On the evening of December 16, Kangchen Pharmaceuticals issued an announcement. First, it will make an impairment provision for the goodwill formed by the acquisition of Tailing International’s equity; second, the "Annual Production of 500kg Anti-tumor API Production Base Construction Project" (hereinafter referred to as the "API Project") is expected to be extended to December 2026.

At the opening of December 17, Kangchen Pharmaceuticals' stock price fell by more than 2%. As of the close, Kangchen Pharmaceuticals reported 25.9 yuan/share, down 3.61%, and the current market value is 4.144 billion yuan. In fact, Kangchen Pharmaceuticals has acquired Tailing International's equity for four years. In April 2020, Kangchen Pharmaceuticals acquired 100% of Tailing International's equity by paying 900 million yuan in cash, thereby obtaining the "Migaix" business. After acquiring Tailing International, Kangchen Pharmaceuticals has conducted impairment tests on the goodwill formed every year. As of now, the company has not made any provision for goodwill impairment, and the book value of goodwill is RMB 97.6428 million.

"Migaxi" is salmon calcitonin injection, which was originally Novartis's original drug and was launched in China in 1994. It is mainly used to treat primary osteoporosis and acute bone loss. In 2021, 2022, and 2023, Migaxi brought Kangchen Pharmaceuticals 230 million yuan, 295 million yuan, and 297 million yuan in revenue.

However, since Zhejiang Province implemented the centralized procurement price of Migaxi products in March 2024, affected by the centralized procurement linkage price reduction and the linkage of the online price, the terminal sales price of Migaxi products in some provinces in China has been reduced, with a decrease of about 9% to 13%. Since the terminal demand of hospitals is difficult to fully release in a short period of time and cannot offset the impact of product price reduction, Kangchen Pharmaceutical expects the scale of Migaxi business revenue to decrease by about 13% to 17% in 2024.

The amount of goodwill impairment provision made this time is RMB 97.6428 million, which will affect the net profit attributable to shareholders of the listed company in the company's consolidated financial statements in 2024 by RMB 71.9627 million, and correspondingly reduce the owners' equity attributable to shareholders of the listed company in 2024 by RMB 71.9627 million.

Kangchen Pharmaceuticals first acquired the Migaisi business in order to get rid of its dependence on the single product "Suling". "Suling" is Kangchen Pharmaceuticals' original new drug, which was officially launched in 2009, breaking the 20-year monopoly of multi-component hemostatic drugs in the Chinese market. From 2012 to 2016, "Suling" ranked first in the market segment for five consecutive years, with a market share of about 40%.

Although large single products can bring rich revenue to the company, over-reliance on a large single product will increase the company's performance risks. In 2018, when Kangchen Pharmaceutical went public, it wrote in its prospectus: "The company's main business income all comes from the sales of Suling." Moreover, relying on Suling, the gross profit margin of Kangchen Pharmaceutical's main business has been maintained at around 90% for a long time.

Two years after listing, in 2020, Kangchen Pharmaceutical's performance changed. At that time, Kangchen Pharmaceutical explained that the decline in performance was due to the impact of the epidemic. "Suling", as a surgical hemostatic drug, had a certain impact on sales due to the decrease in surgical patients. In addition, Suling implemented the new medical insurance negotiation price, and the sales unit price fell.

In 2019, Suling's revenue was 1.053 billion yuan, and by 2020 it had dropped sharply to 792 million yuan, a year-on-year decrease of 24.76%. In addition, in the following two years, Suling's revenue continued to decline. From 2021 to 2022, Suling's revenue was 564 million yuan and 539 million yuan respectively. From 2019 to 2022, Kangchen Pharmaceutical's performance also changed with the change of Suling's profitability, with revenue of 1.066 billion yuan, 809 million yuan, 810 million yuan, and 867 million yuan respectively; net profit was 266 million yuan, 183 million yuan, 148 million yuan, and 101 million yuan respectively.

In the first year of Suling's revenue decline, Kangchen Pharmaceutical planned to acquire external assets to enhance the company's profitability, and Migaixi entered the market under such circumstances. When acquiring Migaixi, the counterparty promised that Migaixi's net profit in 2021-2023 would not be less than 80 million yuan, 100 million yuan, and 120 million yuan respectively. From the results, Migaixi's performance exceeded expectations, but it was still difficult to make up for the impact of Suling's revenue decline.

In 2023, Kangchen Pharmaceutical's performance improved slightly, with revenue of 920 million yuan, a year-on-year increase of 6.15%; net profit of 150 million yuan, a year-on-year increase of 48.24%. The improvement in Kangchen Pharmaceutical's performance is related to the resumption of growth in Suling's revenue. That year, Suling's revenue was 613 million yuan, a year-on-year increase of 13.89%. This is because Suling will continue to be included in the "National Basic Medical Insurance, Work-related Injury Insurance and Maternity Insurance Drug Catalog" through medical insurance renewal in 2023, and the restriction of "limited to second-line drugs for the treatment of hemorrhagic diseases, and no payment for preventive use" in the original medical insurance payment scope has been cancelled.

Although Kangchen Pharmaceutical has introduced other products, the company's performance is still closely related to Suling's profitability. It is worth noting that Suling's core patent will expire in 2029. If Kangchen Pharmaceutical cannot find the next big single product before then, it may face a cliff-like decline in performance. From the perspective of the pipeline under development, Kangchen Pharmaceutical currently has 7 products, covering a series of anti-tumor drugs, veterinary drugs, traditional Chinese medicine, etc. The ones that are currently progressing faster are AH1001 (for hemostasis of surgical wound bleeding in dogs), ZY5301 (chronic pelvic pain due to sequelae of pelvic inflammatory disease) and KC1036.

Among them, KC1036 has four indications, including advanced esophageal squamous cell carcinoma, advanced thymic tumors that progress after first-line systemic chemotherapy, first-line maintenance treatment of advanced or metastatic esophageal squamous cell carcinoma combined with PD-1 antibodies, and treatment of advanced Ewing sarcoma in adolescents aged 12 years and above. It is in the clinical phase II and III stages.

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