Out | The Daily Beast
By Liu Yang
The Daily Beast notes that when Hengrui Pharma went public in 2000, its market capitalization was 4 billion yuan, while Fosun Pharma's total market capitalization reached 6.8 billion yuan during the same period. 20 years later, Hengrui's market capitalization has tripled Fosun's.
Why Fosun is not taken seriously
Why Fosun is not taken seriously?
Why is Fosun not favored?
Guo Guangchang, the head of Fosun, once said helplessly, "We have done a lot of things, and there are many successful cases, but they have not attracted the attention of the outside world, and Fosun's market capitalization has not been able to lift up we are also very anxious."
Generally speaking, a company's market value is mainly determined by earnings and valuation. From the point of view of revenue volume, Fosun Pharmaceuticals definitely belongs to the forefront of A-share pharmaceutical companies, just take the 2019 revenue data to make a comparison, Fosun Pharmaceuticals revenue reached 28.585 billion yuan, which is only slightly lower than Yunnan Baiyao's 29.6 billion yuan of revenue in the A-share market, but is significantly higher than Hengrui Medicine's 23.2 billion yuan of revenue. Fosun Pharmaceutical's 2019 net attributable profit is about 3.3 billion yuan, and Hengrui Pharmaceutical's net attributable profit is about 5.3 billion. There is a gap between the two, but the bigger gap comes from the valuation level. Wind data show that the pivotal value of the P/E ratio of Fosun Pharmaceuticals in the past ten years was only 23.54 times, while the pivotal value of the P/E ratio of Hengrui Pharmaceuticals in the same period was 50.92 times.
In fact, the valuation of Fosun Pharmaceuticals has been in the position for a long time mainly because of the outside world for its lack of core competitiveness of the positioning. The development and growth of Fosun Pharmaceuticals is mainly due to capital driven by foreign mergers and acquisitions, the company listed more than 20 years through more than a hundred mergers and acquisitions investment, completed in the pharmaceutical manufacturing, pharmaceutical distribution, medical equipment, medical services, a full range of layouts, to become one of China's industrial chain of the most complete pharmaceutical companies.
Over the past 20 years, Fosun Pharma's investment income has always accounted for more than 60% of its net profit, and from 2017 to 2019, Fosun Pharma's net investment income reached 2.307 billion yuan, 1.815 billion yuan, and 3.565 billion yuan, accounting for 64%, 60%, and 95% of its net profit in the same period. The performance is mainly derived from outsourced companies, making the market generally believe that the company itself lacks the ability to research and development and innovation.
On the other hand, frequent mergers and acquisitions have also generated a large amount of goodwill and debt pressure, as of Q3 2020, the value of Fosun Pharma's goodwill is as high as 8.896 billion yuan, short-term borrowing is 7.702 billion yuan, long-term borrowing is 9.025 billion yuan, and the gearing ratio reached 50.98%.
In contrast, Hengrui Medicine's financial situation is much better, the company does not have any long and short-term borrowings and goodwill, and the current gearing ratio is only 12.69%. In other words, Fosun Pharma's performance is largely due to leverage, while Hengrui Pharma relies entirely on its own capabilities. From this perspective, the low valuation level of Fosun Pharma is also reasonable.
Is there something to watch for in the future?
It is important to note that although there is a gap between Fosun and Hengrui, it does not mean that Fosun does not have something to look forward to. On the contrary, the company has invested more in research and development, and is gradually moving from a generic drug company to an innovative drug company.
In the first three quarters of 2020, Fosun's R&D investment was 1.878 billion yuan, an increase of 45.55% over the same period in 2019. In comparison, Hengrui Medicine's R&D investment in the first three quarters was 3.34 billion yuan, an increase of 20% over the same period in 2019, and the growth rate of R&D investment has been surpassed by Fosun. At the same time, after entering the second half of 2020, Fosun Pharmaceutical's preliminary investment has entered the harvest period one after another, and new products are constantly put into the market.
On September 9, 2020, the company announced that the bevacizumab injection (i.e., HLX04) of its controlling subsidiary, Shanghai Fuhong Hanklin Biopharmaceutical Co. Ltd, for the treatment of metastatic colorectal cancer and advanced, metastatic or recurrent non-small-cell lung cancer, was accepted for the review of drug registration by the State Drug Administration. Industry insiders said that the domestic bevacizumab treatment of colorectal cancer and non-small cell lung cancer market space of up to 6 billion yuan, is one of the heavyweight biologics with sustained growth potential, Fosun Pharma hopes to become the first bevacizumab biosimilar developer with metastatic colorectal cancer clinical phase III data.
On December 7, 2020, Fosun Pharma's subsidiary Shanghai Fuhong Hanlin Biotechnology Co., Ltd. and its controlling subsidiaries' application for listing and registration of adalimumab injection for the treatment of rheumatoid arthritis, ankylosing spondylitis, and psoriasis was approved by the State Drug Administration.
It is worth noting that, at present, the domestic rheumatoid arthritis, ankylosing spondylitis and psoriasis three major diseases have a total of about 15 million patients, but the vast majority of patients do not get effective treatment, rheumatoid arthritis patients, for example, the effective remission rate of only 8.6%. The reason for this is mainly due to low awareness and unsupportive payment system, so the sales of related biologics in China are not satisfactory. According to statistics, the overall market size in 2018 was also only about 2-3 billion. The penetration rate of drug therapy for related diseases in the United States is about 20%, and if the country can reach this level, the market size of related drugs will reach 50 billion.
According to the information disclosed in the 2020 semi-annual report, Fosun currently has 17 small molecule innovative drugs, 2 new drugs with chemical improvement, 21 bio-innovative drugs, 21 bio-similars, and 2 traditional Chinese medicines in research and development, of which close to 20 have entered the stage of phase 3 clinical trials. In addition, the cumulative introduction of 22 projects (9 imported innovative drugs, 13 imported generic drugs), of which the small molecule innovative drug avatropeppa tablets have been approved in April last year, and entered the medical insurance last month, for the treatment of adult patients with chronic liver disease (CLD)-related thrombocytopenia who are elective diagnostic operation or surgery, is expected to be a rapid release of the volume of the next year.
BioNTech is one of the world's top three mRNA therapeutics leaders, with high technological superiority in the field, and Fosun Pharma signed a formal cooperation agreement with the company on March 13, 2020.BioNTech will utilize Fosun's resources in China in various aspects, such as clinical research, compliance and registration, and marketing channels. Jointly develop and promote the mRNA New Crown vaccine to be marketed in China, while Fosun obtains the exclusive marketing rights in mainland China, Hong Kong, Macao and Taiwan. phase 2 clinical bridging trials of the BNT162b2 vaccine are underway in China to provide safety data for the launch of the vaccine in the country, and it is expected that at least one hundred million doses of the BNT162b2 New Crown vaccine will be delivered to China in 2021.
Taken together, Fosun Pharma has relied on outbound M&A to make the cake bigger for a long time in the past, but it has also accumulated certain problems, including debt and goodwill, and therefore has made its own valuation suppressed. But from the current situation, the company's investment in research and development has been increasing, and gradually transitioned to an innovative drug company, with the continuous release of new products, the company's profitability is expected to further enhance the valuation of the space also has the possibility of further opening.