Net profit short-term decline does not change the long-term fundamentals; Xinhua Pharmaceutical delivers a key year's transformation report card.

Ask AI · China National Pharmaceutical Group’s sales expenses drop by 40%, what strategic implications lie behind this?

Produced by | Zhongfang Network

Reviewed by | Li Xiaoyan

On March 29, China National Pharmaceutical Group (000756) released its 2025 annual report. The full-year revenue was 8.76B yuan, a slight increase of 3.41% year-on-year; net profit attributable to the parent was 290 million yuan, down 38.32% year-on-year, showing a typical feature of “increased revenue but decreased profit.” As China’s first chemical synthetic pharmaceutical company and the core production base for global antipyretic and analgesic drugs, this report reflects the profit pain traditional pharmaceutical companies face under the dual pressures of centralized procurement and market competition, but also highlights their proactive adjustment and strategic focus on innovation. Behind the significant reduction in sales expenses, continuous improvement in cash flow, and accelerated R&D pipeline, this veteran state-owned enterprise is trading short-term profits for long-term space, solidifying its development foundation amid industry deep adjustments.

In 2025, China National Pharmaceutical Group achieved positive revenue growth amid overall industry pressure, demonstrating strong operational resilience. The full-year revenue was 8.76B yuan, up 3.41% year-on-year, maintaining a scale expansion trend for consecutive years. Looking at product segments, pharmaceutical intermediates and other products became growth engines, with revenue of 2.12B yuan, a jump of 28.07% year-on-year, effectively offsetting the decline in traditional sectors. Raw materials for antipyretic and analgesic drugs generated 2.65B yuan, a slight decrease of 3.30%; formulation products brought in 3.99B yuan, a slight decrease of 2.13%. Although these two core sectors faced short-term pressure, their market share remained stable.

Regionally, the domestic market (including Hong Kong) generated revenue of 6.78B yuan, up 7.15% year-on-year, becoming the “ballast stone” of performance. Despite a 5.50 percentage point decline in gross profit margin compared to the previous year, the company further consolidated its market position in antipyretic, analgesic, cardiovascular, and cerebrovascular fields through centralized procurement wins and channel sinking strategies. Overseas markets saw revenue declines of 19.09% in the Americas and 10.72% in Europe, mainly due to global supply chain restructuring, increased trade barriers, and weak demand. However, exports of specialty raw materials like meloxicam and glimepiride increased significantly; exports of starch granule series such as aminopyrine and aspirin steadily rose, continuously releasing international competitiveness.

In 2025, China National Pharmaceutical Group’s cost control effectiveness was remarkable, becoming a highlight of the performance. The company’s sales expenses were 341 million yuan, a sharp decrease of 41.67%, over 40%. This change was not accidental but a strategic choice aligned with the normalization of centralized procurement and proactive marketing model optimization. As the proportion of centralized procurement products continued to rise, the company reduced expenses on traditional marketing, academic conferences, and other promotional activities, reallocating marketing resources to high-value products and emerging markets. The sales expense ratio dropped from 6.91% in 2024 to 3.89% in 2025, greatly improving operational efficiency.

Management expenses remained within a reasonable range, and R&D investment continued to increase. The company employed 844 R&D personnel, with over 64% holding bachelor’s degrees or higher, including 305 with master’s degrees or above, maintaining a stable core R&D team. R&D spending steadily grew, with 47 drug approvals achieved, a record high; 48 patents were granted, and multiple projects received provincial awards or were included in key plans. Meanwhile, the company’s net operating cash flow reached 534 million yuan, up 45.19% year-on-year, significantly enhancing collection capacity and providing solid financial support for subsequent R&D and capacity expansion.

The sharp decline in net profit was the most closely watched indicator for China National Pharmaceutical Group in 2025. Net profit attributable to the parent was 290 million yuan, down 38.32%; net profit after deducting non-recurring gains and losses was 268 million yuan, down 40.10%, declining for two consecutive years with an expanding margin. This phenomenon was not isolated but a common challenge faced by chemical pharmaceutical companies amid deeper centralized procurement and intensified competition.

The reasons include: first, product price declines. To maintain market share and expand operations, some raw materials and formulations were proactively discounted, with an average reduction of over 50% in 19 centralized procurement products, directly squeezing profit margins. Second, high costs. Operating costs increased by 10.67% year-on-year, with raw material costs accounting for 78.58%, up 5.02 percentage points; fluctuations in upstream raw material prices and increased environmental protection investments further compressed profits. Third, gross profit margin continued to decline. Over the past three years, gross margin fell from 29.52% in 2023 to 18.78% in 2025; net profit margin dropped from 6.25% to 3.50%, with profitability facing temporary pressure. Additionally, financial expenses increased by 184.77% year-on-year, with exchange losses and interest expenses also weighing on profits.

In the face of short-term profit pressure, China National Pharmaceutical Group did not slow its transformation but pushed forward innovation and structural optimization with greater effort, laying the groundwork for long-term development. On the R&D front, breakthroughs were achieved: a Class 1 innovative drug for Alzheimer’s disease, OAB-14, completed Phase II clinical trial enrollment; gout treatment drug LXH-2301 entered Phase III clinical preparation; pulmonary arterial hypertension drug LXH-1211 received Phase I clinical approval, with multiple innovative drugs reaching key clinical milestones. In generics, several products like aminopyrine tablets passed consistency evaluation; three products won the 11th batch of national centralized procurement, and 31 products won subsequent alliance procurement, continuously consolidating market foundation.

Product structure optimization continued. The proportion of high-growth sectors like pharmaceutical intermediates increased, and traditional sectors such as antipyretic and analgesic raw materials and formulations shifted toward high-end and specialty development. Leveraging its global raw material production base, the company promoted the construction of a high-end API industrial innovation center, strengthening large-scale, low-cost production capacity. Key products like ibuprofen and calciparin calcium further expanded their domestic market share. Meanwhile, the company persisted in returning value to shareholders; despite profit declines, it still proposed a final dividend of 0.15 yuan per share (tax included), demonstrating confidence in long-term value.

From an industry perspective, 2025 is both a “pain period” and a “transformation period” for China National Pharmaceutical Group. The normalization of centralized procurement has fundamentally changed the industry’s competitive logic, shifting from “marketing-driven” to “R&D + cost-driven,” with traditional pharmaceutical companies generally facing profit adjustments. China National Pharmaceutical Group’s proactive reduction of sales expenses, increased R&D investment, and product structure optimization are correct responses to industry trends. The short-term profit decline is a necessary phase for long-term high-quality development.

As a state-owned enterprise controlled by the Shandong SASAC, China National Pharmaceutical Group possesses multiple advantages in resources, technology, and capacity. As innovative drugs gradually enter the harvest period, high-margin products increase, and overseas emerging markets expand, profitability is expected to gradually recover. Meanwhile, improvements in cash flow, expense ratio reductions, and a rich R&D pipeline provide solid support for the company to navigate cycles.

In 2025, China National Pharmaceutical Group wrote a “growth without profit increase” report card, depicting the pain and perseverance of traditional pharmaceutical transformation. The sharp reduction in sales expenses reflects improved operational efficiency; accelerated R&D accumulates long-term growth momentum; steady revenue growth and cash flow enhancement strengthen the development foundation. The short-term profit decline is an industry adjustment phase, not a turning point for development.

Looking ahead, as centralized procurement policies stabilize, innovative drug results come to fruition, and product structure continues to optimize, China National Pharmaceutical Group is expected to emerge from the profit trough and return to growth. This pharmaceutical enterprise with over 70 years of history is steadily advancing toward the goal of becoming a “globally leading comprehensive pharmaceutical company,” with strategic focus guiding it through industry cycles, transforming through pain, demonstrating resilience under pressure.