Monday, November 30, 2020
 
Columnist
Martin Hennecke
 
FOSUN PHARMA
HKEx Stock Code : 02196 
 
Corporate Profile
Principally engaged in the development, manufacture and sale of pharmaceutical products and medical equipment, import and export of medical equipment and the provision of related and other consulting services and investment management.

Business Review - For the year ended December 31, 2012

In 2012, the Group recorded profit before tax of RMB2,123 million and net profit attributable to shareholders of the Company of RMB1,564 million, representing an increase of 22.93% and 34.13% over 2011 respectively. Increase in operating profit, profit before tax and net profit attributable to shareholders of the Company was mainly due to the further optimization of the product structure of the Group, the increasing competitiveness of the major products, and the continuing rapid growth of Sinopharm Group Co., Ltd. (..Sinopharm''), an associate company of the Group.

During the reporting period, the Group continued to increase its investments, focusing on the R&D of generic biopharmaceutical drugs and innovative drugs. At the end of the reporting period, there were approximately 110 pipeline drugs and vaccines, and five products, including pemetrexed discodium, have been granted with production approvals. During the reporting period, the Group has applied for 70 patents in the pharmaceutical manufacturing segment.

Pharmaceutical Manufacturing and R&D:

In 2012, the Group has overcome a series of challenges in the pharmaceutical manufacturing and R&D segment, and maintained a rapid growth. The adverse factors the Group faced during the reporting period included the ..toxic capsule event'' which resulted in a decrease in sales of capsule products in the whole market and also affected some products of the Group, the relocation of production lines of amino acid products which resulted in a year-on-year decrease in revenue of such products, and the relocation of production lines of anti-malaria products which resulted in the lower-than-expected growth in revenue of such products. In 2012, pharmaceutical manufacturing and R&D segment of the Group recorded a revenue of RMB4,633 million, representing an increase of 20.93% from 2011; and segment results of RMB694 million, representing an increase of 57.37% from 2011, which was mainly due to the changes in the scope the consolidated statements as well as an increase in operating profit of the core pharmaceutical subsidiaries.

During the reporting period, the pharmaceutical manufacturing business of the Group grew rapidly and the development of its professional operational team was further strengthened. In 2012, the Group's major products in therapeutic areas such as cardiovascular system, central nervous system, blood system, metabolism and alimentary tract, and anti-infection recorded a year-on-year growth of 29.13%, 101.37%, 43.26%, 4.59% and 16.67%, respectively. Sales of products including Atomolan, Artesunate series, Ao De Jin, Bang Ting, Shaduolika, EPO experienced rapid growth and sales volume of new products such as You Di Er grew significantly.

In 2012, the Group has 11 formulation items and series with sales revenue over RMB100 million, among which sales of Xin Xian An and Shaduolika exceeded RMB100 million for the first time and the sales of Atomolan exceeded RMB500 million.

During the reporting period, the Group's revenue generated from APIs and intermediate of major products decreased year on year by 6.62% to RMB677 million. The year-on-year decrease in the sales revenue of APIs and intermediate products was mainly due to the factors such as the relocation of the production lines of amino acid products and other products. The construction of the amino acid production lines of Shine Star (Hubei) Biological Engineering Company Limited was completed and the production lines were put into production in the second half of 2012.

While enhancing product sales, the Group also continued its efforts in improving product quality based on international quality standards. During the reporting period, it obtained another PreQualificaiton (..PQ'') from the World Health Organisation for the combined medication of its Artesunate series, which is the fifth PQ for its anti-malaria medicines received by the Company from the World Health Organisation.

During the reporting period, on the basis of the existing R&D system that integrates imitation and innovation, the Group continued to increase its R&D expenditure, improve the development of innovation system, enhance its R&D capabilities, launch new products and strengthen the core competitiveness of the Group. As of the end of the reporting period, the Group had approximately 110 pipeline drugs and vaccines. The Group has completed the construction and selection of highexpressing production cell lines for 3 monoclonal antibody products, and has applied to the State Food and Drug Administration of the PRC for the clinical trial of the first monoclonal antibody product, while the application for the clinical trial of for the second monoclonal antibody product was submitted before the end of 2012. The Group has also applied for the clinical trial approval for an innovative small molecule chemical drug before the end of 2012. Five products, including pemetrexed disodium, have been granted with production approvals. In addition, the Group continued to implement its patent strategy and has applied for a total of 70 patents in the pharmaceutical manufacturing segment in 2012.

Meanwhile, as an ..Innovative Pilot Enterprise'' recognised by the Ministry of Science and Technology, the Group has continued to enhance and improve its development during the reporting period. In July 2012, the Company was named one of the ..Top 10 Most Innovative Companies in China'' in a survey on the ..Top 100 Enterprises in Pharmaceutical Manufacturing Industry in China'', which was sponsored by the Southern Medicine Economic Institute under the State Food and Drug Administration.

Pharmaceutical Distribution and Retail:

The pharmaceutical distribution and retail business of the Group recorded revenue of RMB1,423 million in 2012, representing a decrease of 0.91% compared with the corresponding period of 2011. The decrease is mainly due to changes in the scope of the consolidated statements as a result of the disposal of Zhejiang Fosun Pharmaceutical Co., Ltd., an entity engaging in distribution of pharmaceutical products, by the Group in the middle of 2011; and excluding that factor, the pharmaceutical distribution and retail business of the Group would have recorded a growth in revenue of 8.00% over 2011. As of the end of 2012, our pharmaceutical retail brands, For Me Pharmacy and Golden Elephant Pharmacy, had a total of over 660 retail pharmacies, maintaining a leading position in their respective regional markets. Sales of For Me Pharmacy and Golden Elephant Pharmacy in 2012 amounted to RMB780 million, with a leading market share in the pharmaceutical retail markets in Shanghai and Beijing. Meanwhile, the Group actively explored the transformation of the pharmaceutical retail business model and tried new business models.

During the reporting period, Sinopharm, in which the Group has 32.05% equity interest, continued to accelerate its efforts on industry consolidation and maintained rapid growth in business. Sinopharm recorded revenue of RMB135,787 million, net profit of RMB3,080 million, net profit attributable to its shareholders of RMB1,974 million, representing a year-on-year growth of 32.83%, 28.20% and 26.48% respectively, which further consolidated its leading position as the largest distributor and supply chain services provider of pharmaceutical and healthcare products in the PRC. In 2012, the distribution network of Sinopharm further expanded to 51 distribution centers, covering 180 cities in 30 provinces, municipalities and autonomous regions. Its direct customers included 10,351 hospitals, accounting for approximately 76.66% of the total number of hospitals in the PRC, of which 1,321 were the largest and most highly ranked class-three hospitals, representing approximately 94.42% of the total number of class-three hospitals in China. During the reporting period, the Sinopharm's revenue from pharmaceutical distribution business increased by 33.16% year on year to RMB128,320 million. Meanwhile, the pharmaceutical retail business of Sinopharm also maintained growth in 2012 with revenue of RMB3,982 million, representing a year-on-year increase of 30.80%; while its pharmaceutical retail network has further expanded to over 1,795 retail pharmacies as of 31 December 2012.

Healthcare Services:

During the year 2012, the Group continued to increase its investment in the healthcare services segment and substantially completed the deployment of our healthcare services business to combine high-end healthcare institutions in the more developed coastal cities and specialty and general hospitals in second-tier and third-tier cities in the PRC.

During the reporting period, the Group actively endeavoured to strengthen the operating capabilities of the healthcare institutions controlled by the Group, increased efforts in cultivating and recruiting medical staff, and facilitate the regional development of our healthcare services business. In 2012, the healthcare services entities controlled by the Group recorded a total revenue of RMB159 million; and as of the end of the reporting period, the total number of beds available for the public in these entities was over 600.

During the reporting period, the Group continued to support and facilitate the development and deployment of the hospital and clinic network under ..United Family Hospitals'', a leading premium healthcare services brand of Chindex. In 2012, there were significant increase and positive growth momentum in the United Family Hospital's businesses in Beijing, Shanghai and Tianjin. Revenue of the United Family Hospital in 2012 increased by 33.33% over 2011 to US$152 million, reflecting the growing market demand for premium healthcare services and the strong brand recognition of ..United Family Hospital''.

Medical Diagnosis and Medical Devices:

In 2012, the Group has furthered its development in the medical diagnosis and medical devices segment by increasing investments and enhancing business cooperation. During the reporting period, the revenue of manufacturing operations of the segment amounted to RMB580 million, representing a growth of 21.59% as compared with 2011; and the revenue of distribution operations amounted to RMB469 million, representing a decrease of 18.01% as compared with 2011. The decrease was mainly due to the significant decrease in revenue as a result of the adjustment of distribution rights for Siemens' products and the reduction in the distribution operation of medical devices with low gross margins.

In 2012, with the completion of the Project of Production Base for In-vitro Diagnostic Products and the commencement of its operation, the Group has substantially established diagnostic products production lines for biochemical diagnostic products, immunologic diagnostic products, molecular diagnostic products and microbial diagnostic products, and the production capacity of the diagnostic products was further enhanced. During the reporting period, business operations of the Group grew rapidly by enhancing brand promotion and marketing management, and the sales revenue of gene chip products and biochemical diagnostic products increased by 64.16% and 45.67%, respectively as compared with 2011. In 2012, the Group has also acquired 17.65% equity interests in SD Biosensor Inc., which is a Korean company that engages in the research and development and manufacturing of rapid diagnostic products. The acquisition enables the Group to enter the area of rapid test on blood glucose and lipid with global competitive advantage.

During the reporting period, the Group's medical devices manufacturing segment continued to grow steadily. The Group has obtained 2 product patents in its blood treatment operation and the market share of the blood virus inactivation products has reached over 50%, ranking first in the PRC. A digital processing center for dentistry jointly developed by the Group and Bego, a German company, has been successfully launched for operation, the new products from that center have been adopted by major domestic dental hospitals, and the sales volume has increased steadily on a monthly basis. In addition, Huaiyin Medical Instruments Co., Ltd., a subsidiary of the Group, was recognised as a national high-tech enterprise. As for the distribution of medical devices, the Group's operational cash flow for such business has increased significantly through the proactive adjustment of the focuses in the product offerings.

Establishment and Assessment of Internal Control:

Based on the internal control systems established in 2011, the Company and each of its subsidiaries have streamlined business processes for their principal operating activities in relation to, amongst others, financial reporting, financing activities (including guarantee), asset management, procurement business, sales and inventory management in 2012 according to the Internal Control Guidelines (first draft) issued at the beginning of 2012, and rectified the identified defects in the internal control system. In the meantime, the Group has established a special working group of internal control, which has streamlined the business processes for the principal operating activities of the four newly acquired subsidiaries based on the preliminary evaluation, enhance their operation and management systems, and procure these subsidiaries to rapidly improve their internal control commensurate with the level that a listed company should meet.

In 2012, the Group has completed the Internal Control Assessment Guidelines on the basis of the Overall Improvement of Internal Control Project carried out by the Group in 2011, pursuant to the guidelines, the Group has orderly carried out internal control assessments for a total of 53 business processes of 16 subsidiaries in relation to cash capital, purchase and payment, sales and collection, construction projects, asset management, and financial reporting. In addition, the special working group has carried out internal control audit for the four subsidiaries which have not been included in the scope of internal control assessment, achieving the objective of carrying out internal control assessment and internal control audit simultaneously.

With the further development of internal control in 2012, the Group has set up a closed management cycle from the development of internal control to the self-assessment and then to the improvement of internal control, and established a relatively enhanced internal control system to better manage business risks.

Environmental Protection, Quality and Safety:

The Group highly recognises the importance of environmental protection, proactively implements environmental protection policies, and strictly manages treatment of wastes and pollutants. Each of the pharmaceutical manufacturing subsidiaries of the Group has the ability to ensure the waste treatment meets the relevant regulatory requirements. Also, the Group has effectively saved energy and reduced waste emission by means of technological advancement, process improvement and productivity control.

The Group proactively carries out daily management of EHS system, and controls and monitors the environment, occupational health and safety of the pharmaceutical manufacturing subsidiaries of the Group through a number of measures, including unannounced inspections and special examinations.

Each manufacturing subsidiary of the Group recognises the importance of managing manufacturing safety. During the reporting period, no significant safety incidents or personal injury has occurred and each of these subsidiaries has maintained sound manufacturing safety.

Each of the pharmaceutical manufacturing subsidiaries of the Company organises production and operation by strictly complying with the Good Manufacturing Practice (m団~ネ横処q剤zW dn) (..GMP''), so as to ensure that the quality of pharmaceutical products meets the requirements of the PRC Pharmacopoeia and the National Drug Code, and provide safe and effective pharmaceutical products for patients. The Company has been proactively procuring its subsidiaries to obtain the New GMP certification and international certifications. Oral solid dosage formulation and APIs of Guilin South Pharma Co., Ltd. have passed the inspection of the World Health Organisation, and cilostazol APIs of Chongqing Kangel Pharmaceutical Co., Ltd. have passed the inspection of the FDA of the United States.

Financing:

In 2012, the Company has further improved its financing structure and optimized its debt structure. During the reporting period, the Company has completed the first tranche of issuance of corporate bonds with an aggregate amount of RMB1,500 million and the first tranche of issuance of shortterm commercial papers with an amount of RMB500 million, and obtained credit facilities from International Finance Corporation (IFC) in an amount of RMB300 million. In October 2012, the Company has completed the offering and listing of overseas listed foreign shares (H shares), which raised approximately HK$3,965 million. The offering and listing of H shares has further broadened the financing channels for the Company and enabled the Company to continually to increase mergers and acquisitions of domestic and overseas pharmaceutical companies, enhance the construction of international R&D platform, and strengthen the development of its principal businesses.

Business Outlook - For the year ended December 31, 2012

There may be significant changes in the external environment in 2013. The development of pharmaceutical companies will be presented with both opportunities and challenges. In 2013, the Group will endeavor to develop its product-oriented strategy and further strengthen its marketing efforts for major products, and enhance its investments in R&D activities. In addition, the Group will continue to increase investment in the healthcare services segment to expand the operating scale in the segment and improve its ability of operation management. Meanwhile, the Group will accelerate its mergers and acquisitions as well as integration of quality domestic and overseas pharmaceutical companies, and promote the consolidation of Sinopharm in the pharmaceutical distribution segment.

The Group plans to achieve a rapid growth in revenue in 2013. Meanwhile, the Group will strive to control cost and various expenses to enhance profit margin and profitability of its core products. The Group will continue to optimize its operation and control as well as enhance the efficiency of the utilisation of its assets. Detailed operational goals and proposed methods are as follows:

Pharmaceutical Manufacturing and R&D:

In 2013, the Group will continue to focus on innovation and international development, and strive to develop strategic products. Whilst actively seeking opportunities for mergers and acquisitions as well as consolidation in the industry, the Group seeks to achieve continuous and rapid growth of its revenue and profit.

The Group will actively push forward the development of professional marketing teams and follow-on products in areas such as cardiovascular system, central nervous system, blood system, metabolism and alimentary tract, and anti-infection. In addition to solidifying the market position and product growth in the existing key segments and products, the Group will further its efforts in promoting products such as You Di Er, Bang Ting, Ao De Jin, Atomolan, EPO and anti-tuberculosis series so as to maintain a leading position in their respective market segments.

The Group will continue to adopt the strategy to combine imitation with innovation and to combine international technology licenses with domestic industry-university-research cooperation. The Group adopts ..project plus technology platform'' as the model for its cooperation on research and development and will continue to increase its investments in research and development. Project approval process for new products will be strictly implemented in order to enhance the efficiency of research and development. The Group will strengthen the development of the team for the registration of pharmaceuticals in order to accelerate the approval process of existing products as well as to support innovation. The Group will actively facilitate the R&D and registration processes for Feibusita, insulin products and monoclonal antibody products and ensure that the development and registration processes will be completed on schedule. The Group will also accelerate our efforts to link its R&D and the market so that demand and supply are better matched. We will fully take advantage of the benefits of various R&D platforms, and strive to develop strategic product lines as well as R&D systems that are in line with international standards for new pharmaceutical products, and accelerate the development and reserve for follow-on strategic products, in order to solidify the core competence of our pharmaceutical manufacturing business.

Pharmaceutical Distribution and Retail:

In 2013, the Group will continue to facilitate consolidation and rapid development of Sinopharm in its pharmaceutical distribution business, and the continued expansion of the competitive advantages of Sinopharm in the pharmaceutical distribution and retail segment. Meanwhile, the Group will further improve and enhance retail brands such as For Me Pharmacy and Golden Elephant Pharmacy, strengthen the consolidation within the industry, consolidate and increase market share in the regional markets, and achieve coverage and expansion in various regions. In addition, the Group will actively develop e-commerce and facilitate rapid development of the pharmaceutical retail business.

Healthcare Services:

In 2013, the Group will continue to capture the high growth and investment opportunities in the healthcare services industry in China. We will continuously increase our investments in the healthcare services segment, and strengthen the current healthcare services business which integrates high-end healthcare services in coastal developed cities and specialty hospitals and general hospitals in second-tier and third-tier cities, in an effort to expand the scale of our healthcare services business. The healthcare institutions controlled by the Group will further strengthen their operation capacity, cultivate and recruit medical staff, and accelerate the development of their healthcare services businesses. Meanwhile, the Group will continue to support and promote the business expansion of United Family Hospital, which is a high-end brand for healthcare services under Chindex International, Inc. In addition to clinical applications in obstetrics and gynaecology hospitals, the Group will also enhance the development of its high-end healthcare services with such characteristics as multiple levels, diversification and extensibility.

Medical diagnosis and Medical Devices:

In 2013, with the completion of the Production Base for In-vitro Diagnostic Products and the commencement of its operation, the Group will continue to develop and introduce products in the diagnostic business, and continuously launch new products and new product lines. We will continue to enhance the development of domestic and overseas sales network and our professional sales team, strive to increase the market share of our diagnostic products, and actively seek opportunities to invest in quality diagnostic companies both domestically and intemationally.

In 2013, the Group will increase its investments in R&D and manufacturing of medical devices. Meanwhile, the Group will continue to leverage its strengths in expanding international operation, and actively explore the opportunities to cooperate with overseas companies, so as to achieve the growth in the scale of its medical devices business.

Financing:

The Group will continue to explore the options of financing channels, optimize its financing structure and debt structure, lower financial costs and further the development of its core competence, so as to consolidate its leading position in the industry.

Source: Shanghai Fosun Pharm (02196) Annual Results Announcement
Chairman Chen Qiyu Issued Capital (shares) 336M
Par Value RMB 1 Market Capitalisation (HKD) 4,524M
 
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