Peking Circle Technology Group Co., Ltd. (referred to as 'Circle Technology') updated its prospectus for the fifth time on the Hong Kong Stock Exchange on December 18, 2023. The previous four filing times were in October 2021, April 2022, October 2022, and May 2023. Goldman Sachs and CITIC are the joint sponsors of this IPO.

According to the prospectus, Circle Technology is a medical health company focusing on patient medical service cycle services, covering the entire disease cycle of patients, and forming a closed-loop model in the 'medical-pharmaceutical-insurance' field.

Prior to this IPO, Tencent and Sequoia were the main external shareholders, holding 19.55% and 13.03% respectively. In addition, it also includes investments from dozens of well-known institutions such as Qiming Venture Partners, Kunling Capital, and Starquest Capital.

"Selling drugs" business accounts for 95% of revenue, the "medicine-pharmaceutical-insurance" closed loop is the main story.

In terms of financial data, Round Heart Technology's revenue showed a continuous growth trend from 2020 to 2022. Specifically, its revenue in 2020, 2021, and 2022 were 3.629 billion yuan, 5.938 billion yuan, and 7.75 billion yuan respectively. In the first half of 2023, Round Heart Technology's revenue increased by 43.1% from the same period in 2022, reaching 4.645 billion yuan.

In 2022, Round Heart Technology was China's largest offline and online medical delivery platform focusing on prescription drugs in terms of revenue.

The company has a nationwide network of offline and online pharmaceutical stores. Its network includes Yuancun Pharmacy and Miaoshou Doctor online pharmacy. As of June 30, 2023, the company operates 321 pharmacies, with 265 located near hospitals (within 1 kilometer), and 121 identified as major disease medical insurance dual-channel pharmacies.

On its offline and online platforms, the company offers approximately 59,710 products, including 96 out of 123 innovative cancer treatment drugs approved by the National Medical Products Administration since 2015. This highlights the company's position as China's largest online and offline prescription drug delivery platform.

During the period from 2020 to June 30, 2023, the company's outpatient medical services revenue accounted for 97.5%, 94.6%, 93.7%, 95.9%, and 95.0% of the total revenue respectively. At the same time, revenue from outpatient pharmacies and pharmaceutical wholesale services during this period contributed over 96% to the total revenue. Prescription drugs and pharmaceutical sales are the main business of the company, which is part of the 'medication-insurance' in 'medication'.

For inpatient services, the company has developed supply-side empowerment services, focusing on assisting hospitals (especially tertiary hospitals) in achieving intelligence and operational optimization.

As of June 30, 2023, Yuanxin Medical has cooperated with 467 hospitals in 26 provinces of China, including more than 180 tertiary hospitals. From 2020 to June 30, 2023, the proportion of revenue from supply-side empowerment services to the total revenue is relatively low, at 0.1%, 0.8%, 1.1%, 0.6%, and 0.7% respectively. This is the 'medical' part of 'medication-insurance'.

Another important business of Yuanxin Technology is targeted at pharmaceutical and insurance companies. The company provides customized solutions for pharmaceutical and insurance companies, covering the entire process from seeking medical care to outpatient medical care and health insurance, including disease management, pharmaceutical company marketing services, and insurance services (claims, third-party management, etc.).

Since the end of 2019, Yuanxin Technology has started to provide marketing services to pharmaceutical companies. As of June 30, 2023, Yuanxin Technology has provided marketing services to 321 pharmaceutical companies. According to Frost & Sullivan's data, the service targets include the ten strongest R&D pharmaceutical companies in China and 15 of the top 20 pharmaceutical companies globally in terms of sales.

For insurance companies, in 2018, Yuanxin Technology launched medical insurance products for the first time through cooperation with a major insurance company in China, expanding its services in this area.

As of June 30, 2023, Yuanxin Technology has served a total of 177 insurance companies and 8 reinsurance companies, introduced more than 40 new special pharmaceutical insurance products, provided universal commercial health insurance in more than 120 cities, managed 58.3 million policies, and holds the license required to provide insurance services in China.

It is worth noting that these insurance partnerships focus on drugs that are not covered by medical insurance or are new high-priced treatments, including products like CAR-T.

From 2020 to June 30, 2023, Sipai Technology's insurance service revenue was RMB 0.025 billion, 0.131 billion, 0.243 billion, and 1.21 billion respectively. These revenues account for 2.4%, 4.6%, 5.2%, 3.5%, and 4.3% of the total income. This is also part of the "insurance" in Sipai Technology's "medicine-pharmaceutical-insurance."

Some products still have possible compliance issues.

The Beijing Regulatory Authority of the China Banking and Insurance Regulatory Commission recently issued a notice requiring relevant institutions to provide information on products, including some special drugs, targeted drug products, and health insurance products in cooperation with Meixin Health, Sipai Health, Sipai Technology, and other third parties.

Mention these three TPAs (third-party administration service providers), and you'll know it's all about "medical-pharmaceutical-insurance". In the "medicine to insurance" model, patients reduce the cost burden of special or targeted drugs by purchasing health insurance. This model involves insurance companies, pharmaceutical companies, TPAs, and patients.

Simply put, patients take out insurance with premiums lower than the price of the drugs to the insurance company; pharmaceutical companies sell discounted drugs through insurance to benefit from value-added tax deductions; TPAs gain bargaining power by aggregating a large number of patients; insurance companies rely on expanding business volume to increase premium scale.

But such premiums are actually channel fees, which are "offtrack" for the insurance business and do not adhere to the principle of insurance product luck.

The three third-party institutions that regulators are concerned about all have pharmaceutical sales channels, which enable them to collaborate with insurance companies to form a closed-loop model in the "medical-pharmaceutical-insurance" field. This is also the main reason why regulators include their collaborative products with insurance companies in the reporting scope.

Special medicine insurance is one of the representatives. As an innovative insurance product, its essence is to provide insurance protection for specific pharmaceuticals, helping patients alleviate the economic burden. However, in the actual operation process, some products may deviate from the original design purpose and turn into non-insurance businesses in the name of insurance, which is the reason for regulatory attention and submission requirements.

From a business development perspective, Yuancent Technology has already established a closed-loop model of 'medical-pharmaceutical-insurance'. However, in an environment where regulations are gradually tightening, Yuancent Technology will focus more on the pharmacy direction.

Yuancent Technology stated that the net proceeds from this IPO fundraising will be mainly used for further developing outpatient services; developing supply-side empowerment services; developing empowerment services for the medical industry; enhancing technological strength and data analysis capabilities. However, there is still no clear conclusion in the market on how to leverage the advantages of the 'medical-pharmaceutical-insurance' closed-loop model.