Sihuan Pharmaceutical spins off "cash cow" generic drugs, why is the pain of generic innovation and upgrading?

With the guidance of policies and the restructuring of the industry structure, Hengrui Pharmaceuticals, CSPC, Kelun Pharmaceuticals, Simcere Pharmaceuticals and other companies have taken the path of "imitation → imitation → innovation", which is attracting more latecome.

Recently, Sihuan Pharmaceutical announced that it plans to sell some or all of the generic drugs and other non-core traditional medicine businesses and assets that have not met performance expectations or are not in line with the company's long-term strategic goals due to the impact of changes in the pharmaceutical industry and polici.

In the context of high-quality development, it is possible to get rid of the inherent "low-end impression" of raw materials and generic drugs, create a high-end image with the "innovative drug" product pipeline, and reverse the capital and market's perception of enterprises and bran.

However, for every enterprise, the transformation is not achieved overnight, and the transformation from generic drugs to innovative drugs often has a "pain period" that cannot be ignor.

The prospect of transformation and upgrading is unclear

Is it imminent to divest generics?

The main business of Sihuan Pharmaceutical is divided into two sectors: pharmaceutical and medical aestheti.

The annual report shows that generic drugs are an important “cash cow” business for Sihuan Pharmaceutic.

In other words, Sihuan Pharmaceutical’s current revenue from medical aesthetics and innovative drugs is not large, and nearly 80% of its revenue comes from generic dru.

According to public information, in 2019, seven core products including Cerebroside Carnosine Injection under Sihuan Pharmaceutical were included in the first batch of national key monitoring and rational drug use catalogu.

Affected by changes in the pharmaceutical industry and policies, it is difficult for the generic drug business to bring more performance growth and profit guarantees as befo.

At present, the generic drug sector, which occupies a major share of the total plate of Sihuan Pharmaceutical, is increasingly showing a decli.

Although Sihuan Pharmaceutical believes that the impact of key monitoring catalog products on the company's generic drug business has come to an end, the performance of the generic drug segment has officially entered a rising chann.

Taking its key core product Cinipazide maleate injection as an example, Cinipazide maleate is mainly used for the treatment of cardiovascular and cerebrovascular diseases, and has been one of the top ten commonly used drugs for cardiovascular and cerebrovascular diseases in public hospitals for a long ti.

Some industry insiders pointed out that Sihuan Pharmaceutical's divestiture of some generic drug business is very important because the general generic drug business is greatly affected by the policy changes in the pharmaceutical indust.

On the other hand, Xuanzhu Bio, an innovative drug asset focusing on oncology, metabolism and other fields under Sihuan Pharmaceutical, and Huisheng Bio, an innovative drug asset focusing on diabetes, have successively completed hundreds of millions of financing, both of which have obtained continuous self-financing capabiliti.

Taking Xuanzhu Biology as an example, in August 2020 and December 2021, the company completed A and B rounds of financing respectively, with a total financing of 56 billion yuan and a post-investment valuation of nearly 7 billion yu.

However, market voice analysis believes that in the face of hot fields such as tumor, NASH (non-alcoholic fatty liver), diabetes, e.

Taking insulin as an example, in the sixth batch of national centralized drug procurement (insulin special procurement) that has just been fully implemented, the price of the selected products dropped by an average of 48% and a maximum drop of 7
"Two chronic diseases (hypertension + diabetes)" products The downward price channel has been fully opened, which is bound to bring a more severe test to the market latecome.

Since Sihuan Pharmaceutical released the news of "spinning off generic drugs" on July 15, the capital market has reacted strong.

The stock price of Sihuan Pharmaceutical has fluctuated strongly in the past three trading days, which also reflects that the market is still divided on the prospect of corporate transformati.

Generic drugs have no way out?

The market window still exists

From cash rush, to massive layoffs, to bankruptcy and delisting, investors are more cautious and rational in the innovation layout of Chinese pharmaceutical companies under the cold capital winter, especially for the behavior of "burning money" to pile up R&D pipelines to seek arbitrage in the capital mark.

It is highly valued by capital market supervision, which also affects innovation investment expectations to a certain exte.

Since the second half of 2021, the pharmaceutical sector has been in a period of shock adjustment, and the breakout of new shares has intensifi.

By 2022, the capital market does not seem to be picking .

According to data, the overall financing of the domestic biopharmaceutical industry will drop sharply in 202 In the first quarter, the number of investment cases fell by 344% year-on-year, and the financing amount fell by 235% year-on-ye.

In April and May, the number of financing events dropped significantly by 630% and 698% respective.

However, for enterprise R&D, the necessary cost investment cannot be less than a pen.

In recent years, Sihuan Pharmaceutical's R&D investment has continued to increa.

From 2017 to 2021, Sihuan Pharmaceutical’s R&D investment was 304 million, 480 million, 599 million, 729 million, and 868 million, accounting for 107%, 146%, 281%, 26%, and 24% of its revenue, respective.

However, it is still difficult to see returns in the short term from the massive investme.

Referring to the development path of Huadong Medicine, it started with generic drugs to explore transformation, and also deployed innovative drugs such as endocrine, tumor and autoimmunity; and entered the medical beauty business with a high profile, the transformation effect still needs time to te.

Among the total revenue of Huadong Medicine in 2021 of 3563 billion yuan, "pharmaceutical business", as a traditional mature business segment, will achieve revenue of 2115 billion yuan, accounting for about 67%; in contrast, the "innovative drug" + "medical beauty" business is still Hard to carry the fl.

The strategic transformation of domestic traditional pharmaceutical companies has always been a topic of concern in the indust.

On the one hand, adjusting the generic drug business will have a significant impact on the R&D, production, sales, and organizational structure of local compani.

On the other hand, transforming into an innovative drug company requires not only to endure the arrogance and prejudice that is pervasive in the capital market, but also the market requires companies such as innovative drug companies not only to have good performance, but also to constantly make new progress in products under developme.

Industry insiders have analyzed that from the perspective of sustainable development and in the long run, innovative drug companies are more likely to compete in terms of product competitiveness and follow-up commercialization capabiliti.

The contribution of innovative drugs to performance is an important indicator of the success of the transformation of traditional pharmaceutical compani.

According to the data from Min.

com, China's pharmaceutical market is still dominated by chemical preparations based on generic dru.

The generic drug market accounts for about 69% of the overall pharmaceutical market, and the innovative drug market only accounts for

As the earliest large-scale pharmaceutical company to invest in the layout of innovative drugs in China, Hengrui Medicine is now in a critical period of transformati.

Hengrui Medicine, which has 10 innovative drugs on the market, more than 60 innovative drugs in clinical development, and more than 250 clinical trial projects at home and abroad, will have a revenue of 2906 billion yuan in 2021, a year-on-year decrease of 5
The net profit attributable to shareholders of listed companies was 530 billion yuan, a year-on-year decrease of 24
In the past year, the market value has evaporated by 400 billion yu.

Even if he entered the market early and insisted on high investment in research and development, the former "pharmaceutical brother" has not been able to survive this round of capital fev.

When many generic drug companies start to think about business transformation and divest assets, is the traditional generic drug business lacking sufficient commercial value? The industry is quite consistent on this point of view: it still depends on the specific variety!

Taking the just-concluded seventh batch of lenvatinib mesylate capsules, which has attracted the most attention, as an example, before the price reduction of this centralized procurement, CP Tianqing, with the exclusive first imitation of this variety, not only broke the original research product's high quality The monopoly of the sub-market has also obtained a window to divide the market for a period of ti.

The industry generally believes that the market dividend period still exists for high-end generic drugs and first-of-its-kind varieties with certain technical barrie.

At present, China's pharmaceutical industry is still in a critical period of high-quality development, transformation and upgrading, and the innovation ecology of the industrial chain is still immatu.

Truly making first-in-class breakthrough innovative drugs is always a game for a few companies and a few peop.

Every company faces different problems in its transformation and upgrading, and its strategies and path choices are differe.

Whether pursuing high-end innovation, ensuring access to medicines, or seeking leapfrog development through capital mergers and acquisitions, the pursuit of value will always be at the core of meeting clinical nee.