The massive 10-billion-yuan loss reported by Zhifei Biological has drawn significant market attention. On January 12, Zhifei Biological released its 2025 annual performance forecast, projecting a net profit attributable to shareholders loss of between 10.698 billion yuan and 13.726 billion yuan, a decrease of 630% to 780% compared to the previous year's profit of 2.018 billion yuan.
The company explained the massive loss as follows: Firstly, sales of its main products fell short of expectations, putting year-on-year performance under pressure. Secondly, to accurately reflect its financial status and based on the principle of prudence, the company made impairment provisions for inventory where the net realizable value fell below the book value due to changes in market demand and products nearing or reaching expiration. It also assessed the expected credit losses on accounts receivable and made credit impairment provisions based on their aging.
Was the massive loss anticipated? Is there suspicion of financial bathing in this 10-billion-yuan loss? Zhifei Biological is an international, full-industry-chain high-tech biopharmaceutical enterprise integrating R&D, production, sales, distribution, and import/export of vaccines and biological products. Notably, vaccine distribution contributes the majority of its performance, accounting for 94.61% of its revenue in 2024.
It is important to note that Zhifei Biological is the largest distributor in China for Merck & Co.'s HPV vaccine-related products, distributing five Merck products, including the quadrivalent HPV vaccine, the nonavalent HPV vaccine, the pentavalent rotavirus vaccine, the 23-valent pneumococcal polysaccharide vaccine, and the inactivated hepatitis A vaccine. However, the revenue from the company's distribution business was halved in 2024, dropping sharply from 51.9 billion yuan in 2023 to 24.7 billion yuan. Notably, the batch release volumes for its core distributed products collapsed entirely in 2024: the quadrivalent HPV vaccine plummeted by 95.49% year-on-year, while the nonavalent HPV vaccine declined by 14.8%.
While sales collapsed, the company had previously locked in huge procurement commitments. Public information shows that in 2023, Zhifei Biological renewed its cooperation agreement with Merck, committing to purchase a cumulative total of 98 billion yuan worth of Merck HPV vaccines by 2026, with base procurement amounts of 32.626 billion yuan, 26.033 billion yuan, and 17.892 billion yuan for 2024, 2025, and 2026, respectively. In 2024, the Eagle Eye early-warning system issued an alert regarding Zhifei Biological's inventory. On one hand, during the 2024 reporting period, inventory increased by 147.49% compared to the beginning of the period, while operating revenue grew by -50.74% year-on-year, indicating inventory growth significantly outpacing revenue growth. This prompted Eagle Eye to advise investors to scrutinize its inventory structure, questioning whether its products were facing sluggish sales, if inventory impairment provisions were adequate, and if they aligned with standard business practices.
On the other hand, inventory constituted a high proportion of its asset structure, reaching 43.38%. As of the end of the third-quarter report, the company's inventory balance stood at 20.246 billion yuan.
On February 4, 2025, Merck also announced significant news during its 2024 earnings call: it would temporarily suspend HPV vaccine supplies to China. Merck stated that this decision was made after in-depth communication with its local partner, Zhifei Biological, influenced by the overall market environment, weak consumer demand, and high channel inventory levels. In the first half of 2025, Zhifei Biological's batch release volumes declined even more sharply. Data from the 2025 interim report showed that batch releases for the distributed quadrivalent HPV vaccine dropped to zero, compared to 466,000 doses in the same period last year. The situation for the nonavalent HPV vaccine was not much better, with H1 batch releases of 4.2388 million doses, a 76.8% decrease year-on-year. Notably, despite sluggish sales of its related products, the company's inventory impairment provision for the first half of 2025 was less than 100 million yuan. This raises the question: were adequate impairment provisions made for the over 20 billion yuan in inventory? Furthermore, does this 10-billion-yuan loss potentially involve suspicion of financial bathing?
Are short-term difficulties hard to resolve? Burdened with 10-billion-yuan debt. Research data from the Chinese Center for Disease Control and Prevention shows that the first-dose coverage rate of HPV vaccines among females aged 9-45 in China was 27.43% in 2024, still a gap compared to the approximately 67% vaccination penetration rate in Europe and the US. Industry insiders indicate that although the cumulative vaccination rate for females aged 9-45 nationwide was close to 20% by the end of 2023, remaining behind developed countries, the primary vaccination demographic in core cities—those with both willingness and ability to pay—has largely been vaccinated. The remaining unvaccinated population may have relatively lower vaccination willingness due to economic factors, leading to weak demand growth.
On the supply side, HPV vaccines are no longer scarce. Public information shows that five HPV vaccines have been approved for marketing in China. Besides Merck's quadrivalent and nonavalent vaccines and GSK's bivalent vaccine, Wantai Biological's bivalent and nonavalent HPV vaccines have achieved commercial supply, and Walvax Biotechnology's bivalent vaccine is also on the market. Furthermore, HPV vaccines from companies like Sinovac Biotech, Recbio, and Bowei Biological have entered Phase III clinical trials, with more products expected to launch within the next two years. Amid weak demand and intense competition, the industry has fallen into a price war. Public information indicates that for the nonavalent HPV vaccine, Wantai Biological's Cecolin 9 is priced at 499 yuan per dose, while Zhifei Biological's exclusively distributed Merck product, Gardasil 9, is priced around 1318 yuan per dose. Wantai's price is not only 60% cheaper than the imported nonavalent vaccine but also lower than the 798 yuan per dose for the imported quadrivalent vaccine and the 580 yuan per dose for the imported bivalent vaccine. Zhifei Biological has launched promotional strategies like "buy two, get one free" for the imported nonavalent vaccine to squeeze competitors.
The China Association of Vaccines has also issued an initiative explicitly opposing "involution-style" competition, emphasizing that bidding below cost is not permitted. It advocates for reasonable pricing秩序 to ensure companies have sufficient resources for R&D and innovation, ultimately enhancing the quality and safety standards of the entire industry. Notably, Zhifei Biological faces considerable short-term debt pressure. On the evening of January 5, the company announced plans to apply for medium-to-long-term loans totaling no more than 10.2 billion yuan, with a maximum term of three years, for refinancing existing debt and supplementing daily working capital. The third-quarter report showed the company had over 10 billion yuan in short-term borrowings alone, while its cash on hand was less than 2.5 billion yuan, highlighting the immense pressure from its short-term debt obligations.
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