The total sales expenses of A-share pharmaceutical companies in the past decade have exceeded 2.2 trillion yuan: where did the money go? Academic | Market | A-share

The anti-corruption storm that began in July is sweeping across the Chinese pharmaceutical industry. After the alleged violations of "conference fees" and "visit fees" were exposed, the sales expenses of pharmaceutical companies have become the focus of external attention.

In early August, the Shanghai Stock Exchange and the Beijing Stock Exchange coincidentally proposed four key verification points to intermediary agencies for the promotion of pharmaceutical IPO sales. In the "Shanghai Stock Exchange Listing Review Dynamics", the Shanghai Stock Exchange proposes four key points of concern to intermediary agencies regarding "sales and promotion activities carried out by medical enterprises", requiring intermediary agencies to verify the legality and compliance of sales and promotion activities carried out under different modes, the authenticity of expenses, the effectiveness of internal control, related relationships, and transaction fairness.

On August 16th, Professor Yuan Min from Shanghai National Accounting College told Pengpai News that generally speaking, sales expenses include sales personnel salaries, advertising and sales conference expenses, etc. Confusing sales and management expenses may also hide some information. Under the pharmaceutical anti-corruption storm, by benchmarking the proportion and structure of sales expenses, some issues can be revealed.

According to the classification of Shenwan Pharmaceutical Biotechnology, there are currently 492 A-share pharmaceutical companies. Recently, a reporter from Pengpai News sorted out the sales expenses and sales expense ratio of pharmaceutical biotechnology companies over the past 10 years, and the results showed that from 2013 to 2022, the total sales expenses reached 22712263.9 billion yuan.

It should be pointed out that in the past decade, the number of pharmaceutical and biotech companies listed on the A-share market has been continuously increasing, and the number of companies with sales expenses generated during that year has also been dynamically changing. In 2013, 349 companies included sales expenses, and by 2022, this number has reached 487.

4 pharmaceutical companies annually

Ranked among the top ten sales expenses

Over the past decade, among more than 400 pharmaceutical companies, the highest annual sales expenses of a single pharmaceutical company have increased from 4.97942 billion yuan in 2013 to 14.27897 billion yuan in 2022, while the lowest sales expenses have increased from 0 to 0.006.2 billion yuan. The median sales expenses have increased from 0.7573 million yuan to 283.79 million yuan.

From the perspective of sales expense ranking, the top ten companies are relatively concentrated each year, with four pharmaceutical companies including Shanghai Pharmaceutical, Buchang Pharmaceutical, Hengrui Pharmaceutical, and Baiyunshan all ranking in the top ten each year, with only slightly different rankings. Fosun Pharmaceuticals and China Resources 39 have been around for nine years, East China Pharmaceuticals has been around for eight years, Jiankangyuan has been around for six years, and Yunnan Baiyao has been around for five years. The Lizhu Group, mentioned in a recently circulated audit report on Guangdong pharmaceutical equipment, was listed once in 2016 and ranked tenth, with sales expenses of 3.07 billion yuan that year.

Specifically, from 2013 to 2022, the top ten companies with the highest annual sales expenses were Step Pharmaceuticals, with sales expenses of 4.979 billion yuan, 5.972 billion yuan, 6.573 billion yuan, 6.85 billion yuan, and 8.287 billion yuan, respectively. Since 2018, Shanghai Pharmaceuticals has surpassed Step Pharmaceuticals to become the top selling expense company.

Where did two trillion yuan in sales expenses go? The inclusion of sales expenses varies for each enterprise, and the proportion of each item also varies.

Sales expenses disclosed in Step by Step Pharmaceutical's 2022 annual report

Taking Step Pharmaceuticals as an example, the company's sales expenses in 2022 include marketing, academic promotion and consulting fees, employee compensation, channel and promotional expenses, among which marketing and academic promotion expenses account for the highest proportion, up to 95%.

According to the 2022 annual report of Lizhu Group, its sales expenses amounted to 3.887 billion yuan, including marketing and promotion expenses, employee compensation, office communication and travel expenses, conference expenses, etc. Among them, marketing and promotion expenses amounted to 3.448 billion yuan, and conference expenses amounted to 12.4511 million yuan.

From the top ten list, most pharmaceutical companies with high sales expenses are comprehensive companies with large business segments. Therefore, when looking at changes in sales expenses, it is often necessary to consider the proportion of sales expenses to operating income.

Enterprises with a sales expense ratio exceeding 50%

Up to 50 companies per year

From the ratio of sales expenses to operating revenue, that is, the sales expense ratio, 2018 is a dividing point, with U indicating that unprofitable pharmaceutical companies began to appear in the top ten of that year. Industry insiders point out that this may be related to the official opening of the stock market in 2019, allowing unprofitable companies to go public and attracting a large number of biopharmaceutical companies in the early stages of research and development or commercialization.

According to Wind data, the sales expense ratio of unprofitable pharmaceutical companies is not low. Taking 2022 as an example, Yahong Pharmaceutical ranked first in sales expense rates, reaching 55894.61%. Regarding the above data, on August 16th, Yahong Pharmaceutical told Pengpai News that its products have not yet been officially approved for listing, and the ratio of sales expenses to operating income is meaningless. The reason for the occurrence of sales expenses is that the company is preparing for normal sales of the product in the early stage of entering the market.

Yahong Pharmaceutical mentioned in its 2022 financial report that the company's operating income was only from the declaration and realization of clinical urgently needed imported drugs and medical devices for the Haikwei and disposable bladder soft mirror products in the Boao Lecheng International Medical Tourism Pilot Zone in Hainan. The proportion of sales expenses to operating income is not indicative. The increase in sales expenses during the reporting period compared to the same period last year is mainly due to the company's construction and expansion of commercial teams.

From 2013 to 2022, the top ten companies in terms of annual sales expense ratio were relatively concentrated compared to the top ten companies in terms of sales expense ratio. From 2013 to 2022, the sales expense ratio was more dispersed compared to the top ten companies in terms of sales expense ratio, with different new companies appearing every year. However, there are also some companies that have appeared for many years, such as Shutai Shen, which has been ranked in the top ten for 5 years, with 2013 to 2016 ranking first. Haite Biotechnology has been in the top ten for 6 years, and Step Pharmaceuticals, which has had the highest sales expense rate for many years, has also been in the top ten for 5 years.

It should be noted that among the enterprises with the highest sales expenses mentioned above, the sales expense ratio may not be high. For example, Shanghai Pharmaceutical has maintained a sales expense ratio of around 6% over the past decade, with the highest occurring in 2018, about 6.9%. Stepwise Pharmaceuticals maintains around 50% year-round, with the highest reaching 59% in 2017.

In the past decade, there has been a trend of gradually increasing and then decreasing sales expense ratios exceeding 50%. From 2013 to 2016, there were basically more than ten companies, reaching 23 in 2017. From 2018 to 2020, there were three consecutive years of exceeding 50 companies. However, starting from 2021, this number has been decreasing. In 2021, there were 42 companies with sales expense ratios exceeding 50%, and in 2022, it decreased to 39 companies.

Industry insiders have pointed out that the above changes may be related to drug policies such as centralized procurement and medical insurance negotiations. If relevant drugs participate in national organized drug centralized procurement or enter the national medical insurance catalog through negotiations, they will enter hospitals more quickly, reduce the cost of entering hospitals in the past, and thus lower the sales costs of enterprises. In addition, since the pharmaceutical reform in 2015, innovation has gradually become a key word in China's pharmaceutical industry. While enterprises are continuously increasing their investment in innovation, they are also continuously optimizing their sales expenses.