China Net Finance, November 1 - In the context of an expanding centralized procurement and a cool market for innovative drugs, Lizhong Group has still managed to maintain profit growth.

The third-quarter report shows that the company achieved a net profit of 500 million yuan in a single quarter, a year-on-year increase of 7.45%. For the first three quarters, the cumulative net profit attributable to shareholders reached 1.673 billion yuan, which represents a year-on-year growth of 4.44%. The net profit after eliminating non-recurring gains and losses was approximately 1.631 billion yuan, up by 3.51%.

In contrast to profit growth, Lizhong Group's revenue has shown a downward trend. In the first three quarters, the company reported approximately 9.082 billion yuan in operating revenue, a year-on-year decline of 5.94%. From a quarterly perspective, Lizhong Group's revenue has been declining for five consecutive quarters, with the first three quarters of this year reporting revenues of 3.243 billion yuan, 3.04 billion yuan, and 2.799 billion yuan, down 4.99%, 7.24%, and 5.59% year-on-year, respectively. In the last two quarters of 2023, the company’s revenue was 2.965 billion yuan and 2.775 billion yuan, down 6.93% and 11.65% year-on-year.

Looking at the business types, the primary business revenues of Lizhong Group have all declined. Specifically, the chemical formulations achieved revenues of 4.714 billion yuan, down 8.52% year-on-year; raw materials and intermediate products generated 2.521 billion yuan, slightly down 2.55% year-on-year; traditional Chinese medicine formulations earned 1.041 billion yuan, down 16.49% year-on-year; only the revenues from biological products and diagnostic reagents and equipment increased, at 130 million yuan and 570 million yuan, up 15.98% and 21.03% respectively.

The decline in revenue from Lizhong Group’s chemical formulations was primarily impacted by the decrease in income from digestive medications, which generated 1.854 billion yuan during the period, a year-on-year decline of 18.66%. The company attributed the decline to several factors, including an 11% price reduction for the esomeprazole injection during medical insurance negotiations, which will require time to absorb the price impact; increased difficulty in volume growth due to industry regulations; and stricter hospital centralized procurement assessments affecting volume and coverage for non-procurement products. Additionally, competition from P-CABs has also impacted the market for esomeprazole tablets. As a response, the company aims to leverage the clinical advantages of esomeprazole and actively promote its coverage in hospitals, as well as push for new hospital development while increasing promotion efforts for new indications.

Despite the challenges, Lizhong Group has expressed intentions to actively enrich its product offerings and revealed current developments in the digestive field with P-CAB products; the Phase I clinical trial for tablet products has been completed, and injectable forms are also in simultaneous development. In the field of gonadotropins, clinical research is ongoing for the central precocious puberty indication of huperzine A acetate microspheres, and recombinant human follicle-stimulating hormone injections have completed Phase III clinical enrollment. Even with the decline in revenue, the company has managed to maintain profit growth through effective cost control measures. For the first three quarters, Lizhong Group's sales expenses were 2.456 billion yuan, down 12.72% from 2.814 billion yuan in the same period last year. R&D expenses also decreased to 734 million yuan, down 25.6% from 986 million yuan in the previous year.

Regarding future R&D, Lizhong Group revealed in a recent survey that the company has begun to accelerate its transformation in product structure and R&D direction. This year, they have gradually reduced the projects and compressed R&D investment in ordinary generic drugs and high-risk centralized procurement varieties, focusing more on innovative drugs and patented drugs, and rapidly increasing investments in R&D, particularly in introducing more innovative drug products and projects with longer patent protection periods.

It is also noteworthy that the decline in revenue at Lizhong Group has affected another listed company. In the first three quarters of this year, Jiang Kang Yuan reported an operating income of 11.9 billion yuan, a year-on-year decline of 5.95%, echoing the trend at Lizhong Group, which has also seen five consecutive quarters of declining revenue. Behind this is Jiang Kang Yuan's reliance on Lizhong Group; according to its semiannual report, Jiang Kang Yuan directly and indirectly holds 45.22% equity in Lizhong Group, contributing approximately 579 million yuan to its net profit of 776 million yuan in the first half of the year.

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