Shanghai, On 30 October 2019, Shanghai Pharmaceuticals Holding Co. Ltd. (hereinafter referred to as “Shanghai Pharma”, 601607.SH; 2607.HK) released its third quarterly report for the year 2019. From January to September, the Company’s main businesses continued their rapid growth with operating income of RMB140.617bn, representing a year-on-year increase of 19.57%. Net profit after deduction of non-recurring profit or loss attributable to equity holders of the listed company was RMB3.070bn, representing a year-on-year increase of 19.62%. The net operating cash inflows was RMB2.932bn, representing a year-on-year increase of 69.19%.
Both Pharmaceutical Manufacturing and Distribution segments see rapid revenue and profit growth
According to the third quarterly report, Shanghai Pharma’s two main business segments (pharmaceutical manufacturing and distribution) grew significantly. From January to September, revenue from the pharmaceutical manufacturing business was RMB17.682bn, representing a year-on-year increase of 24.05%. Pharmaceutical manufacturing contributed RMB1.540bn, representing a year on year increase of 20.56%. Revenue from pharmaceutical services was RMB122.935bn, representing a year-on-year increase of 18.95%. Pharmaceutical services contributed RMB1.526 billion, representing a year-on-year increase of 15.73%. The profit from shareholding companies was RMB804 million, representing a year-on-year increase of 48.13%.
Pharmaceutical manufacturing: big products reinforce the portfolio; innovation paves the way for a brighter future
In recent years, Shanghai Pharma has been dedicated to developing key products, rapidly growing the entire manufacturing segment through the adoption of differentiated positioning and targeted marketing strategies. During the Reporting Period, the combined sales revenue of 60 key products was RMB10.154bn, representing a year on year increase of 31.19%.
During the Reporting Period, the Company continued to accelerate innovation and transformation, stepping up the investment in the development of innovative drugs and high-end generics. From January to September, R&D expense was RMB860mm, representing a year-on-year increase of 13.74%. During the same period, the Company completed 73 patent applications and was granted 24 invention patents and 20 utility models (total of 117).
On 17 September, the Company entered into a joint-venture agreement with Russia’s biggest bio-pharmaceutical firm BIOCAD. Under the agreement, the Company was granted perpetual and exclusive rights to research, develop, manufacture, sell and commercialize 6 key biological medicines in Greater China. As BIOCAD’s sole platform in Greater China, the joint venture will continuously introduce new drugs. Zhou Jun, Chairman at Shanghai Pharma, said, “This marks another milestone for Shanghai Pharma in its innovative research and development transformation, as well as international development, and will greatly contribute to Shanghai Pharma’s
biopharmaceutical development.”
During the Reporting Period, the Company advanced the consistency evaluation of quality and efficacy of generic drugs. By the end of September, the Company had completed BE test and reporting work for over 40 varieties, of which 6 have passed the consistency evaluation, and 6 have completed BE tests and were submitted to CDE.
Distribution: business structure is further optimized
From January to September, the Company’s sales revenue of distribution totaled RMB122.935bn, representing a year-on-year increase of 18.95%. Driven by the two-invoice system and bulk procurement policies,market consolidation would be accelerated..
During the Reporting Period, the Company continued consolidating the leading position of its imported drug business, improving the structure of products for distribution. In 2019, the Company gained the exclusive distribution rights for 13 imported and highly anticipated new drugs including Nerlynx, Relvar, Benlysta, Cimzia and Dacomitinib.
Shanghai Pharma’s strength in imported drug distribution are reinforced by the one-stop service system. With a strong network of 93 specialty pharmacies, the Company provided a series of efficient and compliant sales channels, financial support services and patient education for new drugs, helping these drugs quickly access the Chinese market. This operation model helped the Company gain exclusive distribution rights for new flagship drugs.
In addition, breakthroughs were achieved in the expansion of the new business. During the Reporting Period, the Company’s first online hospital, Zhenjiang Internet Hospital, received the approval from the Jiangsu Health Commission and began operations. Online hospitals are a crucial part of the Company’s “new retail” layout. “Offline retail network + offline logistic network + electronic prescription platform + Internet hospital + hospital supply-chain service” form the ecosystem of the Company’s new retail business, completely in line with the trends of hospital prescription outflows.
Systemic reform: stock option incentive scheme enhances operational vitality
Shanghai Pharma has implemented a number of reforms in recent years. During the Reporting Period, the Company launched another stock option incentive scheme to motivate Company staff, invigorate the Company’s operation, and drive continuous and rapid business growth. The Company will grant 28.42 million stock options to 211 senior executives, middle-level managers and other key executives. It is worth noting that the option exercise conditions also include a progressive lower limit for the research and development investment in the coming three years (2020-2022), apart from the general indicators such as operating revenue, net profit, return on equity and comprehensive performance index. This scheme demonstrates the Company’s determination in facilitating innovative transformation.
During the first three quarters of 2019, Shanghai Pharma continued its fast-paced growth in pharmaceutical manufacturing and distribution, achieving another breakthrough in innovative transformation. The stock option incentive will strongly support Shanghai Pharma’s organizational and systematic transformation and upgrade, serving as a new engine to drive the Company’s rapid growth.