Summary of Key Points
The three leading companies in China's blood product sector (Pailin Biology, Tiantan Biology, and Weiguang Biology) all experienced a year-on-year decline in net profit of over 50% in the first half of this year. The main reasons include intensified industry competition (decreasing demand and falling prices), adjustments to tax policies (the VAT rate increased from 3% to 13%), and a mismatch between supply and demand (increased production capacity but weakened demand). As a result, the industry is going through a difficult period, and companies have slowed down their mergers and acquisitions activities.
Detailed Analysis
1. How severe is the decline in performance? Profits of all three companies have been halved
The semi-annual report forecasts from these companies are quite bleak:
- Pailin Biology: Net profit expected to be between 80 million and 110 million yuan, a year-on-year decrease of 53%-66%;
- Tiantan Biology: Net profit of 305 million yuan, a year-on-year decrease of 51.75%;
- Weiguang Biology: Net profit of between 43.06 million and 53.82 million yuan, a year-on-year decrease of 50%-60%.
In simple terms, if a company made 10 yuan last year, it might only make 5 yuan or less this year, representing a significant reduction in profits.
2. Why is there poor sales? Policies and competition have led to both decreased demand and lower prices
The blood product industry is facing tough times, mainly due to reduced sales volumes and lower prices:
- Policy factors: The government has implemented centralized procurement (which drives down prices), DRG/DIP reforms (medical insurance payments based on disease categories, leading hospitals to prescribe cheaper drugs to control costs), and measures to control medical insurance expenses. As a result, hospital prescriptions for blood products have significantly decreased. For example, the price of intravenous immunoglobulin (IVIG), which was once priced at thousands of yuan per bottle during the pandemic, is now as low as 500 yuan on e-commerce platforms, indicating a 50% drop in price.
- Intensified competition: With more companies competing for market share, prices have to be lowered. Tiantan Biology mentioned that it adjusted its pricing in 2025 and continued to maintain lower prices in the first half of 2026; Pailin Biology also noted a decrease in gross profit margins, meaning they are making less money from selling the same products.
3. Rising taxes! The extra tax burden erodes profits
A major change for the blood product industry this year is the increase in VAT rates. Except for blood products used for rare diseases, all others are now subject to a higher general VAT rate of 13% instead of the previous 3%.
For example, if a company sells a blood product for 100 yuan and previously paid 3 yuan in taxes, it now has to pay 13 yuan, an additional 10 yuan. If they sell 100 million units per year, this would result in an extra tax payment of 10 million yuan, directly reducing their profits. Weiguang Biology explicitly stated that the tax policy changes have put pressure on both revenue and profitability.
4. Imbalance between supply and demand: Excessive capacity and insufficient demand, leading to inventory buildup
A research report from Wanlian Securities points out that the industry is experiencing a situation where production capacity has increased while demand has decreased. On one hand, companies are expanding their production; on the other hand, hospitals have less demand, resulting in surplus products piling up in warehouses. Companies that rely heavily on two major blood product types—human albumin and IVIG—are particularly affected, as these account for a large portion of industry revenue. The decline in prices has severely impacted their performance.
5. A difficult industry period: Companies are hesitant to engage in mergers and acquisitions
The poor industry environment has led companies to become more cautious with their business activities. For instance, China Biology attempted to acquire control of Pailin Biology but abandoned the deal this year due to the uncertain prospects of the blood product industry and the increased risks associated with mergers. This reflects the overall bleakness of the current market situation.
Conclusion
The significant decline in profits of blood product companies this first half of the year is a result of both policy factors (centralized procurement, medical insurance cost controls, tax adjustments) and market forces (increased competition, supply-demand imbalance). The industry will need to wait for demand to recover or for companies to find new growth opportunities before it can emerge from this difficult period. In the short term, things are likely to remain challenging.