Beijing News (reporter Wang Kara) On June 4, Asia-Pacific Pharmaceutical replied to the inquiry letter of the Shenzhen Stock Exchange's annual report on "the ability to continue to operate and the progress of out-of-control subsidiaries". In the face of a basket of troubles, how should Asia-Pacific pharmaceuticals break the situation?
The sustainability of operations has been questioned, can asia-pacific pharmaceuticals be revitalized?
Asia-Pacific Pharmaceutical's main products are antibiotics, digestive system drugs, supplemented by antiviral, cardiovascular, antipyretic and analgesic drugs, with a total of 101 pharmaceutical approval numbers. In 2019 and 2020, the net profit of Asia-Pacific Pharmaceutical after deducting non-deductions was -1.94 billion yuan and -143 million yuan, respectively, with losses for two consecutive years.
In the annual report inquiry letter, the Shenzhen Stock Exchange asked Asia-Pacific Pharmaceutical to explain whether it has market competitiveness and sustained profitability. In this regard, Asia-Pacific Pharmaceutical said that it has the R & D and innovation capabilities required for long-term sustainable development, and has established a sound marketing system for preparation products, with rich R & D product reserves, market channel resources accumulated over the years and a complete pharmaceutical business industry chain and other core competitiveness, which can provide a guarantee for long-term sustainable operation capabilities. After verification, the annual audit accountant also made a judgment that there was no significant uncertainty about the ability of Asia Pacific Pharmaceutical to continue to operate in the next 12 months.
In 2020, in the case of a 27.41% year-on-year decline in revenue (515 million yuan), the sales expenses of Asia-Pacific Pharmaceutical reached 205 million yuan, an increase of 3.99% year-on-year, of which the marketing fee was 179 million yuan, an increase of 60.3% year-on-year, which also attracted the attention of the Shenzhen Stock Exchange. In this regard, Asia-Pacific Pharmaceutical explained that in order to cope with changes in the industry, market environment and the adverse impact of the epidemic and increase marketing and sales efforts, marketing fees will increase accordingly. Asia Pacific Pharmaceutical believes that this is a common phenomenon in the pharmaceutical industry, and the proportion of sales expenses to revenue is 39.9%, which is in a reasonable range.
How will the Asia-Pacific pharmaceutical industry, whose operating ability has been questioned, break the situation? Asia-Pacific Pharmaceutical said that the profitability of generic drugs has declined, the degree of market competition has been intensifying, and the road to innovation is imperative. The company will further concentrate on the main business, strengthen internal management, increase R & D investment, accelerate the progress of new product research and development, optimize the market layout, increase the marketing promotion and sales of key products, comprehensively promote marketing work, and ensure that the main business operation capacity is further improved and enhanced.
According to the 2020 annual report, the controlling shareholders and actual controllers of Asia-Pacific Pharmaceutical hold a total of 32.99% of the shares of the listed company, which have been frozen or pledged and have been judicially auctioned one after another, while the controlling shareholder, Asia-Pacific Group, is involved in a number of lawsuits, with outstanding debts of more than 800 million yuan due. Are these problems worse for the Asia-Pacific pharmaceutical industry?
In this regard, Asia-Pacific Pharmaceutical said that it is different from the Asia-Pacific Group and the actual controller Chen Yaogen, and remains independent in terms of assets, business, personnel, finances, etc., and the debt pressure of the Asia-Pacific Group will not have a significant impact on its production and operation. However, the shares of the company held by the controlling shareholder and its co-actors are in a state of pledge and judicial freezing (waiting to be frozen), which does not rule out the situation of continued judicial auction and sale in the future, resulting in a continuous decline in the shareholding ratio.
The runaway subsidiary was at a standstill, and internal control deficiencies were questioned
The trouble that makes Asia-Pacific Pharmaceuticals scratch its head the most is actually the runaway subsidiary, Shanghai Xinfeng Biomedical Co., Ltd. (hereinafter referred to as "Shanghai Xinfeng").
In December 2015, Asia Pacific Pharmaceutical acquired 100% of the equity of Shanghai Xinfeng for a high price of 900 million yuan, and its business scope extended to pharmaceutical R&D outsourcing services. At the end of the 4-year commitment period, Shanghai Xinfeng's 2019 performance suddenly fell sharply, and Asia-Pacific Pharmaceutical found that Shanghai Xinshengyuan, a wholly-owned subsidiary of Shanghai Xinfeng, violated the external guarantee matters during its self-examination, and finally Asia-Pacific Pharmaceutical had to announce that it had lost control of Shanghai Xinfeng and its subsidiaries.
Affected by this matter, Asia-Pacific Pharmaceutical recorded a large amount of goodwill impairment in 2019 and recognized an investment loss of 1.24 billion yuan, resulting in a huge loss in the year. At the same time, the China Securities Regulatory Commission (CSRC) investigated Asia-Pacific Pharmaceutical and Ren Jun, the former actual controller of Shanghai Xinfeng Pharmaceutical, on the grounds that Asia-Pacific Pharmaceutical was suspected of violating laws and regulations on information disclosure, and found that Shanghai Xinfeng had been fined for financial fraud such as inflating revenue and profits for three consecutive years, and the company and related personnel were punished.
After the new peak in Shanghai got out of control, many investors paid attention to its progress and whether production would resume. On June 4, Asia-Pacific Pharmaceutical replied to the Shenzhen Stock Exchange that the personnel of Shanghai Xinfeng and its subsidiaries began to leave their jobs one after another at the end of 2019, and the business has been stagnant, and Shanghai Xinfeng and its subsidiaries are still in a state of lack of key seals and business licenses, unmanaged management operations and loss of important business data. Up to now, Asia Pacific Pharmaceutical has not received the above-mentioned performance compensation payment, and has entrusted a lawyer to take legal measures on performance compensation matters.
Factor company out of control incident, Asia-Pacific pharmaceuticals' internal control capabilities have also been questioned. According to the 2020 Internal Control Self-Evaluation Report disclosed by Asia Pacific Pharmaceuticals, there are no major or significant internal control deficiencies. The Shenzhen Stock Exchange pointed out that as of the end of the reporting period, Shanghai Xinfeng was still in a state of uncontrolled state, and was administratively punished for inflating revenue and costs, and asked Asia-Pacific Pharmaceutical to explain the reasons for "no major or important deficiencies in internal control" and whether the self-evaluation was accurate.
In response, Asia Pacific Pharmaceutical said that it lost control of Shanghai Xinfeng and its subsidiaries in the fourth quarter of 2019, and the investment in Shanghai Xinfeng and its subsidiaries was fully recognized as a loss in the 2019 annual financial statements, and the loss of control of Shanghai New Peak would not affect its financial data for 2020 and subsequent years; at the base date of the internal control evaluation report (December 31, 2020), there were no major deficiencies and material defects in internal control.
However, Asia Pacific Pharmaceutical also admitted that although the internal control is generally effective, the Shanghai New Peak Incident shows that there are deficiencies in the management of overseas investment projects and risk control, and it is necessary to further strengthen project due diligence, risk control and post-investment management.
Proofread by Zhao Lin
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