Quanyuantang Announces $20.3M Acquisition of A-License Pharma E-commerce Firm Zizhuye and Wholesaler Pujiang Kelun to Expand Full-Scale Pharmaceutical Distribution

“Quanyuantang” has returned to the public eye due to an investment announcement.

According to VCBeat (WeChat: vcbeat), Quanyuantang announced a major asset restructuring on May 23. Six months later, Quanyuantang has announced the acquisition of 100% equity in Sichuan Pujiang Kelun Pharmaceutical Trading Co., Ltd. (hereinafter referred to as “Pujiang Kelun”), a pharmaceutical wholesaler, as well as the acquisition of a 51% stake in Sichuan Zizhuye Health Technology Co., Ltd. (hereinafter referred to as “Zizhuye”), a company holding a Class A Pharmaceutical Operation License.

"Pharmaceutical E-commerce"Quanyuantang"The Rise of

Quanyuantang was established in September 2012,It is a retail enterprise integrating pharmaceutical chain stores and pharmaceutical e-commerce.The company's core business comprises retail chain operations and online e-commerce platform sales of pharmaceuticals, medical devices, and related products. Currently, the company offers more than 2,000 SKUs of pharmaceuticals, medical devices, and other product categories.

Three years later, Quanyuantang became the first pharmaceutical e-commerce enterprise in Sichuan to be listed on the National Equities Exchange and Quotations (NEEQ). Leveraging the “Double 11” e-commerce shopping festival, Quanyuantang’s reputation soared. The company achieved prominent rankings across major e-commerce platforms, securing the 9th position in Tmall Medicine, the 4th position on JD.com, and breaking into the top three in Tmall Medicine during the “Double 12” shopping festival.

Subsequently, Quanyuantang was selected as a pilot merchant for the display of prescription drug information on Tmall (the only one in Sichuan Province), chosen by JD.com as one of its first batch of pharmaceutical merchants, and signed a cooperation agreement with Wonders Information to become an online pharmacy partner for the Shanghai Citizen Cloud platform, thereby securing a significant position in China’s pharmaceutical e-commerce sector.

According to reporters, Li Can, Chairman of Quanyuantang, once stated: “Due to the rapid growth of Quanyuantang’s online pharmacy business, sales revenue exceeded RMB 100 million in 2015. Based on the combined sales figures from 2013 and 2014, our growth rate fully meets the requirements for inclusion in the Innovation Tier of the National Equities Exchange and Quotations (NEEQ). Once the tiered listing standards are implemented, we believe Quanyuantang will be among the first companies to join the Innovation Tier.”

Subsequently, Li Can also informed reporters that in 2016, Quanyuantang aimed to achieve RMB 300 million in online sales, reaching an overall scale of RMB 500 million. The company will continue to tap into the potential of its supply chain and strengthen its online pharmacy business, while simultaneously completing strategic deployments in pharmaceutical benefit management (PBM), prescription drugs, and brand digital marketing.

The annual growth rate of pharmaceutical e-commerce exceeds 50%.

In recent years, pharmaceutical e-commerce has become a hotspot in China’s capital markets, with annual industry growth exceeding 50% and the total market size surpassing RMB 10 billion in 2015. Market observers believe that, with the anticipated lifting of restrictions on online sales of prescription drugs, along with the introduction of online medical insurance payments and commercial insurance involvement, the pharmaceutical e-commerce sector is likely to experience explosive growth in 2016.

In recent years, Quanyuantang has vigorously promoted its e-commerce business, achieving sustained high revenue growth; however, the company has remained in a state of loss.

Let’s look at a set of data: In 2014, the company’s revenue was RMB 20.882 million, yet its net profit was -RMB 1.5258 million; in 2015, revenue reached RMB 97.41 million, but net profit still stood at -RMB 4.54 million; by June 2016, the company’s e-commerce business finally began to yield results, with performance growing significantly and turning profitable.

It is worth noting that although the company's performance has increased significantly, it still falls far short of the target set by Li Can, the company's chairman.

Previously, Li Can, the Chairman of the Company, stated that Quanyuantang’s business objectives for 2016 were to achieve RMB 500 million in operating revenue and reach break-even. The company’s B2C e-commerce business was expected to sustain growth and improve gross margin levels, while its strategic deployments in the B2B sector and insurance management domain were beginning to yield initial results.

It was projected that by 2017, the company’s total operating revenue would reach RMB 1 billion and achieve profitability. However, current data show that revenue for the first half of this year amounted to nearly RMB 100 million, falling significantly short of the RMB 500 million target, which underscores the substantial challenges facing sales efforts in the second half of the year.

In this era of intense competition, with favorable tailwinds for entrepreneurship, the key to becoming a leading brand lies in the speed of expansion. As an emerging player, how can Quanyuantang achieve faster growth?

Shortcut: Acquiring Two Upstream Companies for 140 Million

Across various industries, acquisitions may well be a shortcut to success. Notable examples include the mergers of Didi and Kuaidi, Meituan and Dianping, as well as 58.com and Ganji.com.

Pujiang Kelun, the target of this 100% equity acquisition, is a wholly owned company personally controlled by Li Can, Chairman of Quanyuantang. Furthermore, according to Quanyuantang’s 2015 annual report, Pujiang Kelun was the only qualified pharmaceutical wholesaler in the Pujiang region of Chengdu, Sichuan Province. From 2013 to 2015, nearly 100% of Quanyuantang’s purchases of medical and pharmaceutical products from similar transactions were sourced through Pujiang Kelun.

Another acquired company, ZiZhuye, has attracted greater market attention. According to information from the China Food and Drug Administration, ZiZhuye obtained the Class A Certificate for Internet Drug Transaction Services in December 2015, qualifying it to legally operate as a third-party pharmaceutical e-commerce platform. It was one of only 25 such Class A certificates issued nationwide as of December 31, 2015.

In this regard, Quanyuantang’s announcement also stated, “Licenses are scarce resources, and the platform advantages and resource integration capabilities they offer in the future will generate substantial returns.”

Therefore, the Company proposes to issue 15 million shares at RMB 8 per share to acquire 100% equity interest in Pujiang Kelun held by Li Can; and to issue 1.75 million shares at RMB 8 per share plus a cash payment of RMB 6.298 million to acquire 51% equity interest in Zi Zhuye held by six shareholders, including Pengjin Bohuai Private Investment Fund. The assessed value of Pujiang Kelun is RMB 141 million, representing a value-added rate of 228.63%; the assessed value of Zi Zhuye is RMB 39.9225 million, representing a value-added rate of 741.77%.

QuanyuantangLike Pujiang Kelun and Zizhuye, the company operates in the pharmaceutical distribution industry, engaging in pharmaceutical wholesale, retail, and e-commerce. This acquisition will facilitate the company’s expansion upstream into the pharmaceutical wholesale sector from its current pharmaceutical retail operations, thereby leveraging synergies between pharmaceutical wholesale and B2B e-commerce platforms.

At present, it remains to be seen whether Quanyuantang’s acquisition of two upstream companies for RMB 140 million will enable it to thrive in the pharmaceutical e-commerce sector.

In the future, Quanyuantang will continue to tap into the potential of its supply chain and strengthen its online pharmacy business, while also completing strategic layouts in pharmaceutical benefit management (PBM), prescription drugs, and brand digital marketing.PassHealth consulting, pharmaceutical consulting, and insurance consulting; processing and integrating insurance data, insurance claims data, and medical and physical examination data through service outsourcing. Stay tuned!