111 Inc's Nasdaq IPO, Ping An Health Cloud's float in Hong Kong likely to spark a trend

111 Inc, China's largest online pharmacy and healthcare service provider that started trading its American Depositary Shares on the Nasdaq stock market in September, is expected to inspire other firms to list overseas or in Hong Kong, market insiders said.

Many popular online pharmacies in China are subsidiaries of established listed pharmaceutical companies. For instance, 360Kad belongs to Taiantang Pharmaceutical Co Ltd, Ehaoyao is from the Jointown Pharmaceutical Group, and Kede is under Conba Group.

Market insiders said online pharmacies began as startups, so are preparing to list in the near future to raise funds for their planned expansion and diversification, and to create an exit route for existing investors.

On Sept 12, 111 Inc raised $100 million from 8.25 million ADS at $14 apiece, at the lower end of the $14-$16 range. However, the amount raised was lower than $148.8 million it targeted from the planned issuance of 9.3 million ADS.

"Floating on Nasdaq is both a milestone and a starting point for 111 Inc, and our mission is much bigger than public listing on the stock market," said Yu Gang, co-founder and executive chairman of 111 Inc.

Yu told media that the high standards and transparency of Nasdaq would push the company toward greatness.

Many online pharmacies have already raised multiple rounds of financing; investors need to withdraw, and listing is inevitable, said Zhang Yibing, general manager of AKang Pharmacy, in an interview to Healthpoint, a network of healthcare and related services.

After online drugstore Jianke raised $50 million in its A round, its CEO Xie Fangmin said: "The company is well-prepared to list in the United States. We estimate to start trading on the Nasdaq stock market in the coming two to three years, and the company will possibly list on other main boards (as well)."

Zou Yuming, former executive director of JP Morgan, was appointed senior vice-president of Jianke, sparking speculation that the company may be preparing to list.

Chen Qiaoshan, a medical analyst at Beijing-based market consultancy Analysys, said: "Online pharmacies have a clear profit model. Currently, the government has favorable policies for them, in that the nation allows prescription drugs to be sold online.

"Being listed on the market is beneficial to these online companies' development, no matter they want to extend offline pharmacy or cooperate with physical hospitals."

Wang Yanxiong, founder of 360Kad, told Healthpoint that companies are also inspired by Ping An Health Cloud Co Ltd, an online pharmacy that listed in Hong Kong in May. Its estimated market value reached tens of billion yuan.

Online pharmacies and Ping An Health Cloud are seen as being under the same healthcare umbrella.

After listing in Hong Kong, sales revenues of Ping An Health Cloud reached 1.12 billion yuan ($162 million) in the first half of this year, according to its financial report. The health business was its fastest-growing section, yielding 628 million yuan in sales, over half of the total.

According to the prospectus of 111 Inc, the company's sales revenue last year was 960 million yuan, and that of the first half of this year reached 731 million yuan.

However, the company is still reeling from losses. In 2017, the company's net loss narrowed by 31 percent to 249 million yuan, and that of the first six months of this year was 129 million yuan.

In 2017, the business-to-customer or B2C section of 111 Inc was valued at 862 million yuan, while the business-to-business or B2B side was valued at 86.89 million yuan. Although running for only over a year, its B2B business is growing rapidly, with the sales revenue reaching 317 million yuan in the first half of this year.

The proportion of its B2B business increased from 9 percent in 2017 to 43.3 percent in the first half of this year. By the end of 2017, its B2B business had covered 48,000 pharmacies, and the repurchase rate of its B2B pharmacies was up to 66.5 percent.