Why does this happen only in 20 17? By reading the annual report of Company B, we can know that in February 20 17, the main products of Company B entered the updated national medical insurance catalogue, which means that Company B has to negotiate the medical insurance price, resulting in a sharp drop in the unit sales price of its products. However, at this time, due to the short entry time, the volume brought by the medical insurance catalogue is unclear, and the operating income in 20 17 years does not increase, but decreases. The new medical insurance catalogue also applies to Company A, but the income growth rate of Company A has not fluctuated so much. By reading the annual report, we know that this is because Company A has included 53 products in the medical insurance catalogue before 20 17, while only 8 new products were included in 20 17. By comparing the revenue growth rates of Company A and Company B, it can be found that when the medical insurance policy changes, Company A's rich product line provides a strong guarantee for it, so in contrast, Company A has a stronger ability to resist risks.
Looking at the gross profit margin, the gross profit margin of Company A from 20 17 to 2020 is about 87% to 88%, while that of Company B is about 93% to 96%. The gross profit margin of Company B is obviously higher than that of Company A. By reading the annual reports of the two companies, we know that Company A is a company that develops innovative drugs and generic drugs, and Company B is an innovative drug enterprise. Combined with industry common sense, the high profit of innovative drugs is the result of intellectual property protection. The exclusiveness during the patent period leads to almost no competition from other products, while generic drugs are completely market-oriented. Therefore, the high gross profit of Company B is also caused by its "sharp+refined" product line structure.
For commercial circulation enterprises, because their role and function is to distribute products from production enterprises to downstream terminals and directly face the most powerful hospital link in the downstream pharmaceutical industry chain, their net profit rate is usually not high. Take company C as an example, its gross profit margin in 2020 is only 1 1.8%, which is not comparable to the above companies A and B. ..
As can be seen from the above cases, the different nature of products and services of pharmaceutical enterprises leads to the difference in their gross profit margins. When a company's gross profit margin matches its product, service structure and nature, investors need to judge which structure is more worth investing.
Open the "management door" from expense rate, net operating cash flow/net profit.
For a pharmaceutical company with perfect product structure and high gross profit, how much profit can it retain in the end, and what is the quality of retained profits?
Let's look at a case: The sales expense ratio of Company A from 20 16 to 2020 is 39%, 38%, 37%, 37% and 35% respectively, which is relatively stable and shows a slight downward trend; The sales expense ratio of Company B from 20 16 to 2020 is 39%, 38%, 4 1%, 36% and 37% respectively, and the trend is relatively fluctuating. Considering the net operating cash flow/net profit, the ratio of Company A from 20 16 to 2020 is 0.98, 0.77, 0.68, 0.72 and 0.54 respectively, showing a downward trend as a whole; The ratios of Company B from 20 16 to 2020 are 1. 1.1,1.75, 2.46, 1.07, respectively, in 2020.
Looking through the annual report, we can find that, taking 20 19 as an example, the reason for the sharp increase in net cash flow/net profit of Company B is that there are more cash inflows from product sales, while non-cash expenses such as depreciation of fixed assets, amortization of intangible assets and equity incentive fees are relatively large, so the net cash flow from operating activities far exceeds the net profit.
When the rate of return indicators are contradictory, we can learn more about the company from public channels and analyze whether the company's operation is deteriorating. Generally speaking, pharmaceutical enterprises cannot do without sales-driven and innovation-driven For example, a company's sales expense ratio is relatively stable, and its income increases year by year, but its operating cash flow/net profit index does show a downward trend year by year. At this time, investors can collect more business information to make judgments, such as paying attention to whether the company is pressing the goods downstream.