Huadong Medicine Co.,Ltd. recently announced the preliminary results of the 12th round of national centralised drug procurement, winning bids for three products while losing bids for four core drugs. The revenue from the unsuccessful products significantly exceeds that of the winning ones, directly pressuring the company's generic drug division. This, combined with slowing profit growth, innovation drugs not yet fully bridging the gap, and uncertainties from patent litigation over a core product, has concentrated the company's short-term operational risks.
Significant Impact from Unsuccessful Bids, Risk of In-Hospital Revenue Loss
The latest procurement round reveals a clear imbalance: the three products that won bids—Ciclosporin Soft Capsules, Tacrolimus Capsules, and Mesalazine Enteric-coated Tablets—generated a combined revenue of 2.076 billion yuan in 2025, accounting for just 4.76% of total revenue and 14.04% of pharmaceutical industrial income. In contrast, the four products that lost bids—Isavuconazole Injection, Pioglitazone Metformin Tablets, Indobufen Tablets, and Alogliptin Benzoate Tablets—recorded sales of 4.634 billion yuan in 2025, representing 10.62% of total revenue and 31.34% of pharmaceutical industrial income. In the first quarter of 2026 alone, these four products generated 1.348 billion yuan, exceeding 30% of the quarter's pharmaceutical industrial income. Under procurement rules, public hospitals prioritise contracted volumes for winning bids, and Huadong Medicine has acknowledged that unsuccessful products will face reduced hospital procurement and market share loss, inevitably exerting downward pressure on performance. Among these, Indobufen Tablets pose the highest risk. This cardiovascular core product has long dominated the public hospital market. Although the company holds a crystal form patent and has sued 15 infringing companies, litigation is lengthy and outcomes uncertain. Even if the company achieves some legal progress, hospitals will shift prescriptions to competitor products during the procurement cycle, making it difficult to recover in-hospital sales volume in the short term. The company has proposed countermeasures such as expanding into out-of-hospital retail and private hospital channels, but the scale and profit margins of these markets cannot fully compensate for losses in public hospitals, capping the short-term growth potential of the generic drug division.
Earnings Growth Diverges, Cash Flow Pressure Heightens Operational Risks
From a financial perspective, Huadong Medicine is showing signs of weakening growth. In 2025, total revenue was 43.612 billion yuan, growing only 4.07% year-on-year. Net profit attributable to shareholders fell 2.78% to 3.414 billion yuan, with non-recurring adjusted net profit also declining slightly, indicating weakened profit momentum from traditional generic drugs. In the first quarter of 2026, revenue reached 11.183 billion yuan, maintaining a low growth rate of 4.17%. Profit was supported only by a modest boost from certain segments, with attributable net profit growing 9.56% year-on-year, but the underlying issue of revenue growth without corresponding profit improvement remains unresolved. Cash flow indicators reveal hidden concerns: net operating cash flow in the first quarter of 2026 was negative 852 million yuan, worsening from negative 833 million yuan in the same period last year. After the procurement takes effect, reduced in-hospital collections for unsuccessful products and lower prices for successful ones will compress gross margins, likely leading to sustained weakening of cash inflows from the pharmaceutical industrial division. The company is simultaneously investing in medical aesthetics, innovative R&D, and patent enforcement, all of which consume cash. If cash contributions from generic drugs continue to decline, overall operational pressure will increase.
Innovation Transition Has Not Yet Taken Over, Long-Term Restructuring Faces Uncertainty
Huadong Medicine views the centralised procurement as an opportunity to "release pressure from generic drugs and accelerate innovation," but innovation drugs have not yet fully compensated for the gap left by generics. In the first quarter of 2026, innovative product revenue accounted for 20.05% of pharmaceutical industrial income. While growth is impressive, the overall share remains low, and these products have not yet become a stable profit pillar. Several key innovative drugs and GLP-1 products in the company's pipeline are still in clinical stages, with 1-2 years remaining before commercialisation, making it difficult to fill the revenue gap from procurement in the short term. In terms of business structure, the company operates across four segments: pharmaceutical industrial, commercial, medical aesthetics, and industrial microbiology. The pharmaceutical industrial division remains the profit core, but it is highly dependent on generic drugs subject to procurement. As generic drugs face continued pressure, the medical aesthetics sector is experiencing intensified competition and slowing growth, while the pharmaceutical commercial division has thin margins. No other segment is capable of quickly absorbing performance declines. Furthermore, with the normalisation of centralised procurement, many existing generic drugs will continue to face risks of price cuts and lost bids. If the innovation pipeline delivers results slower than expected, the company may remain stuck in a transitional phase where traditional business contracts while new businesses fail to keep pace. Although Huadong Medicine has anticipated the procurement outcomes and formulated contingency plans, external variables such as policy fluctuations, competitor low-price strategies, and patent litigation will continue to disrupt the transformation pace.
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