Interestingly, among the five innovative drugs of Hansen Pharmaceuticals, only the anti-infective drug Mailinda (morpholinidazole sodium chloride injection) was launched earlier (2014), and the other four (two of which are Anti-tumor drugs) were gradually approved for marketing after May 2019, and sales revenue is still in the climbing stage. Therefore, before 2018, the contribution of innovative drugs to the company's operating income was very limited, and the revenue growth rate was also the lowest among the five companies. As innovative drugs gradually enter the harvest period, sales revenue should have grown rapidly, but due to centralized pharmaceutical procurement and the COVID-19 epidemic, the increase in revenue from innovative drugs will be difficult to make up for the decline in revenue from original generic drugs in the short term.
However, the company’s operating income did not show negative growth. Another important reason is that after 2019, there were 15 high-end generic drugs (including 6 anti-tumor drugs, 4 drugs for treating diabetes, and 3 central nervous system drugs. , 2 drugs for the treatment of cardiovascular diseases) were launched in batches, and the increase in revenue from new products made up for the decline in revenue from old products due to centralized procurement.
Before the start of centralized purchasing, anti-tumor drugs had maintained high growth for two consecutive years, with revenue growth as high as 43.97% in 2018. After the start of centralized purchasing, the anti-tumor segment was first affected, with the revenue growth rate in 2019 falling sharply to 0.34%. As the company added 6 high-end generic drugs and 2 innovative drugs in the field of anti-tumor treatment, the revenue growth rate began to pick up significantly in 2020. The revenue growth rate of anti-tumor drugs in 2021 has reached 37.03%, becoming the main driver of the company's revenue growth. engine.
Central nervous system drugs were greatly affected in 2020, with revenue falling by 38.6%. In 2021, three new drugs have successively increased their sales, allowing the sales revenue of central nervous system drugs to achieve restorative growth; in 2021, anti-infection and metabolism and Other drugs were also affected, with revenue falling by 16.22% and 18.55% respectively. Since Hengmu (emitenofovir fumarate tablets), an innovative drug for the treatment of chronic hepatitis B , was only approved for marketing in June 2021, the sales revenue of that year was unable to drive the revenue of anti-infective drugs to resume growth. With the gradual increase in volume, Hengmu is expected to achieve positive growth in 2022. The same is true for metabolism and other fields. Relying on the gradual increase in volume of 2 innovative drugs and 6 newly launched generic drugs, it has partially made up for the steep decline in sales revenue of old drugs. In 2022, with the continued increase in volume of innovative drugs, the sales revenue will return. The probability of positive growth is higher.
Looking back at the revenue of the past three years, fortunately Hansoh Pharmaceutical has 5 innovative drugs and 15 high-end generic drugs on the market, otherwise the company's operating income will most likely experience continuous negative growth. This is another case of successfully coping with centralized purchasing through innovation. The 2021 annual report shows that Hansoh Pharmaceutical's innovative drug sales revenue was 4.202 billion yuan, a year-on-year increase of 168.90%, and its revenue accounted for 42.30%.
Due to the imbalance in the number and sales scale of new drugs on the market in the four major therapeutic areas, the revenue growth rates of the company's four major categories of drugs vary greatly. The company's revenue structure has also undergone some changes as a result, especially in the treatment areas covered by innovative drugs, the revenue share has increased even more significantly.
Among the four major treatment areas, anti-tumor drugs account for more than 55% of the revenue. With the new indication of Ameile (amitinib mesylate tablets) for the treatment of non-small cell lung cancer (first-line drug) in 2021 Approved in December 2020, it is foreseeable that the proportion of anti-tumor drugs will further increase in 2022, and anti-tumor drugs have become the core source of the company's operating income. This is also a common feature of the five leading pharmaceutical companies covered in this article.
6. Summary
Through the previous analysis of the operating income of the five companies, we can draw the following conclusions:
1. From a static point of view, the direct impact of centralized procurement on drugs lasts for an average of two years. In the year when centralized purchasing is implemented, sales revenue will fall off a cliff. Then, as the availability of drugs increases after price reductions, sales volume will continue to increase. However, for most generic drugs, it is difficult to expand within two years. Sales have increased to the level before the implementation of centralized procurement;
2. From a dynamic perspective, despite experiencing multiple rounds of centralized procurement, the operating income of the five pharmaceutical companies still exceeded the levels in 2018 and 2019.Although the pace of centralized purchasing has a different impact on each company, each therapeutic area, and even each drug, each company can take targeted response measures based on environmental changes to reverse the impact of the impact. ;
3. Looking back at the growth history of the five companies over more than 20 years, almost every company has experienced setbacks and transformations, and has formed its own unique product portfolio, revenue structure, profitability and growth capabilities. In particular, the rigid demand attributes of medicine and the long-term research and development cycle attributes make pharmaceutical companies' operating income highly predictable and less volatile. Therefore, pharmaceutical companies have relatively high risk resistance capabilities.
4. From the perspective of revenue, the main strategies of the five companies to deal with centralized purchasing are:
(1) Accelerate the launch of innovative drugs;
(2) Rapidly expand new indications for innovative drugs that have already been launched;
(3) Accelerate the rapid launch of first imitation, difficult to imitate and improved drugs;
(4) accelerate the introduction of external authorization.
5. Because there are a large number of unmet clinical needs, the market demand for innovative drugs is huge and the revenue growth rate is high, which has become the engine driving the company's revenue growth. Among them, blockbuster innovative drugs often appear in the field of tumor treatment, so the contribution of the five companies' anti-tumor drugs to the company's operating income growth cannot be underestimated;
6, with the high growth of innovative drug income, it will inevitably lead to changes in the operating income structure , that is, the proportion of revenue from innovative drugs will increase significantly. What is reflected in the annual report is the substantial increase in the proportion of anti-tumor drugs revenue;
7. Despite the impact of centralized procurement or other accidental factors, the company's gross profit margin has been under tremendous pressure. However, due to the higher gross profit margin of innovative drugs, some of the pressure will be offset. And with the further increase in the proportion of innovative drugs in revenue, there is a high probability that the company's gross profit margin will increase in the future;
8. After more than two years of adjustments, in 2021, in addition to Hengrui Medicine will be affected by a variety of factors. In addition to the decline, the main business income of the other four companies all showed restorative growth, and all exceeded the amounts in any previous year. It can be seen that the marginal impact of centralized procurement on them has weakened, and the capital market is too pessimistic about the impact of centralized procurement;
9. After more than 20 years of development, except for Hansoh Pharmaceuticals, the other four companies have more or less historical baggage, and some products with low gross profit and low income are still being sold. For these products in the life cycle For products in the mature or declining cycle, companies should sell, divest or discontinue them as soon as possible. It is more important to concentrate resources on innovation.
10. Innovative drugs in the anti-tumor field are relatively concentrated. Due to the huge clinical demand, in the short and medium term, the pressure of competition is not great, but in the long term, there is the possibility that will be rolled into . It is necessary to continue to track their differentiating factors such as technology, process, clinical, and route of administration.
11. After the implementation of centralized procurement and inclusion in medical insurance, while striving to achieve price-for-volume improvement, operational efficiency must be comprehensively improved. Low gross profit margins have forced pharmaceutical companies to adopt the lean management model. Otherwise, every time the contract expires and is re-signed, you will face huge pressure to lose the bid.
12. Normalized centralized purchasing will rapidly increase the concentration of pharmaceutical companies. It can be seen from the fact that the operating income of five companies can still hit new highs during the centralized purchasing process. The law of competition that the strong will get stronger does not exist. With changes, leading companies will have greater opportunities in the future.
13. From the perspective of the structure of main business income, the core products of Hengrui Pharmaceuticals and Hansoh Pharmaceuticals account for a higher proportion and are more focused on their main businesses; China Biopharmaceuticals and CSPC Pharmaceutical Group are in the process of accelerating transformation. The revenue share of innovative drugs has increased rapidly; the revenue share of Fosun Pharma core pharmaceutical business is still low (accounting for only about 50% of total operating revenue), and the revenue share of high-growth, high-gross innovative anti-tumor drugs Only about 10%), which will still drag down Fosun Pharma's revenue growth and gross profit margin improvement.
14, Hengrui Medicine and the other four companies have adjusted at different paces after being impacted by centralized purchasing and the epidemic. The main disturbing factor is the revenue of their blockbuster anti-tumor drug Erica® (PD-1) after its launch in 2020. The growth is too strong and has driven the company's operating income to grow by 18.77% (the other four companies have all experienced significant adjustments in 2020). In 2021, after Erica® (PD-1) was significantly reduced in price and included in medical insurance, it encountered difficulties in admission. problem, resulting in slow sales progress in the first half of the year, coupled with the dual impact of centralized purchasing of old drugs and the new crown epidemic, resulting in a 14.38% decline in oncology drug revenue that year (the other four companies began to recover and grow), if 2021 is Compared with 2019, the compound growth rate of oncology drug revenue still reached 11.18%. Erica® (PD-1) accounts for a larger proportion of revenue, and its revenue fluctuations also make Hengrui Medicine’s revenue fluctuation rhythm different from that of the other four companies. However, as Hengrui Pharmaceutical’s innovative drugs are successively launched and Iri With the approval of more indications for PD-1, these short-term disturbing factors will gradually be smoothed out.
15. Every era has its own problems, and every stage faces different difficulties and opportunities. The key lies in how to respond and how to turn crises into opportunities. The pharmaceutical industry has a long R&D cycle and a large investment scale, and it requires long-term thinking. . If we look at it from a ten-year or even twenty-year perspective, the internal logic of the long-term growth of the pharmaceutical industry has not changed.
Thirty years ago, we developed generic drugs and APIs from scratch. Twenty years ago, we took another step forward and began to target high-end generic drugs. It is precisely because of the long-term accumulation of Chinese pharmaceutical companies in the field of generic drugs that they can replace imported drugs in most therapeutic areas, which has laid the material foundation for the centralized procurement of medicines across the country. (This is also a huge social contribution). Ten years ago, pharmaceutical companies began to enter the field of innovative drugs again, and now there are domestically produced innovative drugs, which not only meet the needs of clinical medication, but also benefit more patients through price reduction. Of course, the huge domestic market can also bring a good return on investment to innovative drug companies to support their continued development of more and better drugs.
In these three stages, medical innovation has always been the main tone. At different stages and in different external environments, our definition and understanding of medical innovation are also different. However, my country's pharmaceutical companies have made great progress in promoting China's pharmaceutical industry along the way from raw materials to general drugs, high-end generic drugs, innovative drugs... and its main driving force is innovation.
Looking back on the past thirty years, pharmaceutical policies have undergone many changes, and their impact on pharmaceutical companies has always existed. However, many people were confused at the time, but after experiencing it, they found that the context is so clear, that is, to establish a good pharmaceutical industry. Ecology, taking into account both economic and social benefits, does not just regard pharmaceutical companies as lambs to be slaughtered (in the profit analysis in the second part of this article, it can also be clearly seen that the government's subsidies to pharmaceutical companies have increased significantly) .
After the centralized procurement started in 2018, the Science and Technology Innovation Board also opened the door to biotechnology companies in the research and development stage. The relevant policies have become more friendly, and an atmosphere to encourage medical innovation has gradually formed. At present, my country has made great progress in capital, talent, policy, new drug authorization, CRO and internationalization. The gap with the United States and Europe is narrowing, and a market-oriented mechanism for capital, R&D and manufacturing has been initially formed to facilitate Optimize resource allocation for pharmaceutical companies and build an efficient industrial chain. In this unprecedented pharmaceutical ecosystem, whether pharmaceutical companies can go far and how fast depends mainly on their long-term development strategies and execution capabilities. Short-term factors are just a disturbance.
(to be continued)
