17 Aug 2010 11:09

Gov't policy to make or break China's listed pharma companies - survey

By Karl Zhong

Shanghai. August 16. INTERFAX-CHINA - Government regulations exert a strong influence on the performance of China's listed pharmaceutical companies, business insiders say.

"China's pharmaceutical companies saw faster growth in the first half of 2010 due to changes in patterns of drug consumption from the fourth quarter last year brought about by the health care reform and the essential drug system in particular," Peng Haizhu, a pharmaceutical analyst from Huatai Securities, told Interfax on Aug. 16.

In total, 150 domestic pharmaceutical companies are listed on the Shanghai and Shenzhen stock exchanges. Sales revenue of the 34 which had issued semi-annual reports by Aug. 9 totaled RMB 43.1 billion ($6.33 billion), up 42.7 percent from a year earlier, according to data from Shanghai Wind Information Co. Ltd. Net profit for the 34 companies totaled RMB 3.85 billion ($565.35 million), up 65 percent.

Shanghai-listed Zhejiang Conba Pharmaceutical Co. Ltd. generated net profit of RMB 97.19 million ($14.27 million) over the period, up 143 percent. The company attributed the growth to increasing sales of Qian Lie Kang tablets, which is on the essential drugs list as a remedy for prostatitis.

Guangxi Wuzhou Zhongheng Group Co. Ltd. achieved net profit of RMB 135 million ($19.82 million) in the first half, up 165 percent on the back of rising sales of the company's flagship Xue Shuan Tong injection. The product is on the essential drugs list as a treatment for cardiovascular diseases. The company's stockpiles have also insulated it from the effects of rising San Qi prices, which is the main ingredient in the injection.

"The introduction of the essential drugs system at the beginning of this year was an important growth driver for these companies. Very few manufacturers other than Zhongheng Group produce Xue Shuan Tong," Peng said.

Hualan Biological Engineering Inc., which issued its semi-annual report on Aug. 12, saw sales revenue increase 207.40 percent in the first half. Net profits surged 300.02 percent. Growth was fuelled by orders for 12.25 million doses of A/H1N1 vaccines from the Ministry of Industry and Information Technology at the beginning of the year.

Net profit for Shenzhen Salubris Pharmaceuticals Co. Ltd. grew 102.35 percent in the first half, and the company expects net profit for the first three quarters to be up 70 percent to 100 percent on last year.

"It will be difficult for China's pharmaceutical companies to maintain such high growth rates - a growth rate of about 20 percent to 30 percent is sustainable," Peng said.

Despite the list of successes, at least two companies failed to achieve growth in the first half due to regulatory factors.

Sales revenue for Shandong Wohua Pharmaceutical Co. Ltd., a manufacturer of patent traditional Chinese medicines (TCM), declined by 57.43 percent. Its net profits were down 152.02 percent.

"A major reason is that our flagship product, Xin Ke Shu tablet, a medicine for coronary heart diseases, did not make it onto the national essential drug list," a representative from the company surnamed Wu told Interfax on Aug. 16.

"We have succeeded in getting the product onto some local essential drug lists, which should help the company to perform better in future," Wu said.

Shanghai-listed medical equipment manufacturer Beijing Wandong Medical Equipment Co. Ltd. saw sales revenue decline 8.05 percent in the first half as a government initiative to procure low-end medical equipment for grassroots institutions came to an end. The company also shifted its marketing focus to middle- and high-end medical equipment, affecting its performance.

"It takes time for companies to adapt to the increased competition in high-end markets," Peng said.