Shanghai Pharmaceuticals Maintains a Steady Growth for Business Performance Makes a Clear Path for Future Development

  26 March 2015,Shanghai Pharmaceuticals Holding Co. Ltd.,together with its subsidiaries,stock code: 601607.SH; 02607.HK),announced its annual results for the year ended 31 December 2015 (the "reporting period").

    According to the report, under the ''new normal'' of the slowdown of the overall revenue and profit growth resulted from numerous factors such as the decelerated rate of growth in macro economy, control of medical insurance reimbursements, provincial tender for drugs, the Good Manufacturing Practice (GMP) and the Good Supplying Practice (GSP) standard upgrading, etc., Shanghai Pharmaceuticals achieved the operating revenue of RMB92.399 billion in 2014, with an increase of 18.12% on a year-on-year basis. Net profit attributable to the equity holders of the listed Company was RMB2.591 billion, with an increase of 17.06% on a year-on-year basis. Basic earnings per share amounted to RMB0.9636. The Company's net cash flows from operating activities amounted to RMB1.336 billion, with an increase of 37.21% on a year-on-year basis. As at 31 December 2014, the owners' equity of the Company was RMB31.099 billion, and its total assets were RMB64.341 billion.

    For the aspect of pharmaceutical research and development in 2014, the total investment of R & D expenses by Shanghai Pharmaceuticals was RMB512.32 million, representing 4.61% of the Company's industrial sales revenue. Among them, 29.29% was invested in research and development of the innovative drugs, 26.83% was invested in the research and development of First-to-market Generic Drugs and Generic Drugs which draw rather severe competition of manufacturing, 43.88% was invested in secondary development of the existing products. In addition, the Company also got 28 invention patents, which has accumulated a total of 217 patents. In 2014, the sales revenue of the developed new products was RMB1.33 billion, accounting for approximate 11.98% of the Company's manufacturing sales revenue.

    For the aspect of the Antibody drug research and development, in cooperation with Shanghai Fudan-Zhangjiang Bio-Pharmaceutical Co., Ltd., the medicine "recombinant human tumor necrosis factor receptor mutant-Fc fusion protein injection" obtained the approval of clinical trials and initiated Phase I clinical research. For Chinese medicine research and development, the subsidiary company Chiatai Qingchunbao Pharmaceutical Co., Ltd. cooperated with Tianjin University of Traditional Chinese Medicine, Zhejiang University, China Academy of Traditional Chinese Medicine and Tianjin Pharmaceutical Group Co., Ltd. to complete the project of the "research for the secondary development of TCM core technology system, and its industrialization" which won the first prize of 2014 National Science and Technology Progress Award. The Company, which is the first monomer pharmaceutical company in China, awarded this prize.

    Market participants believe that research and development of innovation plays a crucial role for pharmaceutical enterprises. Shanghai Pharmaceuticals continues to maintain a high investment in research and development. It will also meet more market demands with the launch of new products and technologies.

    For the aspect of pharmaceutical manufacturing, pharmaceutical manufacturing sales revenue of the Company in 2014 was RMB11.103 billion, representing an increase of 3.69% as compared with the same period of the last year; gross profit margin 48.23% with an increase of 0.16 percentage point as compared with the same period of the last year. 64 key products of Shanghai Pharmaceuticals achieved sales revenue of RMB6.678 billion, with an increase of 3.54% on a year-on-year basis representing 60.15% of the industrial sales revenue, and an average gross profit margin of 63.64% which is far higher than the average manufacturing gross profit margin level. Among the key products, the growth rates of 33 products are higher than or equal to the same types of products of IMS Health (IMS). The number of core products with annual sales revenue of over RMB100 million rose to a total of 24 which is three more as compared with last year. In order to develop the key products intensively, the Company reevaluated the superior product groups by combining its external market environment, and grouped the original 64 key products into 60. Then the approach of ''one strategy for one product'' was set up according to the secondary research and development, supporting facilities for the production capacity and marketing for all key products so as to ensure the implementation and execution of the product strategies.

    By the end of 2014, a total of 300 products of the Company were listed on the ''List of Low-price Drugs Among the Pricing Range Set by the National Development and Reform Commission''. Among which, 210 are western medicines with 893 product specifications in aggregate, 90 are TCM medicines with 205 product specifications in aggregate. As of the end of February 2015, 31 out of 41 subsidiary industrial enterprises of the Company were granted a total of 65 new version of GMP Certificates.

    For the aspect of pharmaceutical services, Shanghai Pharmaceuticals achieved the sales revenue of RMB82 billion for the pharmaceutical distribution business, with an increase of 20.57% on a year-on-year basis, and 6.07% gross profit margin with an increase of 0.02 percentage point as compared with the same period of the last year. The Company continues to maintain a reasonable proportion of the net sales and optimize the product structure. They also expand and enrich the product line by introducing 9,192 new products. Among them, 1,624 are imported and joint venture medicines and 7,568 are domestic. In 2014, the Company accelerated the allocation of the national strategies covering over 15,188 medical institutions, with an increase of 5534 over the last year. New businesses such as high-end drugs direct to patients (DTP), vaccines and high-end consumables continue to maintain a rapid growth achieving the sales revenue of RMB6.149 billion, with an increase of 39.75% on a year-on-year basis. By the end of the reporting period, most subsidiary wholesale and chain store enterprises of the Company have obtained the new GSP certificates.

    To comply with the trends of the national medical reform and the internet technological development and actively explore the new pharmaceutical business model, the Company decided in March 2015 to make joint investments with Ji Jun, general manager of SPH Zhongxie Pharmaceutical Co., Ltd. which is a subsidiary of the Company, to set up the Shanghai Pharmaceuticals Greater Health Cloud Commerce Company Limited and accounted for 70% of the shares. With a focus in the establishment of the online platform and offline network, the Company is positioned as an e-commerce trader which provides patients with O2O sales of prescription drugs and health management services.

    For the aspect of pharmaceutical retail, Shanghai Pharmaceuticals achieved the sales revenue of RMB3.376 billion in 2014, with an increase of 12.85% on a year-on-year basis; and 19.00% gross profit margin. The operating profit margin after deduction of the sales and administration costs was 1.32%. The number of the chain retail pharmacies under its brand reached 1,895, among which 1,193 are directly operated pharmacies.

    For investment as well as merger and acquisition, in order to further expand the pharmaceutical distribution business network in North China, Central China and Western Regions, the Company has acquired 50% stock equity of Beijing Xin Hai Feng Yuan Biomedical Technology Development Co., Ltd., 85% stock equity of Shaanxi Hua Xin Pharmaceutical Co., Ltd., 100% stock equity of Ordos Yili Pharmaceutical Co., Ltd., 75% stock equity of Shandong SPH Pharmaceutical Co., Ltd. and increased 35% stock holdings of Shandong SPH Shanglian Pharmaceutical Co., Ltd. The Company also made an equity participation by setting up Sichuan Green Tech Biotechnology Co., Ltd. so as to strengthen the cooperation in the field of preclinical technical services  of the new drugs. Furthermore, for the sake of further developing the category of the medical devices business and transforming to the medical services provider, the Company acquired a controlling of stock equity of Guangdong Sunnico Medical Technology Co., Ltd.

    In order to enhance the operational efficiency, strengthen the integration of the internal resources and build the core competitiveness, the Company continues to expand the scale of the internal cash pool and reduce the financial costs. Moreover, they expand the scope of the centralized procurement and reduce production and operating costs. Furthermore, they also promote the internal manufacturing and distribution cooperation, and accelerate the establishment of the market access system. In addition, the Company enhances the operational efficiency by promoting the Lean Six Sigma management comprehensively and accelerate the integration of the internal businesses.

    Looking into the future perspective, 2015 will be a meaningful year as a milestone for Shanghai Pharmaceuticals. National economic development has entered a ''new normal''. Facing the pressure of slowdown of the growth rate of the industry, Shanghai Pharmaceuticals will continue to follow the strategies of the "three-year fundamental development, the six-year growing development and the nine-year blooming development" of "333" development planning. The Company endeavors to achieve double-digit growth in both operating revenue and profit attributable to the shareholders.