China's Top Pharma Companies in Generic Drug Consistency Evaluation: Huahai Leads, Kelun and Qilu Follow

2019 Ranking of Pharmaceutical Companies in Consistency Evaluation: Huahai Pharmaceutical Ranks First with 20 Product Specifications Approved; Fosun Ranks Second with a Total of 19 Product Specifications Approved; Qilu Pharmaceutical and Kelun Tie for Third Place, Each with 16 Product Specifications Approved.

▍ Major Rankings: Huahai Pharmaceutical and Fosun Rank in the Top Two

Unbeknownst to many, 2019 is already nearing its midpoint. The progress of the first batch of volume-based procurement has exceeded expectations, fueling widespread speculation in the industry about the imminent launch of the second batch. However, only drugs that have passed the consistency evaluation qualify for participation in this second round. Consequently, the progress of pharmaceutical companies in achieving consistency evaluation has become a matter of widespread concern.

According to incomplete statistics from Saibailan, as of today (June 7), a total of 265 product specifications have passed the consistency evaluation, involving 120 pharmaceutical companies (the number of approvals obtained by branch companies is not counted under the parent company).

It should be noted that professionals previously indicated to Saibailan that, generally speaking, hospital procurement is conducted based on “product specifications,” and enterprises apply for consistency evaluation one specification at a time. Therefore, Saibailan’s statistical scope is based on product specifications.

Cyber Blue compiled and ranked 265 product specifications from 120 companies, yielding a comprehensive ranking of pharmaceutical enterprises based on consistency evaluation.

Among them, Huahai Pharmaceutical Co., Ltd. had 20 product specifications pass the consistency evaluation, ranking first. Fosun Group ranked second with 19 product specifications passing the evaluation, just one specification behind. Kelun and Qilu Pharmaceutical each had 16 product specifications pass the evaluation, tying for third place (the number of approvals obtained by subsidiaries is included in the parent company’s total).

CSPC, Yangtze River Pharmaceutical Group, and CHIATAI TIANQING had 12, 11, and 10 product specifications pass the evaluation, respectively, ranking fourth, fifth, and sixth.

(Image source: Sycmb)

▍Rankings Shift: Fosun Breaks into the Top Three

In November 2018, Saibailan previously compiled an overview of pharmaceutical companies’ progress in passing the consistency evaluation. According to the author’s incomplete statistics, a total of 107 product specifications had passed the consistency evaluation (any omissions are welcome to be corrected).

According to the statistics, seven pharmaceutical companies have three product specifications that passed the evaluation, three companies have four product specifications that passed, and four companies have more than five product specifications that passed. Among them, Huahai Pharmaceutical has a total of 17 product specifications that passed the consistency evaluation; Yangtze River Pharmaceutical Group Co., Ltd. and CSPC each have seven product specifications that passed; Hengrui Medicine has five product specifications that passed; Zhejiang Jingxin Pharmaceutical, Hansoh Pharmaceutical, and Chia Tai Tianqing each have four product specifications that passed.

(Image source: Cyblue; Note: The above figure shows the ranking of pharmaceutical companies in terms of consistency evaluation last November.)

Based on the aforementioned data, it can be concluded that as of June this year, over the past seven months, pharmaceutical companies have entered a harvest period for the Consistency Evaluation. The number of drug specifications passing the evaluation has increased significantly, and the pace has accelerated. This trend may be driven by the promotion of the "4+7" volume-based procurement policy and the policy in multiple provinces whereby online listing is suspended once three manufacturers pass the Consistency Evaluation for a given product.

From the perspective of pharmaceutical companies themselves, although Huahai Pharmaceutical Co., Ltd. still firmly holds the top position, its pace of passing the consistency evaluation has significantly slowed down compared to last November. As of today, the number of approved specifications has increased by only three.

Furthermore, it is evident that Fosun Pharmaceutical has made rapid progress, breaking into the top three with 19 product specifications passing the consistency evaluation, just one fewer than the first-place Huahai Pharmaceutical.

▍ Huahai, Kelun: Rich Product Portfolio, Potential Winners of Volume-Based Procurement

Huahai Pharmaceutical’s 2018 annual report showed that the company achieved an operating revenue of RMB 5.095 billion, a year-on-year increase of 1.85%, and a net profit attributable to shareholders of the listed company of RMB 108 million, a year-on-year decrease of 83.18%.

During the reporting period, the Company’s R&D expenditures amounted to RMB 518 million, accounting for 10.17% of its annual operating revenue. The report indicates that Huahai Pharmaceutical concentrated its advantageous resources on domestic formulation R&D, focusing primarily on regulatory filings in Europe and the United States, consistency evaluations, and independent marketing applications. During the reporting period, the Company obtained production approvals for four new products and submitted marketing applications for eight new products. By pursuing both regulatory filings in Europe and the United States and independent R&D simultaneously, the Company accelerated the rapid development of its domestic formulations.

Huahai Pharmaceutical has consistently adopted a “leapfrog” strategy to obtain approval. Its overseas-formulated drugs enter the domestic market through supplemental applications for domestically listed products and direct Class 4 new drug applications, among other pathways. By relying solely on foreign marketing authorization trial data for submission, the company significantly reduces both the cost and time required for approval compared to competitors that must conduct bioequivalence (BE) studies domestically.

Passing the consistency evaluation means obtaining a ticket to participate in volume-based procurement. In the first batch of volume-based procurement, Huahai Pharmaceutical had six products selected as winners, becoming the biggest winner.

According to industry analysis, the key lies in Huahai Pharmaceutical being an integrated company specializing in both active pharmaceutical ingredients (APIs) and finished formulations. For similar companies that previously lacked sales teams but possessed API capabilities, the volume-based procurement policy has eliminated the sales segment, which was not their strength. Leveraging their API advantages, these companies can increase gross profit margins, achieving profit growth through a strategy of exchanging volume for price.

Thus, it is evident that in the future generic drug sector, the companies poised for long-term gains will inevitably be those with integrated API and formulation capabilities and a robust product portfolio. In addition to Huahai Pharmaceutical, Kelun is another such company.

Kelun has received approval for 16 product specifications. According to its 2018 annual report, the company has established a portfolio of 51 active pharmaceutical ingredient (API) varieties, comprising a total of 53 specifications.

Kelun also explicitly stated in its annual report that the company will build a competitive advantage across the entire industrial chain, from intermediates and active pharmaceutical ingredients (APIs) to finished formulations, through the innovative development and utilization of high-quality natural resources.

▍Fosun Pharma: Wholly-owned subsidiary makes significant contribution

A distinguishing feature of Fosun Pharma is the significant contributions made by its wholly-owned subsidiaries, Chongqing Yaoyou Pharmaceutical Co., Ltd. and Shenyang Hongqi Pharmaceutical.

Since its listing in 1998, Fosun Pharma has been well-known in the capital markets for its adept financial maneuvers, frequently engaging in asset acquisitions and mergers to expand its market presence. Its wholly-owned subsidiaries have established a broad footprint across multiple regions, resulting in a relatively large number of product specifications that have passed the consistency evaluation.

Furthermore, Fosun Pharma has a diverse portfolio comprising 12 products, multiple of which have exclusively passed the consistency evaluation.

▍ Qilu Pharmaceutical: Most Diverse Product Portfolio

According to statistics from Saibailan, although Qilu Pharmaceutical has only 16 product specifications, fewer than Huahai Pharmaceutical and Fosun Pharma, it has the most extensive portfolio of therapeutic categories, with a total of 13. Among these, seven are not included in the "4+7" volume-based procurement program.

Data from Menet shows that for the antimetabolite drug Tegafur, Gimeracil and Oteracil Potassium Capsules (S-1), its peer product Pemetrexed is included in the “4+7” volume-based procurement list; for the systemic antiviral drug Adefovir Dipivoxil, its peer products Entecavir and Tenofovir Disoproxil Fumarate are included in the “4+7” list; no other products have peer products included in the “4+7” list.

Therefore, none of Qilu Pharmaceutical’s other approved products—terbinafine, solifenacin, levocetirizine, ondansetron, and trimetazidine—had comparable varieties included in the “4+7” volume-based procurement program. However, given that ondansetron and trimetazidine each achieved sales exceeding RMB 1 billion at public healthcare institution terminals in China in 2017, they may have the opportunity to compete in the second batch of volume-based procurement.

It is worth noting that Qilu Pharmaceutical missed out on the first batch of volume-based procurement last year. With multiple products passing consistency evaluation this year, its performance in the second batch is highly anticipated.