Monday, March 1, 2021
 
Columnist
Martin Hennecke
 
WUYI PHARMA
HKEx Stock Code : 01889 
 
Corporate Profile
The principal activities are the development, manufacturing, marketing and sales of pharmaceutical products.

Business Review - For the year ended December 31, 2012

Reviewing the whole year of 2012, the development of China's medical industry has experienced various opportunities and challenges. At the beginning of the year, the State Council issued the ¡§The planning and implementation scheme to deepen the pharmaceutical and healthcare systems reform during the period of the Twelfth Five-Year Plan¡¨ (¡§Twelfth Five-Year Plan for Pharmaceutical Planning¡¨), which is intended to raise the overall drugs usage and develop the drugs distribution channels for boosting product sales of pharmaceutical companies. With the implementation of the ¡§Administrative Measures Governing the Production Quality of Pharmaceutical Products (2010 Revision)¡¨ (the ¡§New GMP¡¨) since March 2011, the elimination of non-compliance enterprises within the industry has accelerated. In addition, the domestic products prices continued to rise sustainably, and the costs of production and sales such as pharmaceutical raw materials costs, packaging costs, advertising costs and labor costs also increased continuously; which made pharmaceutical enterprises facing a more difficult challenge while experiencing integration development. Under the complex market environment, Wuyi Pharmaceutical will continue the established policy of ¡§consolidating its existing business and market; and strengthen the research and development of new drugs¡¨, strive to promote and expand the sales, maintain its market share, enhance operation effectiveness and commit to balance the relationship between short-term and long-term development.

In face of the multiple challenges arisen from the State policies and market competition, the Group adjusted the prices downward in order to maintain market competitiveness and market share. The overall prices of Western medicine and Chinese medicine have undergone price downward adjustments of approximately 1.6% and 1.1% respectively; and the unit price of some products tumbled the maximum by over 15.0%, thus the Group's overall sales turnover of pharmaceutical products declined. In addition, there was an impairment loss amounted to approximately RMB108.1 million in relation to part of the production facilities in one of the factories located in Jianyang city, Fujian Province, which was mainly attributable to non-cash accounting treatment on the impairment loss on these production facilities, and mainly to reflect the value in use of the assets. Therefore, such impairment loss will not affect the future either the performance of the Group's operations and sales; or affect the cash flow of the Group.

For year ended 31 December 2012, the Group has achieved turnover of approximately RMB528.1 million, representing a decrease of approximately 7.2% from the same period of last year (2011: approximately RMB569.3 million). The overall gross profit was approximately RMB179.4 million, representing a decrease over last year of approximately 11.9% and the gross profit margin was approximately 34.0%, representing a decrease of approximately 1.8 percentage points from the same period of last year. During the period under review, the Group recorded loss since its restructuring and listing, and the loss amounted to approximately RMB44.6 million (2011: the profit amounted to RMB56.9 million).

The Group considers its financial position is healthy, and a decline in gross profit margin will not affect the long-term development of the Group. Based on the confidence in future development and coping with the implementation of new GMP in an effective and timely manner, as disclosed in the announcement of change in use of proceeds on 3 December 2012, the Group will use the remaining net proceeds of approximately RMB$300.0 million from its global offering of shares in 2007 (the ¡§Global Offering¡¨) on the construction of a new factory in Haixi Commercial Trading Development Zone, Jianyang City, Fujian Province, including the relevant capital expenditure for the application for and implementation of the new GMP certification on manufacturing facilities. The market competitiveness of the Group will even be greater as the part of the existing and new production facilities in the factories were already in line with the new GMP certification manufacturing facilities.

Development of Major Products

Perilla Oil Capsule

Perilla Oil Capsule is one of the key products of the Group and can effectively control hyperlipidemia. Perilla Oil Capsule was listed in the medical insurance directory of Fujian Province of the PRC in 2009. It has obtained approval from the authorities in Shanxi Province, Inner Mongolia and Xinjiang for listing in their medical insurance directory in 2010. Currently, the Group has been actively expanding Perilla Oil Capsule to the markets of Jiangsu Province and Guangdong Province. The Group continued to place advertisements in televisions and journals so as to promote the quality and popularity of the products. In a fierce competitive industry environment, the sales of the product stabilized and slightly decreased. For the year ended 31 December 2012, turnover of the product was approximately RMB44.5 million, representing a slight decrease of 2.4% over last year, accounting for approximate 8.4% of the Group's total turnover during the year (2011: approximately RMB45.6 million, accounting for 8.0% of the total turnover).

Omeprazole Enteric-Coated Capsules

The Group's new product, Omeprazole Enteric-Coated Capsules which is specifically for inhibiting gastric acid secretion and helicobacter pylori reflux, has officially entered the market in June 2011. The products was welcomed by customers and its sales steadily increased since its launch. For the year ended 31 December 2012, turnover of the product was approximately RMB10.7 million, representing a great increase of 87.7% from the same period of last year, accounting for approximate 2.0% of the Group's total turnover during the year.

N(2)-L Alanyl-LGlutamine Injectible

N(2)-L Alanyl-LGlutamine Injectible is the Group's product with the highest sales turnover. For the year ended 31 December 2012, turnover of the product was approximately RMB63.0 million, accounting for approximately 11.9% of the Group's total turnover during the year (2011: approximately 68.8 million, accounting for approximately 12.1% of the total turnover). During the year, the market competition of N(2)-L Alanyl-LGlutamine Injectible was still fierce; however, by virtue of the Group's appropriate adjustments in sales strategies, the sales performance of the products remained stable.

Other Products

Xiangdan Injectible (specifically for cardiovascular and cerebrovascular diseases) is another popular product of the Group. It won a considerable share in the rural market with the advantages of outstanding efficacy and reasonable price. During the year, the Group continued to promote it in the rural market and hospitals. The sales of the products remained stable. Turnover of 2-ml and 10-ml Xiangdan Injectible was approximately RMB12.1 million and RMB34.6 million, and gross profit margin was 2.4% and 37.1% respectively.

Erythromycin Enteric-coated Capsules is the product of the Group, mainly used in the treatment of inflammation and various types of infection. The sales performance of the product was outstanding during the year. Turnover of the product reached approximately RMB7.9 million and the gross profit margin amounted to 37.5%.

The Group took initiative to cease the production of another western medicine product of the Company, Netilmicin Sulfate and Glucose Injectible because of unstable product quality, and inspection on the product was still underway while the production was suspended.

Development of New Medicines

The Group continued to work and cooperate with the relevant colleges and prompt the research and development of new drugs step-by-step. The Group conducted indication research on Perilla Oil Capsule with Fujian Medical University's Faculty of Medicine, and Fujian Sanai Pharmaceutical Co., Ltd., a wholly-owned subsidiary of the Group, entered into an agreement with Peking University's Faculty of Medicine to conduct ongoing research for new drugs, which were still in process steadily during the year.

Another new product of the Company, Pazufl oxacin Mesilate Injectible, was still undergoing approval preocedures in the year.

Sales agency for drugs

Fujian Sanai Pharmaceutical Trading Co., Limited (¡§Sanai Pharmaceutical Trading¡¨) was the agency of seven types of drugs mainly sold in the five provinces and cities of Fujian, Jiangsu, Zhejiang, Liaoning and Beijing during the period. Sales revenue amounted to approximately RMB12.6 million, representing a year-on-year decrease of approximately 3.1%, accounting for approximately 2.4% of the Group's total turnover in 2012.

Business Outlook - For the year ended December 31, 2012

Looking forward to 2013, with the approaching deadline of the implementation of the New GMP and the promotion of ¡§Twelfth Five-Year Plan for Pharmaceutical Planning¡¨, the phenomenon of the ¡§Strong always strong; Weak remain weak¡¨ mechanism started to become apparent in the marketing competition.

With the approaching deadline of the implementation of new GMP, the elimination rate within the pharmaceutical industry has accelerated. The degree of concentration and standardization of the pharmaceutical industry has gradually enhanced. Although the overall productivity of pharmaceutical enterprises will increase in the long term, the market competition will be intensified and bring certain pressure to product prices in the short term.

¡§Twelfth Five-Year Plan for Pharmaceutical Planning¡¨ focused on the establishment of universal basic medical insurance, basic drugs system and reforms in public hospitals. The participation rate of basic medical insurance has gradually increased; employees' medical insurance and medical insurances for urban residents and New Rural Cooperation covered a population of 1.3 billion, which formed a huge potential for the pharmaceutical market. Under this plan, consolidating the basic drugs system, improving the National Essential Drugs List, facilitating the pharmaceutical production and distribution, getting rid of ¡§Supporting medical industry by pharmaceutical business¡¨, strengthening the public welfare of the public hospitals and improving the drug procurement process will become inevitable, which will be beneficial for expanding the sales channel of drugs and facilitating the products sales of pharmaceutical enterprises.

In respect of drug tendering, the National Development and Reform Commission issued a series of measures and ways to control the price difference between the pharmaceutical wholesale price and product price of pharmaceutical enterprises, in order to solve the problem of unreasonably high markup for retail price of drugs after distributing to market, which further standardizes the production and distribution order of drugs. The innovated mechanism of drug procurement program and the focus of the combined effect of drug quality and price, will gradually change to drug tendering model of Bid Winning at Lowest Price, which is favorable for long-term healthy development of the pharmaceutical enterprises and even the entire industry.

In view of this, the Group will continue to adopt a steady development strategy while actively expanding sales channels, grasping development opportunities of primary medical services and sustaining the indepth exploration of markets of rural areas and small communities in cities so as to alleviate the impact of the State policies on the industry and strive for a stable increase of turnover for 2013.

Actively establish new factory to match up with New GMP implementation

To match up with the new requirements in respect of medicine production of the New GMP of the State and to enhance the Group's overall competitiveness in the future, the Group will actively carry out the construction of the new factory in Fujian Haixi Commercial Trading Development Zone. The construction of an integrated building with the functions of quality examination, research and development of new formula and office operation was completed. The purchase and installation of equipment will be conducted from 2013 to 2014, and the maximum capacity will greatly be enhanced after commencement. The Group continues to facilitate the construction of supporting facilities and plans to apply for GMP certification in 2013, with full confidence in getting the approval of the relevant certification.

Deepen sales network to collaborate and enhance sales

The Group will continue to make use of the nationwide distribution network of Jointown Pharmaceutical Group Co., Ltd. to further deepen the sales pipelines. In 2013, the Group will focus on promoting Omeprazole Enteric-Coated Capsules, according to the tendering progress of pharmaceutical products of different provinces and cities. The Group will also promote the extensive uses of the product in curing diseases such as intestines and stomach ulcers by means of TV commercials and new medicine promotion seminars, etc. so as to uplift the sales volume. Meanwhile, the Group will also continue with the promotion of its key products, Perilla Oil Capsule to further increase the brand awareness and acquire more market share of the product.

At the same time, the Group plans to launch large infusion products to urban markets in the year 2013 to 2014, mainly for hospitals nearby, which is helpful for collaborating the sales with the Group's other products.

Increase market penetration and enlarge the coverage of rural markets

The Group's existing sales network has extensively covered the rural market; and distributes products in rural communities in a dozen of southern provinces in China, the Group's sales turnover in the rural market increased steadily. The Group was listed in the medical insurance directory of New Rural Cooperation of Fujian Province, and increased the penetration in community and rural markets by following with the latest trend of national medical reform and New Rural Cooperation, and strived to cover the 2A and 2B grade county hospitals, health centers in villages and towns and rural markets with delivery channels.

The group will cope with the challenges actively. We shall adhere to the principle of losing no time and making the best of time to grasp accurately the market development direction, promoting the existing products and persist in research and development of new drugs; so as to maintain the corporate positive and sustainable development and maximize the returns to shareholders.

Source: Wuyi Pharma (01889) Annual Results Announcement
Chairman Lin Ou Wen Issued Capital (shares) 1,710M
Par Value HKD 0.01 Market Capitalisation (HKD) 521M
 
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