The Medical Giant Huadong Medicine's Cosmetics Business Grows at a Slower Pace, Revenue Increases Only by 10%, Can Investment Layout Turn the Tide?

The significant economic benefits of the medical aesthetics (medical aesthetics, or "medical beauty") industry are attracting many domestic pharmaceutical companies to make cross-industry investments. In addition to Huadong Medicine, more than 30 pharmaceutical companies, including Sihuan Pharmaceutical, Jiangsu Wu Zhong, Fosun Pharmaceutical, and Kang Zhe Pharmaceutical, are actively expanding their medical aesthetics businesses and entering this emerging market, hoping that their medical aesthetics businesses will have a positive impact on their company's performance.

After more than 30 years of growth, Huadong Medicine has established four business divisions, including pharmaceutical industry, pharmaceutical commerce, medical aesthetics, and industrial microorganisms. Of these, the industrial microorganisms division achieved significant growth in the first half of the year, with sales revenue reaching 285 million yuan, up 27.43% year-on-year. Huadong Medicine stated that this growth was due to the active expansion of major domestic and foreign clients, and that sales trends continued to be positive, with growth expected to accelerate further.

In the pharmaceutical commerce division, which contributes the most to Huadong Medicine's revenue, sales revenue was slightly down year-on-year, decreasing by 0.58% to 13.552 billion yuan due to weak market demand and policy regulation. Despite this, net profit still achieved a marginal increase, up 0.90% year-on-year, reaching 218 million yuan.

In the pharmaceutical industry division, thanks to the good growth momentum of its core subsidiary Zhonghua-US Pharmaceutical, the entire business division achieved revenue of 6.698 billion yuan (including CSO business), up 10.63% year-on-year. Net profit attributable to shareholders reached 1.385 billion yuan, up 11.48% year-on-year, with a return on net assets of 12.29%.

In terms of R&D investment, Huadong Medicine has also been increasing its efforts. The company's R&D expenditure in the first half of 2024 reached 1.11 billion yuan, up 10.34% year-on-year. Of this, direct R&D expenditure was 761 million yuan, up 14.04%, accounting for 11.58% of the company's pharmaceutical industrial revenue. As of the end of June 2024, Huadong Medicine had 129 pharmaceutical R&D projects, of which 86 were innovative products or biosimilar drugs. In the field of innovative drugs, the company has focused on endocrine, autoimmune, and oncology fields, and its pipeline of innovative products has exceeded 70 items.

In addition, Huadong Medicine has expanded its product line through a series of acquisitions. At the same time as the release of the half-year report, Huadong Medicine announced that its wholly-owned subsidiary East China-US and South Korea's IMBiologics had signed an exclusive licensing agreement for products. According to the agreement, East China-US will obtain exclusive licenses for IMBiologics' two global innovative products IMB-101 and IMB-102 in 37 countries in Asia (excluding Japan, South Korea, and North Korea), including development, registration, production, and commercialization rights.

The medical aesthetics business, which has been a differentiated business segment for Huadong Medicine in recent years, has begun to enter the harvest period as more products are gradually launched in overseas markets. According to the semi-annual report data, in the first half of 2024, the medical aesthetics division of Huadong Medicine achieved a revenue of 1.348 billion yuan (excluding internal offset factors), up 10.14% year-on-year. Specifically, the domestic medical aesthetics wholly-owned subsidiary Xinkeli Meixue achieved a revenue of 618 million yuan in the first half of the year, up 19.78%, making an important contribution to the company's overall performance growth.

Compared with the first half of 2023, the overall revenue and revenue growth rate of the medical aesthetics division and Xinkeli Meixue in the first half of 2024 have both slowed down. In the first half of last year, the revenue of the medical aesthetics division of Huadong Medicine was 1.224 billion yuan, with a year-on-year growth rate of 36.4%, while the revenue of Xinkeli Meixue was 516 million yuan, with a year-on-year growth rate of 90.66%.

In the international market, Huadong Medicine's wholly-owned subsidiary Sinclair UK, as its global medical aesthetics business operation platform, is committed to expanding the global sales of medical aesthetics injection filling products and energy source equipment (EBD) products. However, due to the weak global economic growth and the stage-specific fluctuations in demand for EBD business, the company's revenue was approximately 570 million yuan in the first half of the year, down 14.81%, with an EBITDA of 53.18 million pounds.

It is worth noting that Huadong Medicine has been focusing on the field of photomedical aesthetics in recent years, and has introduced high-quality equipment from around the world through investment and acquisition. In 2019, Huadong Medicine Group (ECPG) signed a cooperation agreement with R2 Company in the US, acquiring the commercial rights of its three products in the Asia-Pacific region; in March 2021, ECPG acquired HighTech, a Spanish medical aesthetic device company, and obtained the commercial rights of its multiple series of products that had already been launched; in February 2022, ECPG acquired Viora, a medical aesthetic device company, and obtained the commercial rights of its series of launched products; in September 2023, the domestic market application for V20 optical radiofrequency treatment device, a product under ECPG's portfolio, has been accepted for review, mainly used for skin tightening, vascular and pigmentary lesion treatment, hair removal, and acne treatment, and is expected to be approved for marketing this year.

Industry experts believe that the medical aesthetics business segment, as a key strategic layout in the future, cannot be fully represented by its short-term business performance. The fruits of the medical aesthetics track require years of cultivation, and its future commercialization ability is worth looking forward to. According to the information, ECPG's medical aesthetics business has a market promotion team of more than 300 people in China, and its product sales network covers more than 80 countries and regions around the world.

As the traditional pharmaceutical industry enters the era of marginal profit, companies must transform to find new profit growth points, which is not only a strategic choice, but also the only way to ensure survival. In this context, industry giants who used to focus on drug research and production are now turning their attention to the promising medical aesthetics market. Sihuan Pharmaceutical is a typical representative of this trend.

In 2020, Sihuan Pharmaceutical's botulinum toxin product, Letibao, was approved, becoming the fourth legally compliant botulinum toxin brand in China, marking the company's official entry into the medical aesthetics industry. Following closely behind, in 2021, Sihuan Pharmaceutical's Through a "self-developed products + cooperative products + exclusive agency" model, Sihuan Pharmaceutical quickly established its brand influence in the medical aesthetics market and currently has 13 medical aesthetics products. After years of strategic promotion, Sihuan Pharmaceutical achieved operating revenue of 1.861 billion yuan and operating profit of approximately 162 million yuan in 2023. Of which, the medical aesthetics business performed particularly well, with revenue of 450 million yuan in the reporting period, up by 200.3% year-on-year.

Huadong Medicine Research and Business Data Table

Pharmaceutical Companies' Layout and Product Information Table in the Medical Aesthetics Industry

Pharmaceutical Companies' Layout and Product Information Table in the Medical Aesthetics Industry