“Investor Network” Cai Jun

Kangenbei (600572.SH, hereinafter referred to as the “Company”)'s exclusive proprietary Chinese medicine has an online price reduction.

Focusing on the main health business of traditional Chinese medicine, in the first three quarters of this year, Kangenbei's operating income and net profit attributable to shareholders of listed companies were 5.184 billion yuan and 623 million yuan respectively, up 15.51% and 171.76% year-on-year respectively. The reason for the sharp increase in the company's net profit is related to two cases of foreign investment. In the same period, the company withheld 510 million yuan in non-net profit, up 15.23% year on year.

The reason behind the rise in performance is that the company has fallen into a trough in the past. Afterwards, the company adjusted its prescription drug strategy on the one hand and focused on the self-care business. Currently, prescription drugs may face revenue bottlenecks, causing the company to make corresponding changes.

Seek inclusion in the list of essential medicines

In December, the Hubei Pharmaceutical Procurement Management Service Network issued a “Notice Concerning the Disclosure of Price Information on Certain Online Drugs”, and Musk Tongxin Drops are clearly on the list. The drug is Kangenbei's exclusive proprietary Chinese medicine. The price adjustment is for the 35 mg specification. The price reduction was 6.02%, that is, the 18-capsule package was reduced from 23.25 yuan to 21.85 yuan.

According to data from the Minai Network, sales of Musk Tongxin drip pills in 2022 were 310 million yuan, up 4.11% year on year, making them the top 8 proprietary Chinese medicines for cardiovascular and cerebrovascular diseases.

Conn Bay's price reduction was both unexpected and reasonable.

The channel for Musk Xiang Xin drip pills covers public medical institutions, retail pharmacies, public primary care terminals, etc. Among them, public medical institutions account for nearly 80% of the channels, and the company has achieved an increase in drug sales by speeding up the development and upgrading of hospitals.

However, the development of Musk Xiang Xin Dripping Pills seems to have run into a bottleneck. According to statistics from Tianfeng Securities in the research report, sales of this drug grew by more than 20% in 2021, but the growth rate fell to about 5% in 2022. In the first three quarters of this year, the prescription drug business revenue to which this drug belongs was 1,622 billion yuan, up 5.71% year on year.

In fact, similar competitors of Musk Xiang Xin Dripping Pills have cut prices a while ago. In the 2022 local collection, the 27 mg standard drug from Tianshilik's compound salvia won the bid at a 15% price reduction. The price was 22.18 yuan.

Moreover, Musk Macron Drops have another “heartbreak”, which is to seek inclusion in the national basic drug catalogue. Compared with the medical insurance catalogue, the basic drug catalogue places more emphasis on necessity, especially first-line drugs that are clinically preferred and prioritized, and there are no restrictions on payment methods.

Simply put, if it can be included in the basic drug catalogue, drug sales are expected to break through the ceiling. According to data from the Rice Network, in 2022, sales of Beijing Tongrentang's Angong Niuhuang Pills and Tianshili's compound salvia drops were 1.4 billion yuan and 700 million yuan respectively. Both drugs treat cardiovascular and cerebrovascular diseases in the same way as Musk Tongxin Drops, and both are included in the basic drug catalogue.

Conn Bay and the agency are deeply impressed by this. In this year's semi-annual report, the company said that if Musk Tongxin drops are included in the basic drug catalogue, it will open up channels for expanding the incremental market. Tianfeng Securities also believes in the research report that the entry catalogue means that the drug can achieve full market coverage and accelerate its transformation into a large variety.

For a catalogue of essential drugs, Kangenbei is also seeking accumulation on the academic side. According to Tianfeng Securities statistics, as of the first half of this year, the drug has published more than 160 academic papers, including 21 SCI articles, and included 18 recommended drug use in expert consensus and guidelines.

As to whether the price reduction is a transmission of peer pressure or is part of the preparation for inclusion in the basic drug catalogue, the company is probably more clear.

“Four losses and four repairs”

Conn Bay, which once fell into a trough, gradually set its sights on the self-care business.

In 2019, the company's salvia and ligustrazine injections were removed from the national medical insurance catalogue, and sales of this drug reached 2 billion yuan. Afterwards, the company's chemical products participated in the collection and price reduction, and terminal expansion was also blocked. Due to various factors, the company is determined to promote the optimization of the business structure and achieve “four losses and four repairs”.

The damage and compensation here is a kind of mutual relationship. The company said in the investigation that prescription drug losses are covered from self-care products, in-hospital (medical insurance) market losses are covered from the out-of-hospital (non-medical insurance) market, offline losses are covered online, and losses from “barefoot” products in the collection market are covered by “barefoot” products.

In this year's semi-annual report, Conn Bay's statement is more straightforward, that is, it focuses on brands, focuses on the C-side, and focuses on developing self-care businesses centered on non-prescription drugs and health consumer goods. In terms of implementation, the company started from many places.

On the product side, the company's strategy is to build big brands and varieties. For example, the sales volume of the “Kangenbei” series of products for intestinal inflammation has exceeded 1 billion yuan.

On the price side, the company raised prices for products from the big brand “Qianlekang”. This brand is an over-the-counter prostate medication. According to JD Health, a bottle of 60 tablets of branded medication costs 28 yuan, and the dosage is about 6 days. The company disclosed that after the price increase, the daily consumption of the brand's medication rose from 2.6 yuan to 3-5 yuan, and future adjustments will be made depending on costs and market demand.

On the marketing side, the company increased spending. In the first three quarters of this year, the company's sales expenses were 1,857 billion yuan, up 16% year on year. Specifically, market expenses for the first half of this year were 760 million yuan, up 26.7% year on year; furthermore, out of “other cash payments relating to business activities” during the same period, cash sales expenses reached 865 million yuan, an increase of 30% over the previous year.

Many of these expenses are related to marketing activities. For example, in the over-the-counter drug business, the company launched a public service campaign to popularize prostatic health science. In terms of consumer health products, the company is expanding e-commerce businesses of interest such as private communities, live streaming, and short videos.

According to the results, in the first three quarters of this year, the company's non-prescription drug business revenue was 1.91 billion yuan, up 24.09% year on year; health consumer goods business revenue was 430 million yuan, up 21.91% year on year.

Account for calculating profit margins on sales

There is a lot of investment in marketing, and the market is also questioning whether Conn Bay “focuses on sales and light on R&D.”

In the first three quarters of this year, the company spent 164 million yuan on R&D, up 14.7% year on year. In terms of composition, the company's employee remuneration and material collection for the first half of this year totaled 49 million yuan, accounting for 52.7% of the expenses for the same period.

According to the specific plan, the company disclosed that it will accelerate innovation and transformation of results in new drug research and development, strive to obtain approval for 3.1 and 2.1 innovative traditional Chinese medicines, and increase the new adaptation development of total flavonoid extract from yellow hollyhock flower. In this year's semi-annual report, the company also mentioned promoting the drug's admission to new medical insurance.

In fact, when “settling accounts,” Conn Bay places more importance on sales profit margins. Earlier, the company disclosed that in the past, the business was too fragmented and the profit margin on sales was generally low, and the plan was to bring this data to the upper middle level of the industry.

In the first three quarters of this year, the ratio of the company's deducted non-net profit to operating income was 9.8%. In the same period, the ratio between Tong Ren Tang and Jiuzhitang was 9.1% and 11.4%.

The reason for choosing to deduct non-net profit is because Conn Bay has also participated in many companies and has capital operations.

In May of this year, the company completed the transfer of 7.84% of the shares held by Zhenshiming Company and confirmed the disposal net profit of 87 million yuan. As of the first half of this year, the company held 57.803 million shares of Jiahe Biotech listed on the Hong Kong Stock Exchange. The latter's stock price has been hovering between HK$1-2.5 per share since October 2022.

At the same time, the company stated that it “plans to complete mergers, acquisitions and restructuring projects of 1-2 listed pharmaceutical companies or long-established traditional Chinese medicine companies during the 14th Five-Year Plan period.” Currently, the company holds the “Baozhilin” trademark and can develop targeted products such as supplements for middle-aged and elderly people, cardiovascular, lower back relief, and sprains. (Produced by Thinking Finance) ■