The marketing expenses of pharmaceutical enterprises in 2021 are still high. As of April 25, the total sales expenses of 281 listed companies in the pharmaceutical industry that disclosed the 2021 annual report increased by 22.1 billion yuan to 223.3 billion yuan year-on-year in 2021. Among the sales expenses, marketing expenses account for the largest proportion.
Among them, there are 29 companies with a sales expense of more than 2 billion yuan, 7 companies with a sales expense of more than 5 billion yuan, and 21 companies have a sales expense ratio (sales expense / operating revenue) of more than 50%.
who spends a lot of money on sales promotion
The specific composition of sales expenses disclosed by various pharmaceutical enterprises are different.
A senior auditor told China Economic Weekly that they also focused on the sales expenses of listed companies. The record caliber of each company is different. In the audit manuscript of sales expenses, auditors will classify according to the items of the previous year. It is required that the difference between the same period and the same period should not be too large. Special matters should be explained clearly, otherwise the classification needs to be adjusted. “Other” projects cannot combine the expenses of similar items. If the audit report is not disclosed, it is difficult for the public to know the specific projects.
The market promotion of the ten pharmaceutical enterprises included in the statistics totaled 35.023 billion yuan in 2021. The top three are Shanghai Pharmaceuticals Holding Co.Ltd(601607) , Shanghai Fosun Pharmaceutical (Group) Co.Ltd(600196) and Jiangsu Hengrui Medicine Co.Ltd(600276) , and their market promotion accounts for a large proportion of sales expenses.
( top enterprises in sales expenses)
(screenshot source: sorted according to Oriental choice data)
Let’s first look at Shanghai Pharmaceuticals Holding Co.Ltd(601607) , the company has a sales cost of 13.318 billion yuan in 2021, which is the only pharmaceutical enterprise with a sales cost of more than 10 billion yuan. According to the company’s annual report, the “marketing and advertising costs” of RMB 4.824 billion, “travel and conference costs” of RMB 998 million and “others” of RMB 1.281 billion (these three items, hereinafter referred to as “marketing expenses”) account for a relatively high proportion of the sales expenses, totaling RMB 7.103 billion. Roughly speaking, in Shanghai Pharmaceuticals Holding Co.Ltd(601607) 2021, an average of 19.46 million yuan of marketing expenses will be spent every day.
Looking at Shanghai Fosun Pharmaceutical (Group) Co.Ltd(600196) , among the company’s sales expenses in 2021, “market expenses” is 5.778 billion yuan and “other” projects are 327 million yuan, with a total of 6.105 billion yuan.
Also Jiangsu Hengrui Medicine Co.Ltd(600276) , among the company’s sales expenses, the marketing expenses are the largest, including “academic promotion expenses, innovation and specialization platform construction and other market expenses” of 4.644 billion yuan, “travel and office expenses” of 666 million yuan and “other” expenses of 143 million yuan, totaling 5.453 billion yuan.
It is worth noting that Jiangsu Hengrui Medicine Co.Ltd(600276) has 36% of sales expenses (sales expenses / operating revenue), ranking first among the above 10 pharmaceutical enterprises.
The sales expense proportion reflects the control ability of the enterprise’s sales expense. The lower the proportion, the stronger the enterprise’s sales expense control ability; High means poor control of sales expenses.
In addition to the above three companies, Joincare Pharmaceutical Group Industry Co.Ltd(600380) ( Joincare Pharmaceutical Group Industry Co.Ltd(600380) . SH) in 2021, the “marketing and promotion expenses”, “communication and travel expenses”, “other expenses” and “conference expenses” were 4.478 billion yuan, 65 million yuan, 63 million yuan and 24 million yuan respectively, totaling 4.63 billion yuan. The company’s sales expenses accounted for 32%. The company explained that in 2021, it strengthened the promotion of products and brands, achieved significant growth in the sales revenue of prescription drugs, and the sales expenses increased accordingly.
Close to Joincare Pharmaceutical Group Industry Co.Ltd(600380) , Livzon Pharmaceutical Group Inc(000513) ( Livzon Pharmaceutical Group Inc(000513) . SZ), with the same “communication” expenses, the sales expenses increased by 26% in 2021, 10 percentage points higher than the operating revenue, with a year-on-year increase of 808 million yuan, most of which was due to “marketing and promotion expenses”. The net increase of this project was 739 million yuan to 3.456 billion yuan. In addition, “office communication and travel expenses” and “other expenses” are 58 million yuan and 47 million yuan respectively, totaling 3.561 billion yuan.
There is also Chongqing Taiji Industry (Group) Co.Ltd(600129) ( Chongqing Taiji Industry (Group) Co.Ltd(600129) . SH), which is mainly engaged in drug wholesale. The star products are Jizhi syrup and Huoxiang Zhengqi liquid. In 2021, Chongqing Taiji Industry (Group) Co.Ltd(600129) the sales cost is 4.215 billion yuan, of which 80% is “market maintenance and development cost”, totaling 2.3 billion yuan, and “advertising and promotion cost” is 1.1 billion yuan.
Famous pharmaceutical companies also sell.
The famous traditional Chinese medicine company Yunnan Baiyao Group Co.Ltd(000538) ( Yunnan Baiyao Group Co.Ltd(000538) . SZ) has a “market maintenance fee” of 1.29 billion yuan, “advertising fee” of 660 million yuan and “comprehensive medical management fee” of 150 million yuan in 2021.
Compared with the high cost of advertising and promotion, the R & D cost is “poor”. Some enterprises emphasize sales over R & D. Among the 281 companies, sales expenses accounted for 14% of operating revenue, while R & D expenses accounted for only 4.4% of operating revenue. High tech enterprises require R & D expenses to account for more than 3% of operating revenue. Among the 281 companies, more than 50 R & D expenses account for less than 3%.
Statistics show that R & D is the lifeline of the profits of pharmaceutical enterprises. Drug R & D is a high-risk, high investment and long-term systematic project. It is divided into four main stages: drug discovery and pharmaceutical research, preclinical research, clinical research and commercial production. A new drug R & D needs about 6 billion yuan. The average R & D expenditure of these 281 companies in 2021 is about 250 million yuan.
Among the above-mentioned enterprises, some enterprises have traditional Chinese medicine in their products. Do they need to engage in R & D?
Zhang Boli, academician of the Chinese Academy of engineering, believes that the overall level of drug research and development in the traditional Chinese medicine industry needs to be improved: “what is the clinical positioning, what are the advantages and characteristics compared with similar drugs, and what is the clinical action mechanism… These basic research enterprises should find out.”
Companies’ explanations of huge sales expenses are not specific. For example, Shanghai Pharmaceuticals Holding Co.Ltd(601607) said that the reason for the change in sales expenses was the increase in the scale of sales revenue Shanghai Fosun Pharmaceutical (Group) Co.Ltd(600196) is to strengthen the control of sales expenses Guangzhou Baiyunshan Pharmaceutical Holdings Company Limited(600332) said that the market demand picked up and increased product promotion and advertising in the market Chongqing Taiji Industry (Group) Co.Ltd(600129) increased publicity and promotion efforts, resulting in increased sales expenses.
where does the Marketing Fee flow
In April 2021, the Ministry of Finance said in the announcement on the quality inspection of accounting information of pharmaceutical enterprises that 77 pharmaceutical enterprises generally used false invoices to obtain funds for external use and other violations, and 19 of them were subject to administrative penalties ranging from 30000 yuan to 50000 yuan. These 19 pharmaceutical enterprises involve five listed companies Shanghai Fosun Pharmaceutical (Group) Co.Ltd(600196) , Jiangsu Hengrui Medicine Co.Ltd(600276) , Shanghai Pharmaceuticals Holding Co.Ltd(601607) , China Resources Sanjiu Medical & Pharmaceutical Co.Ltd(000999) , Shandong Buchang Pharmaceuticals Co.Ltd(603858) .
The items under investigation are embodied in the following aspects: Shanghai Pharmaceuticals Holding Co.Ltd(601607) the wholly-owned subsidiary was found to have falsely increased travel expenses and manufactured false invoices Jiangsu Hengrui Medicine Co.Ltd(600276) reimbursement of lecture fees, consulting fees and advertising fees of experts other than the company China Resources Sanjiu Medical & Pharmaceutical Co.Ltd(000999) wholly owned subsidiary has untrue shooting project production fees, conference fees and research fees; Companies related to Shanghai Fosun Pharmaceutical (Group) Co.Ltd(600196) are found to have paid personal agent sales promotion fees and some invoices attached to the fees are inconsistent Shandong Buchang Pharmaceuticals Co.Ltd(603858) pay the fund to the pharmaceutical promotion company in the name of consulting fee and marketing fee, and then the pharmaceutical promotion company will transfer it to the agent of the company.
Previously, a research report revealed that the sales expenses of pharmaceutical enterprises have six directions, including the expenses of public relations bidding agencies, the expenses of relevant principals of public relations hospitals, doctor rebates, commission of medical representatives, unified expenses, etc.
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