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(Original title: Poinsettia centralized procurement illegally returned 266 million yuan, three years of net profit 580 million yuan, sales expenses over 3.6 billion yuan)

Consumer Daily News (Reporter Liu Kunyuan) Recently,PoinsettiaYipinhong Pharmaceutical Co., Ltd. (hereinafter referred to as "Yipinhong") announced that its wholly-owned subsidiarydrugThere was a breach of contract in the bidding for the centralized bulk procurement of bromhexine hydrochloride injection, and the company was required to return 266 million yuan to the purchaser.

It is worth mentioning that the refund amount caused by this breach of contract is 81 million yuan higher than its net profit for the whole of last year. In recent years, the net profit of Yipinhong has also shown a continuous downward trend. From 2022 to the first quarter of 2024, the net profit attributable to the parent of Yipinhong was approximately 291 million yuan, 185 million yuan and 101 million yuan, respectively, a year-on-year decrease of 5.29%, 36.49% and 9.53%.

1

266 million RMB to be refunded for illegal centralized procurement

Public information shows that Yipinhong was founded in 2002 and listed on the Shenzhen Stock Exchange in November 2017. Its main businesses are in the fields of children's medicines, chronic disease medicines and biological vaccines.

On July 27, Yipinhong issued an announcement stating that its wholly-owned subsidiary Guangzhou Yipinhong Pharmaceutical Co., Ltd. (hereinafter referred to as "Yipinhong Pharmaceutical") recently received a breach of contract notice from the National Joint Drug Procurement Office.

The notice shows that Poinsettia Pharmaceutical (including Poinsettia Pharmaceutical's authorized persons) violated Clause 17.4 of the "National Drug Centralized Procurement Document" (Document No.: GY-YD2022-1) in the bidding for the seventh batch of national centralized drug procurement of bromhexine hydrochloride injection. It should be dealt with accordingly in accordance with the provisions of the procurement documents, and Poinsettia Pharmaceutical shall bear the losses caused to the purchaser.

According to the sales data of Yipinhong Pharmaceutical, the above-mentioned breach of contract caused the purchaser to lose approximately RMB 266 million. Yipinhong Pharmaceutical will strictly follow the relevant agreement and return all the losses.

In this regard, Yipinhong disclosed the impact of the incident on the company and risk warnings in the announcement, stating that the above-mentioned default refund amount was calculated based on the sales data of bromhexine hydrochloride injection of Yipinhong Pharmaceutical from 2022 to date, and the impact on the company's relevant annual finances is still uncertain, and the final result will be subject to the audit. It also stated that it attaches great importance to this matter and has actively taken corresponding rectification measures.

Perhaps affected by this negative news, on July 29, the share price of Poinsettia experienced large fluctuations, with the intraday decline reaching 19.52% at one point.

As of the close of the day, its stock price closed at 15.5 yuan per share, down 17.33%, and its market value evaporated by about 1.5 billion yuan.

Public data shows that Article 17.4 of the aforementioned National Drug Centralized Procurement Document specifically states that “colluding with each other in declarations and negotiating quotations, excluding fair competition from other declaration companies, and damaging the legitimate interests of the purchaser or other declaration companies.” If the declaration companies, selected companies, and distribution companies engage in such behavior, they will be included in the “violation list” if the relevant departments determine that the circumstances are serious.

The bromhexine hydrochloride injection involved in the above incident is a respiratory system drug, mainly used for chronic bronchitis and other respiratory diseases. It participated in the seventh batch of national drug procurement in July 2022 and was one of the largest varieties supplied in this procurement. At that time, a total of four companies won the bid, namely Yipinhong, Shijiazhuang No. 4 Pharmaceutical Co., Ltd. under Shijiazhuang No. 4 Pharmaceutical Group, Renhe Yikang Group Co., Ltd., and Chengdu Xinjie High-tech Development Co., Ltd.

At that time, the highest effective bid price of the drug was 22.9 yuan per piece, and the final winning bid price was 17.88 yuan per piece, a decrease of about 22%. The number of selected drugs in the centralized procurement was 35.65 million, with a value of over 600 million yuan. It is worth noting that the average price reduction of the seventh batch of national drug centralized procurement was 48%, while the price reduction of the above-mentioned companies that won the bid for the drug was only between 18% and 26%.

In April this year, Shanghai Sunshine Pharmaceutical Procurement Network released the "Announcement on the Interview with Bidders of Some Abnormal Prices in the National Organized Drug Procurement", which showed that the National Organized Drug Joint Procurement Office interviewed all bidders of four varieties including bromhexine injection based on clues of abnormal bidding prices reported by the public. Among them, Yipinhong voluntarily reduced the price of bromhexine hydrochloride injection to 8.27 yuan per vial after the interview.

2

Net profit declines as sales expenses rise

According to the "National Drug Centralized Procurement Document", if a selected enterprise is included in the "violation list", its eligibility for selection will be cancelled. At the same time, depending on the severity of the case, the above-mentioned enterprise or product will be disqualified from participating in local drug centralized procurement activities within 2 years from the date of inclusion in the "violation list".

If Yipinhong is included in the "violation list" due to the centralized procurement breach, it will undoubtedly be a further blow to its net profit, which has been declining in recent years. The above-mentioned 266 million yuan loss amount required to be returned by the company is still 81 million yuan higher than its full-year net profit in 2023.

Financial data show that from 2022 to the first quarter of 2024, Poinsettia's operating income was approximately RMB 2.28 billion, RMB 2.503 billion and RMB 623 million, respectively, a year-on-year increase of 3.68%, 9.79% and -13.01%; the net profit attributable to the parent was approximately RMB 291 million, RMB 185 million and RMB 101 million, respectively, a year-on-year decrease of 5.29%, 36.49% and 9.53%.

Yipinhong's performance is closely related to the products that have won bids for centralized procurement in recent years. The annual report shows that in 2023, its bromhexine hydrochloride injection and nifedipine controlled-release tablets grew rapidly year-on-year, and it has participated in three batches of national centralized drug procurement, with a total of 7 varieties qualified for the bid. That year, the company's revenue from centralized procurement products increased by 244.34% year-on-year.

According to the official website of Yipinhong, from 2021 to 2023, the company's R&D investment was approximately 1.3 billion yuan, and the annual R&D investment accounted for about 10% of its revenue. However, its comprehensive R&D investment in three years is basically equivalent to its sales expenses for one year. Data from the same period showed that Yipinhong reported sales expenses of approximately 1.282 billion yuan, 1.249 billion yuan and 1.124 billion yuan, respectively, accounting for approximately 58.28%, 54.77% and 44.88% of operating income, respectively, and the average sales expense rate for three years was 52.64%. Among them, the company's sales expenses are mainly allocated to academic promotion expenses. During the reporting period, its market and academic promotion expenses were 1.231 billion yuan, 1.191 billion yuan and 1.058 billion yuan, respectively, accounting for 96.02%, 95.36% and 94.15% of the current sales expenses, respectively.

It is worth mentioning that in 2023, according to the special audit investigation report on Guangdong Province's pharmaceutical consumables issued by the National Audit Office, from 2021 to May 2023, Yipinhong and two other pharmaceutical companies paid fees to 1,936 third-party business promotion companies, embezzling 4.077 billion yuan in funds under the guise of service fees. Among them, Yipinhong embezzled 1.675 billion yuan by registering conference service companies in batches.

We will continue to pay attention to the violations in centralized procurement and sales expenses.