East China Medicine Reports 2016 Annual Revenue of RMB 25.38 Billion, with E-commerce Platform Generating RMB 10.6 Billion

VCBeat (WeChat: vcbeat) reported on March 9.Huadong Medicine (000963.SZ) disclosed its annual report today, reporting full-year 2016 revenue of RMB 25.38 billion, a year-on-year increase of 16.81%; net profit of RMB 1.536 billion, a year-on-year increase of 33.26%; and net profit attributable to shareholders of the parent company of RMB 1.447 billion, a year-on-year increase of 31.88%.

It is worth noting that,Huadong Medicine’s pharmaceutical e-commerce platform, Huadong Medicine Business Network, achieved annual sales of RMB 10.6 billion, with order volume exceeding 720,000 transactions., calculated this way, e-commerce revenue nearly reaches about half of Huadong Medicine's annual revenue. Huadong Medicine states that its Huadong Medicine Business Network has become one of the most influential pharmaceutical B2B e-commerce platforms in China. The reason for its outstanding performance is that it not only connects with the Zhejiang Provincial Centralized Drug Procurement Platform but also supports its self-operated business.

VCBeat (WeChat: vcbeat) reviewed the qualification certificates on Huadong Medicine’s business website and found that the certificate was issued on May 27, 2016, indicating that the company achieved annual revenue exceeding RMB 10 billion after only six months of operation.

The announcement revealed that Huadong Medicine reported year-on-year growth in both revenue and net profit during the reporting period. Specifically, its pharmaceutical manufacturing segment achieved annual sales revenue exceeding RMB 5 billion, while its pharmaceutical commercial distribution business continued to maintain steady growth.

Huadong Medicine's Revenue Business Composition

In terms of product marketing, 2016 was a “year of transformation” for Huadong Medicine, as it carried out organizational optimization aimed primarily at expanding its terminal market presence in county-level hospitals.The 27 marketing regions were split into 96 provincial-level regions, involving nearly 3,000 employees.

From a strategic perspective, Huadong Medicine’s business model is transitioning from that of a traditional pharmaceutical distributor to a comprehensive health service provider, with active expansion into the broader healthcare industry. Yvoire, an imported aesthetic medicine product distributed by its subsidiary, Huadong Ningbo Company, has maintained year-over-year growth exceeding 100% for three consecutive years, generating revenue of over RMB 400 million during the reporting period. The company’s retail pharmacy chain is actively exploring a “products plus services” model, engaging in chronic disease management and facilitating the fulfillment of outpatient prescriptions dispensed outside hospitals. Currently, three major platforms are operational: a community-based platform, a large-hospital platform, and a mobile healthcare platform.

According to disclosures, Huadong Medicine passed the 2015 edition of the Chinese Pharmacopoeia standards for acarbose API during the reporting period. Oral solid dosage forms such as Bailing and Carbophage passed GMP certification, and multiple active pharmaceutical ingredients (APIs) obtained FDA certification. In total, the company secured 13 clinical trial approvals and four manufacturing approvals for APIs and finished dosage forms. Regarding international certifications, Panlifen (pantoprazole sodium for injection) became the first domestic product to have its Abbreviated New Drug Application (ANDA) submitted to and accepted by the U.S. FDA. Additionally, overseas clinical studies for tacrolimus capsules were initiated, with clinical trials progressing smoothly.

This achievement was made possible by Huadong Medicine’s substantial investment in pharmaceutical R&D. According to Huadong Medicine,The total amount of expenditures directly and indirectly incurred by the Company and its controlling subsidiaries for research and development purposes was RMB 264,094,600., a year-on-year increase of 21.29%, accounting for the proportion of the Company’s audited net assets as at the end of the reporting period3.63%, accounting for approximately of the Company's operating revenue (pharmaceutical industry segment) during the reporting period4.68%, the number of R&D personnel reached410 people. This ratio ranks among the highest in R&D investment within the pharmaceutical industry; during the same period, another large pharmaceutical company that announced its results reported R&D investment accounting for approximately of its total revenue3%approximately.

According to VCBeat (WeChat ID: vcbeat), Huadong Medicine’s current key R&D pipeline comprises 15 drug candidates, including nine chemical drugs, one traditional Chinese medicine (TCM) product, and four biologics. One additional drug is undergoing a supplemental application process. These candidates target conditions such as gastric disorders, diabetes, and insulin-related therapies. The company has also entered into a targeted R&D agreement with the New Drug Research Institute of Huadong Medicine Group. Intellectual property rights will be held by the Hangzhou Huadong Medicine Group New Drug Research Institute, and upon successful development, the rights will be exclusively transferred to Huadong Medicine or its subsidiaries in accordance with the agreed terms.

In terms of cash flow, Huadong Medicine reported a net cash flow from operating activities of RMB 1.347 billion during the reporting period, an increase of RMB 688 million, or 104.54%, compared to the same period in 2015. Huadong Medicine attributed this primarily to the fact that the increase in cash received from sales collections exceeded the combined increases in cash paid for procurement and other cash-based operating expenses.

Huadong Medicine was relatively active in investment activities, with total cash outflows from investing activities amounting to RMB 5.491 billion and cash inflows reaching RMB 4.878 billion for the year, representing year-on-year increases of 527.20% and 8,641.75%, respectively, primarily due to the purchase and redemption of short-term wealth management products.

According to the development plan disclosed in the annual report, Huadong Medicine will continue to increase its investment in scientific research and diversified operations in 2017, including actively passing the consistency evaluation of generic drugs and applying for national certifications. In terms of business framework, the company will lean more towards expanding into the broader health industry, aiming to become a comprehensive pharmaceutical commercial operation company.