China Resources Sanjiu: Total Collapse!
Here is the translation of the provided text into English: -8.93%, -5.46%, -3.62%, -2.23%, these are the market's direct feedback on centralized procurement.
From September 10th to 13th, China Resources Sanjiu (000999.SZ) experienced a "four-day losing streak," with a cumulative decline of 18.87%, and its market value directly lost 10.878 billion yuan.
After this drop, China Resources Sanjiu's increase for this year has been completely wiped out, with a year-to-date decrease of -2.43%.
It is worth noting that during this decline, the weekly transaction amount reached an unprecedented high since 2023: 3.796 billion yuan.
Large capital is reassessing the company's intrinsic value.
Advertisement
On September 9th, the Anhui Provincial Medical and Pharmaceutical Joint Procurement Office issued the "Anhui Province 2024 Annual Centralized Volume Procurement Document for Chinese Patent Medicines (Draft for Comments)," which is about to initiate centralized procurement of Chinese patent medicines.
This procurement includes 18 product groups and 35 Chinese patent medicines, including Shenqi Jiangtang, Ciwujia, Diyu Shengbai, Duweiyi, Ganmaoling, Shuanghuanglian, Naoxintong, Tongxinluo, Naoxin'an, etc.
Among them, Ciwujia (oral), Ganmaoling, and others are OTC drugs.
In 2021, Hubei took the first shot at Chinese patent medicines, leading a provincial alliance of 19 provinces to carry out centralized volume procurement of Chinese patent medicines.
Although the variety of medicines involved in Anhui's procurement this time is not large, it was the first time that OTC was included in the scope of centralized procurement, which has a much greater impact than the Hubei Chinese patent medicine procurement.
This has sent a signal to pharmaceutical companies and the market that there is no "safe zone" for centralized procurement.
The Ganmaoling series is the core product of China Resources Sanjiu.
In 2022, the terminal sales of Sanjiu Ganmaoling exceeded 3 billion yuan for the first time, and in 2023, sales increased by 1.8% to 3.079 billion yuan, contributing more than 1/4 (26.3%) to the company's self-diagnosis and treatment (CHC) business.
Self-diagnosis and treatment (CHC) corresponds to the company's over-the-counter (OTC) business, which now accounts for more than half of the company's revenue.
In the first half of 2024, the company's revenue increased by 14% to 7.733 billion yuan, accounting for 55.11% of the total revenue.
In the first half of this year, the company's OTC business gross margin reached a new high in nearly 9 years, at 62.87%.
Thanks to the increase in OTC revenue and the improvement in gross margin, the profitability of China Resources Sanjiu has been enhanced.
In the first half of 2024, the company's revenue was 14.106 billion yuan, with a net profit attributable to the parent company of 2.398 billion yuan, and a net profit of 2.309 billion yuan, all increasing by 7.3%, 27.77%, and 26.33% year-on-year, respectively.
However, this situation will be disrupted by centralized procurement.
Looking at the first centralized procurement of Chinese patent medicines in Hubei, the average reduction of the selected products was 42.27%, with the maximum reduction being 82.63%.
The squeeze on the profits of the selected products is obvious.
According to the supplementary rules for the selected products in this Anhui procurement, for non-exclusive varieties in category one, if the number of enterprises applying is less than or equal to 2, the minimum reduction in the enterprise's quoted price must reach 30%; if it is greater than 2, it must be reduced by at least 50%.
Exclusive varieties in category two also need to reduce the price by more than 25% to be selected.
Some people may still harbor a glimmer of hope that this centralized procurement is only aimed at the hospital.
This is a bit too naive.
Anhui has set punitive clauses for non-selected products this time.
The procurement situation of non-selected products is included in the key monitoring scope and will be reported regularly.
The procurement volume of non-selected products must not exceed 10% of the actual procurement volume of the same procurement group.
If it is necessary to use drugs from enterprises that have not been selected, it is also necessary to submit a procurement demand to the medical insurance department and explain the situation.
Don't forget that the National Medical Insurance Administration has also issued new rules such as "four sames" and "online price comparison."
The significance of the listed price and the centralized procurement price is not limited to the hospital, and it will have a linkage effect on the retail price.
Some insiders pointed out that this centralized procurement will include a large number of OTC drugs, which will undoubtedly open the prelude to a big PK between the prices inside and outside the hospital.
If a large number of similar drugs participate in the centralized procurement, market competition will also force China Resources Sanjiu to passively reduce prices.
Another core business, prescription drugs, has been under pressure since 2023.
After a year-on-year decrease of 12.64% in 2023, it declined again by 13.07% in the first half of 2024.
This business corresponds to the company's traditional Chinese medicine granules and decoctions.
Previously, because only a few companies could engage in this business, traditional Chinese medicine granules were once considered a cash cow.
This is not an empty statement.
In 2018, the gross margin of prescription drugs was as high as 82.8%.
Unfortunately, the good times didn't last long.
By 2021, it fell below 70% for the first time (65.45%).
This is not the end.
In 2022, the implementation of the new national standard for formula granules led to a significant increase in product costs, and the gross margin of this business fell further below 60% (52.83%).
In 2023, traditional Chinese medicine granules encountered centralized volume procurement by provincial alliances.
With the implementation of the national standard and the provincial alliance centralized procurement for formula granules, market competition has become increasingly fierce.
By the first half of 2024, the company's prescription drug gross margin had fallen to 47.14%.
The "cash cow" halo has long faded!
In the 2023 annual report, China Resources Sanjiu wrote that centralized procurement of Chinese patent medicines has been promoted to cross-provincial alliances, and the scope of centralized procurement has also been extended from Chinese patent medicines to formula granules and traditional Chinese medicine decoctions.
In 2023, the National Chinese Patent Medicine Procurement Alliance, led by the Hubei Provincial Medical Insurance Bureau, was officially launched, covering 30 provinces (regions, cities), with a procurement scope of 64 products, and the average reduction of selected varieties was 49.36%; Shandong led 15 alliance provinces to carry out centralized procurement for 200 national standard traditional Chinese medicine formula granule products, with 59 companies expected to be selected, and the average price reduction was 50.77%.
The implementation of centralized procurement policies, especially the centralized procurement of formula granules, may have a certain impact on the company's business income and profitability in 2024.
If centralized procurement had not expanded, China Resources Sanjiu could indeed be considered an excellent company.
In just three years, the number of products with annual sales of over 100 million yuan has almost doubled, increasing from 21 in 2020 to 39 in 2023.
Among them, a total of 12 OTC (including dual-cross) Chinese patent medicine brands have sales exceeding 100 million yuan, with a total of more than 4.9 billion yuan.
Two exclusive products, Sanjiu Weitai Granules and Yangwei Shu Granules, had sales of 270 million yuan and 120 million yuan in 2023, respectively.
However, the uncertainty factor is that the supply-side reform of medical services is continuing to advance.
On September 10th, at the "Promoting High-Quality Development" series of thematic press conferences held by the State Council Information Office, Yan Qinghui, the deputy director of the National Medical Insurance Administration, pointed out that strengthening regional collaboration and focusing on guiding localities to promote the centralized procurement of Chinese patent medicines, traditional Chinese medicine decoctions, and in vitro diagnostic reagents and other medical consumables.
This shows the determination of the National Medical Insurance Administration to promote the centralized procurement of Chinese patent medicines.
Under such determination, it is not guaranteed that the next single product with sales of over 100 million yuan will be centralized.
After all, there is nothing that cannot be centralized.
In fact, over the past five years, the company's sales gross margin has continued to decline, from 69.02% in 2018 to 53.24% in 2023.
In the first half of 2024, this indicator slightly rebounded to 53.56%, showing a sign of suppressing the decline.
With the inclusion of OTC in the centralized procurement this time, all of this will come to an abrupt end, and the company's profitability is once again shrouded in a cloud of doubt.