Xi'an Qujiang Huaren Pharmaceutical Co. Ltd.

On January 24, CR Pharmaceutical shocked the capital markets with its 2024 earnings forecast, predicting a staggering net loss attributable to shareholders of between 1.18 billion and 1.38 billion CNY. This announcement has quickly become a focal point of concern both within and outside the industry. Once a steadily progressing player in the capital market, CR is now grappling with severe financial difficulties stemming from a confluence of adverse factors. A significant contributor to this colossal loss is the trade business in pharmaceutical raw materials conducted by its wholly-owned subsidiary, Qingdao CR Pharmaceutical, in collaboration with China National Pharmaceutical Group. This partnership began in 2020 but began to unravel by mid-2023 when Qingdao CR decided to terminate the business. As of December 31, 2023, outstanding receivables from this venture totaled a staggering 1.41 billion CNY. Despite having already made provisions for asset impairment losses of 70 million CNY, the net receivables still stood at 1.3478 billion CNY. The operational chaos within China National Pharmaceutical has made it nearly impossible to recover these debts. Although the group holds a 25% stake, it has publicly stated it is neither a controlling shareholder nor an actual controller. The company has faced numerous legal issues, including trademark infringement and document forgery. With its headquarters now abandoned, CR Pharmaceutical faces significant challenges in reclaiming its debts. Consequently, the company plans to fully provision for credit impairment losses on these receivables, directly leading to its massive projected losses for 2024. In a bid to expand its business, CR Pharmaceutical acquired 100% of Xi'an Hengjuxing Pharmaceutical Co., Ltd. for 800 million CNY in 2021, thereby indirectly obtaining full ownership of Anhui Hengxing Pharmaceutical. However, the promised performance metrics from the original shareholders have not been met. In 2023, Anhui Hengxing’s net profit, excluding non-recurring gains, was merely 51.97% of the expected targets, raising concerns over goodwill impairment, which is estimated to be between 30 million and 90 million CNY. The pharmaceutical industry has also faced significant regulatory changes that have impacted CR. Adjustments in drug pricing policies during the reporting period led to declines in sales prices for several products, further squeezing profit margins. The resulting decrease in revenue and gross profit exacerbated the company’s financial woes. Amid a backdrop of policies aimed at reducing prices, many pharmaceutical companies are under pressure, yet CR has struggled to adapt its operational strategies in a timely manner. The projected losses for 2024 represent a culmination of multiple factors affecting CR Pharmaceutical. This financial setback poses substantial challenges for the company’s growth and has left investors concerned. To reverse its fortunes, CR must take proactive measures to recover outstanding debts, address issues within its subsidiaries, and closely analyze industry policies to adjust its business strategies and enhance product competitiveness.