Northeast Pharmaceutical is married to Jiangxi and commits itself as a "steel straight man"!

Author: Elementary School Chicken Beats Doudou

Recently, Northeast Pharmaceutical issued an announcement stating that Fangda Iron & Steel had acquired all shares in Northeast Pharmaceutical held by Dongyao Group and Shengjing Financial Holding Group and triggered the tender offer

This means that the Northeast Pharmaceutical in Shenyang will be married to Jiangxi and committed to Fangda Steel, the "straight man of steel"

Almost at the same time, North China Pharmaceutical, the “eldest son of the Republic,” became the first pharmaceutical company to cut off supply and was heavily punished

How can state-owned pharmaceutical companies that once enjoyed great success sing their tragic songs?

Dilemma analysis

As the backbone of China's pharmaceutical companies, state-owned pharmaceutical companies have ushered in tremendous development with the support of local government funds and policies, and the effect of mergers and acquisitions on industry companies has gradually emerged

Mergers and acquisitions not only bring technology, market, and assets to enterprises, but also build strategic synergy for their long-term development

However, behind this rapid expansion are many problems with extensive management of state-owned pharmaceutical companies

Many M&A and restructuring cases are purely administrative orders.

The short-sighted mergers and acquisitions that underestimate technology and pursue scale have brought about the problem of insufficient system integration effectiveness

The mergers and acquisitions of large foreign pharmaceutical companies are mainly based on the integration of the industrial chain to achieve upstream and downstream integration, as well as technology supplements and iterations, and through mergers and acquisitions, they bring about rapid efficiency improvements and technology spillover effects

The main purpose of mergers and acquisitions of China's state-owned pharmaceutical companies is to expand the scale of production

Studies have shown that the success rate of mergers and acquisitions in China's pharmaceutical companies is only 30%

The phenomenon of decline in the income of listed pharmaceutical companies in China after mergers and acquisitions and reorganization has also repeatedly appeared

On the other hand, the driving force for the profit growth of some state-owned enterprises mainly relies on state capital injection, low-cost bank loans, and non-profitable investment to drive greater business performance

This development model has greatly wasted national wealth and undermined the market’s inherent function of rational allocation of resources

For example, state-owned enterprises have an absolute advantage in the field of pharmaceutical business, and leading companies such as Sinopharm, Shanghai Pharmaceuticals, and China Resources occupy an unshakable leading position.

From the perspective of policy analysis, under the background of the nation's promotion of the construction of a universal medical insurance system and the control of medical insurance fees, reforms such as separation of medicines, secondary bidding, and increased industry entry barriers are irreversible

The combination of consistency evaluation + centralized procurement has basically wiped out the channel and brand advantages of state-owned enterprises
.

Under the core of the policy of squeezing the price space of general drug products, the efficiency and cost advantages of state-owned enterprises are facing huge challenges from private enterprises and innovative enterprises
.

Another reason is that the administrative performance evaluation and the employment system have led to the prevalence of short-term behaviors, making it impossible for companies to implement structural adjustments from a strategic perspective
.

The most realistic point is that the tenure management system of state-owned enterprises determines the lack of innovation motivation of state-owned enterprises
.
A better management team will be in power for 5-8 years at best, and 3-5 years as short as possible.
As far as the long-term development cycle of new drugs is concerned, the possibility of producing results during the tenure is very slim
.

In addition, for a long time, only the GDP theory has commanded the thinking.
R&D investment will affect current profits and corporate benefits.
State-owned enterprises have no incentive to invest existing revenues in the field of innovation, and mainly focus on short and fast generic drugs
.

The lack of fault tolerance mechanism also restricts the implementation of the innovation chain
.

The pharmaceutical industry is currently undergoing huge structural adjustments, and the aforementioned systemic reasons for state-owned enterprises have led to marginalization in this round of adjustments
.

Where is the road?

First, the reform of state-owned enterprises is essentially a system reform.
If the system problems are not resolved, minor repairs and supplements in technical links have no substantive effect
.

The report of the 19th National Congress of the Communist Party of China pointed out that “deepening the reform of state-owned enterprises, developing a mixed-ownership economy, and fostering world-class enterprises with global competitiveness”, clarified that “developing a mixed-ownership economy” is a key way to deepen the reform of state-owned enterprises
.

The reform of state-owned enterprises must be separated from the existing administrative bureaucracy and must be promoted with diversification of equity and professional management as the core
.

Second, it can be reborn in collaboration with the vested interest groups within the enterprise
.

Most of the history of the development of state-owned enterprises is the history of mergers and reorganizations.
Mergers and reorganizations are systems engineering, and various interest groups of various sizes are inevitably left behind
.

In addition, the nature of state-owned leading enterprises is a loosely-managed group of companies under the jurisdiction, and resource sharing and capability coordination are generally mere formalities
.

The core element of integration is to completely break and adjust the existing interest structure, squeeze the rent-seeking space of vested interests, in order to maximize the company's interests
.

Third, it is determined to advance strategic adjustments and reduce political achievements
.

The management model of traditional administrative company is not suitable for the management needs of building a modern large-scale group company.
The product portfolio of general medicines dominates cannot cope with the changes in regulatory policies and the increasingly fierce market competition situation, which is a serious waste and inefficient allocation of resources.
The model leads to abnormally high operating costs and squeezes profit margins
.

Therefore, the leaders of state-owned enterprises must reshape their management model, insist on a diversified product portfolio oriented by innovation, brand, and marketing, insist on doing something and not doing something, adjust the way of resource allocation, and realize the company's long-term sustainable development
.

In particular, the current investment focus of many state-owned pharmaceutical companies is still on infrastructure.
In the transformation of fixed assets, and the core product pipeline is excluded, this model will inevitably lead to the exhaustion of profitability and affect the long-term development of the company
.

Fourth, the reform of state-owned enterprises requires idealists who have the unity of knowledge and action, and must have the ideological realm of "I do not have to be successful, and I must have me when successful
.
"

Taking into account the particularity of the pharmaceutical industry, business managers must take the spiritual realm of "success does not have to be me" and the historical responsibility of "success must have me", maintain historical patience, and carry forward the spirit of "nail nails", a blueprint.
Paint to the end, do it one after another
.

Of course, the KPI evaluation baton must appropriately consider the characteristics of the pharmaceutical industry, the compatibility of innovation and performance evaluation, the balance of fault tolerance and accountability, system first, ideological mobilization, and cultural power, all need to be implemented
.

I only hope that state-owned pharmaceutical companies will regain their glory and continue to play a core role as a mainstay in the new round of competition among major powers
.