Revenue hits a five-year low, profit declines nearly 40%. When will Northeast Pharmaceutical's "transformation anxiety" come to an end?

Ask AI · How do the raw pharmaceutical materials price wars affect pharmaceutical companies’ innovation and transformation processes?

On April 3, Northeast Pharmaceutical (000597.SZ) opened lower, closing at 5.32 yuan per share, down 3.1% for the day.

The previous day, this long-established pharmaceutical company disclosed an annual report in which both revenue and net profit fell. Affected by cyclical fluctuations in the active pharmaceutical ingredients business, the company has continued to increase its investment in transforming into innovative drugs, putting overall performance under pressure.

In 2025, Northeast Pharmaceutical achieved operating revenue of 7.075 billion yuan, down 5.70% year on year; and net profit attributable to shareholders of 260 million yuan, down 36.54% year on year. The sales gross margin decreased by 1.46 percentage points from last year to 37.27%; the decline in sales net profit margin was even larger—down 2.56 percentage points from last year to 3.08%.

Northeast Pharmaceutical’s business covers four major segments: chemical pharmaceuticals, pharmaceutical distribution, pharmaceutical engineering, and biopharmaceuticals. It has ten product series and more than 400 products, including vitamins, anti-infectives, reproductive system products, nervous system products, anti–HIV/AIDS products, digestive tract products, drugs with abuse potential and psychotropic drugs, general medicines, in vitro diagnostics, and healthy living products. The company was acquired by Fangda Group in 2018.

In terms of revenue composition, Northeast Pharmaceutical previously said during an early-year survey that from 2023 to the first three quarters of 2025, the company’s main business structure remained stable. Among them, revenue from drug manufacturing accounted for about 60%, while pharmaceutical distribution revenue accounted for about 40%. In drug manufacturing revenue, looking at product categories, active pharmaceutical ingredients accounted for about 30%, and finished formulations accounted for about 70%.

With its pattern centered on manufacturing generic drugs, Northeast Pharmaceutical is heavily affected by adjustments in the domestic pharmaceutical industry at present.

In its annual report, the company mentioned that some small and medium-sized enterprises lower prices by compressing production standards, avoiding compliance costs, and other methods, thereby disrupting market order. In particular, major active pharmaceutical ingredient companies for bulk products such as vitamins and antibiotics have fallen into “price wars” in an effort to win market share. As a result, the prices of some products have fallen below the cost of raw materials, and the international market is awash with large volumes of low-priced domestic export products. In addition, policies such as centralized procurement and price governance for “Four-Same Drugs” also affect drug prices.

The sluggishness of the domestic market is also reflected in Northeast Pharmaceutical’s trend in domestic sales revenue. In 2025, Northeast Pharmaceutical’s overall domestic sales revenue was 5.987 billion yuan, down 9.29% year on year, and its gross margin fell 1.62% year on year.

Against this backdrop, after Fangda Group took over the company in 2018, Northeast Pharmaceutical began its transformation into innovative drugs. In 2024, the company acquired 70% of the equity interest in Beijing Dingchengpeiyuan Biotechnology Co., Ltd. (abbreviated as “Dingchengpeiyuan”), obtaining a technology platform and product transformation system in the field of TCR-T and CAR-T cell therapies.

By the end of 2025, Dingchengpeiyuan’s DCTY1102 injection had obtained the “Drug Clinical Trial Approval Notice” that was approved and issued by the National Medical Products Administration. Northeast Pharmaceutical said that the product is expected to become the second global TCR-T cell drug and the first in China targeting KRASG12D. Another product, DCTY0801, successfully obtained orphan drug designation from the U.S. FDA. On September 29, 2025, it obtained the “Drug Clinical Trial Approval Notice” that was approved and issued by the National Medical Products Administration.

What this transformation process brings is a significant increase in R&D investment. In 2025, Northeast Pharmaceutical’s R&D investment was 206 million yuan, up 38.5% year on year. By the end of 2025, the number of R&D personnel reached 855, accounting for 14.93%, an increase of 76 compared with the end of the previous year. At the same time, the R&D personnel whose education is at the master’s and doctoral levels increased year on year by 66.97% and 60%, respectively. The number of personnel under 30 years old increased by 79.66% year on year.

It is not hard to see that the company has recruited a large number of young master’s and doctoral talent. The company also said during an early-year survey that in 2025, Northeast Pharmaceutical launched a recruitment plan for 300 master’s- and doctoral-level R&D talents, with dedicated support for R&D and clinical advancement for cell therapy at Dingchengpeiyuan. In August 2025, the first batch of 42 graduates with master’s and doctoral degrees had already officially started work.

While heavily investing in the innovation and transformation period, the existing business’s main foundation has been impacted, which together led to Northeast Pharmaceutical’s overall performance decline. The simultaneous decline in revenue and net profit is the first time the company has seen a similar situation in nearly 5 years. The last time it saw both revenue and net profit decline was in 2020, when the pandemic reduced patient visits to healthcare institutions and thus reduced demand for terminal drugs. Even in 2022, when the company was fined 133 million yuan for violating the Anti-Monopoly Law, it still achieved relatively high profitability.

It is worth noting that this situation at Northeast Pharmaceutical is not a unique case. The XinNuoWei (300765.SZ), whose annual report was disclosed not long ago, appears to be facing a similar situation. XinNuoWei had just submitted its first annual loss report since listing, and the factors behind the performance decline are also similar: a large amount of R&D investment resulting from its transformation into innovative drugs, and additionally, performance declines in its existing core business such as caffeine active pharmaceutical ingredients due to intensified market competition.