On June 29, Cailian Press reported (Reporter Zhang Liangde) that the traditional Chinese medicine industry index experienced ups and downs after the New Year, and the changes in medical insurance policies had a significant impact on the market trend. At the same time, the rising cost of medicinal materials has led to a more obvious rise in the enterprise's cost side, and the trend of some traditional Chinese medicine companies' stock prices has shown obvious differentiation.

The research team of Sinolink Securities International stated to Cailian Press that, benefited from the improvement in channel inventory and exceeding expectations in performance, coupled with the full release of emotions such as anti-corruption and the high base of COVID-19, the traditional Chinese medicine sector bottomed out and rebounded significantly before the Spring Festival. However, since mid-May, the sector has been in a downturn due to the continuous deepening of drug price management represented by centralized procurement and drug price comparison in retail pharmacies through WeChat mini programs, apps, and other methods.

"The comparison of drug prices in retail pharmacies can be seen as an extension of the special management of the prices of the same drugs."

This year, retail drug price comparison systems have been launched successively in Shaanxi, Inner Mongolia, Dalian, Shenzhen and other places, enabling one-click query and real-time comparison of drug prices through WeChat mini-programs, apps, etc., making drug prices in retail pharmacies more transparent.

Early this month, Cailian Press learned from the Medical Insurance Bureau's Medical Price and Bidding Procurement Department that the notice on the "special action of “going online, checking drug prices, comparing data, and enforcing governance" has been sent to various local medical insurance bureau procurement departments. The contents of the document mentioned: In the price information monitoring of drugs, the "on-demand price", "hourly delivery", "instant delivery", and "limited time delivery" prices of network drug retail platforms (referred to as the "on-demand price" of network drug retail platforms) are introduced as anchors to compare drug prices through other channels, setting off a wave of "online access, price checking, data comparison, and governance enforcement".

Some insiders in the industry told Cailian Press: "The comparison of drug prices in retail pharmacies can be seen as an extension of the special management of the prices of the same drugs."

At the end of last year, the Medical Insurance Bureau issued a notice on promoting price fairness, credibility, transparency and balance of drugs with the same generic names and brands among provinces to eliminate unfair high prices and discriminatory high prices among provinces.

"The policy implementation should have achieved the expected goal." Zhu Lingfeng, a pharmaceutical data analysis expert and vice general manager of Pharos Cloud, told Cailian Press: "The notice requires the completion of the special management of the prices of the same drugs by the end of March. In April, we selected some representative drugs to query and found that the price difference of drugs with the same manufacturer and specification is not significant between different provinces."

Change in price of compound Salvia miltiorrhiza dripping pills (source of image: Medicine Fusion Cloud)

Some listed company secretaries told Cailian Press that the medical insurance policy has entered a new stage, and the relatively loose stage has passed.

Institutional investors believe that the aforementioned policies have different effects on traditional Chinese medicine industry enterprises. The research team of Sinolink Securities International stated to Cailian Press that after combing through past medical insurance policies and related news, they believe that with the improvement of the national unified medical insurance information platform and the gradual expansion of the scope of medical insurance payment, the Hospital retail prices, centralized procurement prices, retail pharmacy prices, and online drugstore prices of the same manufacturer and generic name medicine may gradually achieve unified comparison under the minimum unit dose/daily amount, and the price range will tend to be reasonable. Pharmaceutical companies with strong brand power and price control will benefit from the promotion of industry concentration brought by this policy; otherwise, they will face the decline in product profitability and market share.

As the price of medicinal materials continues to rise, the cost pressure of pharmaceutical enterprises increases, and there are cases of variety discontinuation and shortage in decoction pieces and formula particles.

From the cost side, the rise in the price of medicinal materials has a significant impact on the industry's profitability.

This year, the price of Chinese medicinal materials continues to rise on the basis of last year's high level, and the prices of many commonly used medicinal materials have risen sharply. Among them, the price of Atractylodes macrocephala has risen from about 80 yuan per kilogram at the beginning of the year to about 180 yuan per kilogram, and the price of Phellodendron amurense (double-sided scraping) has risen from 60 yuan per kilogram to about 110 yuan per kilogram, and the price of Gardenia jasminoides has risen from about 32 yuan per kilogram to about 80 yuan per kilogram. In addition, the prices of commonly used medicinal materials such as Scutellaria baicalensis, Gastrodia elata, Coptis chinensis, Prunella vulgaris, Cirsium setosum, and Fructus Aurantii immaturus have also increased significantly.

The sharp increase in the price of Chinese medicinal materials has caused certain pressure on the cost of pharmaceutical enterprises.

Shen Yong, Director of the China Pharmaceutical and Health Development Promotion Expert Committee and Chairman of Beijing Shengshi Kanglai Traditional Chinese Medicine Marketing and Planning Company, told Caixin reporters: "The sharp rise in the price of Chinese medicinal materials will have a certain impact on the procurement and production rhythm of pharmaceutical companies. For example, some small and medium-sized pharmaceutical companies' minor varieties, whose sales volume is not large, usually produce twice a year, and generally purchase raw materials one or two months before production. If the price of the product raw materials rises too much, it will have a significant impact on production costs, and not producing may result in failure to deliver downstream on time. "

For large pharmaceutical companies, after the early low-priced inventory is consumed, they also began to accept high-priced Chinese medicinal materials passively, but mainly adopt a low-inventory strategy.

A person from Taloph Pharmaceutical said: "There are cyclical trends in the Chinese medicinal material industry, and prices will not always be high. Currently, for some high-priced medicinal materials, the company purchases them as needed."

Passively purchasing high-priced medicinal materials has resulted in a decline in gross margin for some companies, including Shijiazhuang Yiling Pharmaceutical, Teyi Pharmaceutical, Guangdong Jiaying Pharmaceutical, Zhejiang Xinguang Pharmaceutical, and Shandong Buchang Pharmaceuticals, which saw a year-on-year decline in gross margin of more than 10% in the first quarter.

For Chinese patent medicine companies, as most patent medicines have a compound structure, the rise in the price of a single medicinal material has a relatively controllable impact on costs, and there are few cases of compound patent medicines being discontinued due to the rise in raw material prices.

However, for Chinese medicine pieces and Chinese medicine formula granule products, some varieties have experienced out-of-stock situations due to excessive price increases. A pharmacist at a large hospital in Hebei told Caixin reporters that Bai Zhu was a commonly used variety, and this year the formula particles of Bai Zhu were frequently out of stock.

In terms of Chinese medicine pieces, this year Shandong Province published two batches of "Announcements on the Results of the Medical Procurement Price and Bidding Credit Evaluation of the Sanming Purchasing Alliance Interprovincial Chinese Medicine (Materials) Purchasing Alliance Chinese Medicine Pieces Joint Procurement by the Alliance", in which subsidiaries of Beijing Tongrentang (600085.SH), Kangmei Pharmaceutical (600518.SH), and Shanxi Zhendong Pharmaceutical (300158.SZ) were included in the list of general dishonesty/serious dishonesty behavior due to their refusal to perform promised obligations and refusal to perform purchase or distribution contracts without justifiable reasons. Their main out-of-stock varieties focused on high-priced varieties such as Bai Sha, Bai Zhu, and Di Long.