In the past year, the pharmaceutical industry has been facing dual pressures of strong regulation and homogenized competition, and the slowing growth rate is an undeniable fact.

According to data from China Meheco Group Information Center, in 2023, various operating indicators of the top companies in the pharmaceutical industry experienced a decline, with the total operating revenue of the top 100 companies amounting to 1030.19 billion yuan, a year-on-year decrease of 0.29%, showing negative growth in export delivery value, among other factors.

The threshold for the top 100 companies decreased from 3.39 billion yuan in 2022 to 3.09 billion yuan in 2023. The top 10 threshold was adjusted from 26.46 billion yuan to 25.33 billion yuan, and nearly half of the companies saw varying degrees of decline in both the number of employees and total wages paid. It is worth noting that the year-on-year decrease in export delivery value of the top 100 companies was significant at 21.4%.

At the 2024 (41st) National Pharmaceutical Industry Information Annual Conference held recently, Guo Wen, Director of China Meheco Group Information Center, stated that 2023 was an extremely difficult year for the entire pharmaceutical industry, which is a necessary stage of development and pain for the industry. Looking at performance, the weakening growth indicators of companies are the most direct manifestation.

It must be clear that behind the weak growth lies the urgent need for the healthcare industry to undergo a profound transformation.

▌The upward trend in the industry remains unchanged, but the challenges from within and outside need to be resolved.

It is also important to note that despite facing significant internal and external pressures, half of the companies achieved a double growth trend in revenue and profit in 2023. However, looking at the data, the compound growth rate of the top 100 national pharmaceutical companies over the past 5 years was only 2.6%, indicating that the industry as a whole has shifted from initial high-speed growth to an adjustment phase.

Guo Wen mentioned at the event that, on the one hand, the concentration of the pharmaceutical industry has rebounded, with the top 100 enterprises in 2023 accounting for 34.9% of the total revenue of the pharmaceutical industry, an increase of 4.1% compared to the previous year, approaching pre-pandemic levels. On the other hand, the overall structure of enterprises remains stable, with 56 enterprises consecutively making the top 100 list for 10 years between 2014 and 2023. Enterprises that have been listed more than 5 times accounted for 85.6% of the total number of listings, fully demonstrating the overall stability of leading enterprises.

In terms of research and development innovation, the average R&D expenditure of the top 100 enterprises in 2023 was 0.779 billion yuan, a year-on-year increase of 0.4%. The intensity of R&D investment increased from 6.8% in the previous year to 7.6%, demonstrating the development resilience of enterprises. Faced with unprecedented challenges and pressures, they have shown the strength and resilience to overcome difficulties.

As the overall market growth slows down, the pharmaceutical industry is transitioning towards high-quality development, reflected in various aspects such as new drug research and approval, the internationalization of innovative domestic drugs, the improvement of quality systems for generic drugs to enhance the high barrier of generic capabilities, innovative biopharmaceuticals achieving overtaking on the curve, and the enhancement of manufacturing technology.

In the first half of 2024, the FDA approved 21 new drugs for marketing, covering 11 therapeutic areas. The approved innovative drugs are mainly small molecule drugs, totaling 14. The National Medical Products Administration (NMPA) approved the marketing of 26 class 1 new drugs by common name, including 6 imported and 20 domestic new drugs.

Lin Li, Deputy Director of the Wuhan University Hospital Management Research Institute, mentioned in the conference that from the current situation of the approval and inclusion of innovative drugs in the national medical insurance catalog in China, although the success rate of innovative drug medical insurance negotiations is high, the admission rate is low. This is mainly due to the allocation of innovative drugs, admission approval process and time, and supply situation.

As the largest payer for innovative drugs, medical insurance negotiation is seeking a win-win situation of 'bilateral commitment'. He elaborated in detail on the trend of innovative drug prices from the aspects of drug initial pricing mechanism, price management, pharmaceutical insurance integration, international innovative drug pricing system, etc. He believes that consensus, organization, innovation, synergy, and repair are the fundamental driving forces for building a new development pattern.

Parallel growth of endogenous and exogenous, testing the innovation quality of enterprises

According to the data provided at the conference, the import and export volume of pharmaceutical products in the 'Belt and Road' region in 2023 has decreased slightly, but with the deepening of cooperation at the national level, the registration and export process of high value-added formulation products has accelerated, yielding fruitful results.

According to public information, in December 2023, Fosun Pharma's subsidiary Henlius obtained approval for the listing of Sululi monoclonal antibody in Indonesia, becoming the first domestically-produced PD-1 monoclonal antibody to successfully go public in Southeast Asian countries. SSY Group's formulated products have shown significant growth in the African market, and have completed the registration of multiple products in countries such as the Philippines, Uruguay, and Venezuela. Humanwell Healthcare achieved sales revenue of approximately 0.273 billion yuan in the African market, an increase of about 36% compared to the same period last year.

In the past year, the number and amount of overseas license-out transactions for innovative drugs in China have reached a new high in recent years. Head enterprises such as Jiangsu Hengrui Pharmaceuticals, Haisco Pharmaceutical Group, Hosen Pharma, SSY Group, Zhongda Tianqing, and Fosun Pharma all have overseas license-out projects.

It should be pointed out that behind the growth of authorized projects, it not only reflects the need for enterprises to expand overseas markets and the continuous improvement of China's pharmaceutical innovation capabilities, but also the reluctant choice of adjusting the R&D pipeline due to the huge financial pressure caused by the coldness of the capital market.

While top pharmaceutical companies adhere to internal development, accelerated external expansion is also one of the typical characteristics of top pharmaceutical companies in the past year.

In recent years, China National Pharmaceutical Group has continuously expanded its business footprint through a series of mergers and acquisitions. It has integrated Ying Tian Pharmaceuticals, Tongjitang, Tianjiang Pharmaceuticals, Yifang Pharmaceuticals, Chongqing Taiji Industry, Weiguang Biological, and other companies, and has clearly identified the promotion of high-quality mergers and acquisitions as one of the group's strategic directions. China Resources Pharmaceuticals, another state-owned enterprise, is also accelerating the integration of industry resources through the acquisition of KPC Pharmaceuticals, Cubist Pharma, Tianan Pharmaceuticals, Green Cross, and Tasly Pharmaceutical Group.

In addition, Grandpharma has also accelerated its business expansion through the acquisition of Doppert Medtech, BlackSwan, Tianjin Tianben, and BeiGene Pharmaceuticals. For the industry, mergers and acquisitions are conducive to optimizing resource allocation and accelerating the development of the industry towards scale and intensification. At the same time, the State-owned Assets Supervision and Administration Commission of the State Council has clearly supported listed companies of central enterprises to carry out mergers and acquisitions, reflecting the vision of the country to support the rapid growth of leading pharmaceutical companies.

CSPC Pharma's wholly-owned subsidiary CSPC Innovation Pharmaceutical has transformed into an innovative enterprise through the acquisition of a subsidiary of the group, Jushi Biotech, providing a wider financing channel for its innovative drug business. Similarly, China National Pharmaceutical Group plans to privatize China Meheco to streamline corporate governance and optimize organizational layout, while China Resources Double-Crane intends to acquire China Resources Purple Bamboo to continue expanding its non-infusion business.

It is worth noting that around strategic needs, the mode of equity investment through corporate venture capital (CVC) by top enterprises has become increasingly active, which not only strengthens the reserve and early layout of enterprise innovation technology and products, but also plays the role of "patient capital". China National Pharmaceutical Group, Fosun Pharma, Guangzhou Pharmaceutical, and other companies have established CVC.

With the valuation of Biotech companies falling, the next few years may see a small peak in mergers and acquisitions among the top 100 companies. In addition, these companies will address external and internal competition through asset sales and exchanges, asset injections or joint ventures, changes in main business or entrusted management.

Overall, the pharmaceutical industry is transitioning from rapid growth to a game of existing resources, with innovation becoming a new driving force for industry development.