Huahai Pharmaceuticals: Improve Competitiveness to Prepare for Economic Recovery   

Zhejiang Huahai Pharmaceuticals Co., Ltd. (Huahai Pharmaceuticals, SH: 600521) was initially founded in 1989, and was listed in Shanghai Stock Exchange in March 2003.
    Huahai Pharmaceuticals, a large scale modern pharmaceutical group that integrates formulations, APIs (active pharmaceutical ingredients) and intermediates, has 10 branches (subsidiaries) in the United States, Shanghai and Hangzhou, and is headquartered in Linhai of Zhejiang province.
    Huahai Pharmaceuticals is one of the largest supplier of pril products worldwide, with the annual production capacities of its dominating products "captopril" and "enalapril" both ranking first in the world. It is also the only manufacturer in the world that can realize commercial production of captopril, enalapril and lisinopril at the same time, according to the company.
    In 2008, Huahai Pharmaceuticals realized RMB719 million of revenue and 42.18% gross profit rate from one of its main businesses - APIs and intermediates, separately up 11.55% and down 1.39 percentage point from 2007; it also achieved RMB59.5 million of revenue and a gross profit rate of 80.05% from another main business - formulations, rising 27.85% and 4.38 percentage point respectively from 2007. In the first quarter of 2009, the company's total revenue grew by 14.86% compared with the same period of 2008.

Optimize product portfolio   

Around 60% of the company's revenue and 65% of profit came from business of anti-hypertensive pril generic drugs, particular in captoril products which have already dominated the market in an early period. In recent years, affected by a series of adverse factors like RMB appreciation, rising raw materials and labor costs, reduced export rebates and increased market competition, the products' prices keep falling, leaving little space for profit growth.
    While maintaining its pril drugs' leading position in the market, Huahai Pharmaceuticals manages to keep its advantage in the production of sartan drugs by seizing the opportunity of the pending expiration of patent protection for some medicine in the next one or two years when the imitation medicine industry grows fast. The company also procured qualification of the first supplier of APIs for European and American manufacturers. All these efforts provide guarantee for its future sales increase in an open market.
    In addition, the company attaches great importance to formulation development and has invested RMB40 million to complete debottlenecking and expansion of its solid-formulation production line which has passed U.S FDA certification and once could produce 1.5 billion tablets every year. At present, the production line's annual capacity has reached 2.0 billion tablets. From 2009, the company began to invest RMB650 million to build a three-phase formulation project which can annually produce 10 billion tablets for export. The project is scheduled to be completed in 2 to 3 years, and the first phase has already kicked off recently. After its completion, the company will further invest RMB300 million to build another formulation plant with the same production capacity for export in two years. By that time, Huahai Pharmaceuticals will become one of the most competitive formulation production bases in China, thus laying a solid foundation for the company to enhance cooperation with large imitation medicine and APIs manufactures. Moreover, the company will also invest about RMB200 million to build a 170 t/a sartan production line in 2009. "After putting into operation, the company's production capability for sartan will rank first in the world and the products will be exported to Europe and America", said Chen Baohua, Chairman of Huahai Pharmaceuticals.  
    "We are now building projects with an expectation that our products can win the market quickly with a large amount when the economy recovers in the future."
    "Our production ratio of API and formulation is 9:1 now, but this ratio will become 5:5 after all the new projects put into operation," he continues.

Seize the international market   

Similar domestic products are likely to trigger price slash in nonstandard markets like Asian and African markets, while the profit rates in European and American markets are invariably higher with stricter quality requirements. Therefore, Huahai Pharmaceuticals decided to intensify the development of high-end markets and successfully gained the "passport" to European and American formulation markets by passing the U.S. FDA certification and EU GMP certification. Since 2007, the company also has adjusted its market strategy and made great efforts to raise the sales of anti-hypertensive API so as to improve the profit margin.
    Moreover, the company also set up a branch in New Jersey, the United States, and went into strategic cooperation with the global pharmaceutical giant Merck & Co., Inc. by signing a multi-year framework agreement on formulation manufacturing consignment. The agreement authorized Huahai Pharmaceuticals manufactures to process one of Merck's patent products and these products will be sold exclusively by Merck in the international market." The cooperation may extend to other formulation products, API and intermediates in the future," Chen is optimistic.