On October 15, Yaoshibang issued an announcement that it had signed a transaction agreement to acquire 100% of the equity of Yikuai Pharmaceutical, with a total consideration of RMB 1.035 billion, including a cash consideration of RMB 420 million and a share consideration of RMB 615 million. In the pharmaceutical industry, where mergers and acquisitions are common, this transaction with a total price of RMB 1 billion has attracted considerable attention. The reason is that this is not only the first large-scale acquisition of Yaoshibang, a pharmaceutical B2B e-commerce unicorn, since its listing, but also related to Yaoshibang's own financial situation.

Amid the tightening of listing, Yaoshibang successfully rang the bell on the Hong Kong Stock Exchange in June 2023. However, as a "digital enterprise that deeply cultivates the outpatient market" that went public at a loss, Yaoshibang had just turned a profit when it handed in its full-year performance report for 2023. However, Yaoshibang had previously expressed its intention to pay attention to potential M&A opportunities. In the 2023 financial report, Yaoshibang stated that it will continue to explore and prudently evaluate investment and M&A opportunities related to the industrial chain, strengthen its in-depth layout in the field of medicine and health, build synergy effects for future business development, continuously improve its own competitiveness, and strive to establish a broader brand influence and market position.

Unicorns look forward to growing into elephants, and mergers and acquisitions are almost one of the fastest paths. As for the considerations behind paying more than 1 billion yuan, Yaoshibang said that this acquisition will fully integrate the resources and advantages of both parties (Yaoshibang and Yikuai Medicine) in supply chain, products, private brand construction and market, and achieve synergy effects in upstream product supply and downstream market penetration.

In the 2024 plan, Yaoshibang will focus on improving supply chain capabilities. The core value of this target lies in upstream products and downstream channels. According to public information, Yikuai Medicine was established in 2019 and is headquartered in Changsha. It focuses on providing medical and health products and services to downstream chain pharmacies, multi-body pharmacies and single pharmacies. Its own pharmaceutical brands Yuandian, Antaibang, Xinglintai, etc. cover multiple categories such as Chinese patent medicine, chemical medicine, and tonic.

At the same time, Yikua Pharmaceutical has established strategic partnerships with more than 1,000 pharmaceutical companies, providing about 700 private-label SKUs for 3,000 downstream chain drugstore headquarters and tens of thousands of multi- and single-drug stores. From the perspective of product complementation, with the completion of the acquisition, the number of private-label SKUs and purchase amount of Yaoshibang will increase significantly, accelerating the development of its private-label business, thereby bringing stronger bargaining power, lower procurement costs, more stable exclusive supply, and increasing product choices for end customers.

Moreover, Yikua Pharmaceutical's direct supply and exclusive sales of differentiated drugs have formed a differentiated category configuration for Yaoshibang, which focuses on high-cost-effective general drugs, further enhancing Yaoshibang's upstream supply chain and commercial service capabilities, and will continue to release the advantages of Yaoshibang's digital warehousing and distribution system and improve warehousing and operation efficiency. From the perspective of downstream customers, as of the first half of 2024, Yaoshibang has a total of more than 741,000 registered buyers, including about 426,000 pharmacies and more than 310,000 primary medical institutions, of which Yaoshibang's pharmacy buyers are mainly small and medium-sized pharmacies.

After integrating and sharing market information and customer resources with Yikua Pharmaceutical, it will help expand Yaoshibang's market share, especially accelerate the coverage and penetration of chain drugstore headquarters. Zhang Buzhen, chairman and CEO of Yaoshibang, mentioned in the first annual report released in March 2024 that in 2024, it will continue to deploy upstream, use digital technology to redefine drug production and circulation, and continue to build supply chain capabilities.

This acquisition is also seen as a key step for Yaoshibang to implement the "upward" strategy, which may further enhance Yaoshibang's supply capacity, operation capacity, and profitability. Since the launch of Yaoshibang APP in 2015, Yaoshibang, which was once boycotted by industrial enterprises due to low prices, has finally proved the feasibility of this rarely traveled business path with financial data that turned losses into profits.

The business models of digital pharmaceutical circulation transactions are divided into two types: platform model and self-operated model. Some players in the pharmaceutical circulation market focus on platform model, some focus on self-operated model, or both - the last one is the most common. In less than 10 years, Yaoshibang has gone through 4 stages of development, and its business model is constantly evolving. Along with the exploration, in addition to the platform business, the weight of self-operated business has continued to increase.

From the financial performance of platform business and self-operated business, the GMV (total transaction volume) of platform business reached 28.47 billion yuan, a year-on-year increase of 25.8%, with revenue of 870 million yuan and a gross profit margin of 83.2%; the GMV (total transaction volume) of self-operated business was 18.45 billion yuan, a year-on-year increase of 21.4%, with revenue of 16.04 billion yuan and a gross profit margin of 6.1%. In contrast, the platform business has low revenue and high gross profit margin, while the self-operated business has high revenue and low gross profit margin, which can complement each other at the financial level.

In fact, in recent years, both the leading large chain and pharmaceutical commercial companies have been focusing on their own brand business and extending their business tentacles upstream. For example, in order to cope with the problems of declining profits, falling customer prices, and online diversion, Laobaixing Pharmacy, Shuyu Pingmin Pharmacy, Yixintang, Yifeng Pharmacy, and Dasanlin are all actively developing their own brands, creating their own brand products by entrusting manufacturers to OEM, investing in co-building brands, etc., mainly focusing on traditional Chinese medicine, health products and other fields.

Unlike general private brands, Yaoshibang, as China's largest digital comprehensive service platform for the outpatient pharmaceutical industry, has strong data insight capabilities. Based on the transaction history of the platform business and big data analysis of buyer needs and transaction preferences, Yaoshibang can make purchasing decisions based on downstream demand, select SKUs with higher purchase frequency and good quality, and conduct higher-level quality control on products. Yaoshibang said that it will continue to explore the "upward" strategy under the private brand model, and continue to focus on large single products with its own factories, own approvals, and own brands.

Developing private brands can not only provide companies with new profit growth points, but also build full-chain commercialization capabilities based on private brands to meet the personalized and differentiated needs of downstream customers, thereby establishing their own moat in the pharmaceutical market. In recent years, the growth rate of the pharmaceutical retail market has slowed down and the concentration has continued to increase. Although it has achieved counter-cyclical growth, Pharmacist Bang faces challenges in future buyer expansion. As an intermediary other than buyers and sellers, Pharmacist Bang must explore new profit margins. In just 9 years, Pharmacist Bang has become China's largest digital integrated service platform for the outpatient pharmaceutical industry. In addition to the foundation of the "platform + self-operated" business, developing private brands has become an important step for it to expand upstream into the industrial chain and build full-chain supply chain capabilities.

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