Is prescription drug retail a good business?

Prescription drug retailing has always been the main story portrayed by pharmaceutical e-commerce, retail pharmacies and even Internet medical companies for the capital market for a long time
.
With the acceleration of the separation of medicines, the market believes that prescription drug retail will become the main driving force for the growth of the pharmaceutical retail market

For a long time, the domestic retail of prescription drugs has been benchmarked against the US market, which is dominated by commercial insurance, but in fact, in China, where medical insurance is the mainstay, prescription drug retailing should refer to Europe and Japan, where medical insurance is the mainstay
.
The retail of prescription drugs in the US market is highly related to the market concentration of commercial insurance companies.

Contrary to the high concentration of the US market, it is difficult for countries with medical insurance as the mainstay to have a phenomenon similar to that of the United States.
Instead, it is characterized by fragmentation
.
Although policy control is one aspect of the reason, the core is that under the medical insurance-based market, the flow of prescriptions cannot be concentrated

Taking Japan as an example, prescription pharmacies are all hospital-side stores, which are highly dependent on the relationship with the hospital.
The 2B capability of pharmacies is far greater than the 2C capability
.
Because hospitals are highly dispersed, it is very challenging to quickly open multiple hospitals in a region or open multiple hospitals across regions, which leads to the fragmentation of the entire market, and it is difficult to develop a highly concentrated development model

Moreover, due to the strong scalability of drugstores, they have become the main source of growth for Japanese drugstores, which is reflected in the revenue
.
In 2019, Heyu's total revenue was 841 billion yen, while AIN's total revenue was 297.

Although most of Japan's prescription drugs are sold outside hospitals, the market concentration is not high, and it can even be said that the market is highly fragmented
.
More than 30% of prescription dispensing pharmacies are individual pharmacies, and more than 60% are small chains with less than 9 stores

Even in a market like Japan where 75% of prescriptions flow out, due to its high dependence on hospitals, any prescription dispensing pharmacy can live well as long as a hospital is built
.
Such pharmacies have neither the desire to sell nor the willingness to acquire and expand, and the market is completely fragmented

Of course, since three-quarters of the prescriptions have flowed out of medical institutions, the total scale of this market is very large.
As of 2019, the division ratio of medicine in Japan has reached 74.
9%, and the sales of prescription drugs are 7.
75 trillion yen, which is 452.
9 billion yuan.
Accounted for 18% of the entire medical expenditure, of which adjustment fees accounted for 30%, and the rest is medicine expenses
.
Calculated according to the proportion of prescriptions released, the total cost of prescription drugs sold in pharmacies is 5.

However, with the continued decline in prescription drug prices, especially Japan’s generic drug substitution strategy, which has promoted the shrinking of the prescription drug market, the prescription drug market has been stagnant since 2016
.
The prescription drug market reached its peak in 2015, with a scale of 7.
87 trillion yen.
In 2016, the scale dropped to 7.
5 trillion yen.
Although it rose to 7.
71 trillion yen in 2017, it dropped to 7.
47 trillion yen again in 2018.
Trillion yen, which rose to 7.
75 trillion yen in 2019, but it never exceeded 2015
.

It stands to reason that after the market is saturated, mergers and acquisitions will be the main development model, which will push up market concentration
.
However, because the market is highly fragmented and each prescription pharmacy has a close relationship with the hospital, market integration is very difficult
.
Even if a single or small chain is willing to sell, buyers only buy the pharmacy itself and not the relationship with the medical institution, and the close relationship between the hospital and the pharmacy is the root of the source of prescriptions
.
Therefore, even if a large chain is willing to conduct mergers and acquisitions, the effect is not good.
This forces prescription dispensing pharmacies to expand into the field of cosmeceuticals and conduct more non-drug sales instead of strengthening the sales of prescription drugs
.

Because the gross profit of prescription drugs is not high, the gross profit of prescription pharmacies is also low, AIN is only 16%, while Heyu, a non-drug-based pharmacy, can reach 29%
.
Moreover, the labor cost of selling prescription drugs is very high
.
Japan stipulates that each pharmacist shall not exceed 40 prescriptions per day, which brings a lot of pharmacist personnel costs to prescription pharmacies
.
For example, AIN has 5,273 pharmacists, accounting for 40% of the total number of employees, which is equivalent to an average of 4.
85 pharmacists in each pharmacy, which is unimaginable in the Chinese market
.

Therefore, judging from the case of Japan, prescription drug retail is a highly fragmented market in a market dominated by medical insurance.
Even if there is a certain level of development for leading companies, it is difficult to achieve a high degree of concentration
.
Moreover, with the continuous development of generic drug substitution strategies, the gross profit and market size of prescription drugs have continued to decline
.

If we go back to the Chinese market, when prescription drug retailing was just starting, the introduction of centralized procurement of prescription drugs directly contributed to the continuous shrinking of the market size, which significantly reduced the gross profit of pharmacies
.
Even if some prescriptions can flow out, it will not increase the revenue of retail pharmacies much
.
Although pharmacies have always told stories about the use of prescription drugs for drainage, in fact, it can be seen from the case in Japan that prescription drugs are directly entered into the hospital side store, and the user's consumption is very purposeful, not like buying OTC or health products.
With a certain degree of randomness, the so-called logic of using low-hair prescription drugs to drive high-hair non-drug sales is not smooth
.

Therefore, from a business perspective, as long as there is a strong hospital network, prescription drug retailing can bring sustained and stable income, which is a good business
.
However, from the perspective of business models, leading prescription drug retail companies will not have the expected capital value.
This is because, in the absence of large-scale policy subsidies, prescription outflows from the Chinese market are more difficult
.
More importantly, because the market is highly fragmented, the growth space of leading companies is relatively limited
.