() The business review of the Board of Directors in 2021 is as follows:
I. Discussion and analysis of business conditions
2021 is the first year of the "Fourteenth Five-Year Plan" of the country. With the overlapping of industrial policies such as centralized mining with quantity and payment according to diseases and the accelerated cross-border integration of Internet information technology, the traditional business sector has entered a period of transformation pain, and the development of the industry has entered a key turning point. However, in the long run, with the normalization of anti-epidemic, population growth, the development of aging society and the improvement of residents’ healthy consumption ability, the rigid demand for medical products and services is still strong, the consumer market of medical equipment gradually resumes growth, and the industry presents a development trend of steady growth, structural optimization and service upgrading.
Faced with the challenges and competitive pressures brought by changes in industry policies and the integration of new technologies, the board of directors and senior management team of the company worked closely around the business objectives, actively adjusted their business strategies, accelerated the innovation of service models in the pharmaceutical wholesale and retail sectors, enriched the company’s varieties through the advantages of wholesale and retail integration channels and built an information platform covering upstream and downstream, steadily increased the wholesale market share, and promoted the "new retail" services such as prescription extension, chronic disease management and DTP pharmacies to promote the high-quality development of retail business. In the pharmaceutical industry sector, the company continued to promote R&D capability and productivity improvement, accelerated the implementation of a number of industrial production projects, and implemented omni-channel and all-market marketing of industrial products to promote the performance growth of the industrial sector. In 2021, the sales scale of the company continued to expand, achieving an operating income of 17,134,823,200 yuan, a year-on-year increase of 9.36%, but a net profit attributable to shareholders of listed companies of 563,817,400 yuan, a year-on-year decrease of 20.78%.
During the reporting period, the company’s operating performance was mainly affected by the following factors:
1. Payment by Disease for Medical Insurance (DRGs) promotes the control of the proportion of drugs in public hospitals, which affects the revenue growth rate of the company’s wholesale sector.
Driven by the gradual implementation of DRGs policy in public hospitals in Guangxi, in 2021, public hospitals in Guangxi, especially mid-to high-end hospitals, further strengthened the control of the proportion of hospital drugs, reducing the control target from 30% to less than 25%. The control of the proportion of drugs leads to the decrease of the overall drug consumption in hospitals, and the hospital sales revenue accounts for 73.68% of the company’s main business income, so the drug consumption in public hospitals directly affects the company’s drug sales scale. According to the company’s preliminary calculation, the control of the proportion of hospital drugs has an incremental impact of about 1.3 billion yuan on the company’s hospital sales.
2. The implementation of quantity procurement affects the company’s operating performance.
In 2021, the fourth and fifth batches of varieties collected by the state with quantity, the second batch of varieties collected by Guangxi GPO (drug group procurement), and Guangxi’s participation in the joint collection of commonly used drugs and drugs in short supply in Chongqing were implemented. Among them, the average prices of the fourth and fifth batches of varieties collected by the state decreased by 52% and 56% respectively, while the average prices of 164 products in the second batch of GPO (drug group procurement) in Guangxi decreased by 43.25%, and the commonly used drugs in Chongqing. This kind of variety accounts for about 7% of the company’s sales scale, and the gross profit margin of some varieties drops by about 2-5 percentage points. Although the sales volume and scale of the lower-priced varieties of centralized purchasing have increased, it has a great impact on the sales volume of other similar competing products that have not entered centralized purchasing. Therefore, the company’s revenue end and profit end are affected accordingly. According to the company’s preliminary calculation, the incremental impact of purchasing with quantity on the company’s hospital sales is about 1.2 billion yuan.
3. The increase of related expenses affects the company’s net profit.
Compared with the same period of last year, during the reporting period, during the epidemic in 2020, the company enjoyed the social security relief policy of more than 10 million yuan, but in 2021, it no longer enjoyed the relevant relief, and the social security expenses increased compared with the same period of last year, so the overall expenses of the company in this reporting period increased compared with last year.
The above are the main factors affecting the company’s performance during the reporting period. During the reporting period, the growth rate of the company’s performance declined to some extent due to the phased impact of policy adjustment. However, the company’s own operations remained stable and orderly, and its share of the pharmaceutical market in Guangxi continued to grow by virtue of its channel advantages and diversified value-added services. In addition, in the long run, the rigid demand for pharmaceutical products and services will remain strong due to the macro population growth, the development of aging society and the improvement of residents’ healthy consumption ability, and the market scale of the industry will continue to grow in the future. With the gradual digestion of policy influence, and the company’s adjustment of product structure according to policy changes, increasing the introduction and market development of innovative drugs, equipment consumables and other varieties, implementing a series of innovative value-added services, giving full play to the advantages of wholesale and retail integration, developing high-margin industrial sectors, etc., the company’s performance will gradually recover and maintain steady growth in the future.
(A) the steady transformation of pharmaceutical wholesale
In 2021, the fourth and fifth batch of national centralized varieties were officially implemented, the sixth batch of centralized varieties was started, the second batch of Guangxi GPO varieties and the implementation of multi-provincial alliance were implemented, the scope of centralized varieties was further expanded, and the prices of related drugs were greatly reduced, which had a great impact on the gross profit of related varieties sold by the company’s hospitals. In view of the current policy environment and the actual development of the industry, the company has implemented the variety strategy, launched supply chain platform projects and a series of value-added services, promoted business transformation, continuously expanded the company’s market share, and strived to reduce the adverse impact of price reduction and fee control on the company’s business. By the end of the reporting period, the company’s wholesale business had achieved an operating income of RMB13,801,514,700, an increase of 8.97% year-on-year.
1. Innovate channel services, expand upstream customer resources and continuously expand variety advantages.
In 2021, on the one hand, the company paid close attention to the varieties of centralized purchasing and medical insurance catalogue, strengthened communication and cooperation with suppliers, and strived for the distribution rights of varieties such as centralized purchasing and provincial-level network hanging to ensure the satisfaction rate of basic varieties. On the other hand, the company has established a professional service team, innovated the marketing service model, continued to carry out DTP pharmacy business, innovative drug promotion projects and other in-depth cooperation with innovative drug research and development enterprises, increased the introduction of drugs for cancer diseases, chronic diseases and rare diseases, and paid attention to the market demand for emergency drugs and epidemic drugs to ensure continuous supply. In addition, the company further enriches the functions of the supplier relationship management platform, expands the service scope, and realizes the real-time tracking of suppliers’ business processes before and after purchasing. During the reporting period, the company’s click-to-deliver rate reached 96% in the varieties such as national centralized purchasing and provincial-level hanging nets. The company added more than 4,000 new business specifications and more than 260 new upstream customers, and reached cooperation with domestic mainstream drug suppliers. In the field of innovative drugs, the company has established good cooperation with many well-known pharmaceutical companies such as Pfizer, Sanofi, AstraZeneca, Roche Pharmaceutical, Zhengda Tianqing, (), Xi ‘an Yangsen, etc., and has become the main distributor of its core products and heavy new products in Guangxi, further expanding the company’s variety advantages.
2. Localized service and efficient logistics system construction to stabilize the business foundation.
In 2021, the company completed the addition of regional subsidiaries such as Guangxi Chongzuo Liuyao Pharmaceutical Co., Ltd., and further improved the layout of subsidiaries in various cities. The company strengthens the independent operation ability of subsidiaries in various cities, improves service efficiency, penetrates the regional market in detail, promotes the company’s innovative drug promotion projects, prescription extension cooperation, and medical equipment consumables SPD projects to land locally, assists the local medical equipment supply guarantee work, and continuously enhances the coverage and regional influence of the company’s wholesale business. In terms of logistics system construction, during the reporting period, the company’s "Yulin Logistics Operation Center Project" was put into use, forming an efficient self-delivery network with three modern logistics centers in Nanning, Liuzhou and Yulin as the core, and the warehouses of subsidiaries in various cities cooperated. At the same time, the company independently optimized the WMS warehouse management system and workflow, and launched convenient service functions such as mobile terminal reservation for receiving goods and remote acceptance. In addition, the company upgraded the cold chain facilities and equipment, independently developed the cold chain packaging materials and temperature recorder management system, further improved the quality control capability of cold chain logistics, and provided high-quality third-party distribution services for cold chain varieties such as vaccines in the region. The construction of localized service and efficient logistics system will help the company improve service efficiency and quality, and effectively stabilize the company’s wholesale business foundation.
3. Value-added services in the supply chain will increase market share and promote the transformation of traditional formats.
The company continued to give full play to its advantages in information technology and professional medical equipment management, and carried out a series of value-added services around the requirements of industry policies and the needs of hospital customers, so as to promote the transformation of traditional distribution services to internet plus smart medicine supply chain services. During the reporting period, the company actively carried out the SPD project of medical equipment consumables, and helped the hospital achieve the standardization, traceability and zero inventory management goals of medical equipment through platform services through the construction of supply chain information platform and the services of professional operation team. At the same time, the company applies Internet thinking, actively explores the deep connection between its services and the online and offline services of hospitals, and promotes the Internet medical cooperation and prescription circulation projects. Through value-added services and project development, the company can effectively improve the stickiness between the company and hospital customers, and gradually establish a closed-loop service covering medical equipment suppliers, logistics and distribution, and hospital terminals. In 2021, the company signed contracts with Laibin People’s Hospital and Hezhou People’s Hospital to carry out supply chain related service projects, and signed a cooperation project with Hechi People’s Hospital for "internet plus Smart Hospital", with a total of 96 hospitals carrying out supply chain service projects, which effectively enhanced the company’s market share of medical equipment and promoted the development of new formats and new varieties.
(B) innovative development of pharmaceutical retail
In 2021, with the goal of "promoting the high-quality development of retail business", the company rationally planned the layout of pharmacies, developed characteristic pharmacies such as DTP pharmacies, medical insurance dual-channel pharmacies and hospital-side stores, carried out specialized health services such as chronic disease management, and innovative projects such as Internet medical care and prescription extension, promoted the synergy between online business and offline business, and built a "new retail" format. During the reporting period, the company’s retail business realized a revenue of 2,726,415,200 yuan, an increase of 9.59% over the same period of last year.
1. Reasonably plan the store layout and improve the store management quality.
In 2021, according to the development strategy and the changes of current residents’ health consumption channels and forms, the company slowed down the opening of retail pharmacies, highlighted the connection between online drainage function and offline professional services, and focused on increasing the proportion of specialty pharmacies such as hospital-side stores, DTP pharmacies and medical insurance stores, and relied on variety advantages, prescription circulation, professional services, effective promotion activities and accurate service strategies to improve the profitability of individual stores. As of December 31st, 2021, there were 739 pharmacies in the company, with 38 new stores and 7 closed stores compared with the end of last year. Among them, there are 625 medical insurance pharmacies, an increase of 86 compared with the end of last year, and the proportion of medical insurance pharmacies has further increased compared with the previous year. In terms of store management, Guizhong Pharmacy has further accelerated the information construction of stores, improved the functions of membership system and chronic disease management system, strengthened the training of professional service ability and marketing ability of personnel, implemented accurate and active marketing strategies according to the consumption characteristics and needs of members, and strictly implemented the "four strengths", namely, the creation of image strength, commodity strength, service strength and marketing strength, so as to comprehensively enhance the image of store sales service and provide consumers with safe, professional and temperature-sensitive drug purchase services.
2. Accelerate the development of specialty pharmacy business and promote professional services.
Relying on the advantages of wholesale and retail integrated customer resources in the region, the company promotes the introduction and cooperation of national medical insurance varieties, drugs for chronic diseases and innovative drugs in retail channels, and forms differentiated variety advantages different from other ordinary pharmacies, helping the layout development of the company’s characteristic pharmacies such as DTP pharmacies, dual-channel medical insurance pharmacies and medical insurance co-ordination stores, and forming complementary varieties and service synergies with hospital channels. Based on characteristic pharmacies, the company promotes professional services such as prescription extension, chronic disease management and special drug distribution. By the end of the reporting period, the company had 112 DTP pharmacies, 38 dual-channel medical insurance pharmacies, and 18 stores with all kinds of chronic medical insurance payment, realizing the full pharmacy coverage of chronic disease services. At the same time, the company further enriched the connotation of specialized services, opened the special medicine WeChat official account service, built a day ward outsourcing drug management system and a cancer patient medication management system, and carried out six major services around patients, including medication consultation, medication history filing, medication tracking, health education, drug vigilance and rational drug use in internet plus, serving nearly 300,000 patients with chronic diseases, and providing 102 lectures to doctors and 207 lectures to subjects. In 2021, the sales scale of DTP business including tax reached 1.815 billion yuan, an increase of 22.76% over the same period of last year; Among them, six chronic diseases, such as diabetes, cardiovascular and cerebrovascular diseases, sold 346 million yuan including tax, forming a sustainable consumer group.
3. Continue to carry out prescription extension projects and promote the landing of new retail services.
During the reporting period, the company continued to promote the practice of "internet plus Medicine", established the connection with public hospitals’ Internet medical platforms and urban public service platforms through the prescription circulation platform, accelerated the extension cooperation of prescriptions, integrated hospital customer resources, company variety resources, professional service advantages of retail pharmacies and healthy consumption needs of end consumers, promoted the high-quality development of retail business, and built a "new retail" format. In addition, in 2021, yiguang, the fairy country of the company, was granted the qualification of Internet hospital, and the diagnosis and treatment services and chronic diseases services provided by the hospital became important value-added services for retail pharmacies. At the same time, hospital prescriptions extended to pharmacies through the Internet, which promoted the retail business of stores and formed a one-stop health service chain. By the end of the reporting period, Guizhong Pharmacy has carried out prescription extension projects with nearly 20 core medical institutions in the region, completed the platform construction of 10 hospitals, and established docking with local public APP clients in four core cities, including Liuzhou and Nanning, Guangxi, and gradually established a prescription circulation mechanism with medical institutions in the city through the platform.
(C) the pharmaceutical industry bigger and stronger
During the reporting period, the company continued to increase investment in R&D, accelerate industrial layout, promote product innovation and productivity improvement, and set up a professional marketing team to expand markets inside and outside the region. At the same time, we will speed up the implementation of a number of industrial production projects, promote the construction of a healthy industrial system for traditional Chinese medicine, and expand the production of high-end medical devices. In 2021, the company’s pharmaceutical industry sector realized an operating income of 536,723,000 yuan, an increase of 17.15% over the same period of last year.
1. Increase R&D investment, continuously enrich product varieties and improve product quality.
During the reporting period, the company continued to increase investment in product technology research and development in the pharmaceutical industry sector, set up a scientific research team based on the established Institute of Pharmaceutical Innovation, continuously improved the company’s R&D capability through independent research and Industry-University-Research cooperation, promoted production technology innovation and product innovation, continuously improved the added value of products, further enriched the company’s business varieties and improved product quality. By December 31, 2021, Xianzhu Chinese Medicine Technology has been able to produce and process 930 varieties of Chinese herbal pieces and more than 7,000 product specifications, covering basically all commonly used varieties needed by hospitals. Wantong Pharmaceutical Co., Ltd. and Kangsheng Pharmaceutical Co., Ltd., a subsidiary of the company, can produce nearly 150 varieties of Chinese patent medicines in six dosage forms, including tablets, granules, pills and capsules. The pharmaceutical industry sector of the company has 19 invention patents. During the year, more than 20 scientific research projects, such as quality standard research of Guangxi Zhuang medicinal materials, new functional food for both medicine and food, and quality standard research of "Guishiwei", were declared, and 6 pharmaceutical park projects were implemented. Xianzhu Chinese Medicine Technology and Wantong Pharmaceutical have been approved as high-tech enterprises and gazelle (cultivation) enterprises; Xianzhu Chinese medicine technology has also entered the second batch of "specialized and innovative" small and medium-sized enterprises in Nanning; Kangsheng Pharmaceutical Co., Ltd. was approved as "the pilot research base for the transformation of scientific and technological achievements in the autonomous region" and "the demonstration base for medical modernization and clinical transformation".
2. Technology upgrading, digital production and capacity improvement.
The company increased investment in industrial production technology research, equipment upgrading and capacity expansion, promoted digital and intelligent production, and increased the scale of industrial capacity. In 2021, the company’s Nanning production capacity expansion project of Chinese herbal pieces completed the construction of the factory building and put it into use, and the annual output of Chinese herbal pieces can be doubled. At the same time, the production line of Vantone Pharmaceutical’s new granules has been completed and put into production step by step. After the new production line is put into production at full capacity, the annual output will be increased from 1,400 tons to 3,000 tons, and the monthly capacity of the new production line has increased by 35% since it was put into operation in October. In addition, the company has made breakthroughs in the research of production system software and technology. During the year, it completed the research and development of MES production system, TCM planting system and traceability system, and obtained 10 software copyrights. In 2021, the company also released the first open Chinese medicine industry alliance chain platform in China-"Xian Zhu Chain", which uses the characteristics of the blockchain that data can not be tampered with and data information can be shared, and realizes the tracking of the whole process of Chinese medicine from "birth" to "use" through the data access of Chinese medicine seedling cultivation, planting, harvesting, processing, quality inspection, warehousing, production and sales circulation.
3, the implementation of professional marketing strategy, expand the market inside and outside the region, improve the sales scale.
In 2021, the company further accelerated the market expansion of its industrial enterprise products in cities inside and outside the region. On the one hand, relying on the company’s existing high-quality wholesale and retail channels and customer resources to promote the rapid market coverage of products in Guangxi, and at the same time, by setting up a professional marketing team, starting the regional agent distribution model, we will accelerate the expansion of markets outside Guangxi. During the reporting period, Vantone pharmaceutical products added sales areas in 4 provinces and 7 cities including Gansu and Qinghai, and 206 downstream customers were newly developed, covering 29 provinces (autonomous regions and municipalities directly under the Central Government); Kangsheng Pharmaceutical has added 22 local markets outside the district and newly developed 216 downstream customers; The market coverage of Xianzhu traditional Chinese medicine in the region has been further expanded, with 50 new downstream customers. In 2021, Vantone Pharmaceuticals achieved a revenue of 232,666,400 yuan, an increase of 23.48% compared with the same period of last year, in which the sales of the fist product Compound LYSIMACHIA Granules increased by 21.09% compared with last year, and the sales of Vantone Yankang Tablets increased by 41.01% compared with last year. Kangsheng Pharmaceutical achieved a revenue of 67.38 million yuan, an increase of 31.82% compared with the same period of last year, in which the sales of Anshen Yangxue Oral Liquid, the leading product, increased by 34.16% and Guiqi Buxue Oral Liquid increased by 39.87% compared with the same period of last year. Xianzhu Traditional Chinese Medicine Technology achieved revenue of 242,678,300 yuan, an increase of 8.62% over the same period of last year.
4, complete the construction of a number of industrial projects, accelerate the layout of traditional Chinese medicine health industry.
In 2021, the company accelerated the industrial layout around the big health industry of traditional Chinese medicine and promoted the landing of industrial projects. During the reporting period, the R&D project of traditional Chinese medicine formula granules invested and constructed by the company in Liuzhou was completed and put into operation. The design of the project fully reached the annual output of 3,000 tons of traditional Chinese medicine formula granules and more than 400 varieties. At present, more than 200 pilot tests of traditional Chinese medicine formula granules have been completed, covering all existing national standard varieties and some provincial standard varieties. The company set up Xianzhu Pharmaceutical Co., Ltd. to be responsible for the production and operation after the completion of the project. Xianzhu Pharmaceutical Co., Ltd. was issued with the Pharmaceutical Production License on December 27, 2021, and is currently carrying out the declaration and filing of the project products, striving to complete the production and listing of some varieties by the end of the first quarter of 2022. At the same time, the regional shared decocting center of traditional Chinese medicine planned and constructed by the company has also been completed and put into operation in the fourth quarter of 2021. The center applies the concept of "intelligence+IOT" to build a shared platform for decocting traditional Chinese medicine, concentrate the decocting needs of medical institutions and end consumers in the region, and carry out the service of decocting traditional Chinese medicine and delivering it to hospitals and households. The operation of the shared decocting center will further enrich the connotation of the company’s value-added services, meet the needs of local medical institutions and terminal patients for decocting Chinese medicine, and help the development of the company’s Chinese medicine industry.
(IV) Accelerated development of equipment consumables and test reagents.
During the reporting period, the company further accelerated the business development of medical device consumables and test reagents. According to the product characteristics and market characteristics of medical equipment consumables and test reagents, the company set up professional equipment consumables subsidiary Liuyao Equipment and test reagent subsidiary Liurun Medical to carry out professional operation. By setting up a professional marketing team and introducing strategic partners, the company implemented the business model of parallel distribution and agency, enriched the cooperation mode with suppliers, and further improved the company’s equipment consumables and test reagents. At the same time, according to the national medical reform policy and the needs of hospital customers, the company promoted the SPD project of equipment consumables and test reagents with the hospital. With the implementation of the project as the starting point, by providing professional platform services and after-sales services, the company promoted the centralized procurement and distribution mode of equipment consumables and test reagents, and quickly increased the market share of related products of the company. By the end of the reporting period, the company had managed nearly 15,000 specifications for equipment consumables, more than 1,200 cooperative suppliers and more than 1,800 specifications for inspection reagents. In 2021, the company’s revenue of medical devices and test reagents was 1,173,648,000 yuan and 104,345,700 yuan respectively, increasing by 10.43% and 20.69% respectively compared with the same period of last year.
In addition, during the reporting period, the company also signed a joint venture agreement with Shanghai Kangda Kale Medical Technology Co., Ltd. to set up a high-end medical device manufacturing enterprise in Liuzhou, and invested in the construction of a modern medical device industrialization base project integrating R&D, pilot test, production and logistics. The foundation stone was laid in December 2021.
Ii. the industry in which the company is located during the reporting period.
The core business of the company is pharmaceutical circulation industry, which is an intermediate link connecting upstream pharmaceutical industrial enterprises with downstream medical institutions, individual consumers and other end customers, including wholesale and retail sectors. Under the influence of macro demand, industry policies and new technologies, the current industry development mainly presents the following characteristics:
(A) Under the impact of price reduction and fee control, the growth of market scale has stabilized.
With the development of China’s population growth and aging trend, the people’s demand for health services and medical products continues to expand, and the enhancement of residents’ ability to pay and the gradual improvement of medical security system further promote the development of healthy consumption, thus promoting the continuous expansion of China’s pharmaceutical circulation market. According to the statistics of statistical analysis reports on the operation of drug circulation industry over the years, the total commercial sales of drugs in China increased from 150.5 billion yuan in 2000 to 2,414.9 billion yuan in 2020, an increase of 15.05 times in 21 years. However, in recent years, due to the influence of medical reform policies such as centralized purchase with quantity and medical insurance control fees, the industry is under pressure to reduce prices, control fees and adjust drug use structure, resulting in a slowdown in the growth rate of total sales in the drug circulation market. Statistics show that in 2020, the total sales of pharmaceutical commodities nationwide increased by 2.4% compared with 2019, and the growth rate slowed down by 6.2 percentage points year-on-year.
(B) Industry concentration continued to increase.
Driven by the comprehensive implementation of the "two-vote system", the drug circulation link has been further compressed, and the industry’s superior resources have been concentrated in large-scale pharmaceutical circulation enterprises. On January 28th, 2021, the State Council issued the Opinions on Promoting the Normalization and Institutionalization of Centralized Drug Purchase, which promoted the normalization of centralized drug purchase, the implementation of the new medical insurance catalogue and the reform of medical insurance payment, promoted the price-for-quantity exchange and the adjustment of terminal drug structure, and the large-scale operation and cost control became the main theme. Large-scale distribution enterprises have stronger distribution service capabilities and market customer resources. At the same time, market access and supervision are becoming stricter, the elimination of backward enterprises is accelerated, and the pace of industry integration is accelerated. The industry concentration will continue to increase in the future. According to the Statistical Analysis Report on the Operation of Pharmaceutical Circulation Industry 2020 issued by the Department of Market Operation and Consumption Promotion of the Ministry of Commerce, in 2020, the top 10 main business income of pharmaceutical wholesale enterprises accounted for 55.2% of the total size of the national pharmaceutical market in the same period, up 3.2 percentage points year-on-year; The top 20 accounted for 63.5%, up 2.0 percentage points year-on-year.
(C) Channel value and value-added service function form a strong competitiveness.
With the market-oriented development of the pharmaceutical industry and the influence of the medical reform policy, upstream and downstream customers hope to provide specialized services to help them reduce costs and increase efficiency through the circulation enterprises in the middle link to meet the diversified service needs of customers. On the one hand, under the guidance of policies, upstream production enterprises put more energy into production research and development, and transfer their product market expansion, operation and maintenance, sales and distribution to circulation enterprises with the advantages of channel service and customer resources, so as to control the sales expenses; On the other hand, downstream customers, especially hospital customers, hope to realize the traceability and meticulous management of their medical equipment through professional, efficient and intelligent services of circulation enterprises under the implementation of DRGs and zero drug addition. At the same time, with the implementation of policies such as Internet+medical care, prescription outsourcing, dual-channel national medical insurance negotiation drugs and online medical insurance payment, the overall medical insurance funds are gradually opened to qualified pharmacies. Retail pharmacies can not only undertake the goods flowing out under the impetus of hospital fee control, quantity control and Internet medical services, but also provide patients with value-added services such as health management and chronic disease management to meet the diversified needs of consumers’ health services. The channel value of retail pharmacies is increasingly prominent. Therefore, the channel value and professional service function of pharmaceutical circulation enterprises with both wholesale and retail channels are increasingly favored by upstream and downstream customers, forming strong competitiveness and playing an irreplaceable role in the development of the industry.
(D) The Internet empowers traditional formats and promotes the transformation and upgrading of enterprise services.
The sudden acceleration of the epidemic in COVID-19 has changed people’s habit of seeking medical treatment and purchasing medicines, and Internet medical treatment and consumption have accelerated. Under the guidance of national policies, the development of "internet plus Medicine" has been gradually liberalized and standardized, forming a new pattern of online and offline integrated development. The Guiding Opinions on Actively Promoting the Medical Insurance Payment for Medical Services in internet plus issued by the National Health Insurance Bureau clearly put forward: support the circulation of prescriptions for medical follow-up visits in internet plus, and explore the interconnection between prescription information purchased by designated medical institutions and designated retail pharmacies. In May 2021, the National Medical Insurance Bureau and the Health and Health Commission issued the Guiding Opinions on Establishing and Perfecting the "Dual-channel" Management Mechanism for National Medical Insurance Negotiation Drugs, which made it clear that the varieties with high clinical value, urgent need of patients and low substitutability should be included in the "dual-channel" management in time, and the designated retail pharmacies that meet the requirements of the "dual-channel" management should be connected with the medical insurance information platform and the electronic prescription circulation platform, so as to guide and gradually solve the problems of Internet medical health and consumption from the policy level. Under the application of Internet technology and big data services, the pharmaceutical circulation industry is actively exploring the connection between online business and offline services, establishing in-depth cooperation with "Internet+medical care", and a new service model for the industry is taking shape.
(E) The extension of the industrial chain has accelerated, and innovative service models have emerged.
Faced with the impact of new Internet technologies and the tightening of medical reform policy environment, the traditional wholesale and retail service model can no longer meet the needs of customers, and the traditional profit model can not guarantee the profit level of enterprises under the control of price reduction and fees, and it is difficult to maintain sustained and steady growth. On the one hand, drug circulation enterprises invest in upstream pharmaceutical industry business, carry out drug production research and development, and at the same time give play to their own marketing channel advantages, boost the rapid market coverage of self-produced goods, cultivate new profit growth points, and make up for the gross profit loss caused by policies; On the other hand, through providing channel value-added services for upstream and downstream customers around the supply chain at the wholesale end, undertaking hospital-controlled varieties and patients’ personalized drug demand at the retail end, providing specialized services such as chronic disease management and health consultation, and implementing innovative services such as () integrated marketing model based on Internet technology, thus enhancing customer stickiness and realizing industrial transformation and upgrading.
Iii. Business of the Company during the reporting period
(1) Main business
Liuyao Co., Ltd. is a comprehensive pharmaceutical listed enterprise. After more than 60 years of intensive cultivation in the field of medicine and health, the company has gradually formed a comprehensive medicine and health industry group with "medicine wholesale, medicine retail and medicine industry as its main businesses, and innovative businesses such as supply chain value-added services, medicine Internet services and terminal health services developing together".
(B) the main business model
The company’s main business at this stage is mainly pharmaceutical wholesale, pharmaceutical retail and pharmaceutical industry. The company’s pharmaceutical wholesale and retail business includes all kinds of drugs, medical devices, consumables, test reagents and so on. The main business model is: purchasing goods from upstream suppliers, and selling them to downstream customers (including medical and health institutions at all levels, medical equipment enterprises, individual consumers, etc.) through the company’s warehousing, logistics, distribution, retail pharmacies and other links. The company’s pharmaceutical industry business mainly produces, processes and sells Chinese herbal pieces, Chinese patent medicines, medical devices and other products through the company’s pharmaceutical machinery manufacturing enterprises. In addition, in recent years, the company has accelerated the Internet information technology to empower traditional businesses, actively developed supply chain value-added services such as SPD projects for medical equipment, built a "new retail" format based on prescription extension, Internet medical care, medical e-commerce, chronic disease management, etc., realized the transformation and upgrading of traditional sectors, promoted the coordination of wholesale and retail, and industrial and commercial cooperation, and consolidated the steady development of the company’s core business by developing terminal services such as third-party medical logistics, Chinese medicine frying, and Chinese medicine diagnosis and treatment.
1, pharmaceutical wholesale
The company’s wholesale business mainly refers to the company as a distributor or distribution agent of upstream suppliers, distributing goods to medical and health institutions at all levels or selling them to other pharmaceutical circulation enterprises and chain pharmacies. The profit of wholesale business mainly comes from the difference between purchase and sale or the promotion rebate given by upstream suppliers in commodity distribution and agency business. In 2021, the company’s wholesale business realized an operating income of 13,801,514,700 yuan, accounting for 80.77% of the main business income, an increase of 8.97% over the same period of last year; Among them, the distribution business of public medical institutions (also known as hospital sales business) is the core of the company’s wholesale business. In 2021, the hospital sales business realized an operating income of 12,589,407,200 yuan, accounting for 73.68% of the company’s main business income.
2. Pharmaceutical Retail
The company’s retail business is a kind of business that provides sales and health services of various medicines, medical devices and other pharmaceutical products to the vast number of individual consumers through terminal pharmacies, and its profit mainly comes from the difference between the purchase and sale of pharmaceutical products. At present, the company mainly provides pharmaceutical retail services to individual consumers through its wholly-owned subsidiary-Guizhong Pharmacy and its pharmacies. In recent years, the company has further optimized the store layout, developed specialized pharmacies such as DTP pharmacy, dual-channel medical insurance pharmacy and chronic disease pharmacy, carried out innovative businesses such as prescription extension, chronic disease management and online pharmacy, promoted the integration of online and offline businesses with the help of the Internet and modern information technology, created a "new retail" format, and maintained the sustained growth of retail business. In 2021, the company’s retail business realized an operating income of 2,726,415,200 yuan, accounting for 15.96% of the company’s main business income, an increase of 9.59% over the same period last year.
3. Pharmaceutical industry
The pharmaceutical industry is mainly engaged in the production and research and development of drugs and medical devices. At present, the company has five pharmaceutical industrial enterprises, including Xianzhu Chinese Medicine Technology, Xianzhu Pharmaceutical, Kangsheng Pharmaceutical, Wantong Pharmaceutical and Guangxi Kangda Kale Technology Co., Ltd. (hereinafter referred to as "Guangxi Kangda Kale"), which constitute the company’s pharmaceutical industrial system. At present, the company’s pharmaceutical industry business mainly focuses on the layout of Chinese medicine industry, and carries out the production and processing of Chinese herbal pieces and the production and research of modern Chinese medicine products such as proprietary Chinese medicines and Chinese medicine formula granules. Among them, Xianzhu Chinese Medicine Technology is mainly engaged in the production and processing of various kinds of Chinese herbal pieces, and has been able to produce and process more than 930 varieties and more than 7,000 specifications of Chinese herbal pieces. Xianzhu Pharmaceutical is mainly engaged in the research and development of traditional Chinese medicine formula granules, and is responsible for the specific operation of the company’s traditional Chinese medicine formula granules production research and development base after it is put into production. Kangsheng Pharmaceutical Co., Ltd. and Wantong Pharmaceutical Co., Ltd. mainly carry out the research and development of Chinese patent medicines, and have several exclusive patented products and well-known brands such as Anshen Yangxue Oral Liquid, Guiqi Buxue Oral Liquid, Compound Qiancao Granule and Wantong Yankang Tablet (Capsule) respectively. In 2021, the company’s pharmaceutical industry sector achieved operating income of 536.723 million yuan, accounting for 3.14% of the company’s main business income, an increase of 17.15% over the same period last year.
2021, 2020
Iv. analysis of core competitiveness during the reporting period
(A) outstanding channel resources and advantages of wholesale and retail integration
Liuyao Co., Ltd. has intensively cultivated in the field of pharmaceutical circulation for more than 60 years, established a deep and wide service network, mastered superior channel resources, and established a wide and stable customer relationship. The company has set up subsidiaries in all core cities in Guangxi, and also set up special drugs department, innovation department and subsidiaries specializing in the sales of medical device consumables, Chinese herbal pieces and inspection reagents according to different product characteristics, so as to realize localized management and distribution, professional marketing services and variety differentiation. In addition, the company’s subsidiary, Guizhong Pharmacy, as a local old-fashioned drug retail chain pharmacy, has a wide coverage and high brand recognition. It can not only complement the wholesale business in terms of varieties, customer resources and channels, but also effectively undertake the varieties flowing out from hospital clients under the background of medical reform. The company’s all-region, all-variety, and all-channel coverage of wholesale and retail can better control the two major medical equipment consumption terminal places, hospitals and pharmacies, forming outstanding channel advantages and a good business development foundation.
(B) Full coverage of high-quality hospital end customers
Hospital end customers (especially hospitals with scale above Grade III and Grade II) are the centers of urban medical services and the main places for medical equipment consumption. According to statistics, at this stage, in the national sales channels of medical equipment terminals, the sales of medical equipment terminals in public hospitals account for nearly 80%. As the core customer resources of the company, public hospitals can not only bring direct benefits to the company because of their large and stable demand for medical equipment and high purchase amount, but also promote the development of other business activities and cooperative projects of the company and establish an ecological circle for business development because of their core position in the medical and health field. The company has maintained and strengthened good cooperative relations with core medical institutions for a long time, and has achieved full coverage of hospitals above Grade III and Grade II in Guangxi. The good cooperation between the company and the end customers of the hospital can form a strong competitiveness, which can not only promote the development of the upstream supplier resources of the company and maintain the variety advantage of the company, but also effectively promote the development of new business and cooperation such as prescription extension, SPD project of medical equipment, internet medical care, DTP pharmacy and chronic disease management.
(3) High-quality chain pharmacy business in Guangxi
Guizhong Pharmacy, a wholly-owned subsidiary of the company, is one of the top 100 pharmaceutical retailers in China and one of the earliest chain drugstore brands in Guangxi. It has strong service ability and brand influence in Guangxi, and its sales scale is ahead of other chain drugstore brands in Guangxi. By the end of the reporting period, Guizhong Pharmacy had 739 directly operated pharmacies, taking the lead in completing the layout around the core areas and core medical institutions in Guangxi. At the same time, Guizhong Pharmacy is also the earliest enterprise in Guangxi to carry out DTP pharmacy business and online pharmacy business, with more than 100 DTP pharmacies. In addition, as a subsidiary of Liuyao Co., Ltd., Guizhong Pharmacy can give full play to the advantages of wholesale and retail integration in the region, realize the complementary sharing of resources between retail and wholesale in terms of varieties, channels and customers, and promote the development of "new retail" services such as prescription extension, chronic disease management and internet medical care. In the future, it will play a huge role in undertaking hospital-side outflow business, form high-quality retail pharmacy business, and help the company optimize its business structure and develop new formats.
(D) Abundant upstream supplier resources and good cooperative relations to ensure the variety satisfaction rate and supply capacity.
With its high terminal coverage in the regional market and providing channel value-added services to upstream suppliers, Liuyao Co., Ltd. has carried out professional agent distribution business, continuously won the trust of upstream customers, and attracted more and more upstream suppliers to establish strategic cooperative relations with the company. The company has outstanding advantages in terms of variety of centralized mining, variety of basic drugs, innovative drugs, drugs for rare diseases, drugs for epidemic diseases, and first-aid drugs. By the end of the reporting period, the company has basically achieved cooperation with mainstream drug suppliers at home and abroad in Guangxi, and the product specifications cover the commonly used clinical drugs and new special drugs in hospitals. At the same time, it has basically obtained the distribution right of all the varieties with centralized purchase and quantity in Guangxi, and it is the main distributor of many well-known pharmaceutical enterprises at home and abroad in Guangxi. In addition, the company has continuously increased the introduction of new varieties, maintained long-term cooperation with manufacturers of short-term varieties, and ensured the continuous, stable and leading supply of drugs, becoming one of the few enterprises with the most complete business regulations and sufficient and stable supply among similar enterprises in the region. The increasing number of suppliers and business varieties has also become an important competitive advantage of the company, which greatly promotes the development of downstream customers and meets the personalized and diversified variety needs of various end customers and groups.
(5) Efficient logistics distribution network and professional information management system covering the whole region.
The company is one of the few pharmaceutical circulation enterprises in the region with multiple modern pharmaceutical logistics bases at the same time, and its storage scale and distribution capacity are ahead of its peers in the region. With the completion and putting into use of Yulin Logistics Operation Center project, the company has formed an efficient logistics distribution network with Nanning, Liuzhou and Yulin as the core, Guilin, Baise and Wuzhou as the distribution nodes, which fully radiates 14 prefecture-level cities in the autonomous region. The company has established a perfect information management system and set up a special information management team to develop and implement an information system that meets its own requirements according to the company’s development reality and customer needs. In recent years, the company has developed supply chain management system, production management system, logistics information system and prescription circulation platform to meet the needs of customer service, digital production of pharmaceutical industry, logistics management, chronic disease management, prescription extension and other business development, which provides guarantee for the company’s refined management and innovative business development, and also provides more efficient, standardized, convenient, safe, accurate and traceable services for the company’s upstream and downstream customers, improving work efficiency and customer stickiness.
V. Main operations during the reporting period
In 2021, the company’s board of directors and senior management team carried out solid work closely around the business objectives. In the pharmaceutical wholesale and pharmaceutical retail sectors, they accelerated the innovation of service models and continuously enriched the company’s varieties. Through the advantages of wholesale and retail integration channels and the construction of information platforms, they steadily increased the wholesale market share and promoted the landing of "new retail" services such as prescription extension, chronic disease management and DTP pharmacies, realizing the transformation and upgrading of traditional sectors. In the pharmaceutical industry sector, the company continued to promote R&D capability and productivity improvement, accelerated the construction of industrial production projects, and implemented omni-channel and omni-market marketing of industrial products to promote the performance growth of the industrial sector. In 2021, the company’s sales scale continued to expand, achieving an operating income of 17,134,823,200 yuan, up 9.36% year-on-year. However, due to the superposition of policies such as the expansion of the range of national centralized purchasing products, payment by disease for medical insurance (DRGs), and the implementation of GPO (drug group procurement) in Guangxi, the prices of related drugs dropped significantly, which affected the overall gross profit margin of the company’s wholesale business segment and made the company belong to shareholders of listed companies in 2021.
VI. The Company’s Discussion and Analysis on the Company’s Future Development
(A) the industry pattern and trends
1. The industry has a strong development momentum, and the concentration trend will not change.
Under the situation of epidemic normalization prevention and control, with the introduction of vaccines and specific drugs, the epidemic will gradually ease in the future, the economic development will gradually improve, the rigid demand for healthy consumption brought about by population growth and aging will show an increasing trend, and the future development momentum of the industry will remain strong. In the long run, the development trend of the industry is still improving, and the sales scale will continue to grow. On the basis of the gradual implementation of the "two-vote system", in recent years, the state talks about centralized procurement and regional group procurement have further reduced the profit margin, and the centralized procurement of high-value consumables and Chinese patent medicines has expanded. In this process, as a regional leading enterprise with strong channel advantages, customer advantages and service advantages, the industry resources have been concentrated in large enterprises, and the backward enterprises have been eliminated quickly, and the industry concentration will continue to increase.
2. Normalization of price reduction and fee control and reform of payment methods to promote service model innovation.
With the implementation of the second, third, fourth and fifth batch of centralized procurement, the sixth batch of centralized procurement will be started, and the future price reduction and fee control will remain normal. The reform of DRGs puts forward higher requirements for rational drug use, safe drug use and traceability management in hospitals. Facing the highly homogeneous market competition and the increasingly tightening policy environment, drug circulation enterprises strengthen the value-added service function of supply chain around the medical reform policy requirements and the actual development of hospital business, promote large-scale centralized procurement and distribution through platform operation, increase market share and form big data resources for customers to analyze and supervise, and provide support for customers’ refined management and cost reduction and efficiency improvement. At the same time, the implementation of DRGs payment and the introduction of dual-channel medical insurance and prescription outsourcing policies have strengthened the role of retail pharmacies in satisfying patients’ diversification, personalized medication and convenience of healthy consumption. Retail channels have become an important supplement to undertake hospital outflow varieties, carry out variety differentiation management and professional services under the control of fees.
3. Cross-border integration of the Internet has been accelerated, and consumption in the industry has been upgraded.
Since the sudden epidemic in 2020 affected normal medical services, it has brought unprecedented development opportunities to the healthy consumption of the Internet with "zero contact". The state proposes to develop "Internet+medical health" from a strategic perspective, and has successively issued documents such as Guiding Opinions on Actively Promoting "internet plus Action" and Opinions on Promoting the Development of "Internet+medical health" to guide and solve the problems faced by Internet medical care from a policy perspective. In recent years, drug distribution enterprises have integrated suppliers, wholesale enterprises, retail pharmacies and medical resources through supply chain service platforms and Internet medical platforms. Through the big data accumulated by the platform, it provides information support for adjusting procurement channels and product structure, and provides more convenience for residents to purchase medicines. In the future, the pharmaceutical circulation industry will take big data as an important means to improve the ability of drug circulation governance, pay more attention to multi-party cooperation, use Internet thinking and use Internet tools to promote the transformation and upgrading of enterprises to integrated service providers, create unique incremental value and promote the transformation and upgrading of the industry.
4. Chinese medicine industry enjoys policy dividend and accelerates development.
In recent years, the state has increased its support for the Chinese medicine industry. the State Council issued the Outline of Healthy China 2030 Plan and the Opinions on Promoting the Inheritance and Innovation of Chinese Medicine, which strongly supported the development of Chinese medicine industry, promoted the inheritance and innovation of Chinese medicine, and proposed to promote the transformation and upgrading of Chinese medicine industry in the Outline of Strategic Planning for the Development of Chinese Medicine (2016-2030). In 2021, the National Health Insurance Bureau and state administration of traditional chinese medicine issued the Guiding Opinions on Medical Insurance Supporting the Inheritance, Innovation and Development of Traditional Chinese Medicine, and the Medical Insurance Letter [2021] No.229 proposed: give full play to the advantages of the medical insurance system and support the inheritance, innovation and development of traditional Chinese medicine. The document also clearly stated that the sale of Chinese herbal pieces by public medical institutions can be increased by 25% according to the actual purchase price; Incorporate qualified Chinese herbal pieces, proprietary Chinese medicines, and traditional Chinese medicine preparations from medical institutions into the medical insurance drug list; Traditional Chinese medicine medical institutions can temporarily not implement a number of support policies such as payment by disease diagnosis related grouping (DRG). The Notice on Further Strengthening the Catalogue Management of Traditional Chinese Medicine and Ethnic Medicine Pieces in Basic Medical Insurance, Industrial Injury Insurance and Maternity Insurance in Guangxi issued by the Medical Insurance Bureau of Guangxi Zhuang Autonomous Region included 531 pieces of traditional Chinese medicine and ethnic medicine pieces that meet the requirements and have local standards in Guangxi into the payment scope of basic medical insurance (including maternity insurance) and industrial injury insurance fund. Implemented as of November 1, 2021. Among them, there are 180 pieces of traditional Chinese medicine, 301 pieces of Zhuang medicine and 50 pieces of Yao medicine included in the medical insurance list. The implementation of this series of policies is of great significance to activating the Chinese medicine market,Accelerating industrial development has provided a strong impetus.
5. Centralized purchasing of equipment consumables and domestic substitution are accelerated.
In 2021, a series of policies were intensively introduced around the centralized purchase of medical equipment and consumables. On March 4, the National Medical Insurance Bureau and other eight departments issued the Guiding Opinions on Organizing the Centralized Purchase and Use of High-value Medical Consumables by the State: according to the general idea of national organization, alliance procurement and platform operation, the state will formulate basic policies and requirements, organize all regions to form alliances, take public medical institutions as the main body of implementation, carry out the centralized purchase of high-value medical consumables by the state, and explore and improve the centralized purchase policy. On June 17th, the State Council issued the Notice on Printing and Distributing the Key Tasks for Deepening the Reform of Medical and Health System in 2021, proposing to promote the centralized procurement of pharmaceutical consumables. On September 29th, the State Council issued the "National Medical Security Plan for the 14th Five-Year Plan", proposing: "Deepening the reform of centralized procurement system for drugs and medical consumables. Normalize and institutionalize the centralized procurement of drugs organized by the state, and continuously expand the scope of centralized procurement of high-value medical consumables organized by the state. In addition, in recent years, the progress of promoting the localization of devices has been continuously accelerated. In the Guiding Opinions of the General Office of the State Council on Promoting the Healthy Development of the Pharmaceutical Industry, if domestic drugs and medical devices can meet the requirements, government procurement projects must purchase domestic products in principle, and gradually improve the level of domestic equipment configuration in public medical institutions. A series of high-end imaging equipment products, including DR and CT, are in the catalogue of "Guidelines for the Examination and Approval of Government Procurement of Imported Products" (2021 edition) jointly issued by the Ministry of Finance and the Ministry of Industry and Information Technology.
(II) Company development strategy
The company adheres to the big health industry, empowers traditional formats through Internet information technology and big data applications, digs deep into channel value, provides high-quality and efficient medical equipment distribution services and professional supply chain value-added services for upstream and downstream customers, provides convenient and professional medical equipment retail services and health management services for individual consumers, and promotes the transformation and upgrading of traditional sector businesses; In terms of varieties, we take the innovation of marketing model and the construction of professional service platform as the starting point, and seize the opportunity in innovative drug agent marketing and rapid breakthrough in the market of equipment consumables and test reagents. At the same time, under the background of the country’s strong support for the development of Chinese medicine industry, based on the construction of the whole industrial chain of Chinese medicine, we will enlarge and strengthen the pharmaceutical industry business, increase the investment in technology research and development and production capacity, continuously improve the added value of products, set up a professional marketing team, and expand the international and domestic product markets. In addition, the development of third-party medical logistics, traditional Chinese medicine decoction and other supporting service industries. Finally, the enterprise will transform from a traditional single distributor to a comprehensive medical product and smart medical service provider, and build a leading enterprise in the regional health industry.
(3) Business plan
According to the current market competition environment, the actual development of the industry and the trend of medical reform policy, in 2022, the company will strengthen the implementation of the variety strategy, promote the value-added services of the supply chain platform, give full play to the advantages of wholesale and retail integration, develop characteristic pharmacies, retail professional services and prescription extension projects, and realize the transformation and upgrading of traditional wholesale and retail business; Taking the innovation of marketing cooperation mode and the construction of professional service platform as the starting point, we will improve the professional management ability of equipment consumables and test reagents and realize the rapid increase of market share; Focusing on the layout of the big health industrial chain of traditional Chinese medicine, we will continue to improve the R&D capacity and production capacity scale of the industrial sector, accelerate the production of new products and projects, give play to the synergistic effect of industry and commerce, promote omni-channel and all-market marketing, and enhance the profitability of the industrial sector. At the same time, we should practice the internal strength of enterprises, improve their operation and management capabilities and informatization level, implement performance reform and cost control objectives, strengthen financial risk control, and stimulate the vitality of enterprise development.
1. Steady transformation of pharmaceutical wholesale.
(1) Innovating business cooperation mode and strengthening the implementation of variety strategy.
In 2022, the company will give full play to the advantages of wholesale and retail integration channels, carry out professional agent distribution services and innovative drug cooperation projects, promote the introduction of innovative drugs and imported high-value drugs related to rare diseases, chronic diseases and epidemics, and strive for more main distribution agency rights in the region. At the same time, we will closely follow the key varieties such as centralized mining varieties, national medical insurance varieties and emergency reserve varieties, continuously improve the variety advantages and lay the variety foundation for the development of the terminal market.
(2) Deepen the regional market and promote the sales and services of all varieties.
With subsidiaries in various cities as business centers, we will deeply develop the local market, continuously improve the operational support ability of subsidiaries, allocate professionals, coordinate and promote the localized sales promotion of all kinds of drugs, equipment consumables, Chinese herbal pieces, formula granules, etc., give full play to the advantages of hospital channels, and help the online and offline business of hospitals to coordinate with retail prescription extension and DTP pharmacy business, and coordinate the business development of all channels.
(3) Take the value-added service of supply chain as the core, and realize the transformation of wholesale business.
Accelerate the cooperative implementation of SPD project of medical equipment and consumables, extend high-quality services to hospitals through the construction of supply chain platform and the intervention of professional service teams, promote the marketing of centralized procurement, centralized distribution and distribution agents, help customers achieve refined, professional and traceable management goals, build a unified data standard and sharing mechanism, and enhance customer stickiness and market share.
2, pharmaceutical retail service upgrade
(1) Optimize the layout and develop characteristic pharmacies.
In 2022, the company will further optimize the layout of stores, rationally add pharmacies according to the company’s strategy, especially strengthen the layout in blank areas, hospitals and crowded communities, increase the number of characteristic pharmacies such as DTP pharmacies, dual-channel pharmacies for medical insurance, and co-ordinate pharmacies for medical insurance, and accelerate the access of social security and commercial insurance.
(2) Professional services to enhance the core competitiveness of pharmacies.
Relying on the integrated channel resources of wholesale and retail, highlighting the variety and price advantages; Carry out specialized services such as chronic disease management in depth, continuously improve the professional skills and service level of shop assistants, and promote continuous consumption; Through the construction of information platform, the improvement of membership system and the operation of new media, we will promote accurate marketing centered on customer needs, thus improving the core competitiveness of stores with "commodity power, service power, image power and marketing power" as the main body.
(3) Applying Internet thinking, speeding up the implementation of prescription extension projects and building a "new retail" format.
Integrate Internet platform channels, strengthen the construction and promotion of self-operated online stores, small programs and other platforms, and increase platform traffic. At the same time, accelerate the construction of prescription sharing platform projects with urban core medical institutions, and promote the increase of prescription outflow for hospitals that have built platforms. In addition, relying on the connection between the services of yiguang Internet Hospital in Xianzhu and other public hospitals’ Internet medical platforms and online and offline chronic disease health services and drug sales and distribution services in retail stores, we will build a one-stop medical chain, thus enhancing residents’ convenience and sense of health consumption and building a "new retail" format.
3. Make the pharmaceutical industry bigger and stronger.
(1) Increase R&D investment, promote digital production, and improve production capacity and quality.
In 2022, the company will continue to accelerate the layout investment in the production field and support the industry to become bigger and stronger. On the one hand, we will speed up the implementation of the post-construction projects such as the capacity expansion project of Chinese herbal pieces in Nanning and the Yulin Health Industrial Park project, and rely on the "fairy chain", the application of production management system and the upgrading of facilities and equipment to promote intelligent and digital production. On the other hand, we will increase the introduction of talents and the implementation of scientific research projects, promote the application of patents and projects related to pharmaceutical parks, seedling cultivation, identification and processing, speed up the research and development and production of products with the same origin of medicine and food, traditional Chinese medicine preparations, continuously improve the added value of products, and promote the double improvement of production capacity and quality.
(2) Strengthen the construction of professional marketing team and explore the markets inside and outside the region through omni-channel marketing.
Give full play to the advantages of the company’s commercial channels, speed up the layout of the products of the company’s industrial enterprises in the hospital and retail in the region, and set up a professional marketing team to adopt various modes such as agency and distribution to accelerate the market expansion of other provinces and cities outside Guangxi. In addition, actively apply the traceability platform, speed up the construction of the drug exchange platform, give play to Guangxi’s regional advantages facing ASEAN, carry out the import and export trade of Chinese herbal pieces, and help expand the product market scale through international and domestic double circulation.
(3) to speed up the production of industrial projects, improve supporting services, and form a complete industrial chain of traditional Chinese medicine.
In 2022, the company will speed up the construction of industrial investment projects and strive to put them into production as soon as possible. First, on the basis of the completion of the R&D project of traditional Chinese medicine formula granule production, we will step up the product filing work, strive to achieve product marketing in the first quarter, and help the market of formula granule products to cover quickly through the company’s hospital channels, so as to achieve profitability as soon as possible. Second, we will speed up the implementation of traditional Chinese medicine decoction service, provide traditional Chinese medicine decoction service for hospital customers, outpatients and retail pharmacies in yiguang, China, promote the cooperation of smart Chinese medicine pharmacy projects, and improve the terminal sales scale of traditional Chinese medicine decoction pieces through intelligent decoction value-added service and full traceability advantages. In addition, through the implementation of various industrial projects, a large health industrial system of traditional Chinese medicine covering all sectors, such as planting and harvesting of traditional Chinese medicine, processing of decoction pieces, R&D and production of Chinese patent medicines and formula granules, logistics trade of traditional Chinese medicine, and terminal clinical application, will eventually be formed.
4. Rapid breakthrough of equipment and consumables
(1) Specialized operation, variety enrichment and market expansion.
In 2022, the company will implement the business model of parallel distribution and agency, introduce and build a professional marketing team through strategic cooperation and professional training, strengthen the independent operation ability of specialized subsidiaries of equipment consumables and test reagents, innovate the agency cooperation with suppliers, improve the after-sales service system, continuously strengthen the introduction and product promotion of medical equipment consumables and test reagents, and expand the scale of the company’s equipment consumables and test reagents products.
(2) Actively carry out SPD project of equipment consumables to accelerate the increase of market share.
The company will take the trend of centralized purchasing of medical device consumables and the implementation of payment by disease (DRGs) as an opportunity to cooperate with medical institutions to standardize SPD project of medical device consumables, promote the implementation of refined, traceable and zero-inventory management, and promote the platform operation and management of medical device consumables and test reagents through project platform construction and professional service team intervention, so as to rapidly increase the market share of the company’s medical device consumables.
(3) Accelerate the landing of high-end medical device production research and development projects.
By the end of 2021, the foundation stone has been laid for the production and research of high-end medical devices. In 2022, the company will speed up the construction of the project, actively communicate with partners, accelerate the introduction of talents and technology, improve the personnel structure, carry out product research and analysis in the early stage of the project, do a good job in product listing planning and market communication, and seize the historical opportunity of domestic substitution of high-end devices to develop new markets.
5. Practice hard to reduce costs and increase efficiency.
(1) Strengthen budget management, strictly control operating costs and reduce financial risks.
In 2022, the company will continue to strictly implement the financial budgeting system, do a good job in capital planning, strengthen audit supervision, strictly control expenses and minimize operating costs. At the same time, we will strengthen the management and assessment of accounts receivable, strictly manage the credit of customers and assess the payment of salesmen, so as to reduce the impact of accounts receivable on the company’s cash flow and effectively reduce financial risks.
(2) Strengthen the research and development of information systems and the implementation and operation of modern logistics.
In 2022, the company will continue to increase investment in information system research and development, improve the level of enterprise information management, improve the system functions of business platforms, and accelerate the research and development of project professional service platforms. At the same time, optimize the logistics operation process, gradually improve the carrying capacity of logistics center, promote multi-warehouse collaboration, and improve the cold chain distribution service capacity, thus improving the operational efficiency and service level of enterprises.
(3) Strengthen the target responsibility system, strengthen the introduction and training of talents, and stimulate team vitality.
In 2022, the company will optimize the organizational structure according to the strategic plan, strengthen the target responsibility management, implement the performance appraisal indicators, and enhance the execution of employees. At the same time, strengthen the introduction and training of talents needed for management, technology, R&D and project operation, innovate employee incentive mechanism and talent appointment mode, stimulate team vitality, and effectively guarantee the implementation of strategic objectives and projects.
(4) Possible risks
1. Risk of intensified market competition
With the deepening of medical reform, the integration of the industry has increased. In the field of wholesale circulation, the competition between companies and large pharmaceutical circulation enterprises has intensified, which is concentrated in the competition for market and variety customers, the competition for distribution capacity and efficiency, and the competition for hospital cooperation projects. In particular, some national high-quality pharmaceutical circulation enterprises have considerable experience in modern logistics implementation, information platform construction and hospital cooperation projects. In terms of chain pharmacies, national chain pharmacies have gradually entered Guangxi, and accelerated the layout in various cities in Guangxi. Although the company is also actively expanding the market outside Liuzhou, it will still face the challenges of this part of high-quality chain pharmacies. In addition, with the rapid development of Internet business, cross-regional e-commerce platforms and third-party medical logistics have also joined the market competition, and the market structure is more complicated and the competition is extremely fierce.
2. Industry policy risks
With the deepening of the national medical reform policy, policies such as normalization of centralized purchasing with quantity, payment by disease for medical insurance (DRGs) and adjustment of medical insurance catalogue have been released one after another, further promoting the separation of medicines, and the trend of price reduction and fee control is obvious, which has affected the growth rate of the pharmaceutical circulation market. At the same time, the implementation of the "internet plus" strategy has brought great impact on the traditional format. With the deepening of the reform, the company is faced with the risks of unified bidding and purchasing policy adjustment of drugs, drug pricing mechanism reform, hospital drug use structure adjustment, drug e-commerce platform and Internet medical platform competition under the new medical reform situation, which affects the company’s profitability.
3, accounts receivable management risk
As a pharmaceutical circulation enterprise focusing on hospital sales, the company’s accounts receivable mainly focus on hospital sales. Although the credit standing of these customers is good, with the further expansion of sales scale, accounts receivable may continue to grow. At the same time, with the implementation of the "two-vote system", while promoting the concentration of distribution services to large-scale distribution enterprises, the scattered financial pressure under the original "multi-vote system" environment is concentrated on the company. On the one hand, the expansion of distribution scale and variety has greatly increased the upstream payment that the company needs to advance, on the other hand, the collection period of accounts receivable from downstream hospital customers is longer, which has put pressure on the cash flow of enterprises. If we can’t continue to manage the accounts receivable effectively, the company will have the risk of bad debts. Moreover, if the accounts receivable grow to a large scale, it will cause great pressure on the company’s working capital turnover, and it may also have an adverse impact on the company’s business development.
4. Risk of human resources
With the further expansion of the company’s business, the company urgently needs senior talents including drug production and research and development, enterprise management, logistics, information systems and so on. Although the company has a relatively perfect restraint and incentive mechanism and a good talent introduction system, it does not rule out that the training and introduction of talents cannot keep up with the company’s development speed, which affects the smooth implementation of the company’s business planning and the normal development of its business, and adversely affects the company’s profitability. Therefore, the company faces certain human resource risks.
5. The profit of new business or investment project is not up to the expected risk.
Faced with the highly homogeneous competition in the current market, the company needs to innovate constantly, explore various marketing and service models, expand business areas and ensure its own profitability. In recent years, the company has actively promoted value-added services through channels, explored new business models such as medical e-commerce, and invested in the construction of a number of industrial projects such as Chinese herbal pieces processing base projects, Chinese herbal formula granules, and high-end medical device production, and built and acquired pharmacies. Although the company ensures the scientificity and profitability of investment and acquisition projects through comprehensive market research and analysis, due diligence, and the help of third-party forces, these fields, especially the production of drugs and devices, are the first fields involved by the company. It will take time for the formation of technology patents, brand building and promotion, which is a new challenge for the company. It may face problems such as insufficient relevant experience and lack of core competitiveness of products, which will lead to the market failing to meet expectations and affect profitability.
