News Column

Shanghai Pharmaceuticals Achieves Double-Digit Growth of Revenue and Profit for 1H2014

August 29, 2014

HONG KONG, Aug. 30, 2014 /PRNewswire/ -- Shanghai Pharmaceuticals Holding Co., Ltd.("Shanghai Pharmaceuticals" or the "Company" and, together with its subsidiaries, the "Group; stock code: 601607.SH; 2607.HK), the integrated pharmaceutical company in the PRC that has leading positions in both pharmaceutical product and distribution markets, today announced its interim results for the first half of 2014. During the Reporting Period, the Company's operating revenue wasRMB44.013 billion, up by 13.68% as compared with the corresponding period of last year. Net profit attributable to the equity holders of the listed Company wasRMB1.318 billion, representing an increase of 10.79% as compared with the corresponding period of last year. The operating profit margin after deducting sales and administration expenses was 4.11%, up by 0.08 percentage point from the corresponding period of last year. Basic earnings per share amounted toRMB0.4902, which laid solid foundation to ensure that the objectives for operating budget are achieved throughout the year.

In the first half of 2014, based on the overall arrangements for the new round of the three year development plan for 2013-2015 and the budgetary arrangements made at the beginning of 2014, and guided by the core values which were "innovation, integrity, cooperation, inclusiveness and responsibility", the Company proactively built a V-shaped collaborative team, started to optimize the marketing and research and development ("R&D") systems, continued to carry out Lean Six Sigma management projects, comprehensively optimized the organizational structure, deepened the integration of internal resources and proactively promote the external merge and acquisition to effectively control operational risks.

Optimize the R&D system, and enhance the innovation capability

In the first half of 2014, the Company established the science and technology innovation council of the Group to participate in the material decision making process in respect of the R&D, and formulated a program for controlling and assessing the Group' R&D system with Central Research Institute as the core. In addition to the six branches, the Company set up the No.1 Biochemical Branch under the Central Research Institute, which built a solid foundation for the efficient R&D system. During the Reporting Period, the Company's R&D expenses amounted to a total ofRMB208.9 million , accounting for 3.67% of the Company's manufacturing sales revenue.

In the first half of 2014, sales revenue from the Company's new products launched in recent years through R&D amounted toRMB556 million, representing 9.78% of the Company's manufacturing sales revenue. The proportion of new products has been further increased.

In respect of the R&D of the antibody drugs, the application for pharmaceutical clinical trial on "Recombinant humanized anti-CD20 monoclonal antibody injection" has been accepted by China Food and Drug Administration onMay 2014, and passed the registration test and quality standards review by the National Institutes for Food and Drug Control ofChina. "Recombinant fusion protein of human tumor necrosis factor receptor mutant and Fc fragment injection", a medicine co-developed with Shanghai Fudan-Zhangjiang Bio-Pharmaceutical Co., Ltd., has been granted a pharmaceutical clinical approval onMay 2014, to enter the clinical trial stage. In addition, the Company launched the plan for the construction of the Group's antibody industrialisation base.

In respect of the R&D of Chinese medicine, since its establishment, the Chinese Medicine Research Institute under the Shanghai Pharmaceuticals Central Research Institute has launched the two projects of secondary development for Chinese medicine products, i.e. Babaodan and Wanbi Tablets. The company also cooperated with the Eastern Hepatobiliary Surgery Hospital subordinated to The People's Liberation Army Second Military Medical University ofChina ("Second Military Medical University") and Shanghai Institutes for Biological Sciences under Chinese Academy of Sciences ("CAS").

In respect of the R&D of bio-chemical drugs, on April 2014, the approvals were granted to the LLTD-8, a new drug under class 1.1, for the extended clinical trial of phase I, and it was permitted to enter into the extended clinical research of phase I. The Company also developed the plan for the construction of the Group's industrialization base for chemical active pharmaceutical ingredients (API).

Besides, the Company confirmed 13 innovation co-operation projects under the cooperation of "Translational Medicine Alliance" with the Second Military Medical University.

Main business improved steadily

In the first half of 2014, the Company's sales revenue from the pharmaceutical business wasRMB5.687 billion, representing a growth of 3.27% as compared with the corresponding period of last year; its gross profit margin was 47.79%, increased by 0.63 percentage point as compared with the corresponding period of last year. The Company realized sales revenue ofRMB3.347 billion from its 64 key products, an increase of 3.92% as compared to the corresponding period of last year and accounting for 58.85% of the revenue from manufacturing sales with an average gross profit margin of 62.82%, and the average growth rate of the top five products with the highest growth rate amounted to 68.08%. In the first half of 2014, 22 products achieved sales revenue of more thanRMB50 million, and the sales revenue of these products amounted toRMB2,565 million, accounting for 45.10% of the manufacturing sales.

Shanghai Pharmaceuticals' marketing centres have set up a work operating mechanism and defined the principle of dividing various marketing departments by products and devised basic workflows since establishment. In the future, marketing centres will continue to increase its capability in making academic promotion by hospital distribution points, conducting depth distribution, and engaging in investment promotion and agency for products, will focus on 64 key products, and to formulate and define marketing target and strategy of key products and to track its implementation, in order to meet progress target.

Recently, 300 products of the Company were listed on List of Low-price Drugs Among the Pricing Range Set by the National Development and Reform Commission. 10 exclusive products or exclusive dosage forms of the Company, including Weifuchun tablets were on the list, which is expected to have positive impact on the operation results of the Company.

In the pharmaceutical distribution business, Shanghai Pharmaceutical achieved sales revenue ofRMB38.51 billion in the first half of this year, an increase of 15.17% year on year; gross profit margin 6.02%, dropped 0.09 percentage points compared with the same period last year. In response to the pressure on gross margin of distribution industry, the Company continued to optimize its product structure to maintain a reasonable proportion of direct sales and promote Lean Six Sigma projects to strengthen cost control. After deducting the SG&A expenses, operating margin rose 0.25 percentage points over the same period last year to 2.78 %, operational efficiency has gradually been improved by expanding the distribution scale.

Through mergers and acquisitions, the Company has begun a nationwide distribution network, focusing on covering the east, north and south of the three key regions with strong competitiveness. The sales in East China regional accounted for 66.81%,North China regional sales accounted for 24.32%, South China regional sales accounted for 6.11%. Meanwhile, Shanghai Pharmaceutical's active and innovative business models committed to providing customers with quality terminal network and value-added services. The Company service of innovative supply chain and high-end direct-to-patients (DTP) was currently used by a total number of 60 hospital pharmacies. Besides, it continued to maintain rapid growth in vaccines and other high-value consumables business and thus achieved sales ofRMB2.77 billion in the first half of year, an increase of 41.46%.

Deepened internal integration, promoted external acquisitions

In the first half of this year, Shanghai Pharmaceutical continued to strengthen internal integration and sharing of resources, improve capital efficiency and reduce financial costs, promote internal manufacturing and distribution synergies, establish market access platform, unify and coordinate throughout tendering and resource allocation. In addition, the Company continued to promote centralized procurement of bulk herbs, packing materials and stationary, and develop Lean Six Sigma management actively so that cost efficiency and profitability are improved.

To further expand the pharmaceutical distribution network, the Company acquired 50% equity interest in Beijing Xin Hai Feng Yuan Biopharma Technology Development Co., Ltd., 85% equity interest in Shaanxi Huaxin Pharmaceutical Co., Ltd. and a 100% equity interest in Ordos Yili Pharmaceutical Co., Ltd. To further expand the pharmaceutical distribution network inShandong, it acquired 75% equity interest in Shandong SPH Pharmaceutical Co., Ltd., and increased its holding in Shandong SPH Shanglian Pharmaceutical Co., Ltd. to 35% equity interest. To strengthen international cooperation in research and development of innovative drugs, enhance the quality of pharmacodynamics studies on new drugs, the Company made an equity investment by establishing Sichuan Green Tech Biotechnology Co., Ltd. In order to focus on its principle business, Shanghai Medical Devices Co., Ltd. under the Company transferred its 75% stake of Shanghai Shengli Medical Instruments Co., Ltd.

Subsequent progress of Babaodan

During the Reporting Period, Zhangzhou Pientzehuang Pharmaceutical Co., Ltd. (hereinafter referred as "Pientzehuang") filed to the Intermediate People's Court of Zhangzhou City a lawsuit (hereinafter referred as the "lawsuit"), in relation to an unfair competition dispute, against Xiamen Traditional Chinese Medicine Co., Ltd. (hereinafter referred as "Xiamen Traditional Chinese Medicine"), Xiamen Evening News Media Development Co., Ltd. and Xiamen Daily Press. On13 March 2014, Xiamen Traditional Chinese Medicine submitted its objection to the jurisdiction to the Intermediate People's Court of Zhangzhou City. On 18 June, Xiamen Traditional Chinese Medicine Co., Ltd. submitted its objection to the Trademark Office of The State Administration For Industry & Commerce ofthe People's Republic of China (hereinafter referred as "Trademark Office of The State Administration For Industry & Commerce") with respect to the trademarks of "Babaodan Pien Tze Huang" (application number: 11683990) and "Pien Tze Huang Babaodan" (application number: 11683929), registered by Zhangzhou Pientzehuang

Pharmaceutical Co., Ltd on 1 Nov 2012 under the Class 5 of "Chinese Medicine", requiring the Trademark Office of The State Administration For Industry & Commerce to revoke the registration of the two aforesaid trademarks. Until now, the case is still under investigation procedure. On23 June 2014, Xiamen Traditional Chinese Medicine received the civil judgment ((2014) Min Min Zhong Zi No. 660), and the Higher People's Court ofFujian Province finally judged that the lawsuit shall be transferred to the jurisdiction of Xiamen Intermediate People's Court. On18 August 2014, the Xiamen Traditional Chinese Medicine received the Notice (2014) Xia Min Zi Di No. 937 issued by the Intermediate Court ofXiamen City, Fujian Province, pursuant to which the case in question was designated by the Higher People's Court ofFujian Province to be in the jurisdiction of the Intermediate Court ofFuzhou City.

About Shanghai Pharmaceuticals Holding Co., Ltd.

Shanghai Pharmaceuticals is the only integrated pharmaceutical company in the PRC that has leading positions in both pharmaceutical product and distribution markets with top-three scale inChina, providing solutions in pharmaceutical manufacturing, distribution, logistics storage and retail. The Group currently offers more than 800 pharmaceutical products to more than 11,000 hospitals and medical institutions inChina. The Group also operates approximately more than 1,700 self-operated and franchise stores nationwide.

For further information, please contact:

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SOURCE Shanghai Pharmaceuticals Holding Co., Ltd.


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