As a service provider in providing express digital healthcare services in China, since our inception in 2014, we have been facilitating the transformation and upgrade of China’s healthcare industry by on-demand pharmaceutical retail and medical consultation, primarily with online-to-offline solutions, including operations related to our online platforms, offline smart pharmacies and express delivery service. We are a service providers in the digital retail pharmacy industry in China and ranked No. 3 in such industry by revenue in 2021 with a market share of 1.0%, and the market shares of the service providers in the digital retail pharmacy industry in China ranking the first and the second by revenue in 2021 was 10.0% and 6.5%, respectively, according to the Frost & Sullivan Report. We are the largest product and service provider in the on-demand digital pharmacy industry in China by revenue in 2021 with a market share of 6.8%, according to the Frost & Sullivan Report.
According to the Frost & Sullivan Report, focusing on express delivery, on-demand digital pharmacies aim to provide last-mile delivery service for users to purchase medicines and usually deliver medicines within 30 minutes to users after orders placed, and the on-demand digital pharmacy industry is a sub-segment of the digital retail pharmacy industry. In 2016, the on-demand digital pharmacy industry accounted for 3.4% of the digital retail pharmacy industry. In 2021, the on-demand digital pharmacy industry expanded rapidly due to the change in patients’ buying habits caused by the COVID-19 outbreak and the market share of the on-demand digital pharmacy industry in the digital retail pharmacy increased to 9.2%. It is expected that the on-demand digital pharmacy industry will continue to increase from RMB24.1 billion in 2021 to RMB65.6 billion in 2025 with a CAGR of 28.4%, according to the Frost & Sullivan Report. Leveraging our integrated online and offline operations, we provide our users with a full suite of on-demand healthcare products and services, such as drug express, online medical consultation and chronic disease and healthcare management:
‧ Drug Express Through our drug express offering, comprising our pharmaceutical and healthcare business, we provide our users with express access to OTC drugs, prescription drugs and healthcare products in a timely and convenient fashion. We have established an omni-channel access network for our drug express offering, including our own online platforms such as our own mobile App and WeChat mini program, third-party online platforms, online distributors and offline purchase directly made at our smart pharmacies.
Our drug express service offering is mainly operated through our online direct sales channel, in which we sell our products directly to users through online platforms, including our self-operated online platforms and renowned third-party online platforms. In addition, we also serve our users through our network of smart pharmacies across China through our offline retail channel, and we distribute products to major e-commerce retailers, or other online distributors, for further distribution to our users through our business distribution channel. As of the Latest Practicable Date, we have established a network of 351 smart pharmacies across 17 cities in China, delivering products through our delivery force nationwide. Under our drug express business, we directly source products from our pharmaceutical enterprises partners, and sell such products to users from our aforementioned three channels. For our drug express service offering through our online direct sales channel, we collaborate with our delivery partners and third-party carriers under outsourcing arrangements and logistics service agreements, who are responsible for delivery of products to our users. We strive to provide our users with streamlined on-demand drug purchase experience, with products delivered to the purchasers within 28 minutes on a 24/7 basis in regions covered by our express delivery service. In 2018, 2019, 2020, 2021 and for the three months ended March 31, 2022, we recorded 9.0 million, 15.9 million, 22.3 million, 35.9 million and 9.1 million sales orders under express delivery model, representing 63.8%, 60.3%, 55.0%, 59.3% and 60.7% of our total sales orders. During the same periods, the revenue contribution of our express delivery model was RMB244.0 million, RMB565.0 million, RMB887.8 million, RMB1,391.6 million and RMB399.2 million, respectively, representing 55.0%, 55.3%, 47.6%, 44.1% and 45.8% of our revenue from online direct sales channel and offline retail channel. During the Track Record Period, the proportion of sales orders under the express delivery model being delivered to our users within 28 minutes was 58.2%, 76.8%, 85.0%, 88.2% and 79.9%, respectively, and the decrease in the three months ended March 31, 2022 was mainly due to some of our smart pharmacies temporarily ceased operations in the same period as required by the lock-down measures adopted in certain operating cities in respond to the COVID-19 outbreak (we were not required to suspend operations in the same period in 2021), and consequently, the other smart pharmacies in the same operating cities not affected by the lock-down measures and the riders assigned to them had to extend their service radius to provide additional delivery services to our users, which adversely affected our delivery efficiency during the same period. Meanwhile, we also offer delivery options such as regular delivery, pre-order delivery, and offline pickup to meet users’ individualized needs. In addition, we provide 24-hour purchase guidance from pharmacists to our users.
‧ Online Medical Consultation
We provide our users with online medical consultation service only in relation to their follow-up online medical consultation demands through our Internet hospitals and our medical team, covering medical conditions such as chronic diseases. As of the Latest Practicable Date, our medical team mainly comprised 20 full-time and 72 part-time doctors, more than 800 external doctors through our collaboration with a third-party medical institution and other medical professionals including 427 pharmacists. The table below sets forth the breakdown of online medical consultation expenses including the remunerations paid to our full-time doctors and part-time doctors and the service fees for external doctors paid to third-party medical institutions by type of doctor for the periods indicated. During the Track Record Period, our doctors did not receive commissions from us, our drug manufacturers or their agents in relation to their prescriptions to patients.
In terms of the services provided by the doctors on our platform, including our full-time, part-time and external doctors, we may be liable for the obligations regarding their services provided, such as claims for medical malpractice, complaints or blunders. However, in terms of external doctors, according to our agreements with the third-party medical institutions, they shall comply with the relevant laws and regulations governing hospitals and physicians, and shall assume responsibility for their actions. In addition, in terms of part-time doctors, according to our agreements with the part-time doctors, we are liable for handling medical damages and disputes arising from the services provided by them on our platform. The part-time doctors shall comply with the relevant laws and regulations, otherwise we may claim the share of relevant responsibility from them afterwards. In terms of full-time doctors, we carry professional liability insurance covering a maximum of RMB3,000,000 in the aggregate over the course of a year. According to our PRC Legal Advisors, there are no mandatory requirements for medical professional liability insurance under current PRC laws and regulations, and according to the Frost & Sullivan Report, it is normal for online consultation platforms to take professional liability insurance for its full-time doctors to cover related risks, while the specific coverage of the issuance maybe variable due to the number of doctors and users of the online consultation platforms. During the Track Record Period and up to the Latest Practicable Date, we have not encountered any medical malpractice arising from the services provided by our full-time doctors. Based on the forgoing, our Directors are of the view that the Company’s professional liability insurance taken for its full-time doctors are sufficient. In relation to the services provided by the external doctors through our platform, relevant third-party medical institutions generally carry and pay for professional liability insurance covering medical malpractice claims for approximately 70% of the external doctors assigned to our platform. As advised by our PRC Legal Advisors, such practice does not violate the PRC laws and regulations, since such medical malpractice liability insurance is not compulsory under the current PRC legal regime. Although we do not maintain insurance policies covering the services provided by the part-time doctors or the external doctors on our platform, we have control on such risks arisen from them by way of contractual arrangements, see “— Online Medical Consultation — Our Medical Team.” Our PRC Legal Advisors have also advised that if we take responsibility regarding the services provided by the part-time doctors or external doctors on our platform, we may claim the relevant responsibilities from the part-time doctors or the third-party medical institutions according to relevant agreements.
During the Track Record Period and up to the Latest Practicable Date, our services were not involved in any material medical malpractice, complaints or blunders. During the Track Record Period, other than psychological consultation services, we did not generate revenue under our online medical consultation services. Our follow-up online medical consultation service is provided on a 24/7 basis, where users are promptly matched with the appropriate doctors and can communicate with them through messages or voice calls. We capitalize on our online medical consultation traffic and provide our users with solutions integrating pharmaceutical products and services. Our online medical consultation service brings increased orders to our online direct sales including express drug business. Users may have the access to our offering of prescription drugs through our prescription verification and renewal service after they acquire prescriptions from professional doctors during online medical consultation.
‧ Chronic Disease and Healthcare Management
To complement our drug express and online medical consultation service offerings, we provide a portfolio of chronic disease and healthcare management service offerings, including medication and dosage guidance, follow-up consultation reminders, prescription renewal, health information feedback and healthcare knowledge management. During the Track Record Period, we did not generate revenue under our chronic disease and healthcare management services. We currently focus on chronic diseases such as oncology, liver diseases, cardiovascular diseases, skin diseases and diabetes, and plan to gradually expand our coverage to other chronic diseases in the future. Our chronic disease and healthcare management service offering helps doctors efficiently track, manage and communicate with users, and helps users establish individualized health profiles, which improve patients’ drug compliance and our precise prediction of their full life-cycle healthcare demands. In addition, it also strengthens user loyalty to our platform and facilitates the development of express drugs and online medical consultation, as well as brings increased orders to online direct sales.
In addition, we also generate a small portion of revenue from other business, consisting of marketing services, marketplace services and other services.
Our drug express service offering and other medical service offerings are synergistically integrated to create a closed-loop business model, which enables us to enhance our brand image and to provide better services to our users. Users of our other service offerings are potential buyers under our drug express service offering, as the high-quality user experience provided by our service offerings enhances our ability to cross-sell additional drugs and health and wellness products. Simultaneously, users purchasing drugs and health and wellness products under our drug express service offering provide organic traffic to our other service offerings, as such users can be attracted by our well-recognized brand, trustworthy product quality and compelling user experience and consequently choose to experience the services provided under our medical service express business, such as chronic disease and healthcare management and services related to DTP pharmacies.
In 2018, 2019, 2020, 2021 and for the three months ended March 31, 2021 and 2022, we recorded a total of 14.1 million, 26.4 million, 40.5 million, 60.5 million, 12.9 million and 15.8 million sales orders from our online direct sales channel and offline channel, respectively, with a CAGR of approximately 62.3% from 2018 to 2021. During the Track Record Period, our ARPO from online direct sales channel (excluding the orders of our partner pharmacies) and offline retail channel was RMB42.4, RMB41.3, RMB47.3, RMB52.7, RMB53.6 and RMB56.3 in 2018, 2019, 2020, 2021 and for the three months ended March 31, 2021 and 2022, respectively. In 2018, 2019, 2020, 2021 and for the three months ended March 31, 2021 and 2022, we also provided our users with a total of 0.1 million, 2.2 million, 4.4 million, 6.8 million, 1.3 million and 1.8 million online medical consultations, respectively. For individual users, based on their refill cycle and medication habits, we also send timely reminders to accurately address their demand for refill prescriptions while improving our repurchase rate.
The synergy between our online medical consultation service offering and our drug express service offering successfully enhanced our users’ willingness to make purchase for our products. In 2018, 2019, 2020, 2021 and for the three months ended March 31, 2022, the conversion rate for our online medical consultation service in terms of realizing sales of product through our self-operated online platforms, defined as the proportion of the number of sales orders placed by users to the number of prescription provided by us from our online medical consultation service, was 51.4%, 69.9%, 68.8%, 77.5% and 81.1%, respectively.
We believe our users are critical to our platform’s growth and our market share. During the Track Record Period, our user base continued to grow as we expanded our business and our product and service offerings. The total number of registered users on our self-operated platforms increased from 15.9 million in 2018 to 33.0 million in 2021, with a CAGR of 27.6%, and further increased to 33.9 million for the three months ended March 31, 2022. In terms of maintaining and increasing the stickiness of our users to our platform, during the Track Record Period, we have continued to expand our portfolio of products on our platforms, and improve our delivery services, such as ensuring the orders under the express delivery model being delivered to our users within 28 minutes. In addition, we have employed a variety of online and offline marketing activities, including a customer loyalty scheme, to maintain and increase the stickiness of our users to our platform. Going forward, to enhance user retention, we intend to further expand the scope of our current offerings. For our drug express services, we will continue to increase the variety of products offered under each category on our platform, especially, prescription drugs, healthcare products such as cosmeceuticals, and home medical devices. For our online medical consultation business and chronic disease and healthcare management business, we intend to establish specialized departments, especially in andrology, liver diseases and skin diseases, to attract more high-calibre medical experts and thus provide broader and more specialized online medical services to our users. We also plan to launch additional reward programs based on our current customer loyalty scheme, such as loyalty points for bonus gifts. In addition, to further expand our user base, we plan to continue to promote and strengthen our brand awareness and plan to cooperate with more third-party channels, especially new online channels such as popular online channels such as short-video platforms, to attract more users to enjoy the product and service offerings on our online platform. See “Business Strategies — Further expand the scale of our business” and “Business Sustainability — Steady Growth of User Base and Increase of User Average Spending”. We believe our selling and marketing expenses will increase with the implementation of the aforementioned strategies going forward, while we will also enjoy the economies of scale along with the growth of our business.
Source: Dingdang Health (09886) Prospectus (IPO Date : 2022/09/01) |