There's an old business maxim: be careful what you wish for. CSPC Pharmaceutical Group Ltd. (1093.HK) is learning this lesson the hard way after aggressively undercutting competitors to win China's centralized drug procurement contracts. Sure, they won—but at what cost?
The Chinese pharmaceutical giant is stuck in an awkward transition, trying to evolve from a maker of generic medications into a developer of cutting-edge innovative therapies. It's like watching someone try to change clothes while running a marathon. The new outfit isn't quite on yet, and the old one is falling apart.
When Winning Feels Like Losing
CSPC's latest earnings report tells a painful story. For the first nine months of 2025, revenues dropped 12.3% to 19.89 billion yuan ($2.8 billion) compared to the same period last year, while net profit slipped 7.1% to 3.51 billion yuan. This continues a troubling trend—last year marked CSPC's first revenue and profit decline in a decade, with the top line falling 7.8% and the bottom line cratering 25.4%.
The culprit? China's centralized drug procurement process, where CSPC decided to play the role of price slasher extraordinaire. At the latest national drug tender, the company pitched prices so aggressively low that industry observers took notice. CSPC secured spots for 15 products on the procurement list, including anti-inflammatory apremilast tablets and enteric-coated aspirin. In eight of those 15 cases, CSPC submitted the lowest bid.
The company's finished drugs segment—which accounts for roughly 77% of total sales—took the brunt of the damage. Income from this segment fell 17.2% to 15.45 billion yuan. The carnage was widespread: nervous system medications dropped 21.6%, oncology drugs plummeted 56.8%, antibiotics slipped 22.7%, and cardiovascular medicines fell 17.8%.
The Duomeisu Disaster
The poster child for CSPC's pricing pain is Duomeisu, the company's chemotherapy drug (doxorubicin liposome). A 2024 volume-based procurement process covering Beijing, Tianjin, and Hebei had already knocked 23% off the drug's price. But the national round this year? The winning bid crashed to 98 yuan per unit—a staggering 97% drop from the roughly 3,500 yuan price tag in the 2024 process.
That single price cut is expected to slice somewhere between 1.0 billion and 1.5 billion yuan off 2025 earnings, according to BOCOM International. Ouch.
To be fair, procurement officials noted that CSPC's ability to produce active pharmaceutical ingredients in-house, combined with advanced manufacturing capacity, allows the firm to maintain efficiency and stable product quality even at razor-thin margins. But efficiency doesn't pay the bills when you're essentially giving products away.
The Innovation Gambit
CSPC isn't sitting idle. The company is pouring money into research and development, hoping its bet on innovative medicines will eventually rescue the bottom line. R&D spending jumped 7.9% in the first three quarters to 4.19 billion yuan—equivalent to 27.1% of finished drug revenue. Management expects R&D investment to climb another 15% to 20% in 2026.
The innovation machine is churning out results. This year alone, CSPC obtained three product approvals, had eight marketing applications accepted, gained five breakthrough therapy designations, and received green lights for 42 clinical trials.
The company has also scored some headline-grabbing licensing deals. In June, CSPC announced a strategic collaboration with AstraZeneca potentially worth up to $5.3 billion, with $110 million upfront. A month later, the company licensed global development and sales rights to a pre-clinical oral GLP-1 drug to U.S.-based Madrigal Pharmaceuticals. That deal brings $120 million in upfront cash, plus up to $1.96 billion tied to development, regulatory and commercial milestones.
The Market Isn't Buying It (Literally)
Despite the flashy deals and innovation pipeline, investors are voting with their feet. While China's innovative drug sector has generally trended upward recently, CSPC's share price has nosedived more than 35% over the past two and a half months. The company's gross margin tells an equally grim story, falling for five consecutive years from 72.3% in 2020 to 65.6% in the first nine months of 2025.
Analysts are getting nervous too. CICC slashed its net profit forecast for CSPC by 12% to 4.76 billion yuan for this year and 15% to 5.35 billion yuan in 2026, while cutting its target price by 15% to HK$11. Nomura pointed out that CSPC's third-quarter revenue of 6.62 billion yuan fell well short of market expectations of 7.4 billion yuan. Citing weaker-than-expected drug sales and delayed inflows from collaboration projects, Nomura reduced its target price from HK$10.09 to HK$9.11.
The Long Game
CSPC is playing the long game, predicting a return to earnings growth in 2026 driven by new products like Mingfule (used to treat blood clots) and the anti-cancer injection irinotecan liposome. The outlook could brighten further by 2027 as the drag from volume-based procurement gradually fades.
But here's the uncomfortable comparison: Jiangsu Hengrui Pharmaceuticals (600276.SH) faces similar challenges with its own generic-to-innovative transition, yet delivered solid growth in the first three quarters and now trades at 57 times earnings. CSPC? Just 19 times earnings. That massive valuation gap reflects divergent investor confidence in the two companies' prospects and innovation pipelines.
The bottom line: CSPC is banking on drug discovery licensing deals and milestone payments to offset pressure on its core business. But those payments haven't materialized yet, and it's unclear whether they'll fully compensate for the bloodbath in the legacy business. Sometimes in business, as in medicine, the cure takes a while to work—if it works at all.
