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CFO INTERVIEW: 111 Inc.'s Next Milestone is to Scale Business, Consolidate China's Pharma Industry

On its day of debut on the Nasdaq, 111 Inc., China's largest pharma retailer, closed down 20 cents, at $13.80 per share.

Anna Vodopyanova
    Sep 12, 2018 6:53 PM  PT
CFO INTERVIEW: 111 Inc.'s Next Milestone is to Scale Business, Consolidate China's Pharma Industry

China's largest pharmaceutical retailer, 111 Inc. (Nasdaq: YI), debuted on Wall Street Wednesday, raising $130.2 million in its initial public offering.

Priced at $14 per share, the lower end of the expected range, the stock of the Shanghai-based company jumped $2.75 at the open before sliding through the morning, but rebounding in the afternoon. It closed with a final dip, ending the day at $13.80 per American depositary share, down 20 cents from the offering price.

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The stock of 111 closed at $13.80 per share on its debut day, down 20 cents.

(Source: Thomson Reuters Eikon)

The stock price's drop, however, did little to dampen the enthusiasm of the company.

"Becoming a public company is a good milestone. It's also a good starting point for the long journey ahead," 111's chief financial officer, Weihao Xu, said in an interview with CapitalWatch.

111 was founded in 2010 by Gang Yu and Junling Liu. The two, having worked together since Yu ran Dell Inc.'s global sourcing team and Liu served as president of Dell China, created a grocery platform, Yihaodian, or YHD.com, in 2007. Three years later, the two expanded the business to sell medical products.

When Walmart bought a 51 percent stake in Yihaodian in 2012 and later acquired the startup in its entirety, 111 was spun off as a separate business, with Yu and Liu running the company independently from big investors.

In 2016, 111 became China's largest online pharmacy in terms of gross merchandise volume, as reported by consultancy Frost & Sullivan. According to the same report, the company's virtual wholesale pharmacy network, 1 Drug Mall, is the largest in the world.

111 seeks to address a number of problems that China's healthcare industry is facing, Xu said. One is simplifying the process that a patient undergoes to get a refill. Traditionally, in China, patients need to go to hospitals to refill their medication, often having to wait as much as 30 days in the process.

Another issue, Xu said, is China's "extremely" fragmented pharmaceuticals supply system. About 12,000 distributors deliver drugs to China's 450,000 pharmacy stores, of which about half are stand-alone, mom-and-pop pharmacies. The other half are chain stores, with the biggest chains counting up to 5,000 locations.

111's solution is to consolidate the pharmaceutical industry and become the largest drug retailer connecting patients, pharmacies, and pharma companies. Its long-term goal is to build the largest online-offline integrated healthcare platform in China powered by technology.

Xu said that everything the company does is focused on accomplishing long-term goals. "It's interesting that one of our investors said you have to choose between short-term and long-term goals – you cannot satisfy both. I think it is the right way to think."

Currently, the company plans to scale its business as fast as possible to seize the opportunity in consolidating China's pharma industry while it has an advantage over its potential competitors, Xu said. Already, the company delivers products and cloud-based solutions to 100,000 pharmacies.

As to other players in the industry, there are no competitors for 111, Xu said, as there is no other platform that combines the online pharmacy, online health care services, and B2B services for drug manufacturers.

"An Enjoyable Journey"

When asked about the drug safety issues in China, with most recent scandals surrounding a defective vaccine sold by Changchun Changsheng Life Sciences Ltd., Xu said that 111 does not hold liability for the products it sells.

In addition, he said, "we have a very strong control standard and we also work with the best pharmaceutical companies out there." 111 only partners with "high-quality" drug companies and helps them reach customers through its digital platform, Xu added, thus helping the quality of drugs in the market.

As to the persisting political and economic tension between the U.S. and China, Xu said it has had "zero" impact on the company.

"China learns a lot from international drug discovery and innovation from the rest of the world. That's where the trade war has the least impact because we are all aiming to make people's lives healthier and better. It's about people's life quality. We do hope that this won't affect us, and so far we have been quite immune," he said.

Having joined the company in February, Xu said, the months leading up to the company's IPO have been "hectic, enjoyable, and intense." He came from Matthews International Capital Management LLC, a San Francisco-based investment firm focused on investing in Asia, and prior to that, New York and London investment firms. With a background in investment analysis and financial management, he said he was impressed with 111's fast growth when he met the partners in January.

In particular, the experience has been beneficial, Xu said, "in giving me exposure to how a company actually works, specifically, a company in China, where there is an opportunity for an exponential growth."

"It's quite an enjoyable journey, and I'm looking forward to a long tenure with 111 Inc.," Xu added.

Xu said the proceeds of today's IPO in New York would be used for the further development of technology solutions on 111's digital platform, as well as for sales and marketing, as the company seeks to scale its business "as fast as possible."

Now that 111 is a public company, it would also be looking for "synergistic opportunities to grow our business bigger and stronger," Xu concluded.

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