BEIJING, Aug 23 (TMTPost) —— Stocks related to SPD such as Kaikai Group have experienced a surge in their stock prices. In addition, stocks of Thalys Medical Technology Inc., Jointown Pharmaceutical Group Co Ltd, and others have also experienced unusual fluctuations.
Behind the high market sentiment, is SPD just a capital game of concept speculation? Or is it a market opportunity?
A pharmaceutical analyst told the TMTPost that SPD can help hospitals reduce costs and increase efficiency, and it has a strong market demand. In the anti-corruption campaign in the pharmaceutical industry, the practice of using medicine to fund medical expenses will become a thing of the past. The transparent nature of SPD will indeed bring increments, but the increments are not yet significant and still need time to be verified. In the capital market, some companies do have SPD business, but they are not performing well in related businesses, so one should be cautious of companies that only speculate on concepts.
Expectations for SPD in the Anti-corruption Campaign in the Pharmaceutical Industry
SPD refers to the centralized processing or outsourcing management method for the supply, processing, and distribution of medical supplies, including supporting software and intelligent hardware. In short, SPD can achieve digital traceability of medical supplies in terms of procurement, supply, storage, use, and settlement. This means that in the SPD system, there is no space for arbitrageinmedical supplies, leaving no room for corrupt practices in the pharmaceutical industry.
Therefore, as the anti-corruption campaign in the pharmaceutical industry continues, the concept of SPD in the capital market has become increasingly popular.
Upon closer examination, the main market logic behind this : First, the penetration rate of SPD in public hospitals is very low, indicating a wide market space in the future; Second, the strong demand for the SPD system, especially in significantly improving the operational efficiency of complex medical equipment; Third, policy support.
According to the "Statistical Bulletin on the Development of China's Health and Health Care in 2021" released by the National Health Commission, as of the end of 2021, there were a total of 11,804 public hospitals in China. Based on this market stock, as of October 2022, the penetration rate of the medical device SPD project in public hospitals nationwide is about 5.5%.
The low penetration rate is not only due to medical corruption, but also due to the late development of the SPD project. According to TMTPost, the first batch of SPD projects in China started around the end of 2013, initially focusing on drugs. However, with the implementation of policies such as "zero arbitrage" and "two-vote system" for consumables in 2017 and 2018, related SPD projects were able to quickly expand.
According to data from the China Association for Medical Device Supply Chain Association, the number of public hospitals in China carrying out SPD projects has increased rapidly from 32 in 2019 to 647 as of October 2022, showing strong momentum.
Focusing on the project itself, a hospital may have tens of thousands of different specifications and categories of medical devices, making the operation and management more complex. In addition, pharmaceuticals and medical devices account for about 55% of hospitals' main costs, making SPD projects with "cost reduction and efficiency improvement" a must-have for hospitals.
It is precisely based on these characteristics that the value of SPD projects is relatively high. According to the prospectus of Jianfa Zhixin (A22384.SZ), the average annual fee from the company's main customers per hospital in 2022 is 5.99 million yuan. According to data from Open Source Securities, based on the estimated penetration rate in hospitals of different levels, the scale is expected to reach 13.5 billion yuan by 2025.
It is worth noting that in recent years, the policy side has continued to increase its support for SPD. In documents such as the implementation rules formedical evaluation criteria in Anhui Province, it is mentioned that the use of SPD technology is required to promote hospital intensive operation services and to recognize the use of SPD for the full-process standardized management of medical consumables as the highest level A standard.
With the intensified anti-corruption efforts in the medical field, the SPD project is accelerating its implementation. According to the China Government Procurement Website, last Wednesday, the bid announcement for the regional pharmaceutical SPD project (pharmaceutical software) of the Community Health Service Center in Jiading District, Shanghai was released.On the same day, the competitive negotiation announcement for the centralized distribution service of medical consumables, testing reagents, and pharmacy supply chain logistics (SPD) project of Qingliu County General Hospital was also released.
Concerns about SPD
In terms of competition, according to data from KAIYUAN Securities, Sinopharm currently holds a 41% market share in the SPD market dominated by medical device commercial enterprises. In addition, companies such as Thalys Medical Technology Group Inc. andJointown Pharmaceutical Group Co Ltd also have certain SPD businesses, among which Thalys Medical Thalys Medical accounted for 29.8% of the SPD business in 2022.
TMTPost has learned that SPD is mainly divided into pure hardware and software supplier models, pharmaceutical commercial company service models, pharmaceutical commercial company collection and distribution models, and third-party SPD operating service provider models independent of hospitals and suppliers. The current SPD system mainly covers pharmaceutical commercial companies and hospitals, far from achieving the full-chain model of "raw material manufacturers-production companies-commercial companies-hospitals-patients".
In the above-mentioned modes, there are concerns within the industry that there is low-level competition in SPD. For example, some pharmaceutical companies not only provide SPD system operation and services to hospitals, but also have control over the procurement of drugs and medical devices in hospitals, and also supply drugs and medical devices to hospitals. There have also been cases of some pharmaceutical companies giving SPD services for free.
"First come, first served. It's difficult to say whether it's fair or not," confessed a pharmaceutical company executive.
How to avoid this? Some hospitals have already started limiting from the source. Public information shows that the First Affiliated Hospital of Sun Yat-sen University has stated in the tender documents for medical consumables SPD that "bidders must not have any business relationship with the tenderer regarding the sale of medical consumables"; and the First Hospital of Xi'an City also requires in the tender for SPD drug intelligent supply chain service project that "bidders must not have any business relationship with the tenderer".
In addition, the aforementioned pharmaceutical analyst told TMTPost that there are currently many SPD projects in the market that have not achieved the expected cost reduction and efficiency improvement, and there are also speculative activities by individual investors using this concept.
Trading data from Champion List last Thursday, provided by Orient Fortune.
Take Kaikai Industrial Co Ltd as an example, which is not without speculative activities by individual investors. The Oriental Fortune Lhasa Donghuan Road First Securities Business Department, Oriental Fortune Lhasa Donghuan Road Second Securities Business Department, and Oriental Fortune Lhasa Tuanjie Road Second Securities Business Department , frequently appear on Kai Kai Industrial's recent Champion List.
As for KaiKai Industrial itself, the revenue from SPD business accounts for less than 10%. According to the company's announcement, its subsidiary, Shanghai Leixi Jingyi Supply Chain Management Co., Ltd., responsible for SPD business, had a revenue of 894 million yuan in 2022, which accounts for a relatively low proportion of the company's total revenue. As of the first quarter of 2023, it has not yet achieved profitability. Kai Kai Industrial's net profit in the first half of the year dropped by more than 40% year-on-year.
Executives of SPD companies and industry analysts confessed to TMTPost that the road to anti-corruption in the pharmaceutical industry is long, and the landing of incremental SPD projects also requires a long time. It will still take a long time to truly improveperformance. This also means that SPD is unlikely to have a big breakthrough in the short term.