Harbin Pharmaceutical Reports H1 2017 Net Profit of RMB 348 Million, Prioritizing Innovative Hospital Diagnostic and Treatment Projects in Second Half

VCBeat (WeChat ID: vcbeat), August 10 — Harbin Pharmaceutical Group Co., Ltd. (600664.SH) recently disclosed its 2017 semi-annual report, showing operating revenue of RMB 6.168 billion during the reporting period, a year-on-year decrease of 13.31%; net profit amounted to RMB 348 million, down 8.1% from the same period last year.

Harbin Pharmaceutical Group Co., Ltd. listed on the Shanghai Stock Exchange in 1993, becoming the first listed company in China’s pharmaceutical industry and the first listed company in Heilongjiang Province. In 2015, Harbin Pharmaceutical Group integrated its subsidiary assets and operations through asset swaps, establishing Renmin Tongtai (600829.SH) as its listed platform for pharmaceutical commerce. This move enabled independent operation and coordinated development of its pharmaceutical manufacturing and commercial businesses.

As a time-honored pharmaceutical company, Harbin Pharmaceutical Group’s performance fluctuations also serve as an industry bellwether. Amid the comprehensive deepening of healthcare system reforms, the performance of the pharmaceutical manufacturing sector may be impacted by factors such as drug procurement bidding, medical insurance cost containment, adjustments to the National Reimbursement Drug List, and the “Two-Invoice System.” In response, Harbin Pharmaceutical Group Co., Ltd. is actively implementing strategic measures.

In its annual report, Harbin Pharmaceutical Group Co., Ltd. stated that due to the continued strengthening of medical insurance cost containment measures, public hospitals have reduced the proportion of pharmaceutical expenditures and abolished drug markups, leading to a decline in hospital demand for pharmaceuticals. The diverse forms of drug procurement bidding have resulted in a continuous decrease in winning bid prices. Various regions have extended bans on outpatient and emergency intravenous infusions to primary healthcare institutions, and the further escalation of antibiotic restriction policies has curbed market demand for antibiotics, particularly in the primary healthcare sector. With the release and imminent implementation of the 2017 National Reimbursement Drug List (NRDL), terminal demand has decreased for products not included in the list or those subject to usage restrictions even if included. Meanwhile, to ensure product “freshness” within the distribution channel, the company has strengthened expiration date management, increased delivery frequency, and proactively controlled channel inventory. Affected by these factors, Harbin Pharmaceutical Group experienced a decline in performance.

During the reporting period, Harbin Pharmaceutical Group primarily undertook initiatives in six key areas. First, it deepened the development of its exclusive distribution model to deliver high-quality, efficient, and precise services. Throughout this period, the Company further consolidated its existing exclusive distribution network, refined management and performance evaluation units at the district and county level, established a grid-based terminal management system, and strengthened its capacity for precise service delivery at the district and county levels.

Second, we tapped into the potential of both new and existing product lines to achieve diversified product promotion. During the reporting period, the Company remained focused on profit-based performance evaluation, actively optimized its product portfolio, and continuously conducted analysis and optimization of the product value chain to provide information support for market decision-making. The Company deeply explored the unique selling points of existing products, accelerated secondary product development, and continually enriched its product structure. In the first half of the year, it completed the market launch of Zinc Gluconate Oral Solution (approved under drug registration number) and Zhuangshen Anshen Tablets. We also diversified our product promotion and publicity methods, carried out targeted regional promotional campaigns, fully leveraged the effectiveness of resource allocation, and improved input-output efficiency.

Third, we optimized our product portfolio and refined production and operational controls. During the reporting period, based on a scientific review of internal production resources conducted earlier, the Company implemented optimization and integration of existing production lines, advanced the development of specialized, large-scale production bases, improved production efficiency, and reduced product manufacturing costs. We also enhanced our refined management system, with production lines as the smallest units for management and accounting, optimized product manufacturing processes, and strengthened cost control in production.

Fourth, the Company actively advanced the consistency evaluation of generic drugs to accelerate product R&D progress. During the reporting period, the Company proactively promoted the consistency evaluation of generic drugs and has initiated such evaluations for 20 varieties (covering 24 specifications). It is expected that 15 varieties will enter the preparation stage for Bioequivalence (BE) trials in the second half of the year. The Company closely monitored the release of national drug review policies, strengthened policy interpretation, and adjusted product R&D plans in a timely manner to mitigate R&D risks for products under development. As of the end of the reporting period, there were 46 new products under development, with marketing authorization applications submitted for 30 products. Among these, the Recombinant Human Erythropoietin-CTP Fusion Protein Injection (CHO Cells), classified as a Class 1 biologic, has obtained approval for clinical trials. While accelerating the R&D of new products, the Company actively collaborated with research institutes, domestic and international pharmaceutical companies, and Contract Research Organizations (CROs) to expedite the introduction of new varieties.

Fifth, optimize the internal management system to enhance corporate operational efficiency. During the reporting period, the Company continuously explored management systems adapted to future development and refined its precise control measures. The Company innovated its competitive selection and recruitment processes to foster a fair and equitable environment, further advancing the mechanism of competitive appointments for all employees. This approach aims to activate existing internal talent pools and leverage employee strengths, thereby providing talent support for the development of various business segments. Additionally, the Company continued to strengthen its information-based management system by reengineering processes across procurement, production, sales, R&D, finance, and human resources. These optimized processes were institutionalized through digital tools, achieving an overall improvement in operational efficiency driven by data.

Sixth, leverage regional scale advantages to accelerate the development of pharmaceutical commerce. During the reporting period, the Company’s controlled subsidiary, Renmin Tongtai, relied on its regional market scale advantages to continuously tap into the potential of the terminal market, carry out multi-dimensional in-depth marketing, and promote the rapid development of pharmaceutical commerce. In terms of wholesale business: first, strengthen in-depth cooperation with medical customers, enhance efforts in developing centralized distribution, and increase sales share in the medical market; second, actively respond to bidding processes, continuously optimize the supply chain, implement supply channel transitions, and provide favorable support for the implementation of the “Two-Invoice System.”

Retail Business: First, leverage the advantages of integrated wholesale and retail operations by adding consumer experience activities and launching flexible, diverse large-scale member promotions to enhance the profitability of chain stores. Second, continuously enrich the product mix structure and reduce procurement costs to effectively drive up gross profit margins; introduce high-end Direct-to-Patient (DTP) products and implement the DTP pharmacy model to increase market share in sales. Medical Services: Relying on the century-old Shiyitang Traditional Chinese Medicine (TCM) brand, we are committed to building a premium, humanistic TCM clinic with distinctive century-old TCM cultural features—“Shiyitang TCM Clinic.” Grounded in the traditional techniques and services of Shiyitang, a China Time-Honored Brand, we will provide the public with high-quality therapeutic healthcare and wellness services.

2017 was the year for implementing the spirit of the National Health and Wellness Conference and advancing the "13th Five-Year" Plan for Deepening the Reform of the Medical and Healthcare System.This is a pivotal year for establishing a relatively systematic framework for basic healthcare services and achieving the phased objectives of healthcare reform. Relevant policies covering four key areas—medical services, pharmaceutical manufacturing, distribution, and payment—will be rolled out successively. The refinement of these systems will have a profound impact on the future of the pharmaceutical industry.

In response to the competitive landscape and development trends in this industry, Harbin Pharmaceutical Group Co., Ltd. stated that it would implement business adjustments by focusing on product development, management, and marketing.

This includes fully mobilizing resources from all parties, accelerating the modular construction at the district and county levels, implementing assessment indicators at each level, strengthening refined marketing control, and promoting the linked growth of product production and sales. Exclusive distributors, their sales representatives, and dedicated account managers shall utilize information technology tools to dynamically collect and analyze sales data for each district and county, establish efficient communication channels with local exclusive distribution stakeholders, and accelerate the development of a localized capability module system for districts and counties. We will strengthen corporate brand maintenance and product promotion, advance precision advertising marketing, comprehensively implement targeted advertising in county-level markets, diversify advertising placement models, and enhance brand awareness. The company has divided its 26 exclusive provincial regions into 2,529 districts and counties. Taking each district and county as a unit, we will promote mutual assessment of production and sales, implement sales targets at each hierarchical level, strengthen performance evaluations for each district and county, and reinforce refined marketing management.

In addition, the consistency evaluation of generic drugs is also a key focus for Harbin Pharmaceutical Group Co., Ltd. (Harbin Pharma). The company stated that it will accelerate the progress of the consistency evaluation of generic drugs to ensure all tasks are completed on schedule. It will promote innovation in R&D mechanisms, stimulate the intrinsic motivation of R&D personnel, accelerate the screening and project approval processes for new products, and enhance the speed and quality of R&D. As the construction of production bases advances, the company will carry out reengineering of quality control processes to ensure seamless integration of technical quality standards with the new production bases, thereby safeguarding product quality.

Furthermore, Harbin Pharmaceutical Group Co., Ltd. may prioritize its efforts in the pharmaceutical commercial market and hospital diagnostic and treatment services. In terms of wholesale operations: The company will closely consolidate strategic partnerships with downstream clients, intensify market development within the province, expand sales to hospitals in Harbin City, and refine its core markets. It will improve its marketing channel network to unlock market potential, deepen penetration into community hospitals to enhance direct terminal coverage, strengthen specialized management of procured product categories to improve operational effectiveness, and effectively manage tendering processes to expand distribution regions for existing products and develop new product lines.

Retail Business: We will refine and optimize store layouts to expand operational scale; leverage chronic disease management as an entry point to advance our chronic care management model; promote the “pharmacy + convenience store” business model to drive synergistic sales of pharmaceuticals and daily necessities; and optimize product mix, streamline new product approval processes, and accelerate the introduction of new items into stores. Medical Services: We will execute effective post-launch promotional campaigns to enhance brand influence and raise the profile of “Shiyitang TCM Clinic”; innovate diagnostic and therapeutic offerings to broaden the customer base, deliver value-added services, and improve the company’s profitability.