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The overall profitability of the Jiangsu pharmaceutical industry declined
Since the start of this year, Jiangsu's pharmaceutical industry has maintained its growth momentum from last year, with continued increases in profits. However, the rate of profit growth has been declining sharply. The growth in sales revenue, profits, and taxes has dropped by 11.7, 18.3, and 22.9 percentage points respectively compared to the same period last year. According to sources from the Provincial Economic and Trade Commission, the main factors behind the profit decline are rising raw material prices at the upstream end, ongoing price reductions for medicines, and intensified industry competition.
In the first half of the year, the value-added output of the province’s pharmaceutical industry increased by 17.1% year-on-year, but the growth rate fell by 10.8 percentage points compared to the same period last year. Meanwhile, the value of completed export deliveries rose by 23.1%, a decrease of 6.7 percentage points from the previous year.
The high costs of energy and raw materials, along with increasing transportation expenses, have made it difficult for pharmaceutical companies to keep up with rising sales costs. In the first half of the year, the cost of sales for pharmaceutical enterprises in the province increased by 21.7% year-on-year, outpacing the growth in sales revenue by 3.3%. With energy resource shortages, the rise in raw material prices has become a major bottleneck for economic development, and it is unlikely to be resolved quickly. As a result, the overall gross profit margin of the industry continues to shrink, reducing profitability.
The persistent drop in drug prices has further worsened the situation for pharmaceutical companies. In October 2005, the National Development and Reform Commission cut drug prices for the 17th time, with 22 drugs seeing an average reduction of 40%, and some dropping as much as 63%. In June of this year, the 18th round of price cuts saw a significant reduction in oncology drugs, with over 300 dosage forms affected. The average price reduction was 23%, and the maximum drop reached 57%. The downward trend in drug prices has led to fierce price competition, and the high-profit growth that the industry has enjoyed for years may now be coming to an end.