Fosun Pharma in Turmoil
After being ousted from the SSE 50 Index and experiencing a decline in both stock price and performance in 2023, Fosun Pharma (600196.
SH; 02196.
HK) has been very active in 2024.
In 2023, as the market's demand for COVID-related products significantly decreased, Fosun Pharma's performance suffered a noticeable slowdown, even recording its first-ever decline in both revenue and net profit since going public.
Among them, the pharmaceutical segment, which contributes over 70% of Fosun Pharma's revenue, decreased by 1.91% year-on-year to 30.222 billion yuan.
However, excluding COVID-related products, the pharmaceutical business grew by 13.50% year-on-year.
This impact continued into the first half of 2024, with Fosun Pharma's operating income down 4.36% year-on-year to 20.46 billion yuan, and its net profit attributable to the parent company down 31.09% year-on-year to 1.225 billion yuan.
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Excluding COVID-related products, Fosun Pharma's pharmaceutical segment grew by 1.89% year-on-year.
Faced with the gap in demand for COVID-related products, Fosun Pharma has begun to "step on the gas" in the innovative drug business, especially in the field of oncology.
The 2023 annual report shows that among Fosun Pharma's products with sales exceeding 1 billion yuan, COVID-related products are no longer present, but have been replaced by anti-cancer and immune-modulating products such as Hansizhuang (Sitravatinib injection), Hanquyou (Trastuzumab for injection), and Hanlike (Rituximab injection), as well as heparin series preparations.
In the first half of 2024, core products including Hanquyou, Hanlike, and Hansizhuang in the anti-cancer and immune-modulating segment saw a year-on-year revenue increase of 9.52% to 4.051 billion yuan, becoming the latest core segment of Fosun Pharma.
It should be noted that all three products come from Fosun Pharma's core innovative drug platform Fosun Hanzhong (02696.HK).
According to Fosun Hanzhong's financial report, benefiting from the volume increase of core products, the company's operating income in 2023 increased by 67.8% year-on-year to 5.395 billion yuan, while net profit turned positive for the first time, reaching 546 million yuan, becoming the first biopharmaceutical enterprise among the Hong Kong Stock Connect 18A listed companies to achieve a turnaround through the sales of innovative drugs.
However, facing the just-turning-profitable Fosun Hanzhong, Fosun Pharma announced a privatization acquisition of Fosun Hanzhong listed in Hong Kong.
In June 2024, Fosun Pharma announced that its controlling subsidiary Fosun New Medicine plans to acquire all remaining shares of Fosun Hanzhong in cash and/or by exchanging shares, and privatize Fosun Hanzhong, with a cash consideration of up to 5.4 billion Hong Kong dollars.
After the transaction is completed, Fosun Hanzhong will apply for voluntary delisting from the Hong Kong Stock Exchange.
Regarding this privatization plan, Fosun Pharma stated that after the completion of this transaction, it will be beneficial to strengthen the synergy between the group (excluding the target group) and the target group, and can support the sustainable growth of the target group and the realization of the group's overall strategic goals through the business resources provided by the group.
It is worth mentioning that in September 2019, Fosun Hanzhong was listed on the Hong Kong Stock Exchange through the 18A system, but in March 2024, when the new batch of "Stock Connect" target list was released, Fosun Hanzhong failed to be included.
Since its listing in 2019, Fosun Hanzhong has not raised any funds through equity financing, and looking at Fosun Hanzhong's current stock price, it has fallen by more than 60% from its historical peak, with a market value evaporation of nearly 20 billion Hong Kong dollars.
Some analysts believe that Fosun Pharma's main strategy is "integration", and the privatization of Fosun Hanzhong may be to better control and integrate Fosun Hanzhong's industrial resources, promote deeper strategic synergy, especially in terms of research and development and product line layout.
In addition to the privatization of Fosun Hanzhong, in the first half of 2024, Fosun Pharma also announced the plan for its subsidiary Fosun Health to go public independently, and to reduce its stake in the Indian subsidiary Gland Pharma to raise funds of about 211 million US dollars.
Among them, the announcement of reducing the stake in Gland Pharma was made a week before the announcement of the privatization of Fosun Hanzhong.
Fosun Pharma announced the sale of about 6.01% of its stake in Gland Pharma, which allowed Fosun Pharma to raise funds of 211 million US dollars.
After this transaction, Fosun Pharma will still hold about 51.83% of Gland Pharma's shares and continue to maintain a controlling position.
The industry generally believes that while maintaining control, Fosun Pharma has raised 211 million US dollars, which may be precisely for the subsequent privatization of Fosun Hanzhong.
In addition, the promotion of the listing process of its subsidiary Fosun Health is also an important strategic layout of Fosun Pharma for the medical and health service segment.
Combined with financial report data, when the pharmaceutical segment was declining in 2023, Fosun Pharma's medical and health service segment showed stable growth and maintained positive growth.
In the first half of 2024, Fosun Pharma's medical and health service segment increased by 16.90% year-on-year to 3.659 billion yuan, becoming the business segment with the largest revenue increase in the first half of the year.
Or it is precisely because of the growth ability of this segment.
In May 2024, Fosun Pharma announced that the board of directors has agreed to start the listing work of Fosun Health.
At the same time, Fosun Health signed an "increase capital agreement" with Foshan Chanxi City Investment, obtaining a strategic investment of 300 million yuan from the latter, with a pre-investment valuation of 10.2 billion yuan.
It is worth mentioning that Fosun Health also signed a bet agreement with Foshan Chanxi City Investment.
Fosun Health promised to promote the listing of its subsidiary within five years, and if it fails to complete the performance targets or listing, the company will be required to repurchase/transfer equity.
Fosun Health's official website shows that its main business includes offline hospital (general hospitals and various specialty hospitals) medical and online internet medical.
As of the end of 2023, Fosun Health has more than 40 medical institutions under its control and management, with more than 12,000 beds, more than 5,200 full-time doctors, and has obtained licenses for 9 internet hospitals.
However, it should be noted that Fosun Health is still in a loss-making state.
In the first half of 2024, Fosun Health achieved a year-on-year decrease of 5.8% in operating income to 2.96 billion yuan, with a net loss of about 77 million yuan for the same period.
Based on the layout in the first half of the year, Fosun Pharma seems to be sending an important signal to the market that the company is actively adjusting its asset structure and will focus more on innovation and transformation in the future.
It can be seen that, or due to the "Fosun system" capital gene, Fosun Pharma has always been walking on two legs of "operation + investment", mainly relying on acquisitions and mergers as an important means of strategic expansion.
Compared with pharmaceutical companies, Fosun Medical may be more like an investment company.
From the summary of each business segment in the annual report, it can be found that as Fosun Pharma has been continuously investing externally in recent years, the company's field of involvement has continued to expand, involving many sub-segments such as COVID-19 vaccines, medical diagnostics, medical beauty, hospitals, surgical robots, CAR-T, small molecule targeted drugs, etc.
Some analysts believe that Fosun Pharma's current performance slowdown seems to be an accidental event caused by the poor sales of COVID-related products, but the root of the problem lies in the fact that as the scale continues to expand, the investment-driven high-growth model or gradually fails.
Looking at the past performance can be found, Fosun Pharma's profits are highly dependent on investment income, but the income is on a downward trend.
From 2021 to 2023, Fosun Pharma's investment income was 4.624 billion yuan, 4.378 billion yuan, and 3.502 billion yuan, respectively, while the net profit attributable to the parent company was 4.729 billion yuan, 3.731 billion yuan, and 2.386 billion yuan, respectively.
In the first half of 2024, Fosun Pharma's investment income decreased by 27.90% year-on-year to 1.062 billion yuan.
This can also be seen from the return on assets.
As the asset scale becomes increasingly large, Fosun Pharma's return on net assets continues to decline.
From 2021 to 2023, the return on net assets was 12.08%, 8.37%, and 5.22%, respectively.
In addition, because Fosun Pharma has many subsidiaries that lack financing capabilities and need the group to increase financial support, Fosun Pharma's guarantee announcements are extremely frequent, almost every week.
As of the end of June 2024, Fosun Pharma's total guarantee amount has reached 33.861 billion yuan, accounting for 74.12% of the net assets attributable to shareholders of the listed company.
According to the "Notice on Several Issues Concerning the Transactions between Listed Companies and Related Parties and the Guarantees of Listed Companies to External Parties" issued by the China Securities Regulatory Commission in 2003, it was recorded that "the total amount of guarantees of listed companies to external parties shall not exceed 50% of the net assets of the consolidated accounting statement of the most recent fiscal year".
Many investors question: "Are you a pharmaceutical company or a guarantee company?"
At the same time, Fosun Pharma's cash on hand is 14.08 billion yuan, but the total amount of short-term liabilities, long-term liabilities, and non-current liabilities due within one year is as high as 32.593 billion yuan.
As of the close on September 3, 2024, Fosun Pharma's A-shares were reported at 22.70 yuan/share, with a total market value of 607.7 billion yuan, and the stock price fell by more than 70% compared to the historical peak, with a total market value evaporation of more than 160 billion yuan.
In terms of Hong Kong stocks, Fosun Pharma was reported at 12.12 Hong Kong dollars/share, with a total market value of 32.4 billion Hong Kong dollars, and the stock price fell by more than 80% compared to the peak, with a total market value evaporation of more than 150 billion Hong Kong dollars.
Some analysts believe that the problem with Fosun Pharma lies in the blind expansion of business scope in the early stage, but failed to carry out efficient operation and management.
It is worth mentioning that since 2024, five senior executives of Fosun Pharma have successively left, including former Executive President Mei Jingping, former Vice President Yuan Ning, former Vice President Zhang Yuejian, former Non-Executive Director Yao Fang, and former Vice President Xu Aihua.
At the critical moment of business transformation, the huge shock in the management, whether it will affect the continuity of Fosun Pharma's subsequent strategic execution, is unknown.
Looking back at Fosun Pharma in recent years.
When COVID-19 appeared, it was the first to find the German pharmaceutical company BioNTech to act as an agent for COMIRNATY; after the domestic COVID-19 drug appeared, it was the first to act as an agent for Azvudine; at the same time, it was also the first company in China to promote the listing of CAR-T therapy, and it was also the exclusive agent of the Da Vinci surgical robot.Throughout its journey, Fosun Pharma has almost caught up with all the trends in the medical industry, but it is also getting lost in the midst of these trends.
Ultimately, it must return to the technological path of innovation and research and development.
As the innovative pharmaceutical sector gradually expands in the future, whether Fosun Pharma can regain growth, time will provide the answer.