Original title: Stripping the commercial sector, cash flow has improved significantly, Tasly: The product has cast a wide net "all want", and the top priority is still to focus
There are three things that you can't do well.
Author | White cat
Edit | Xiaobai
As a long-established pharmaceutical company, Tasly is a pharmaceutical manufacturing company focusing on modern Chinese medicine, unlike traditional Chinese medicine companies. Founded in 1998 and headquartered in Tianjin, the company was listed on the main board of the Shanghai Stock Exchange in 2002.
Since the beginning of August 2023, the company's stock price has been rising against the trend, especially in December, with a remarkable increase, from early August to the end of December, during which it rose by more than 30%.
(Source: Choice Data)
Since its listing, the company has continuously expanded its business territory in the pharmaceutical industry sector and the pharmaceutical business sector, from north to south and from east to west, with a revenue scale of nearly 19 billion.
The big turning point occurred in 2020, when the company divested the growing circulation sector and began to focus on the pharmaceutical industry sector.
After focusing on the pharmaceutical industry sector, has the company made any breakthroughs in growth? As the company's pillar product, why does Compound Danshen Dripping Pill rank first in the market share of cardiovascular Chinese medicine all year round?
Let's find out.
Divestment of the commercial segment resulted in a significant improvement in cash flow
The controlling shareholder of the company is Tasly Holding Group Co., Ltd., and the actual controller is a family of four, including Yan Kaijing, Yan Xijun, Wu Yifeng and Li Yihui, of which Yan Xijun, Wu Yifeng and Li Yihui are Yan Kaijing's father, mother and spouse respectively. In 2014, Yan Kaijing took over as chairman from his father Yan Xijun.
The company has two business models, one is self-employed, that is, the pharmaceutical industry model, and the other is the third-party product sales, that is, the pharmaceutical business model, which obtains profits through the difference between purchase and sale.
In terms of revenue, from 2013 to 2019, the company grew steadily as a whole, and in 2019, the revenue reached nearly 19 billion yuan, the highest in history.
Subsequently, in 2020 and 2021, it will have negative growth of 29% and 41% respectively, and in 2022 and the first three quarters of this year, it will barely recover, with an increase of about 8% respectively, and the revenue will only be 8.8 billion and 6.6 billion respectively.
(Chart: Market Cap APP)
The reason for the negative growth is that in August 2020, the company sold the equity of its subsidiary Tass Marketing to Chongqing Pharmaceutical for 1.49 billion.
In the fiscal year 2019 before the sale, the revenue of the pharmaceutical business segment accounted for about 67%, and the gross profit was nearly 1.3 billion, accounting for about 21%. The performance of this is mainly contributed by Tass Marketing, so why should the company be in a hurry to sell Tass Marketing?
(Source: Summary of Tasly's Report on the Sale of Major Assets (Draft) (Revised)-20200629)
This must first be linked to the "two-invoice system" policy, which has been gradually implemented in the drug procurement of public medical institutions since January 2017, with the main purpose of reducing inflated drug prices by compressing circulation links.
The "two-invoice system" refers to the fact that the drug manufacturer issues an invoice to the circulation enterprise, and the circulation enterprise issues an invoice to the medical institution. Originally, there would be multi-level distribution from the manufacturer to the hospital, and there were usually seven or eight votes (including production enterprises, national agents, regional agents, provincial agents, regional agents, hospital agents, etc.).
This policy has enabled the company to increase the occupation of accounts receivable, lengthen the collection cycle, and increase the financial pressure.
From 2017 to 2019, the scale of the company's accounts receivable has obviously risen to a higher level, among which the accounts receivable in the commercial field have been hit even more.
At the end of 2019, the company's net accounts receivable was 8.431 billion yuan, of which commercial receivables increased from 4.667 billion yuan at the beginning of the year to 5.590 billion yuan, an increase of 19.76%. Industrial receivables fell from 3.604 billion yuan at the beginning of the year to 2.841 billion yuan, a decrease of 21.17%.
(Chart: Market Cap APP)
Initially, the company was very optimistic, saying that it would help a large organization such as Tass Marketing to increase its market share and gross sales profit.
(Source: Tasly 2018 Annual Report)
However, in less than a year, the company still ripped off the fig leaf, bluntly saying that the market share of the capital-intensive pharmaceutical circulation industry is constantly moving closer to the head enterprises, and the competition is fierce and requires huge capital investment.
As a pharmaceutical distribution enterprise, the scale of more than 10 billion yuan is not small, but compared with the 100 billion scale of leading enterprises such as Sinopharm Group and China Resources Pharmaceutical, the gap is clear at a glance in terms of scale and financial strength.
(Source: Summary of Tasly's Report on the Sale of Major Assets (Draft) (Revised)-20200629)
And the company's own cash flow situation has not been good. The cumulative free cash flow from 2013 to 2019 was only 230 million. In December 2019, the company announced that it planned to sell the equity of Tass Marketing.
After the divestment of the circulation segment in 2020, the cash for the purchase of goods and the payment for labor services decreased, the capital occupation decreased, and the operating cash flow and free cash flow were significantly improved. In 2022 and the first three quarters of this year, the free cash flow will be 1.88 billion and 700 million, respectively.
(Chart: Market Cap APP)
In terms of dividends, from 2013 to 2022, the company has accumulated cash dividends of 4.71 billion, with an average dividend rate of 38%, which is still okay.
(Tabulation: Market Cap APP)
On the one hand, in order to improve operating cash flow, the company strategically abandoned the growth of the circulation sector, and on the other hand, the company said that it would concentrate its resources on the pharmaceutical manufacturing industry.
At present, the pharmaceutical business sector is mainly engaged in retail chain business, with the pharmaceutical industry accounting for about 84% of the revenue and 93% of the gross profit. Therefore, we will focus on the pharmaceutical industry sector next. So what are the highlights of the company in the pharmaceutical industry?
The three-pronged approach has yielded little success
Since 2017, the company has completed the construction of an industrial pattern with the coordinated development of modern Chinese medicine, biological drugs and chemical drugs, focusing on the "three-pronged approach". This year's semi-annual report shows that the company has laid out a total of 95 products.
The product layout seems to be rich, but the company has not made any breakthroughs in revenue scale.
On the whole, the scale of the company's pharmaceutical industry sector hovers between 60-7 billion all year round.
(Chart: Market Cap APP)
In terms of subdivisions, the revenue of traditional Chinese medicine accounts for about 78% of the pharmaceutical industry, followed by chemical drugs and biological drugs, accounting for 19% and 3% respectively.
From 2018 to 2022, there were no surprises in the development of the traditional Chinese medicine business, and it recovered after a sharp decline, with a revenue of 5.56 billion in 2022 and a decline of 1.34 billion in the layout of 57 chemical drugs, which was not as good as in 2018.
(Cartographer: Market Cap APP)
In the biopharmaceutical sector, the company has only one product approved for marketing in 2011 - recombinant human urokinase for injection (Puyuc), which is a class I biological new drug of myocardial infarction-specific thrombolytic drugs.
Since its inclusion in the National Medical Insurance Catalogue in July 2017, Puyou has driven the growth of the biopharmaceutical sector.
(Source: Revised draft of Tasly's plan on spinning off its subsidiary, Tasly Biopharmaceutical Co., Ltd., to be listed on the Science and Technology Innovation Board)
In order to expand the layout of the biopharmaceutical industry and obtain financing, in the process of promoting the spin-off and listing of its subsidiary Tasly Biologics, Tasly Biologics has repeatedly broken into IPOs but has returned without success, and the incident is as follows:
In June 2019, Tasly Biotech submitted a prospectus on the Hong Kong Stock Exchange.
On August 31, 2020, it submitted the application materials for the initial public offering of shares and listing on the Science and Technology Innovation Board to the Shanghai Stock Exchange, and withdrew the application after completing two rounds of inquiries, saying that it mainly considered the annual audit schedule in 2020 and its own business development.
In January 2021, the company announced that Tasly Biotech is expected to continue to promote IPO-related matters after the completion of the annual audit in 2020, and subsequently filed with the Shanghai Securities Regulatory Bureau.
In August 2022, the company withdrew the relevant listing guidance documents.
In fact, from 2018 to 2022, the already small scale of biological drugs almost did not grow. It can also be felt from the company's last withdrawal of the listing guidance document that "comprehensively considers the changes in the capital market environment and the actual operation progress of Tasly Biotech", and it can also be felt that Puyuke is a little high and low, and is not optimistic about the market at present.
Moreover, since Tasly Biotech was approved for marketing in 2011, there have been no new products on the market, and they are all products under development, and the results are really average.
The profitability of the company is average. From 2015 to 2019, the non-net profit margin continued to decline, and the gross profit margin was greatly improved after the industrial sector was divested in 2020, and the non-net profit margin was gradually increased, with the non-net profit deducted in 2022 and the first three quarters of this year being 720 million and 1.05 billion respectively, and the non-net profit margin was 8.4% and 16% respectively.
(Chart: Market Cap APP)
The position of the pillar product with the largest market share is unstable
The company's pillar product is Compound Danshen Dripping Pill, which is a cardiovascular and cerebrovascular oral traditional Chinese medicine product.
(Source: company's official website)
It can be said that the company has slowly grown with this product. In 2001, the sales revenue of compound Danshen dripping pills accounted for about 85%. In 2022, Fengyunjun calculated that the revenue of compound Danshen Dripping Pill will be about 3.6 billion yuan based on the average bid price of 28 yuan/box, accounting for more than 50% of the pharmaceutical industry sector and about 42% of the total revenue.
(Source: Tasly 2022 Annual Report)
From 2015 to 2022, the market size of oral Chinese patent medicines for cardiovascular and cerebrovascular diseases in public medical care has grown steadily, and the industry concentration has been increasing.
From the company's 2015-2022 report, it can be seen that Compound Danshen Dripping Pill ranks first in cardiovascular internal Chinese patent medicine all year round.
(Source: Tasly 2022 Annual Report)
However, judging from the annual report of Yiling Pharmaceutical, Tasly's market share is gradually decreasing, and there may be slight differences in the statistical caliber, but they are all based on the caliber of medical terminals, which was 10% in 2016 and decreased to 9.37% in the first half of 2022.
On the contrary, although the competitors ranked next have changed, their market share is rising, and they are gradually approaching the compound Danshen Dripping Pill. In the first half of 2022, the second and third among similar competing products were Yiling Pharmaceutical's Tongxinluo Capsule and Hutchison Pharmaceutical's Musk Baoxin Pill, with market shares of 8.2% and 7.9% respectively.
In addition, the sales of compound salvia dripping pills have not fully recovered after experiencing a decline and an increase, and it is very likely that this situation will continue and be surpassed by the peers who follow closely behind.
(Source: Tasly, Yiling Pharmaceutical's annual reports, tabulated: market capitalization APP)
R&D investment is the highest, and the transformation of achievements is not high
After focusing on the pharmaceutical industry sector, the company's R&D investment has increased significantly. From the perspective of R&D investment and R&D expense rate, the same industries that are equivalent to or exceed the company's level are mainly Yiling Pharmaceutical and Kangyuan Pharmaceutical.
Yiling Pharmaceutical is engaged in the R&D, production and sales of innovative traditional Chinese medicines, and is in a leading position in the industry in the field of medicine for cold and respiratory diseases.
Kangyuan Pharmaceutical Co., Ltd. is a modern Chinese medicine industry enterprise, with a scale of about 4 billion yuan in the smallest of the three companies, and its representative products include Jinzhen Oral Liquid, Yinqiao Qingre Tablets, etc.
From 2018 to the first three quarters of this year, compared with the same industry, Tasly invested the most in R&D investment, reaching 3.81 billion yuan, Yiling Pharmaceutical and Kangyuan Pharmaceutical were 3.78 billion yuan and 2.73 billion yuan respectively.
In terms of R&D expense ratio, Kangyuan Pharmaceutical is the highest, which has exceeded 14%. Tasly has surpassed Yiling Pharmaceutical since 2021, and in 2022, the R&D expense ratio will reach 9.8%.
(Tabulation: Tasly Annual Reports)
The company's R&D enthusiasm is high, but what are the research results?
Taking the traditional Chinese medicine sector as an example, the company reported in 2022 that three traditional Chinese medicine products have been approved for marketing in the past three years, two of which are Paeonia antispasmodic granules and Kunxinning granules, and the other is compound Danshen Dripping Pills with new indications for diabetic retinopathy.
Judging from the annual reports of Kangyuan Pharmaceutical and Yiling Pharmaceutical, from 2020 to 2022, the State Food and Drug Administration approved a total of 22 new traditional Chinese medicine drugs for marketing, of which Kangyuan Pharmaceutical accounted for 4 and Yiling Pharmaceutical accounted for 3. In contrast, Tasly's achievement transformation is not high.
In the first half of 2023, the company's R&D pipeline covers 97 products, including 26 products in the field of modern Chinese medicine, 12 in the field of biological drugs, and 57 in the field of chemical drugs.
Compared with the situation that Yiling Pharmaceutical focuses on the R&D pipeline and more than 40 varieties under research in the traditional Chinese medicine sector, the company's product layout under research seems to be unfocused.
(Source: Tasly 2023 Semi-Annual Report)
In 2021 and 2022, the company suspended and terminated related projects respectively due to major uncertainties in the research projects and the lack of industrial value due to the expected efficacy, which led to a total loss of more than 450 million yuan in development expenditure.
Among them, Tasly Biotech's R&D project of hepatitis B adenovirus injection (T101) in 2021 involves an amount of 260 million.
(Source: Tasly 2022 Annual Report)
(Tasly's announcement on the suspension of clinical trials and provision for impairment of R&D projects of holding subsidiaries)
By divesting the circulation sector, the company's operating cash flow has been greatly improved, and the dividend is not bad.
However, the company's extensive layout in modern traditional Chinese medicine, chemical drugs and biological drugs has not yet brought business growth and efficient transformation of R&D results.
In the field of traditional Chinese medicine, compound Danshen Dripping Pill is still the company's pillar product, with a declining market share, followed by competing products in the same industry, and the company should think more about how to stabilize the Chinese medicine sector.
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