Sunflower Pharmaceutical has become a household name for its "Little Sunflower" series of publicity for many years, and has gradually established its own brand in the process. Its predecessor was the former Heilongjiang Province state-owned Wuchang Pharmaceutical Factory, and later transformed into a private enterprise, with the publicity of "Little Sunflower", Sunflower Pharmaceutical's performance has also been soaring, with an operating income of 4.4 billion yuan in 2018. However, at the end of 2018, after Sunflower Pharmaceutical's chairman Guan Yanbin fell into the "wife killing turmoil", the company's revenue declined for two consecutive years in 2019 and 2020.
At this time, Guan Yanbin's daughters Guan Yuxiu and Guan Yi became the chairman and general manager of the company. After two years of hard work, starting from 2021, Sunflower Pharmaceutical has gradually come out of the haze, and the company's performance has increased year by year. In 2021 and 2022, the revenue will be 4.461 billion yuan and 5.095 billion yuan respectively, an increase of 28.86% and 14.20% year-on-year respectively.
So how did Sunflower Pharmaceutical get rid of this growth trend, and what are the hidden dangers behind it? This is the question to be studied in this article.
The strength of the old Chinese patent pharmaceutical companies
Sunflower Pharmaceutical is a brand OTC enterprise integrating drug R&D, manufacturing and marketing. The company focuses on small sunflower drugs, supplemented by gynecological drugs and geriatric chronic diseases. It has gradually formed the characteristic drug field of "one small, one old, and one woman".
In terms of products, the first echelon includes two golden single products, liver protection tablets and pediatric pulmonary fever, cough and asthma series, with sales of more than 400 million yuan, the second echelon includes single products with sales of 200 million to 400 million yuan, such as pediatric Chai Gui antipyretic granules, pediatric aminophen xanthamine granules, and small sunflower honeysuckle dew, and the third echelon includes single products with sales of 100 million to 200 million yuan, such as mesalazine enteric-coated tablets, pediatric aminophenamine, Kang Women's anti-inflammatory suppositories, gastric Kangling, and amoxicillin. The other 4 potential varieties (the current sales scale is 10 million level), namely Qi Hu Hawthorn Granules, Pediatric Cough and Phlegm Granules, Pediatric Cough and Asthma, and Pediatric Cold Granules. Pediatric drugs basically account for half of the company's operating income. From the perspective of Sunflower Pharmaceutical's products, it basically meets the common needs of patients for self-diagnosis and treatment. At present, the overall development strategy is to take the brand as the guide and drive the development of the category through the creation of core varieties.
Since 2016, the company's business revenue structure and gross profit structure have remained basically stable, and the company's core product is Chinese patent medicine (such as pediatric lung heat cough and asthma granules/oral liquid, etc.), so the Chinese patent medicine business has been dominant all year round. In 2022, the revenue of proprietary Chinese medicine and chemical medicine will account for about 71% and 26%, respectively, and the gross profit contribution will account for about 70% and 27%, respectively. Chinese patent medicine is the pillar industry of Sunflower Pharmaceutical.
In terms of sales channels, Sunflower Pharmaceutical's subordinate terminal promotion and marketing team ensures the company's terminal control capabilities, and the company has established more than 400 provincial sales teams, with sales capabilities in the forefront of the industry, and the ability to spread new products throughout the country within 7 days. On the hospital side, Sunflower Pharmaceutical has covered nearly 10,000 hospitals across the country. At the same time, for the sinking of market channels, the company continues to dig deep into the market of county-level hospitals, primary medical care and other primary medical institutions. On the retail side, the company covers all provinces, cities and regions except Tibet, establishes contact with more than 300,000 retail terminal outlets, and cooperates extensively with the country's best quality dealers and chain terminals.
From the perspective of sales area, the company's main sales areas are concentrated in East China and Central China, and the southwest region is the latecomer. In 2022, East China generated revenue of 1.262 billion yuan, while Southwest China contributed 861 million yuan and Central China contributed 826 million yuan, ranking third.
The sales model in the large region mainly includes the brand model, the prescription model, the general medicine model and the big health model.
Sunflower Pharmaceutical's brand model refers to the company's first delivery to distributors, and then direct delivery to the terminal, and the distributor's gross profit margin is small, which can basically be regarded as a direct sales model. It mainly sells 11 core varieties such as liver protection tablets, pediatric pulmonary heat cough and asthma oral liquid granules, and pediatric Chai Gui antipyretic granules. At the same time, this model is mainly used by the company's own marketing team to do terminal maintenance and product promotion. In addition, Sunflower Pharmaceutical will add appropriate varieties to the brand sales model according to market conditions and focus on promotion, such as Guizhou Company's Qi Hu Residue and Longzhong Company's Small Sunflower Dew, both of which have shown a rapid growth trend after joining the brand model.
Under the prescription model, Sunflower Pharmaceutical Co., Ltd. mainly faces the terminals of hospitals and other medical institutions, adopts the distribution agency model, and is mostly a first-level distributor under the two-invoice system, and also carries out hospital terminal maintenance and clinical promotion through its own marketing team.
The general medicine model is that Sunflower Pharmaceutical classifies more than 300 varieties according to therapeutic fields, etc., and divides them into five sales areas as a whole, and is responsible for different business divisions. At the level, the "provincial general", "local general" and "county general" have progressed layer by layer, penetrating into the sinking markets such as third- and fourth-tier cities and towns.
Under the big health model, Sunflower Pharmaceutical relies on its own brand power to radiate non-pharmaceutical product lines such as health food, nutrition, medical treatment, and daily necessities. We continued to optimize the product structure, promote category expansion, and quickly completed the offline OTC pharmacies, mother and child stores, third-terminal physical stores, online Tmall, JD.com, Pinduoduo flagship/franchise stores, O2O new retail community marketing, micro-business and other omni-channel coverage.
Sunflower Pharmaceutical Co., Ltd. got rid of the impact of the "wife killing turmoil" of the actual controller on the company through multiple channels, and re-embarked on the fast track of development, but there are no hidden dangers behind this.
2. Sunflower Pharmaceutical's hidden worries
Sunflower Pharmaceutical's performance has grown steadily since 2020, but behind it is a surge in sales expenses. In 2021, 2022 and the first half of 2023, Sunflower Pharmaceutical's sales expenses will be 1.175 billion yuan, 1.274 billion yuan and 720 million yuan respectively, with a year-on-year increase of 34.66%, 8.40% and 35.47% respectively. As for the reasons for the sharp increase in sales expenses, Sunflower Pharmaceutical explained that it was mainly due to the increase in the company's advertising and publicity investment in the market during the reporting period.
In the first half of 2023, advertising and business promotion expenses amounted to 537 million yuan, accounting for 74.58% of sales expenses, an increase of 56% from 344 million yuan in the same period last year.
Sunflower Pharmaceutical's emphasis on brand building and marketing is not shy about it. Sunflower Pharmaceutical mentioned in this semi-annual report that in the first half of the year, the company adopted corresponding brand building scenarios for the off-peak season, key areas and target groups of core products, and carried out brand building in echelon, combination and wide area. Enhance the penetration rate with close to the lifestyle, increase the exposure rate with new media entertainment, and enhance the communication rate with interactive communication, so as to maintain the popularity of the brand and variety.
It is also mentioned in the record of investor relations activities that in terms of marketing management, the company has not only tested the waters of business modules such as live broadcasting, but also built a marketing e-commerce business with data links between marketing front-end and B2B, B2C and O2O. In terms of new media layout, Sunflower Pharmaceutical has also carried out promotion activities with more diversified forms and wider coverage of new media through the five-in-one self-media matrix of Weibo, WeChat, WeChat, Douyin and Xiaohongshu, so as to increase the launch of new varieties in a timely manner and continue to expand brand influence. It can be seen that Sunflower Pharmaceutical is still a strategy of heavy brand marketing.
In the first half of 2023, the company's R&D expenses will be 47 million yuan, accounting for only 1.55% of revenue. R&D investment in the first three quarters accounted for only 2.21% of the company's operating income, and since 2020, the proportion of R&D investment has shown a gradual downward trend.
The decline in R&D expenses will inevitably lead to a decline in the competitiveness of Sunflower Pharmaceutical's products in the long run, and the company's gross profit margin has dropped from about 60% in 2020 to about 57% at present, and the company's gross profit has shown a downward trend with the reduction of R&D expenses.
For drug research and development, Sunflower Pharmaceutical said that in the future, the company will continue to adhere to the strategy of children's drugs, insist on building a single gold product of 100 million yuan, and promote the realization of business indicators with the two-wheel drive of stock product mining and new product supplementation. However, the R&D investment is too low, and industry competitors such as Jichuan Pharmaceutical have maintained more than 5% R&D investment for a long time. If Sunflower wants to achieve its future business goals, it needs to continue to work hard.
At present, the concentration of the children's drug market in mainland China is not high, and Sunflower Pharmaceutical occupies a leading position by virtue of its brand advantage, but as more and more pharmaceutical companies pay attention to the research and development of pediatric drugs, the market competition will become more and more fierce. It is still unknown how long Sunflower Pharmaceutical's layout of "heavy marketing and light R&D" can last. For most pharmaceutical companies, R&D and marketing are both links that cannot be neglected, and the two need to be balanced and coordinated with each other in order to achieve sustainable development.