Pharmagest Intereactive: the french health software specialist for the health sector

Applying it’s gameplay to retirement homes, doctors and to Italy

Pharmagest offers software solutions and related products (secure messaging, electronic tag, video surveillance…) to pharmacies, retiring homes, hospitals and now doctors. They offer a one stop shop which offers all the products and technologies to its clients. Pharmacy’s are more and more a service business with patient follow-up.

There are three business units: European pharmacy solutions (historic business), sanitary and medico social establishment solutions (accommodation establishments for the elderly and dependent, nursing services and home hospital, hospital and regional hospital groups) and e-health solutions (digital communication, telemedicine…).

The core business (and which helped develop the other two BU’s) is the pharmacy solutions BU. They started out in France before expanding to Belgium and Luxemburg in 2007 and then Italy in 2018. Market share in France is 44%. Average sales per pharmacy are around 1,6 MEUR in France versus 1,2 MEUR in Belgium. Integration costs at the European level are now over and they can now move forward. Pharmagest clients are the medium and large pharmacies. The smaller one tend to close and the business is captured by the bigger pharmacies. Financial solidity of French pharmacist has been strengthened with the Covid 19 as the state reimburses tests and vaccinations and margins are very high. This wasn’t the case in Belgium.

Sanitary and medico social establishment solutions offer dedicated softwares, patient care to retirement homes. Market share is 28% in France and 30% in Belgium. This is a growing business with the demographics in France and we have a capex light silver economy business. The market is fragmented. They have a 40% market share in Home hospital and are growing quickly.

E-health solutions BU regroups the telemedicine, fragile person (prevention and accompanying), patient adherence to therapy (preparation of doses to administer) and e-connect (secure monitoring of patients at their place of residence and the optimization of their care; dematerialization and security of administrative act, access to tele services) and telehealth (medical telemonitoring, tele assistance to ensure remote monitoring of patients). Fintech is represented by Nanceo which offers financing solutions for renting. It’s a full web IT market place which acts as a hub.

The EBIT margins of the 3 BU are classically high for a software editor: 23,6% for Pharmacy solutions, 37,1% for Sanitary and medico social establishment solutions and 37,6% for e-health solutions.

Some state help to boost digitalization in the French health sector

In France, the Ségur de la Santé has a digital dimension with a 2 billion euros investment program (1,4 billion for health data sharing and 600 MEUR for the health and social sector) from the government to digitalize the health sector. Pharmagest is well positioned to benefit from it.

A cooperative as main shareholder which ensures a strong alignment of interets

The majority shareholder is a cooperative (la cooperative Welcoop) as it owns 66,64% of the capital of Pharmagest (6,17% directly and 60,51% through Marque Verte Santé (98,07% controlled by La cooperative Welcoop). Cooperative clients (pharmacist) are owners, which helps in pushing through Pharmagest products, sharing common values and have value added feedback. Pharmagest will not be taken private as the quotation gives it a nice visibility for its products in Europe.

Some history about La Coopérative Welcoop

Some history is required to understand what the main shareholder brings to Pharmagest. La cooperative Welcoop was created in 1935 and its initial name was la cooperative Pharmaceutique de Nancy (CPN) which then became Cooperative d’Expansion et de Répartition Pharmaceutique de Lorraine (CERP). It is a cooperative of Pharmacist with 4000 members. The Marque Verte entity was set up in 1968 to have an exclusive brand for pharmacy’s. In 2011, the last change of name took place and holds its current name: Welcoop, sets up its own generic drugs laboratory (Cristers) which is used in part by the Wellpharma pharmacist and sold its dispatcher business. La cooperative Welcoop has different brands including Wellpharma, which is a network to which pharmacists, can join and thus benefit from all the different Pharmagest offerings.

Historic Chairman sold his direct holding and change within the management team

The chairman of Pharmagest (Thierry Chapusot) sold his 5,12% stake in February 2021 at a 95,35 € share price. He is probably an indirect shareholder through La Coopérative Welcoop or Marque verte santé. His long standing business partner (Dominique Pautrat) who was managing director is becoming the chairman of the Board of the main shareholder (La Coopérative Welcoop). His successor is the former manager of the Pharmacy business.

The new deputy managing director Gréogoire de Rotalier has for assignement to focus on the sanitary and medico social establishment solutions BU to make it as important as the pharmacy BU. The following table gives you a sense of what it means in terms of numbers and it has higher margins…

The top 3 managers are stock options beneficiaries since 2020. They will each get 15 000 shares which they can subscribe to at 74,46 euros and can exercise at the earliest in December 2024. The incentive appears fair to me and enables to lock up top management.

Strategy: interconnecting all the health professionals digitally and offering them software and related products

The key aim for Pharmagest is to fluidify the information. It helps the health system to be more efficient.

They are patient focused so they are clearly trying to equip as many health professionals as possible.  Pharmagest has two solid software’s offerings in pharmacy and accommodation facility for dependent elderly people. They will try to enter these markets in European countries either by finding entry points (external growth) or by accompanying their important clients in the accommodation facility for dependent elderly peoples. For the latest approach, it could be used to enter Spain with Colisée (one of their clients).

External growth to serve new markets (Italy, doctors), reinforce control on its distribution (ADI), increase market share (ASCA)  and offer new products within it’s expertise (Pandalab)

Pharmagest does lots of acquisitions to acquire know how, market share, enter new markets. Game plan will be classically to integrate the acquisitions and boost their profitability within a larger company with a global offering and a larger sales force. Cash from the historic business was used to expand into the medico social and e-health solutions.

Pharmagest recently indicated that they were looking for acquisitions in two areas (doctors and town nurses where they are absent; pharmacy in other countries through their already existing small subsidiairies): they have realized one in the doctor software business (in September 2021).

It extends their market in France and clearly positions Pharmagest as the health software specialist as they are now serving pharmacists (historical business), retiring homes (following some acquisitions recently: Malta Informatique) and doctors.  This will give them a new dynamic in France which they will probably use later to expand in Italy, Germany and Spain.

The Prokov Editions acquisition is quite a change. It is a doctor’s software editor (with 13 000 users, 20 employees, with the founder staying on board for another 2 years, 3,9 MEUR in sales, 1,1 MEUR EBITDA for a year where they are upgrading their current software and based in Nancy which probable helped to convince the seller as Pharmagest is historically based there) and holds the 3rd position in France. Even better, they are the leader in the Mac environment. This isn’t neutral as doctors use a lot Apple.

Electronic tags market share was improved through the Asca deal. The acquisition price was approximately 10 to 12 MEUR. Asca reaches customers which were not served by Pharmagest’s Offitag offering. Indeed, Offitag only works out with to those who already have Pharmagest software. Asca product on the other hand address all the other solutions. It is a less integrated solution but brings much more information. The average sell basket is 2,500 labels to a client. The price of the label is 12 euros. It is a subscription business with recurring revenues.  ASCA (450 000 labels) + Pharmagest (800 000 labels) enables them to have 1.2M labels... In addition, Pharmagest negociated a lower price from the supplier and got exclusivity…

The ADI acquisition enabled them to acquire their distributor in Ile de France which concentrates 18% of French pharmacy’s. They now hold 100% up from 50%. From now on, they can now offer all the Pharmagest products and will help them to improve their market share.

Pandalab (56,27% ownership) is their offering of a secured whattsapp for health. Health professionals are using whattsup which could bring up some privacy issues. The product was offered for free during the pandemic, a point to follow will be to see how well it monetizes from now on. In a certain way, which you can disagree with, Pharmagest as an investor in French health tech companies and brings them scale.

With its history of acquisitions, we can follow some of them through the annual report. The most profitable ones are Kapelse (remote data transmission: 40.8 % net margin for which Pharmagest increased its ownership to 75% in 2020), Malta Informatique (software for the housing establishments for dependent Elderly people: 31.5% net margin), Asca Informatique (electronic labelling: 15.2% net margin). The biggest subsidiaries are the central purchasing entities (EHLS), offers pharmacists the financing of their IT equipment (Healthlease), their fintech (Nanceo).

The loss making entities are startups acquired for their know how: Sailendra (artificial intelligence), Diatelic (an intelligent telemedicine system applied to dialysis), Dometic (smart pill box).

Game plan is often to acquire a majority stake and then increase stake gradually and keep some minority shareholders who are the founders.

Italy the new France? 90% market share with the wholesaler dispatchers and now focusing on pharmacy’s

They acquired their first company in 2018 and created organically their branch network. In 2019, they acquired a company which offered pharmacy software’s which at the time equipped 800 pharmacy’s (now 1000).

The network is now structured (understand they have a presence in most of the Italian regions) and they are now aiming to equip pharmacy’s with their software. Their current market share is around 5,5% giving them a nice runway. One specificity of the Italian market is that wholesaler dispatchers and pharmacy’s are very close. The wholesaler defends the catalogue of the pharmacy, finally product prices can change which is not the case in France. As a reminder, la cooperative Welcoop (the main shareholder) began as a wholesaler dispatcher’s before selling this business.

Spain and Germany: potential markets to develop retiring houses and pharmacy markets

Other European countries will be penetrated either through an acquisition or by accompanying a client which already has a local footprint (possibly with Colisée who also has a presence in Spain).

Valuation: not cheap but recurring business in the health sector with Italy and doctors as a new market

With 2020 numbers, FCF yield is at 2% and EBITDA/EV yield is at 4%. 10 MEUR in capex are invested each year in R&D for with 1/3 is capitalized. P/S can be put forward here as we are in the software business: 7,9  We are quite far from the 10% threshold. But that would be forgetting that Pharmagest has a roll out approach to complement its offering and make it even more indispensable within the health sector. They are adding bricks and will continue to do acquisitions. There pay a regular dividend representing a 1% yield with a 90 euros share price. The 10% threshold appears doable as we need 7% growth (as current FCF yield is at 2% and dividend yield is 1%) if they continue to keep their historical growth (8.8% per year in sales for the last ten years and 17.4% on the same time span for the EBIT). After 9 months in 2021, sales have grown by 13% (23% when compared to 2019).Growth will have to keep going on but it is part of their gameplay.

To sum up

With Pharmagest Intereactive you are investing in the health professionals/ health sector vertical. Acquisitions are small in size that are easier to integrate, complete a software brick, on offering or open up a new offering. France acts as a stronghold where market share is high but still can be improved, Italy is the new “France” as it is the main area of focus. An additional dimension could be added: investing with Pharmagest is also investing in a company acquiring potentially interesting health tech companies and some of them could offer great returns or complete the offer.

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Disclaimer: The above article constitutes the authors’ personal views and is for entertainment purposes only. It is not to be construed as financial advice in any shape or form. Please do your own research and seek your own advice from a qualified financial advisor. The authors may from time to time hold positions in the aforementioned stocks consistent with the views and opinions expressed in this article. Disclosure – we hold a position in Pharmagest Interactive at the time of publishing this article (this is a disclosure and NOT A RECOMMENDATION).