may overtake in the curve may be born, which is also a change field worthy of attention 01 long short hedging of major policies, steady growth of the industry as a whole As an important link to undertake the upstream and downstream of the pharmaceutical industry, drug circulation is highly sensitive to the various policies issued by the pharmaceutical industry, for example, the enterprises undertaking the pharmaceutical production upward, and the hospitals, pharmacies and other pharmaceutical use and sales space downward Two vote system is considered to be the most important policy affecting the distribution channel pattern of drugs in recent years Before the implementation of the two ticket system, there were multiple agents in the drug circulation industry (i.e the drugs were transferred from the manufacturer to the hospital through multiple dealers), and affiliated walk tickets (a means of illegal tax evasion in the circulation link) The complicated circulation link raised the drug price, and also bred illegal behaviors In January 2017, the original health and Family Planning Commission and other eight departments jointly issued a document requiring the implementation of the two vote system nationwide by the end of 2018 By the end of 2018, all public medical institutions had implemented the two vote system as scheduled The implementation of the two vote system reduces the intermediate links of drug circulation, standardizes the channels of drug circulation, and promotes the increase of industry concentration In particular, the two vote system has a significant impact on the distribution pattern of drugs The proportion of transfer business of drug distribution enterprises decreased from 40.9% in 2016 to 29.9% in 2018, and the proportion of direct sales to medical institutions and retail terminals increased accordingly The changes in the proportion of these businesses are directly reflected in the financial indicators After the two vote system, the gross profit rate of drug distribution enterprises is on the rise The main reason is that after the two vote system, the low gross profit rate allocation business of the distributors is reduced, the goods are directly taken from the manufacturers, and the overall gross profit rate is increased However, the following is the overall rise of the three rates After the two vote system, the proportion of the transfer business with a low sales expense rate in the drug distribution enterprises has declined significantly At the same time, in order to improve the terminal channel coverage, the enterprises have increased the input of terminal resources, which is the overall rise of the three rates The final result is that the net interest rate of drug distribution enterprises decreased slightly in 2018, while the roe decreased more in 2018 after deducting non profits, mainly because the increase of expense rate is greater than the increase of gross interest rate It is worth noting that the two vote system and zero mark up system have been basically implemented nationwide in the past two years, so in the long run, the marginal impact of these two policies on the pharmaceutical circulation industry is weakening Another policy that has a huge impact on drug distribution enterprises is volume purchase Although the negotiation table of volume purchase is all drug manufacturers, drug distribution enterprises are also affected It has both positive and negative impacts on drug distribution enterprises The negative impact is that the price of drugs drops after negotiation Because the distribution fee is charged according to a certain proportion of drug sales, the distribution fee also drops, which affects the income of drug distribution enterprises The positive impact is that most drug manufacturers need to re select distributors after volume purchase, and large enterprises need to re select distributors due to intensive production This advantage makes it easier to get orders Some regions may also reduce the number of distributors through policies and regulations, resulting in increased distribution concentration Although the policy of purchasing with quantity has attracted much attention, the market dividend brought by the acceleration of drug review and approval, the acceleration of the listing of innovative drugs and their inclusion in the medical insurance can not be ignored The acceleration of drug listing, the high price of new drugs, the relatively high cost of distribution, bring new increment to drug distribution enterprises In general, the marginal impact of two vote system and zero plus on drug distribution enterprises has ended The negative impact of drug price reduction and the positive impact of new drug listing and industry concentration increase are competing with each other, and the profit contribution structure of distribution enterprises has changed With the overall steady growth of the pharmaceutical industry, the pharmaceutical circulation industry will maintain the current fair return rate 02 the financing cost went down and the debt pressure of the enterprise eased Time and cost of funds are two "life and death lines" that affect the profits of drug distribution enterprises From these two dimensions, drug distribution enterprises face opportunities and challenges After the implementation of zero drug mark up in 2017, the hospital's account period has been lengthened, resulting in poor cash flow of circulation enterprises Most circulation enterprises actively deal with this problem and increase the collection of accounts receivable However, since 2018, the operating cash flow of circulation sector has begun to improve, and it has declined in the third quarter of 2019, which is not expected to be due to the end of the year From the perspective of capital occupation time, after drug zero plus, drug circulation enterprises are facing greater pressure of Dunning and pressing money However, in terms of capital cost, drug distribution enterprises are faced with obvious opportunities It is decided by the nature of advance business of circulation enterprises They are highly dependent on capital, so capital cost has become an important factor affecting profit For example, Nanjing Pharmaceutical and Intech group's interest accounts for more than 50% of the total profit There are three main sources of financing for circulation enterprises: loans, bonds and short-term bills Since 2019, the loan interest rate has been stable, the interest rates of bonds and medium and short-term notes have declined, and the financing cost of enterprises has declined This undoubtedly creates conditions for drug circulation enterprises to reduce capital cost and find greater profit space 03 medical e-commerce: a "small trend" that cannot be ignored According to the data of minenet, in 2018, the drug sales of the three terminals of public hospitals, primary medical institutions and retail pharmacies in China reached 1713.1 billion yuan, an increase of 6.3% year on year In contrast, the scale of China's pharmaceutical e-commerce business is only 97.8 billion yuan, which accounts for a small proportion in the channel plate of the whole pharmaceutical sales, but it can not be ignored as a "laggard" Since the issuance of the measures for the supervision and administration of the Internet food and drug operation (Draft for comments) in 2014, the pharmaceutical e-commerce industry has grown rapidly with the guidance rules As shown in the figure, in the past three years, pharmaceutical e-commerce has maintained a rapid growth rate of more than 20%, and reached the highest growth rate of 32.9% in 2018, which shows the rapid development trend of pharmaceutical e-commerce business At present, B2B accounts for 95% and B2C accounts for 5%.