The advantages of core products have weakened and the operating capacity has declined, and Buchang Pharmaceutical still has frequent working capital
"China Science and Technology Investment" Long Min
Recently, Buchang Pharmaceutical (603858. SH) announced that its wholly-owned subsidiary, Shaanxi Buchang Pharmaceutical Co., Ltd., has adjusted the price of its product Naoxintong Capsule, and the adjusted price has been implemented in all provinces that have been connected to the network so far. This price adjustment involves three types of specifications of Naoxin Tong capsules, with a decrease ranging from 9% to 20%.
Before the price adjustment, the performance of Naoxintong Capsule has declined, and the decline in the performance of core products has also directly affected the revenue of Buchang Pharmaceutical's cardiovascular and cerebrovascular business - In recent years, Buchang Pharmaceutical's cardiovascular and cerebrovascular business revenue has declined year by year, and at the end of 2023, its operating income will be 9.172 billion yuan, a year-on-year decrease of 9.26%.
In addition, Buchang Pharmaceutical's overall operating income, net profit, and net cash flow from operating activities have been on a downward trend to varying degrees in recent years. In this case, Buchang Pharmaceutical still has frequent capital operation. According to iFind data, since Buchang Pharmaceutical announced its transformation in 2018, there have been more than 30 cases of its capital operation.
Prices for exclusive varieties have been reduced
From the perspective of products of different specifications of Naoxintong capsules, the 36 capsules/box of products were adjusted from 21.89 to 23.69 yuan to 19.90 yuan, a decrease of about 9% to 16%; The product of 48 capsules/box was adjusted from 28.95 to 31.59 yuan to 26.26 yuan, a decrease of about 9% to 17%; The 72 capsules/box product was adjusted from 48.31 yuan to 38.81 yuan, a decrease of about 20%.
According to the announcement, the price adjustment of Naoxintong capsules is adjusted in accordance with the spirit of the relevant documents of the National Health Insurance Bureau, which may have a certain impact on the sales performance of Naoxintong capsules, and Buchang Pharmaceutical will continue to strengthen the research and development of new drugs, increase the promotion of reserve products, implement the secondary development of existing products, strengthen professional academic promotion, marketing network construction and international market development, etc., and strive to improve the company's overall performance.
On April 19 this year, the Shanxi Provincial Centralized Bidding and Procurement Center for Pharmaceuticals and Devices issued the "Notice on the Price Adjustment of Related Products of Some Enterprises", mentioning that according to the National Medical Security Administration's "Letter on Reporting the Results of Interviews with Some Inflated Prices of Drugs and Implementing Them", the prices of some products of relevant enterprises will be adjusted, and Naoxintong Capsule is among them.
In January this year, the National Health Insurance Administration also announced that since the beginning of 2023, in response to the monopoly and control of some drugs by a small number of enterprises, inflated costs, etc., the National Health Insurance Administration has interviewed a total of 23 enterprises in 2023, involving 30 varieties, and the average price of the interviewed drugs has been reduced by more than 40%.
Naoxintong Capsule is one of the three exclusive patented varieties of Buchang Pharmaceutical, which is a Chinese patent medicine used in the field of cardiovascular and cerebrovascular diseases, and is currently listed in the 2023 edition of the National Basic Medical Insurance, Work-related Injury Insurance and Maternity Insurance Drug Catalogue and the 2018 edition of the National Essential Medicines Catalogue. According to the data of Minenet, Naoxintong Capsule will rank fourth in the market share of cardiovascular and cerebrovascular Chinese patent medicines in 2022, accounting for 3.13%.
Before this price adjustment, the market performance of Naoxintong capsules had declined. In 2023, the total sales of Buchang Pharmaceutical's Naoxintong capsules will be 2.937 billion yuan, accounting for 22.20% of the company's main business income; In the first quarter of 2024, the total sales of Naoxintong capsules will be 577 million yuan, accounting for 21.87% of the company's main business income.
At the same time, the financial report shows that in 2023, the production and sales volume of Naoxintong capsules (36 capsules/box) will be 41.44 million boxes and 37.43 million boxes, respectively, a year-on-year decrease of 18.68% and 24.98%; The production and sales volume of Naoxintong capsules (48 capsules/box) were 63.93 million boxes and 66.07 million boxes respectively, a year-on-year decrease of 14.55% and 5.16%.
In terms of inventory, the inventory of Naoxintong capsules (48 capsules/box) in 2023 will be 5.89 million boxes, a year-on-year decrease of 27.62%; However, the inventory of Naoxintong capsules (36 capsules/box) was 7.47 million boxes, an increase of 113.60% year-on-year. In this regard, Buchang Pharmaceutical explained in the financial report that "the inventory of Naoxintong capsules increased significantly compared with the previous year, mainly due to the decline in sales."
Zhang Xuefeng, a financial commentator, told the reporter of China Science and Technology Investment: "The price reduction of drugs can be regarded as Buchang Pharmaceutical's response to market changes and policy-oriented measures. It is important to note that the price reduction may have a certain degree of impact on the company's gross margin and profit margin, which also means that the company's future performance may be affected. Therefore, companies need to pay close attention to sales data and adopt corresponding strategies to ensure stable growth in performance. ”
Lin Xianping, secretary-general of the Institute of Cultural and Creative Research of Zhejiang University City College, said: "The reduction in the price of this drug may be part of Buchang Pharmaceutical's strategy to adapt to market changes. It may have a certain impact on the company's short-term performance, as the company's revenue may decrease after adjusting the price. However, in the long run, if the company can offset this impact by adjusting prices and expanding market share, then this price adjustment may not have much of a negative impact on the company's future performance. At the same time, companies also need to pay close attention to market changes and competition to deal with possible risks and challenges. ”
In recent years, capital operations have been frequent
In the field of cardiovascular and cerebrovascular diseases, Buchang Pharmaceutical also holds two exclusive patented varieties of Wenxin Granules and Danhong Injection. However, in recent years, the sales volume of Wenxin granules has also been in a continuous decline. According to the financial report, from 2021 to 2023, the year-on-year changes in the sales volume of Buchang Pharmaceutical's Wenxin granules (9 bags/box) will be -19.27%, -7.14%, and -78.57% respectively.
The weakening of the advantages of the two core products directly affected the revenue of Buchang Pharmaceutical's cardiovascular and cerebrovascular business. Before 2020, the cardiovascular and cerebrovascular business accounted for more than 75% of Buchang Pharmaceutical's total revenue, but in the past three years, the proportion of revenue has dropped to about 70%. In terms of specific revenue, from 2021 to 2023, the cardiovascular and cerebrovascular operating income will be 11.160 billion yuan, 10.107 billion yuan, and 9.172 billion yuan respectively, a year-on-year decrease of 7.65%, 9.43%, and 9.26% respectively.
It is worth noting that the profitability of Buchang Pharmaceutical's other three types of businesses will also decline to varying degrees in 2023. Among them, the operating income of the urology sector was 574 million yuan, a year-on-year decrease of 10.49%; The operating income of the gynecology sector was 577 million yuan, a year-on-year decrease of 16.10%; The operating income of the medical device sector was 649 million yuan, the largest year-on-year decline, 45.71%.
With the decline of the main business, the overall performance of Buchang Pharmaceutical is not ideal. From 2021 to 2023, Buchang Pharmaceutical's operating income will be 15.763 billion yuan, 14.951 billion yuan, and 13.245 billion yuan respectively; The net profit was 1.108 billion yuan, -1.591 billion yuan and 152 million yuan respectively, all of which were in a state of decline.
During the same period, the net cash flow generated by Buchang Pharmaceutical's operating activities was 1.321 billion yuan, 2.756 billion yuan and -196 million yuan respectively. The cash flow in 2023 has decreased by 114.84% compared with 2021, but the ups and downs in 2022 and 2023 have changed greatly. In this regard, Buchang Pharmaceutical said in its financial report that the changes in 2022 are mainly due to the accumulation of operations, which led to an increase in the net cash flow of operating activities; In 2023, the net cash flow from operating activities decreased mainly due to the decrease in sales receipts and the increase in the purchase of goods.
As of the end of the first quarter of 2024, Buchang Pharmaceutical's operating income, net profit, and net cash flow from operating activities were 2.641 billion yuan, 88 million yuan, and 74 million yuan, respectively, a further decrease of 24.88%, 79.88%, and 1.96% year-on-year.
However, in the above-mentioned cash flow situation, Buchang Pharmaceutical still conducts frequent capital operations. In 2024 alone, Buchang Pharmaceutical has planned to invest in the establishment of three companies. In February this year, Buchang Pharmaceutical announced that its holding subsidiary, Changrui Biotechnology (Chengdu) Co., Ltd. (hereinafter referred to as "Changrui Biotechnology"), plans to jointly invest in the establishment of Chengdu Guosheng Biotechnology Co., Ltd. with Chengdu Guosheng Innovation Technology Service Co., Ltd., of which Changrui Biotechnology will invest 7.5 million yuan; In March, Buchang Pharmaceutical announced that it planned to invest 9.4 million yuan to set up a holding subsidiary "Shandong Buchang Trading Co., Ltd."; In April, Sichuan Luzhou Buchang Biopharmaceutical Co., Ltd., a subsidiary of Buchang Pharmaceutical, planned to invest 25 million yuan to set up a wholly-owned subsidiary, Beijing Boyuan Runbu Pharmaceutical R&D Co., Ltd.
In addition, in March this year, Buchang Pharmaceutical announced that the company and its subsidiaries intend to invest in securities with a maximum amount of no more than 30 million yuan of their own funds, including but not limited to stock investment, bond investment, securities repurchase, public funds, exchange funds, etc.; In April, Buchang Pharmaceutical and its subsidiaries planned to carry out wealth management business in financial institutions with a maximum amount of no more than RMB 1.5 billion of their own funds, including but not limited to the purchase of fixed-income or floating income deposit products and wealth management products.
In September 2018, Buchang Pharmaceutical announced its transformation, from marketing-driven to product-driven, and to a technology-based company; From Chinese patent medicine to biological medicine, chemical medicine, medical equipment, Internet medicine and other industries. Since then, Buchang Pharmaceutical's capital operation has been frequent. iFind data shows that since 2018, there have been more than 30 cases of capital operation of Buchang Pharmaceutical, but so many capital operations have had little effect.
"Excessive capital operations may put some pressure on the profitability of the company, because the company needs to invest a lot of money to support these operations, which may disperse the company's resources and affect the operating ability of its main business. Therefore, Buchang Pharmaceutical should be cautious about capital operation to ensure that it can bring long-term and sustainable benefits to the company, rather than short-term and temporary benefits. At the same time, Buchang Pharmaceutical should actively seek opportunities to improve its main business operation capabilities, and enhance the company's core competitiveness by optimizing product structure, improving product quality, and strengthening marketing. In addition, the company can also improve its main business operation capacity by strengthening internal management, improving operational efficiency, and reducing costs. In short, Buchang Pharmaceutical should balance the relationship between capital operation and main business operation to ensure the long-term and steady development of the company. Lin Xianping said.
Zhang Xuefeng also analyzed: "Frequent capital operation may restrict the company's profitability to a certain extent. Although capital operation can bring opportunities for capital liquidity and business expansion, frequent capital operation will also increase the company's financial burden and operational risks. Buchang Pharmaceutical should carefully consider the method and timing of capital operation, and avoid over-reliance on such behaviors to support earnings growth. Instead, companies should focus more on improving the operational capabilities of their main businesses to achieve long-term and solid profitable growth, including product innovation and R&D investment, marketing and channel expansion, cost control and efficiency improvement. ”
The reporter sent a letter to Buchang Pharmaceutical on drug price reduction, performance, capital operation and other issues, but so far, no reply has been received.