China's Pharmaceutical Giant Shuts Down with Losses

China's Pharmaceutical Giant Shuts Down with Losses

In a shocking move, China's pharmaceutical giant, Shandong Baoji Pharmaceutical Co., Ltd. (hereinafter referred to as 'Baoji'), has announced that it expects its net profit for 2024 to be around -8.08 billion yuan to -4.28 billion yuan.

This comes after the company spent over 60 billion yuan acquiring a 100% stake in Tonghua Valley Red Pharmaceutical Co., Ltd. and a 95% stake in Jilin Tiancheng Pharmaceutical Co., Ltd. The acquisitions were made at a cost of 27.49 billion yuan, with the confirmed goodwill being 18.36 billion yuan for Tonghua Valley Red, and 35.97 billion yuan with 31.61 billion yuan in confirmed goodwill for Jilin Tiancheng.

The company's net profit took a hit due to the acquisitions, which led to an impairment loss of 49.97 billion yuan. Baoji had previously written off 30.7 billion yuan as impairment losses by the end of 2022. In April 2024, the company wrote off another 5.98 billion yuan in goodwill for the two acquired companies, leaving their net worth at 13.29 billion yuan.

As a result, Baoji's performance is expected to be affected by the impairment losses, which will total around 7-10 billion yuan for the year. The company also attributed its losses to reduced sales of certain products due to limited medical insurance coverage and monitoring in some provinces, leading to a decrease in revenue.

In May 2024, Baoji announced that it would be reducing the price of one of its core products, Brain Heart Capsule, which accounts for 22.20% of the company's main business income in 2023. The product's retail prices were adjusted to 19.90 yuan, 26.26 yuan, and 38.81 yuan per unit for the 36-packs, 48-packs, and 72-packs respectively.

Baoji emphasized that its three flagship products, Brain Heart Capsule, Stabilizing Granules, and Danhong Injection, have a significant impact on the company's performance. Any significant changes in their production or sales could affect the company's operations.

In its half-year report for 2024, Baoji reported that the three flagship products generated total revenue of 25.70 billion yuan. According to data from Minder News, these products accounted for a top-20 ranking in the cardiovascular medicine market share in 2023.

In its annual reports for 2023 and 2022, Baoji reported that the three flagship products generated total revenue of 74.28 billion yuan and 76.86 billion yuan respectively. The company's Danhong Injection was previously discontinued from the provincial medical insurance catalogues, leading to reduced sales.

With the expected losses, Baoji's stock prices have taken a hit, sparking concerns over the company's future performance.