Frequent Bribery And 8 Billion Sales Expenses: The Origin And Destination Of Buchang Pharmaceutical'S Transformation

Recently, Buchang pharmaceutical has issued a series of announcements, including the acceptance of the vaccine clinical trial application of the subsidiary company, and the news of the new production scope of "preventive biological products". In the view of the industry, this is actually the embodiment of Buchang pharmaceutical's strategic transformation. Since 2018, Buchang pharmaceutical has begun to launch a transformation strategy to transform from a sales oriented company to a technology-based company.

Behind the transformation is that Buchang pharmaceutical, as a traditional sales oriented pharmaceutical enterprise, its sales cost has been high in recent years and has attracted much attention. 21st century economic reporter noted that in the past 10 years, the sales cost of Buchang pharmaceutical has increased by 2.3 times, jumping from 2.445 billion yuan in 2011 to 8.081 billion yuan in 2019. According to the annual report, more than 90% of the company's sales expenses are spent on "marketing, academic promotion, consulting and other expenses".

Song Qinghui, a well-known economist, once pointed out that the market and academic promotion fees of pharmaceutical companies have always been a high incidence area of commercial bribery. In fact, since 2015, 10 bribery cases related to Buchang pharmaceutical have also been disclosed on China's judicial document website.

In the face of the "precise attack" from the regulatory authorities, what should the sales oriented traditional pharmaceutical enterprises do?

10 rulings and judgments

Buchang pharmaceutical was established in 1993, mainly engaged in the R & D, production and sales of Chinese patent medicine. Its main products involve the field of Chinese patent medicine for cardiovascular and cerebrovascular diseases, and also covers other fields such as gynecological medicine.

The 21st century economic reporter inquired the keywords such as "Buchang pharmaceutical" and "bribery" on China's judicial documents website, and found 10 rulings and judgments from 2015 to now.

On July 30, 2020, China's judicial document website published a criminal judgment on the bribery case of non state functionaries. According to the judgment, it was found that Wang Haisheng's prescriptions in the outpatient department were mainly Buchang Naoxintong. During the distribution of drugs to Shangshui people's Hospital, Su gave Wang Haisheng many kickbacks in cash.

According to the judgment, since 2016, Wang Haisheng, during his tenure as the chief physician of Shangshui people's Hospital of Henan Province, took advantage of his position of prescribing to illegally receive a drug rebate of 125000 yuan from Su, a salesman of Shaanxi Buchang Pharmaceutical Co., Ltd.

Shangshui County People's court sentenced Wang Haisheng to commit bribery of non state functionaries. Based on the defendant Wang Haisheng's voluntary confession and punishment, and his relatives actively returned the stolen goods, it is suggested that the defendant Wang Haisheng be exempted from criminal punishment, and that Wang Haisheng's illegal income of 125000 yuan should be confiscated and turned over to the state treasury by the collecting organ.

In 2019, Tang Mou, a pharmaceutical salesman in Shaanxi Buchang, bribed Chen Yaogang, former head of Information Department of Meitan County Integrated Traditional Chinese and Western medicine hospital, with a total bribe of 325100 yuan.

Another 8 judgments showed that Buchang Pharmaceutical Co., Ltd. sold with gold in the process of drug promotion, and the salesman bribed the leaders of township health centers and doctors of county hospitals, with the amount ranging from 60000 to 110000.

What is the future development of pharmaceutical enterprises. -Made by Xu Hui

Annual "sales fee" exceeding 8 billion yuan

Song Qinghui, a well-known economist, once pointed out that the market and academic promotion fees of pharmaceutical companies have always been a high incidence area of commercial bribery. Buchang pharmaceutical "bribery door" incidents occur frequently, and behind this is the high sales costs of pharmaceutical enterprises. According to wind data, in 2011, the step sales cost was 2.445 billion yuan, and by 2019, the relevant indicators increased to 8.081 billion yuan, an increase of 2.3 times.

Take cardiovascular and cerebrovascular related products as an example. In 2016, Buchang pharmaceutical was listed. According to the prospectus, from 2013 to 2015, the annual sales amount of Danhong injection was as high as 4.161 billion yuan, 3.831 billion yuan and 3.36 billion yuan, totaling 11.352 billion yuan. Revenue accounted for more than 30%, and profit accounted for more than 40%. The products of zhongxindan, danaohongchuang, zhongxintongxue injection, etc. are common in the treatment of ischemic stroke.

In the three years from 2013 to 2015, Buchang pharmaceutical spent 4.466 billion yuan, 5.183 billion yuan and 5.841 billion yuan on "market and academic promotion", respectively, reaching 15.49 billion yuan, exceeding more than half of the operating revenue of the same period for three consecutive years. In 2015, an average of 16 million yuan was spent on "promotion". In 2016, according to the prospectus, during the reporting period, "market and academic promotion fees" accounted for more than 50% of the current year's operating revenue, which was more than 20 times of the current R & D expenses.

In 2017-2019 and the first half of 2020, the sales expenses of Buchang pharmaceutical were 8.287 billion yuan, 8.036 billion yuan, 8.081 billion yuan and 3.684 billion yuan respectively, accounting for 59.77%, 58.81%, 56.68% and 52.36% of the current operating income respectively.

Taking 2018 as an example, Buchang Pharmaceutical Co., Ltd. organized more than 19000 market activities, more than 23000 Market Research sessions and more than 20000 academic exchange activities. On average, step Pharma organized more than 52 market activities, more than 63 Market Research sessions and more than 54 academic exchange activities every day, which can be said to be a "nonstop" activity throughout the year.

How much performance growth can such huge sales expenses bring to Buchang pharmaceutical?

In 2017-2019 and the first half of 2020, the operating revenue of Buchang pharmaceutical was 13.864 billion yuan, 13.664 billion yuan, 15.355 billion yuan and 7.035 billion yuan, respectively, with a year-on-year growth of 12.52%, - 1.44% and 4.32% in 2017-2019, and 9.85% in the first half of 2020. It can be seen that, even if the huge investment in sales expenses, the performance growth of Buchang pharmaceutical has also entered a "bottleneck".

The semi annual report of 2020 shows that in the first half of the year, Buchang pharmaceutical realized 7.035 billion yuan of operating revenue, with a year-on-year growth of 9.85%; the net profit attributable to shareholders of listed companies was 902 million yuan, with a year-on-year growth of 12.86%. The sales cost was 3.684 billion yuan, and the sales expense rate was 52.37%. Among them, the market, academic promotion and consulting fees were 3.488 billion yuan, accounting for 94.68%.

Buchang pharmaceutical once explained that the company's marketing and academic promotion fees, consulting fees and other expenses, which are above 90% all year round, mainly include conference fees and travel expenses generated from various academic promotion conferences and other activities carried out throughout the country. In addition, the company mentioned in the annual reports of 2016 and 2017 that the core competitive advantage of the company's marketing model lies in the promotion of Professional Chemistry under the guidance of the theory of brain and heart.

The Shanghai Stock Exchange also sent a letter of inquiry to the listed companies on this part of the fees in May 2018, asking the companies to respond to the purpose and rationality of the fees.

In response to this, Buchang pharmaceutical said in the reply: "the professional chemistry promotion and marketing mode is an important driving force for the rapid development of the company. Guided by the refined and standardized management, the company continues to build a professional chemistry promotion team, through which it can promote the company's brand image and product awareness, and promote product sales."

Shi lichen, head of Beijing Dingchen pharmaceutical management consulting center, pointed out to the 21st century economic reporter that there are many grey interest chains in the market and academic promotion of the pharmaceutical industry.

In June 2019, the website of the Ministry of Finance released the Ministry of finance to carry out the quality inspection of accounting information in the pharmaceutical industry in 2019, focusing on the authenticity of expenses, costs and revenues of pharmaceutical enterprises. Specifically, it includes: the quantity of drugs purchased, the rebate phenomenon of selling to medical institutions or medical personnel; whether there is the phenomenon of taking large amount of cash from various kinds of invoices such as consulting fee, conference fee, accommodation fee, transportation fee, etc.

The state has also strengthened the management of "selling with gold". On September 16, the State Medical Security Bureau issued the guiding opinions on the establishment of medical price and credit evaluation system for bidding and purchasing (hereinafter referred to as "opinions"). According to the opinions, it is suggested that the behaviors against good faith, such as giving kickbacks, should be included in the evaluation scope; the dishonest information of pharmaceutical enterprises should be mastered by combining enterprise reports with platform records; the dishonest level should be determined and updated dynamically according to the facts of the case judged by the court or administrative punishment; the grading should be used to remind warning, prompt risks, limit or suspend the bidding, and publicly disclose the dishonesty Information disposal measures.

Lin Xiaofang, an expert in the pharmaceutical industry, told the industry media that under the implementation of the policy of purchasing with quantity and the relevant supervision, the profit margin of "sales with money" is gradually disappearing, and the phenomenon of "attaching importance to sales rather than research and development" of related enterprises may be improved. For pharmaceutical enterprises, strengthening R & D is a sustainable way.

How to break the path of survival dependence?

Not long ago, Buchang pharmaceutical announced the completion of the divestiture of pharmacy trusteeship and its related businesses. Industry insiders said that "the reason why pharmacy trusteeship business can not be carried out is that it can easily lead to dominance and corruption. Pharmacy trusteeship is actually another way to sell with gold. Through pharmacy trusteeship, enterprises can give at least 15% to 30% rebate to hospitals, which goes against the original intention of separation of medicine and medicine to a certain extent. Now the policy will block this road, enterprises will also be short of a gold sales path. "

What is the future of Buchang pharmaceutical after the separation of pharmacy custody business?

On September 22, Buchang pharmaceutical announced that it planned to transfer 51% equity of Hubei Buchang JIUZHOUTONG Pharmaceutical Co., Ltd. at a price of 21.7523 million yuan. After the transfer is completed, Buchang pharmaceutical will completely withdraw from the relevant business.

It is understood that in 2017, Buchang pharmaceutical and Jiuzhoutong jointly established Hubei Buchang Jiuzhoutong. At that time, the cooperation period of the two sides was tentatively determined to be 10 years, and the business model was adjusted to the professional pharmacy business model.

However, in November 2018, the National Health Commission and the State Administration of traditional Chinese medicine jointly issued the opinions on accelerating the high-quality development of pharmaceutical services, which made it clear that public hospitals should not contract or rent pharmacies, nor entrust pharmacies to profit-making enterprises.

Obviously, pharmacy trusteeship is not in line with the relevant policies of the state, and it is a "gray area" which is prone to corruption. Prior to this, a number of listed pharmaceutical companies have left the business.

Bai Geng Liang, an expert in the Department of pharmaceutical administration and law of Nanjing University of traditional Chinese medicine, told the industry media that "pharmacy trusteeship originated from the cancellation of drug mark up, that is, zero margin sales, making hospital pharmacies from the original profit-making Department into a cost department. However, since the documents of relevant departments in 2018 clearly stated that "public hospitals are not allowed to contract or rent pharmacies, nor can they trust pharmacies with profit-making enterprises", pharmacy trusteeship business has become a hot potato all of a sudden. "

In response to this, the relevant personage of Buchang Pharmaceutical General Secretary Office replied to the reporter of 21st century economic report that "as the pharmacy trusteeship has not met the relevant national policies, the company has decided to separate it. After the transfer, the company will no longer own any pharmacy business, and will not plan to lay out the pharmacy related business again for the time being. "

Previously, Buchang pharmaceutical has also issued a risk warning announcement: the company's main business is Chinese patent medicine, and biopharmaceutical is a strategic plan for the future, so it can not generate benefits in the short term, and the initial investment amount is large, which may affect the company's performance.

In the first half of this year, Buchang pharmaceutical's R & D expenditure was only 173 million yuan, but increased by 49.14% year-on-year. According to Southwest Securities Research Report, Buchang pharmaceutical's R & D expenditure ratio exceeded that of other cardiovascular and cerebrovascular pharmaceutical enterprises.

Zhang Wenlu, an analyst at CAITONG securities, said that compared with the transformation and innovation of chemical pharmaceutical companies, traditional Chinese medicine enterprises are under great pressure of medical insurance cost control, and their research and development progress is slow and their ideas have not been followed up. For example, the R & D expenditure of chemical preparation enterprises is 6.6%, which is gradually increasing; while the R & D expenditure of traditional Chinese medicine enterprises is only 2.3%, which has not changed much in the past two years.

In fact, Buchang pharmaceutical is also aware of its own shortcomings. According to Buchang pharmaceutical's 2020 half year report: at present, the company is in the process of transformation, from a sales company to a technology-based company; from Chinese patent medicine to biological drugs, vaccines, chemical drugs, medical devices, Internet medicine; and gradually from China's localization to globalization.

As of June 30, 2020, Buchang pharmaceutical has 329 authorized patents, 224 products under research, 11 new patent applications in the first half of 2020, and 15 authorized patents, including 4 invention patents.

Not long ago, the "recombinant human brain natriuretic peptide for injection" (project code: bc003) developed by Shandong Danhong Pharmaceutical Co., Ltd., a wholly-owned subsidiary of Buchang Pharmaceutical Co., Ltd., also obtained the approval of the ethical review committee of clinical trials of West China Hospital of Sichuan University, officially launching phase I clinical trial.

As a sales oriented traditional pharmaceutical enterprise, the development of Buchang pharmaceutical in the follow-up Transformation Road remains to be observed.