On October 31, CSPC Pharmaceutical Group issued a third-quarter profit warning announcement. It is expected that the company's net profit in the first three quarters of this year will decrease by about 16% year-on-year from 4.495 billion yuan in the same period last year.

In total, CSPC Pharmaceutical Group's net profit in the first three quarters of this year is about 3.776 billion yuan.

According to the interim report, CSPC Pharmaceutical Group's revenue in the first half of the year was 16.284 billion yuan, a year-on-year increase of 1.27%, and its net profit was 3.02 billion, a year-on-year increase of 1.8%. According to this calculation, the net profit in the third quarter was only 760 million yuan, while the same period last year, this figure was 1.528 billion yuan.

In other words, the net profit in the third quarter of this year was halved, a year-on-year decrease of 50%. As soon as such a performance forecast came out, the company's stock price plummeted by 8.35%.

Regarding the decline in performance, CSPC Pharmaceutical Group said that it was mainly due to a 3% year-on-year decrease in finished drug revenue. Specifically, the anti-tumor business saw a revenue decline of about 31% in the third quarter due to centralized procurement; the cardiovascular business saw a revenue decline of about 27% due to the loss of bids for core products in centralized procurement; and the nervous system business saw a revenue decline of 16% due to the impact of hospital cost control.

In short, the current main business of CSPC Pharmaceutical Group has seen a comprehensive decline in revenue due to factors such as centralized procurement and hospital cost control. As for Duomesin, one of the core anti-tumor products, the price will further decline if it enters the tenth batch of centralized procurement next year after the price reduction of the Beijing-Tianjin-Hebei Alliance centralized procurement this year. More importantly, there is the biggest uncertainty factor, Enbipu.

As the flagship product of CSPC Pharmaceutical Group's nervous system sector, Enbipu's sales in 2022 will exceed 6 billion yuan. However, Enbipu is currently facing unprecedented challenges. The national negotiations continue to reduce prices, and the attention of medical insurance and hospital cost control have significantly slowed down Enbipu's growth momentum.

At the same time, whether it is Enbipu injection or capsule, the core patents have expired one after another, which means that it will soon face direct competition from generic drug companies. Once generic drugs flood into the market and divide up Enbipu's market share, the pressure faced by CSPC Pharmaceutical Group will not be ignored.

This is also the question and concern of the market. After Enbipu, who will take up the banner of Shijiazhuang Pharmaceutical?

Of course, this dilemma is not just faced by Shijiazhuang Pharmaceutical Group. Old products have entered the twilight period, and new products have failed to take over. Pharmaceutical companies in the "new and old alternation" stage need to face it.

No one can withstand the lethality of centralized procurement. From the first batch of large single products such as Xinlitai that lost the bid for centralized procurement, to Hengrui Medicine, it basically took more than two years of adjustment to slowly come out.

Centralized procurement, innovative transformation, and going overseas are difficult, and they must be passed. Shijiazhuang Pharmaceutical Group will not be an exception.

The weak performance growth "forced" Shijiazhuang Pharmaceutical Group to increase its investment in new drugs. However, it will take time for innovation to be realized. Under the predicament, Shijiazhuang Pharmaceutical Group has significantly increased its capital operation.

In 2023, Sinovation, a subsidiary of CSPC Pharmaceutical Group, acquired innovative drug pipelines including PD-1, ADC, and mRNA vaccines by increasing capital in Jushi Biotech, a subsidiary of CSPC Pharmaceutical Group, and transformed itself into an innovative drug platform of CSPC Pharmaceutical Group, leading the entire A-share pharmaceutical sector with a 300% increase.

At that time, the capital increase of 1.87 billion yuan leveraged the market value growth of Sinovation by at least 25.8 billion yuan in 4 months. As of the end of last year, its market value was as high as 57 billion yuan. Even if the current stock price has fallen, the market value is still 37 billion yuan, which is approximately equal to 0.6 CSPC Pharmaceutical Group.

The latest third-quarter report shows that Sinovation is only a company with a revenue of 1.479 billion yuan and a net profit of 137 million yuan.

Jushi Biotech is just the beginning, and the internal asset transfer of CSPC Pharmaceutical Group is still continuing.

At the beginning of the year, Sinovation announced that it would plan cash and share payments to acquire Beike Biotech, a subsidiary of CSPC Pharmaceutical Group. Compared with Jushi Bio, Beike Bio is a larger innovative asset. Its core assets are Jinyouli, a white blood cell medicine with annual sales of over 2 billion yuan, and TG103, a long-acting GLP-1 receptor agonist.

On October 15, the acquisition plan was finalized. Sinopharm plans to acquire 100% of Beike Bio for 7.6 billion yuan, of which 10% will be paid in cash and the rest will be paid in the form of additional shares.

In terms of revenue, Shijiazhuang Pharmaceutical Group ranks among the top in the domestic pharmaceutical industry; however, in terms of innovation, its performance is not outstanding, and it has basically failed to catch up with the wave of innovation after 2015. Its current innovative main products are Enbipu, which was launched in 2005, and Jinyouli, which was launched in 2011. The sales of the two products account for about 1/3 of the company's finished drug segment.

In terms of clinical pipeline, through these two injections, almost all the most valuable varieties have been put into Sinopharm, and many of them are pipelines that can be quickly realized in the near future. For example, PD-1 Enlangsubaimab, HER2 ADC drug SYSA1501 and GLP-1 drug TG103.

In addition, multiple ADC preclinical pipelines, as well as biosimilars such as Omalizumab, Pertuzumab and Ustena, also belong to Sinopharm.

However, unlike the "carnival" shown by the secondary market when acquiring Jushi Bio, the market seems much calmer in this acquisition of Beike Bio. On the day of the announcement of the proposed acquisition at the beginning of the year and the latest acquisition plan, Sinopharm's stock price fell by 6% and 11% respectively.

CSPC Pharmaceutical Group is extremely active in the capital market. It is a good thing for Sinopharm to use the internal assets to increase its valuation, and the value of its actual controller Cai Dongchen has also risen.

However, this method alone cannot bring a breakthrough to the company's operating level. On the contrary, its performance will continue to be under pressure before its innovative products meet market expectations.

Before Sinopharm acquired Beike Bio, CSPC Pharmaceutical Group also took over ST Jingfeng. Combined with ST Jingfeng's main business, the market speculates that CSPC may use its own high-quality traditional Chinese medicine assets to drive its transformation and upgrading, or build it into a traditional Chinese medicine asset operation platform.

In addition to traditional Chinese medicine assets, it is unknown whether CSPC will inject other innovative assets in the future. In addition to Jushi Bio and CSPC Biopharma, which have been injected into Sinopharm, CSPC has also cultivated many innovative assets such as nanoformulations, cell therapy and siRNA. In comparison, the latter may be more likely to be favored by the market and highly valued assets.

Finally, CSPC has also become a system.

In fact, not only CSPC, but also Pharma, which is at a critical stage of innovation and transformation, is increasing capital operations.

Hengrui Medicine, the top brother, has significantly increased its overseas capital operations this year. After paying the "tuition fee", it has also explored a new form of going overseas, through technology investment, and together with overseas capital.

Another example is Huadong Medicine, which actively sought change after experiencing the "double kill" of centralized procurement and national negotiations, and started the "buy, buy, buy" mode, from innovative drugs to medical beauty, to build a diversified product pipeline. Since the beginning of this year, Huadong Medicine has continued its aggressive external development strategy in BD and introduced a series of mature products with potential.

While the IPO path is narrowed and the pace of listing is slowing down, the pace of integration and mergers and acquisitions in the domestic medical and health industry is accelerating significantly. Since the beginning of this year, Sinopharm Group has privatized China Traditional Chinese Medicine, Fosun Pharma has acquired Fuhong Hanlin, China Resources Sanjiu has controlled Tasly, Mindray Medical has acquired Wellcome Medical, and China Biopharm has acquired Hao Ou Bo. A series of cases have released strong signals of industry integration.

In the future, we may see more and more capital operations. This is not difficult to understand. First, looking at the development of overseas mature markets, the logic of mergers and acquisitions is the key to making the medical industry bigger and stronger; second, on the surface, these large pharmaceutical companies are not short of money, but when they reach the bottleneck of transformation, they must rely on the power of capital operations to go further.

Innovation is not easy, going overseas is difficult, and coupled with the deepening of domestic medical reform and the intensification of internal competition, Pharma is in a development stage full of uncertainty and turbulence. Despite the continuous innovation results, it is difficult to completely fill the "pit" left by centralized procurement in a short period of time.

The happier you are when you eat meat, the more painful it is when you get beaten.

This is similar to the "patent cliff" that large overseas pharmaceutical companies must face. No matter who they are or how big they are, pharmaceutical companies must always maintain high-productivity R&D or precise BD. This is difficult, but fortunately, large pharmaceutical companies often have funds and resources that exceed the industry average. Although the pain is strong, there is enough room for maneuver.

So we see that at present, these domestic Pharmas are increasing capital operations and pressing the start button of another era.

However, capital operation is a marathon, and each journey may have unknown shackles and fetters, and may also bring new situations. The key is to see whether this kind of capital operation is centered on operation or on creating value.

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