Xinfu Pharmaceutical: Bright Prospect of D-Calcium Pantothenate

Zhejiang Hangzhou Xinfu Pharmaceutical Co., Ltd. (Xinfu
Pharmaceutical, SZ: 002019) was established in 1994. It is a
comprehensive high-tech listed company integrating medicines,
health-care foods and biological chemicals. Besides vitamin B5
(D-calcium pantothenate) and provitamin B5 (D-panthenol), major
products in the company also include innovative products in bone
nutrition and osteoporosis prevention, new-generation
pure-natural products for blood fat reduction and new
traditional Chinese medicines for acute apoplexy.
    It is stated in the performance statement recently published
by the company that the performance of the company in 2006
drastically reduced compared with 2005. What should be noted is
that in the meantime the stock price of the company increased
sharply. According to executives from the company and analysts
of the pharmaceutical sector, it is mainly because the drastic
price rise of the leading product D-calcium pantothenate has
given a powerful backing to the stock price.

Sustained price rise of D-calcium pantothenate
After the merging of its major competitor Huzhou Lion King Fine
Chemical Co., Ltd. in July 2005, Xinfu Pharmaceutical started
reformation to the D-calcium pantothenate market. After the full
digestion of surplus D-calcium pantothenate through efforts for
more than half a year, the price of D-calcium pantothenate picked
up stably. At the end of August 2006, the company announced the
price rise of D-calcium pantothenate by 15%. The market response
was stable and the price of D-calcium pantothenate sustainedly
increased. Data of order placement for the first quarter of 2007
collected at the end of December 2006 showed that the average
price of D-calcium pantothenate was 25% higher than the price
in the same period of 2006.
   The price of D-calcium pantothenate has sustainedly
increased since the beginning of 2007. It has maintained the
rising trend after it reached more than RMB100 per kg. According
to the information from China Feed Online, Shandong Xinfa
Pharmaceutical Co., Ltd., another D-calcium pantothenate
producer in China, has also increased the ex-factory price to
RMB120 per kg. There is still a supply deficit in the domestic
market and the export status is also good. According to China
Feed Online, the nationwide supply deficit of D-calcium
pantothenate can hardly be changed in near future. The price of
D-calcium pantothenate will maintain a firm rising trend for
some time.
    In the opinion of Xinfu Pharma-ceutical, the price rise of
D-calcium pantothenate will last up to the second quarter of 2007.
It should also be pointed out that the price of D-calcium
pantothenate is in the rising period today and will inevitably
reduce some day in future. If international giants such as Roche
Pharmaceutical Co., Ltd. and Daiichi Pharmaceutical Co., Ltd.
increase their output, the price of D-calcium pantothenate will
surely drop. As more than 70% of D-calcium pantothenate in the
company is for export, the sustained appreciation of RMB will
also affect the export.
   The price offered by the company to large buyers is much lower
than the price offered to small buyers. 70% - 80% of the sales
amount in the company comes from large buyers.

Readjustment to the sales tactics of health-care products to
reduce loss
According to market analysts, the stock price rise in Xinfu
Pharmaceutical is related to the readjustment made by the
company to the sales tactics of health-care products to reduce
loss.
   In early 2006 Xinfu Pharmaceutical formulated an operating
policy for consolidating the leading position of D-calcium
pantothenate and rapidly expanding the market of medicines and
health-care products. Based on the marketing mode of "making
large-scale input to stimulate market" designed in early 2006,
the sales network of health-care products launched a large-scale
expedition to places beyond Zhejiang province in the second
quarter of 2006. By late November, the input made in health-care
products started to produce great negative impacts on the
economic performance of the company. In light of the overall
operating situation and the actual status in the sales of
health-care products, the company realized that it was necessary
to conduct quick readjustment to the sales tactics of
health-care products.
   Xinfu Pharmaceutical announced at the beginning of 2007 that
it would take some effective measures to readjust the operating
concept of health-care products in 2007. The target for the
business of health-care products in 2007 is break-even operation.
If the target can be attained, the loss in the business of
health-care products will be reduced by around RMB20 million in
2007 compared with 2006.
   In the reformation to offices in places beyond Zhejiang since
the end of 2006, cooperation relationship with many local
distributors has been terminated. Great quantities of
health-care products distributors that have been not yet sold
are returned to the company, causing an income reduction. The
company has established cooperation relationship with
distributors in the mode of membership marketing to cut down
marketing expenses.
   Xinfu Pharmaceutical will start to cultivate the sales market
of medicines in 2007 while further developing the business of
health-care products. Because the market of medicines and
health-care products requires huge input and the economic
performance has some uncertainty, the company made projection
that the expansion of the medicine and health-care product
sector needs a longer period of time for cultivation and
development.