Zhendong Pharmaceutical sells "China's calcium king" and "hair" economy can become a new business growth pole

Author: Fei, A Chao

Go left or right? Reluctant to part with love or stay in the comfort zone?

This is a transformation problem faced by many traditional pharmaceutical companies, and Zhendong Pharmaceutical resolutely chose to reluctantly cut love

On August 17, Shanxi Zhendong Pharmaceutical issued the "Announcement on the Sale of Equity in a Wholly Owned Subsidiary", announcing that it would sell 100% of the company's subsidiary Langdi Pharmaceutical for a price of 5.

Why is Langdi Pharmaceutical so profitable, but Zhendong Pharmaceutical is going to sell it? Why sell at this time? What are the strategic layout considerations behind reluctantly giving up love?

1.

Before Zhendong Pharmaceutical acquired Langdi calcium from Kangyuan Pharmaceutical, the prescription drug "Yanshu Brand Kushen Injection" used in the clinical market was Zhendong Pharmaceutical's main product

How to quickly seize market space in the OTC market and increase market awareness and reputation is a challenge facing Zhendong Pharmaceutical

However, there are many branded products in the OTC retail market.

In fact, Li Anping’s judgment is also very accurate.

Chart 1: 2017-2021Q1 China's calcium preparation retail market + grade hospitals

(Level two and three) Market size (unit: million yuan)

Data source: Zhongkang CMH, Zhongkang CHIS Kaisi System, Zhongkang Industrial Capital Research Center

Li Anping hopes to form a benign interaction between product brands and corporate brands, transform product advantages into brand advantages, and brand advantages into market advantages

2.

Chart 2: 2017-2021Q1 Langdi calcium carbonate D3 retail market + grade hospitals

(Level two and three) Sales scale (unit: million yuan)

Data source: Zhongkang CMH, Zhongkang CHIS Kaisi System, Zhongkang Industrial Capital Research Center

The interim report shows that in the first half of this year, Langdi's calcium series products maintained a steady growth of 48.

For Zhendong Pharmaceutical, Langdi occupies an important position

3.

Zhendong Pharmaceutical explained this.

In fact, the "lack of money" behind Zhendong Pharmaceutical resolutely cut love
.
Affected by medical insurance control fees and national industrial policies, Zhendong Pharmaceutical has been under pressure in recent years
.
In 2018, there was a performance loss due to a goodwill thunder
.
From 2019 to 2020, the company's revenue was 4.
399 billion yuan and 4.
848 billion yuan, but the net profit attributable to the parent was only 143 million yuan and 262 million yuan
.

The interim report shows that in the first half of this year, all cash flows of Zhendong Pharmaceutical were negative
.
Among them, cash flow from operating activities, cash flow from investment activities, and cash flow from financing activities were -36 million yuan, -55 million yuan, and -180 million yuan, of which 180 million yuan was mainly used to repay debts.
In the first half of the year, cash flow has been outflowing
.

Chart 3: 2017-2021H1 Zhendong Pharmaceutical's main financial data

Data source: company announcement, Zhongkang Industrial Capital Research Center

At the same time, the company is currently deploying medical aesthetics and innovative drugs, and all aspects of expenses have increased
.
The first is to carry out research and development of innovative drugs, and the company's R&D investment has increased significantly
.
The interim report showed that the company's R&D investment amounted to 99,067.
5 million yuan, a year-on-year increase of 32%; the second was to increase market development, with sales expenses of 1.
16 billion yuan, a year-on-year increase of 32%
.

In addition, it is worth noting that as of the end of 2020, Langdi's net profit was 357 million yuan, but the net cash flow from operating activities was only 78 million yuan
.
It shows that although Landy has strong profitability, it has not yet been able to provide large cash flow support to Zhendong Pharmaceutical
.

Chart 4: The main financial data of Langdi Pharmaceuticals in the most recent year

(Unit: ten thousand yuan)

Data source: company announcement, Zhongkang Industrial Capital Research Center

According to the statistics of the "Analysis of China's Calcium Preparation Market Development and Future Investment Potential Feasibility Report 2021-2027" published by CICC International Consulting, the compound annual growth rate of sales in the calcium preparation field where "Lundy Calcium" is located is 7.
30 %
.
The product that Zhendong Pharmaceutical will vigorously support, Da Feixin, is in the field of anti-dropping and hair growth, and its market scale compound growth rate is 17.
38%
.

In the face of the slower growth of the calcium preparation market, Zhendong Pharmaceutical, whose core product market share has reached the first place in the country, seems to have encountered a development ceiling, and finding new performance growth poles has become the top priority at the moment
.

4.
Can the "hair" economy support the long-term development of performance?

For Zhendong Pharmaceutical, is it really a good choice to transform the current hottest medical beauty subdivision track and give up the previous strong main business? Can the "hair" economy support the long-term development of the company's performance?

It is understood that the hair growth product Dafeixin that Zhendong Pharmaceutical focuses on is Minoxidil.
From the perspective of treatment options, Milodil is currently the best choice for non-surgical products
.
The only drugs approved by the FDA and NMPA are finasteride (oral) and minoxidil (topical)
.
Finasteride, as an oral preparation, has side effects such as sexual dysfunction, while minoxidil can be effective for 2 to 3 months.
It is recommended to use it for 1 year, and there is a certain maintenance time after stopping the use
.

At the same time, compared with calcium preparations, the "hair" economic market appears to have more room for development.
At present, China's hair loss population has a large base and the market is growing rapidly
.
According to public statistics, there are about 250 million people with hair loss in China, and more than 80% of the patient population is under the age of 30.
The younger age, the rapid awakening of consumer awareness and the increase in consumption levels, prevention of hair loss has become a very growing track
.

In 2016 and 2020, the hair medical market will be 7.
8 billion yuan and 18.
4 billion yuan, of which medical care accounts for 27% (5 billion yuan).
45% of the market size will soon reach a market size of 63 billion yuan
.

In the context of the continuous expansion of the market cake, since its listing in 2017, the sales performance of Dafeixin has shown a rapid growth trend
.
According to the Zhongkang CHIS Kaisi system, from the retail market and second- and third-level hospital sales data, the sales scale in 2018 was 20 million yuan, an increase of 19.
2% year-on-year; in 2019 it reached 28 million yuan, a simultaneous increase of 42%; 72 million yuan, a year-on-year increase of 156%
.

Chart 5: 2017-2021Q1 Zhendong Pharmaceutical Dafeixin sales scale and growth rate

(Retail Market + Grade Hospital (Level 2 and Level 3))

Data source: Zhongkang CHIS Kaisi System, Zhongkang Industrial Capital Research Center

As of the first half of 2021, Langdi's calcium revenue still accounted for more than 10% of Zhendong Pharmaceutical's total revenue
.
In the future, the fast-growing Dafeixin has a high probability of becoming a star product to replace Langdi calcium
.
Zhendong Pharmaceutical revealed that, as the company's mature product, Faixin has a huge market growth space in the future, and it is expected that the average growth rate in 2021 will remain at 120%
.

From the perspective of market share, there are currently 5 companies in the domestic market of Minoxidil whose products are on sale, namely Commercial medicine, Jingwei Pharmaceutical
.
From 2017 to 2019, Wansheng Pharmaceutical's Mandi (minoxidil tincture) was in a dominant position, and its market share continued to climb from 67.
6% to 73.
6%
.
The 2021 mid-year report shows that in the first half of this year, Zhendong Ante's Da Feixin (minoxidil liniment) has grown rapidly, with its market share soaring to 45.
23%, an increase of 190% year-on-year, and has led the Minoxidil category market
.

In addition to retail and hospital channels, the current medical beauty institutions have also become one of the channels of Mandi and Feixin
.

Chart 6: 2017-2021Q1 China Minoxidil market composition

(Retail Terminal + Grade Hospital (Level 2 and Level 3))

Source: Zhongkang CHIS Kaisi System, Zhongkang Industrial Capital Research Center

At present, Zhendong Pharmaceutical is also making efforts to reach Fei Xin's domestic and foreign terminal markets
.
According to the mid-year report, the company currently adopts the "pharmaceutical R&D + clinical support + doctor platform" model through multiple terminals such as a network of clinical experts, graded public hospitals, top 100 chains, medical beauty institutions, and mainstream e-commerce established by Faixin.
Create a superior skin brand and a complete skin health ecosystem
.
At the same time, it took the first step to export overseas, and Dafeixin exported 6,500 boxes to the Philippines
.
With the further expansion of overseas customers, there is great potential for overseas growth in the future
.

Concluding remarks

From the perspective of the size and growth rate of the "hair" economic market cake, Zhendong Pharmaceutical now reluctantly cuts love in order to anchor a larger market
.
Judging from the company's potential star product Da Fei Xin's utility advantages, its rapidly growing market sales and market share, the company is expected to get a larger share of the hair medical market, which is about to reach 140 billion yuan in 2030
.