When anti-corruption in the medical industry is underway, supervision focuses on pharmaceutical companies' sales expenses

Recently, a woman reported that doctors in a university affiliated hospital received drug rebates, which aroused market concern. On May 28, the website of Zhejiang Provincial Commission for Discipline Inspection and Supervision showed that Lian Qingquan, president of the Second Affiliated Hospital of Wenzhou Medical University, was suspected of serious violation of the law and is currently undergoing supervision and investigation.

Sales with gold have been criticized for a long time, and the above-mentioned news that broke out recently has once again made pharmaceutical compliance marketing a hot spot in the industry. In the capital market, the sales expenses of listed companies in the biopharmaceutical industry have also become the focus of inquiries by regulatory agencies.

Shi Lichen, head of Beijing Dingchen Medical Consulting Management Center, said in an interview that anti-corruption has become the norm in the medical industry. Changing the income structure of doctors is also the focus of changing the sales with gold. "If doctors can get a reasonable income through compliance means, I believe most doctors will not do anything illegal."

Medical industry reforms are overweight

Anti-corruption in the medical industry is one of the goals of the new round of medical reform. This time, the anti-corruption campaign has been carried out in many ways.

For example, at the beginning of the 4+7 volume procurement pilot, the National Medical Insurance Bureau clearly pointed out that one of the functions of the state’s organization of the centralized drug procurement pilot was to promote the deepening of the reform of public hospitals. By squeezing out the cost of drug sales and changing the "sale with money" model, the environment for medical staff to practice medicine is purified and the rational use of drugs is promoted.

In the eyes of industry observers, anti-corruption in the pharmaceutical industry continues to increase. On May 9, the National Health and Health Commission held a meeting of the leading group for clean government work and a meeting on the construction of party style and clean government and anti-corruption work, and made comprehensive arrangements for the construction of party style and clean government and anti-corruption work in 2019.

 On May 20 this year, the disease diagnosis related group (DRG) paid country pilot work was launched. Thirty cities including Beijing and Tianjin are included in the pilot.

 In this regard, Shi Lichen told reporters that if DRG is fully implemented, its impact on the pharmaceutical industry will far exceed the 4+7 volume procurement and two-invoice system. "Excessive diagnosis and treatment will be curbed, and the space for drug sales with gold will be greatly reduced."

Sales expenses become the focus of inquiry

While anti-corruption in the medical industry continues to advance, the capital market also attaches importance to the compliance sales of enterprises in the industry. Compliance sales are already related to the capital image of listed pharmaceutical companies.

Recently, a listed company announced that it was concerned about the company’s "Mometasone furoate nasal spray was reported improperly during the sales process" on May 16, 2019. In response, the company urgently issued a clarification announcement stating that the company's product mometasone furoate nasal spray is sold through an agency model, and the agency is solely responsible for terminal academic promotion and sales in Jiangsu Province. The company and the agent are two different legal entities. The sales amount of this product in Jiangsu Province in 2018 was approximately RMB 2.8 million. After paying attention to the matter, the company has contacted relevant departments and agents in a timely manner and proactively cooperated. The company has always adhered to legal and compliant operations. If related parties violate the regulations, the company will also deal with it seriously.

 Prior to this, some biomedical companies fell on the way to IPO due to high sales expenses.

In addition, according to the reporter's incomplete statistics, as of May 29 this year, the Shenzhen Stock Exchange and the Shanghai Stock Exchange have inquired about the 2018 annual reports of more than 30 biomedical listed companies. Sales expenses are the focus of the exchange's inquiry.

For example, the Shenzhen Stock Exchange issued an inquiry letter for the 2018 annual report to Xiangxue Pharmaceutical on May 28, requesting the company to explain that during the reporting period, the company’s marketing fee was 213 million yuan, an increase of 51.21% year-on-year. Please consider the changes in sales revenue and marketing The main content of the fee explains the reason and rationality of the substantial increase in the marketing fee.

Flush data shows that in 2018, Xiangxue Pharmaceutical’s operating income was 2.5 billion yuan, a year-on-year increase of 14.49%; sales expenses were 373 million yuan, a year-on-year increase of 21.16%.

The marketing expenses of most companies increase instead of falling

Although the sales compliance requirements of medicines are getting higher and higher, data shows that the sales expenses of some pharmaceutical companies are still increasing.

Flush data shows that according to Shenyin Wanguo's industry classification, last year, a total of 294 listed companies in the biomedical industry announced total sales expenses, of which 253 listed companies increased sales expenses year-on-year, accounting for 86%.

Among them, from the perspective of the growth amount, the sales expenses of 124 listed companies increased by more than 100 million yuan year-on-year; the sales expenses of 14 companies increased by more than 1 billion yuan year-on-year. In terms of growth rate, the sales expenses of 80 listed companies increased by more than 50% year-on-year, and the sales expenses of 32 listed companies doubled year-on-year.

From the perspective of the relationship between sales expenses and operating income, in 2018, there were 34 listed companies whose sales expenses accounted for more than 50% of their operating income. In addition, the year-on-year increase in sales expenses of 197 listed companies was higher than the increase in operating income.

In recent years, as medical improvement has entered the critical stage, especially under the pressure of the "two-invoice system" and other policies, the problem of abnormally high sales expenses of pharmaceutical companies has also begun to become prominent.

Shi Lichen said in an interview with reporters that the sales costs of pharmaceutical companies will become higher and higher. Unlike the previous base price shipments, under the two-invoice system, companies must open higher and return higher, which will inevitably drive up sales expenses.

An industry insider revealed to reporters that the marketing model of the pharmaceutical industry is facing tremendous changes. If companies cannot transform in time and change their previous business models, they will face elimination.

Under the influence of policies such as volume procurement in 4+7 cities, changes in the sales force of pharmaceutical companies have attracted investors' attention.

For example, Enhua Pharmaceutical disclosed in its annual report that it will continue to promote the reform of the marketing system. Under the new bidding mode of centralized drug procurement, the company will accelerate the adjustment of the professional structure of sales staff, continue to promote the development of product sales in the direction of specialization, and continue to improve sales policies that are conducive to mobilizing the enthusiasm of front-line sales staff.

A pharmaceutical company stated at the performance briefing held on February 28 that the company will formulate an annual work plan in accordance with changes in the internal and external environment, thereby formulating annual budget targets. According to changes in the internal and external environment, sales expenses may decrease steadily. In the future, the personnel of generic drugs will control the number; the expected sales expense rate in the future is stable and declining.