Two leaders of insulin made in China, Tonghua Dongbao and Gan & Lee Pharmaceuticals, has announced their performance in 2022 respectively. As the first year of volumn-based procurement of insulin, two companies' performance both declined in 2022.
In 2022, the total revenue of Tonghua Dongbao was RMB 2.775 billion, down 15.09% year-on-year; Its net profits after deducting non-recurring gains and losses was RMB 846 million, down 21.47% year-on-year Tonghua Dongbao indicated that the reason was that the product price declined due to the volumn-based procurement of insulin started in 2022, and the expansion was restricted due to the epidemic.
While Gan & Lee Pharmaceuticals, as another industry leader, fell into loss directly. The net loss of Gan & Lee Pharmaceuticals in 2022 was expected to reach RMB 390-470 million, from surplus to deficit year-on-year, being loss for the first time since the listing of Gan & Lee Pharmaceuticals. In addition to volumn-based procurement of insulin, another reason for its performance loss is that in the first three quarters of 2022, in order to assist commercial companies to adjust the prices of products in stock for volumn-based procurement in terminal medical institutions, Gan & Lee Pharmaceuticals calculated the compensation in total RMB 563 million, offsetting the revenue in 2022.
Review of volumn-based procurement of insulin
According to public data, the insulin market is more than RMB 20 billion in China, but patient's treatment rate using insulin is only about 5%. With a wide potential market in the future in China, the insulin market is expected to exceed RMB 50 billion by 2030. There are many kinds of insulin. Currently, the second-generation insulin and third-generation insulin are the mainstream in the market. According to the different action time, insulin can be divided into fast-acting insulin, premixed insulin, intermediate-acting insulin and long-acting insulin.
Insulin product classification (Source: Chinese Journal of Diabetes Mellitus, and Research Institute of Orient Securities)
On November 26, 2021, National Healthcare Security Administration completed the sixth batch of centralized volume-based procurement of drugs in national organizations, which is the special procurement of insulin. For this volumn-based procurement, there are 6 purchase groups as follows: mealtime human insulin, basal human insulin, premixed human insulin, mealtime insulin analogue, basal insulin analogue, and premixed insulin analogue, with a procurement period of 2 years.
The strategy of "increasing sales volume by preference price" has not been successful, then how can the two companies reshape the performance growth curve?
Gan & Lee Pharmaceuticals
The quotation of Gan & Lee Pharmaceuticals was the most radical at the time. Finally, its 6 kind products all won the bidding with a huge price reduction, with a maximum reduction of 67%; Among them, the price of Insulin Glargine Injection (Basalin) was reduced from RMB 143.97/piece to RMB 48.71/piece.
For that Gan & Lee Pharmaceuticals' 95% of income depends on insulin products, whether winning the bid or not is extremely important to the company's survival, that is why its quotation in volumn-based procurement was so radical.
With the change of market logistics of insulin in China, Gan & Lee Pharmaceuticals has put forward that its strategic path in 3-5 years is "specialization, globalization, openness, and diversification", with a sight to overseas markets. Its annual report shows that US market is the largest drug market of insulin, and is still expanding rapidly; As the second largest market of insulin, Europe market's price sensitivity is also relatively higher. And...
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