Cut pipelines, sell assets! 'Demolition and relocation of the nouveau riche' Li's Big Pharma, why does it continue to lose weight?

The "puffy physique" Li's Big Pharmaceutical Company has embarked on the road of generic drugs, and the road of relying on the introduction of products to strengthen has been bleak before?

Recently, Lee's Big Pharmaceutical announced its third quarter report for 2022: total revenue in the first three quarters was HK $1.036 billion, a year-on-year increase of 8.8%; Net profit was HK$63 million, down 97.1% year-on-year.

Compared with the same period in 2021, there was nearly 9 points of revenue growth, but it fell by 97.1% in profit.

However, such a huge gap in performance is not Lee's fault.

"Demolition" style of sudden enrichment

The high purity profit in 2021 is only because Li's Big Pharmaceutical Factory became a "demolition household":

The spin-off and listing of its Zhaoke Ophthalmology allowed Lee's Pharmaceutical to confirm a one-time profit of HK $2.32 billion that year, which also made the net profit of that year reach a historical peak of HK $1.987 billion, nearly 15 times that of 2020.

Having just experienced the sudden wealth of "demolition and relocation households", money for Li's Big Pharmaceutical, even if it is sitting on a mountain, the net profit of more than ten years at a time can be eaten for several years.

However, in September 2022, Lee's Pharmaceuticals announced that it would sell 100% of its hospitals for HK$226 million.

Judging from the income of Lee's Big Pharma over the years, although the performance has risen slightly in a stable manner, for a listed pharmaceutical company with an annual income of 1.2 billion yuan and has just experienced a sudden wealth, it is not enough to sell its assets in exchange for a profit of 71 million, which does not make Lee's Big Pharmaceutical Company so "thirsty" for money, and what is the reason that Lee's Big Pharmaceutical Company spends a lot of money for small profits?

"Bitter hatred of pressing the gold line year after year,

but to make a wedding dress for others"

Lee's Pharmaceuticals has a rich pipeline of more than 40 projects in early to late stages of development, covering cardiovascular, women's health, pediatrics, rare diseases, dermatology and obstetrics.

Compared with the TOP20 drug R&D scale of global pharmaceutical companies and American pharmaceutical companies, although the pipeline scale of Lee's Big Pharmaceutical cannot squeeze into the global TOP20 list, the United States, which is in the dominant position of drug R&D, can also squeeze into the "upper class" of American R&D pharmaceutical companies.

However, Lee's Pharmaceutical, which has invested so heavily in drug research and development, has an extremely low "cost performance".

According to the third quarter report of 2022, the net interest rate in the first three quarters was only 6.1%, while Hengrui Pharmaceutical, as the "first brother" of domestic drug research and development, had a total revenue of 15.945 billion yuan, a net profit of 3.173 billion yuan, and a net profit margin of 19.9% in the first three quarters of 2022.

3SBio, which is also listed on the Hong Kong stock market, reported 33 products under research in 2022, with a profit of 3.09 billion yuan in the first half of the year, a net profit of 950 million yuan, and a net interest rate of 30.7%.

On the other hand, Lee's Big Pharma, such a low profit margin is really a bit unreasonable.

Lee's Pharma's products are mainly imported, patented and imitated, and before the first generic drug was launched in 2020, there were only two categories: introduction and patent.

From the proportion of product sales from 2017 to 2021, we can see that the proportion of imported products is basically increasing year by year, while the gross profit margin of Li's Pharmaceutical Company in 2017 to 2021 is 67.7%, 65.6%, 60.5%, 64.2% and 63.7% respectively.

It is worth noting that after the proportion of products introduced in 2020 decreased slightly, the gross profit margin also increased from 60.5% in 2019 to 64.2% in 2020.

Although in 2021, the proportion of sales of introduced products increased again and exceeded 2019 by 59.2%, the gross profit margin did not fall below 60%, and even more than 3.0 points higher than in 2019, mainly due to the rapid growth of the sales of the generic drug treprostenil injection of 87.3% and the patented drug You Jing'an of 51.2%, as well as the contribution of the revenue of the two generic drugs of sulfon, Dahepardec sodium injection and sodium phenylbutyrate granules, which were launched in 2021.

However, Lee's Big Pharmaceutical, which relies too much on imported products for revenue, is still in the dilemma of "bitterly pressing the gold line every year, but making a wedding dress for others", and the year-on-year decline in gross profit margin in the first three quarters of 2022 is still due to the increase in the purchase price of imported products.

All in order to change "puffiness"

Whether it is a patented product or an imported product, most of the core products of Lee's Pharma are old drugs that have been on the market for many years:

Limaiqing, You Jing'an, Speedojuan, Ruibaote and other patented products were listed in 1998, 2001, 2006 and 2008 respectively, and the introduced products were listed in 2003, 2012, 2013 and 2017 respectively.

Judging from the above product launch time, Lee's Big Pharmaceutical used to start on its own, but after tasting the sweetness of the introduced products, it seems to have undergone some subtle changes.

It is worth noting that in 2020 and 2021, Lee's Pharmaceutical Company successively listed three generic drugs, treprofenil injection, fondaparinux sodium injection and sodium phenylbutyrate granules, which may be the reason why the gross profit margin did not fall below 60% in 2021 when the proportion of sales of imported products exceeded that of 2019.

How to change the "fat physique" of "making wedding clothes for others" may be the most concerned thing of Li's Pharmaceutical Company at present, and to do this, it is inseparable from the development of new products, and even more inseparable from the investment of funds.

The spin-off and listing of Zhaoke Ophthalmology has allowed Lee's Pharmaceutical to come to a "bodybuilding" slimming, which not only brings huge profits to Lee's Pharma at one time, but also as the largest shareholder of Zhaoke Ophthalmology, Lee's Pharmaceutical does not need to consider the capital needs of Zhaoke Ophthalmology, and can continue to enjoy the benefits brought by its development and fully develop the company's business.

In fact, Lee's Pharmaceutical's "bodybuilding-style slimming" was quietly carried out long before the spin-off of Zhaoke Ophthalmology.

In 2020, Lee's Pharmaceutical Company sold a 60% stake in Zhaoke Animal Husbandry, and the sale of its Zhaokang Hospital allowed Lee's Pharmaceutical to focus more on the pharmaceutical field.

It is worth mentioning that Lee's "slimming" is not limited to selling its assets. In 2021, Lee's Pharmaceuticals optimised its pipeline and postponed 14 drug development projects at a cost of HK$191 million.

In 2022, 7 drugs have been approved by the National Medical Products Administration, namely Zingo, INOmax, high-concentration treprofenil injection, Natulan, Teglutik, natreparin calcium injection, and azilsartan tablets, unfortunately, 4 of which are introduced and 2 are imitation.

In addition, in terms of tumor pipeline, Lee's Pharmaceutical has 6 innovative drugs and 4 generic drugs, although the vast majority of the 6 innovative drugs are introduced, but it is worth noting that after the first generic drug was launched in 2020, Lee's Pharmaceutical Company has made more and more efforts on the road of generic drugs, and it seems that it wants to learn from Hengrui Pharmaceutical to gradually transform to independent innovation by relying on generic drugs.

brief summary

Independent innovation is easier said than done.

It is believed that with the listing of more generic drugs of Lee's Pharmaceutical, the capital for innovation and transformation will be stronger, and relying on the introduction of "fat" Lee's Pharmaceutical, it may return to its independent essence in the future and become the main force in the research and development of domestic new drugs.