An in-depth analysis of the four bleak facts of the two vote system in two years

How terrible is the two vote system? In 2015, the net cash flow of Guangzhou Pharmaceutical business activities under Baiyunshan Guangyao was RMB 132 million, and in 2016, it reached RMB 354 million It is astonishing that in 2017, with the full spread of the two vote system, in the first nine months alone, the net cash flow from pharmaceutical business activities in Guangzhou fell precipitously to negative 1.787 billion yuan For this reason, Shanghai stock exchange requires Baiyunshan Guangyao to explain the reason and rationality of large cash outflow from operating activities Baiyunshan, a post Guangyao company, made a positive explanation in the form of announcement, saying that under the influence of the "two vote system", the net cash flow from operating activities was negative The net cash flow is from 300 million to negative 1.7 billion Under the two vote system, the pharmaceutical circulation industry looks like Yan Geling's novel It turns its hands to be prosperous and covers its hands to be desolate However, the prosperity is expected and the desolation appears in reality Since January 9, 2017, the national health and Family Planning Commission announced the opening of the national "two vote system", in two years, the two vote system is like the "sword of Damocles" hanging over the heads of numerous pharmaceutical and machinery enterprises, bringing unprecedented large-scale industry mergers and acquisitions, as well as these four unknown and bleak truths Truth 1: 730 days of polarization! In case of cold allocation, pure sales will be the king? First line sales data is always the most direct and fast As most people in the industry speculate, the sales mode of pharmaceutical circulation business under the two vote system presents the trend of double development, with serious differentiation The allocation is ice water and the pure sale is flame On the one hand, the proportion of pure sales increased significantly In 2017, the net sales volume of pharmaceutical circulation enterprises above Designated Size in China reached 88 trillion yuan, with a growth rate of 17.3%, up 5.5pct year on year, showing an accelerated growth trend Before the two vote system, the proportion of pure sales business of pharmaceutical commercial circulation sales above Designated Size in China slowly increased by 0-2pct per year, while in 2017, it increased by 6.0pct, with a growth rate of 54.9% It can be predicted that in the future, with the continuous fermentation of the two vote system, the proportion of pure sales will still be greatly increased On the other hand, the transfer business slows down the overall growth of the industry In 2017, the sales volume of transfer business of pharmaceutical circulation enterprises above Designated Size reached RMB 0.72 trillion, with a growth rate of - 3.9%, down 12.3pct year on year Affected by the decline in the growth rate of transfer business, the total sales volume of pharmaceutical circulation enterprises above Designated Size in 2017 was 1.6 trillion yuan, up 8.8% year-on-year, and the growth rate decreased by 1.9 PCT As the growth and profit contribution of pharmaceutical circulation industry (gross profit rate of allocation is only 1%) mainly come from terminal oriented pure sales business, the competition for market share of pure sales terminal will be the core of competition for circulation enterprises in the future Truth 2: red ash 730 days of predatory! Small and medium-sized drug dealers out of the game? "Because the two vote system has reduced the circulation link, upstream manufacturers are more inclined to cooperate with large-scale drug circulation enterprises with wide network coverage, strong logistics and distribution capacity, standardized operation behavior and strong capital strength due to cost, risk, management, operation and other considerations," said Liu Baolin, chairman of Jiuzhoutong pharmaceutical Group Co., Ltd It is true that in 2017, China's three major 100 billion pharmaceutical companies, guokong, China Resources, Shangyao and the largest private pharmaceutical company, Jiuzhoutong, had a total market sales of more than 640 billion, an increase of 9.3% year-on-year, accounting for 32.1% of the national sales in 2017 Under the two vote system, the performance of leading enterprises is booming and the data is gratifying Note: according to the statistical analysis report on the operation of the pharmaceutical circulation industry 2017 and the statistical analysis report on the operation of the pharmaceutical circulation industry 2016, the data of small and medium-sized pharmaceutical companies are more "gray" than that of leading enterprises It is no exaggeration to say that among small and medium-sized pharmaceutical companies, the cruel competition of "survival" has been opened, and the small market share of tail enterprises is being quickly seized and divided According to the statistics of pure market share of above scale circulation enterprises and tail circulation enterprises by Huatai Securities Research Institute, since 2012, the proportion of pure market share of above scale circulation enterprises has steadily increased, especially in 2017, the proportion reached 81.0%, a year-on-year increase of 6.6pct, which undoubtedly proves that after the implementation of "two vote system", the small and micro circulation enterprises in the tail of the industry are rapidly losing their share of the terminal market Forehead There is another data that is more direct According to the report on operation statistics and analysis of drug circulation industry issued by the Ministry of Commerce and the data of top 4, top 10, top 20, top 50 and Top 80 drug companies in 2016 and 2017 (i.e market concentration), it is not difficult to find that in 2017, drug wholesalers ranked 50 or earlier in the market and market concentration The market concentration of small and medium-sized pharmaceutical companies ranked 51st and later decreased Especially in the last 20 enterprises, the concentration is only 1.7% Note: as the data shows, the meaning of the two vote system is not to reduce prices, but to brew a new hierarchical division and survival of the fittest mechanism The stronger the stronger, the less able to escape or be merged Truth 3: the cash flow that was eaten in 730 days of self rescue vs the outflow of prescription that was "favored" as early as the beginning of the "two ticket system" pilot, some people in the industry proposed that the "two ticket system" is the most lethal blow to drug circulation enterprises, which is affecting the cash flow There are two reasons First, as mentioned above, due to the influence of the two vote system, the transfer business is gradually turning into pure sales, which means that the drug distribution enterprises need to sink the channel network, face the channel management mode from centralized to decentralized, and pay the cost of channel construction which expands instantaneously In the long run, the high cost of terminal promotion and terminal maintenance will also occupy a large amount of cash Flow Under the second traditional distribution mode, the channel network of large drug distribution enterprises covers many secondary and tertiary distributors, which makes it relatively easy for enterprises to complete the transfer of product inventory, so as to realize the withdrawal of pledged funds; under the "two vote system", the circulation enterprises are forced to face the drug terminal - medical institutions directly, although relevant policies have been put forward from the state to all parts of the country With the control of the cost control and other policies, the operating pressure of the hospital has increased year by year, and the circulation enterprises will face unprecedented "account period critical attack" It is said that "accounts receivable" refers to the disguised inventory of enterprises When the disguised inventory of drug circulation enterprises is too large, sudden death may occur at any time It seems that it is difficult to highlight the encirclement in this battle of trapped animals, which is deeply mired in capital However, there are always some enterprises that are unwilling to wait and die, and they choose to take the initiative "Enterprises can no longer just keep the circulation, they must make some innovations and layout around the medical reform, otherwise the road will be narrower and narrower." Industry insiders believe that the key to self rescue lies in channel relationship (downstream) and variety distribution right (upstream) ① Channel relationship: the hospital has the decision-making power in the distribution share, so deepening and consolidating the hospital channel relationship has become the top priority The main way is to provide value-added services in the supply chain, while the layout of logistics in the hospital and the construction of information flow platform for the hospital have become the first choice of major circulation enterprises As the meaning of the two vote system is not to reduce prices, what the information flow platform aims at is more the outflow of prescriptions in the future With the development of the restrictions on prescribing drugs and consumables, many hospitals have been unable to prescribe drugs But patients always need to buy drugs, so prescription outflow is considered inevitable in the industry ② Variety distribution right: under the policy environment that many provinces and cities have stipulated that "the same product in the same area can only be distributed by several distributors", the variety distribution right has become a scarce resource In addition to other hard requirements, the more variety distribution rights are held, the more competitive the circulation enterprises will be Truth 4: how far is 730 days away from the full deployment of medical devices? Since the implementation of the two vote system for drugs, there has been a lot of talk about the full spread in the field of devices Until March 20, 2018, the official website of the national health and Family Planning Commission published the notice on consolidating and breaking the achievements of medical supplement by drugs to continuously deepen the comprehensive reform of public hospitals, emphasizing that "two vote system will be gradually implemented for high-value consumables in 2018", which is the conclusion of many years' speech Therefore, in the past 2018, 20 provinces and cities have clearly implemented the "two ticket system" for high-value consumables Although it is only a matter of time before the two ticket system of medical devices is fully launched, no matter from the determination of the state or the actual promotion of the two ticket system, the two ticket system of medical devices is much more difficult than drugs A large part of the reason is that the situation of medical devices is much more complicated than that of drugs A lot of drugs are standard products The sales volume of a single product will be relatively large, and the volume is small, the weight is small, and the distribution is convenient However, there are many types and specifications of medical devices, and even many customized products The price system is difficult to balance, and the distribution cost is extremely high, so the challenge of the two ticket system of medical devices is very big Although it is very difficult, the leading enterprises have begun to actively layout and prepare Kyushutong has established a complete supply chain system of orthopedic consumables In 2017, the medical devices and family planning supplies sector achieved a revenue of 7.847 billion, an increase of 61.17% year on year Sinopharm is actively distributing equipment, high value consumables, low value consumables, testing reagents and other different medical device fields, of which the proportion of consumables business is more than 60% In addition, China Resources, in cooperation with SELIS and Qingdao Ruiming, respectively, won the exclusive 5-year service period of the inspection reagents and consumables intensive service project required by the laboratory of Qingdao women's and children's Hospital and the non inspection reagents and consumables packaging procurement project of the hospital Its business scale in Shaanxi Province covers 307 medical institutions Maybe we are not sure how far the two vote system will go in the field of medical devices, but we can be sure that the main battlefield in the field of medical devices in the future will be in the field of medical devices.