Lukang Pharmaceutical: Promotes Four Business Sectors Together    

Shandong Lukang Pharmaceutical Co., Ltd. (Lukang Pharmaceutical, SH: 600789) (formerly Jining Antibiotic Factory) was founded in 1966. In 1997, Lukang Pharmaceutical was listed on Shanghai Stock Exchange.

Major products of Lukang Pharmaceutical are: antibiotics, semi-synthetic antibiotics and their finished products for human use, bio-pharmaceuticals for veterinary and agricultural uses, intermediates, resins, starch, glucose and amino acids. Its products cover nearly 200 varieties and have been exporting to more than 40 countries and regions all over the world, with an annual export value of over US$40 million. By adjusting its product portfolio and optimizing its product portfolio, Lukang Pharmaceutical has formed 3 product chains, that is, 6-APA (6-aminopenicillanic acid), 7-ACA (7-aminocephalosporanic acid) and 7-ADCA (7-aminodesacetoxy cephalosporanic acid). Thus, it has converted successfully from a traditional antibiotics producer into a semi-synthetic antibiotics producer.
    The company's leading products - semi-synthetic penicillin drugs and cephalosporin antibiotics - have formed their own independent systems ranging from intermediates to active pharmaceuticals ingredients (APIs) to formulations and had significant scale competitive advantages. In 2009, the company's net profit grew by 11.28%. The company predicts that in the first half of 2010, its net profit will reach about RMB80 million, up more than 700% year on year. This means that the adjustment and optimization measures that the company has taken in recent years, especially the reform measures that the company has taken to reduce costs and adjust its product portfolio and marketing system since 2009, have achieved marked results.

Cost reduction and market promotion  

In 2009, Lukang Pharmaceutical gradually reduced the production of some APIs that need a large amount of capital and increased the production of cefpiramide sodium, mezlocillin sodium and azlocillin sodium that have high gross profits. Meanwhile, the company uses the low-pollution and low-energy-consumption enzymatic process to replace the relatively high-energy-consumption and high-pollution chemical process to produce 7-ACA. According to the market demand and its internal resource allocation situation, the company turns some of penicillin fermentation units to produce tylosin.
    On the basis of reasonably allocating its internal resources and adjusting its product portfolio, Lukang Pharmaceutical has constantly optimized its fermentation processes, improved its refining processes and sought alternative raw materials. With these measures, the company has significantly reduced its production costs and remarkably increased its production efficiency. In 2009, the company reduced production costs by RMB112 million, down 9.35% year on year. In the first 4 months of 2010, this effect was more remarkable. During this period of time, the company reduced its production costs by 4%. Even when product prices decrease but raw materials prices rise, these measures have also ensured that the company's profit continues to grow.
    In July 2009, Lukang Pharmaceutical carried out a dramatic reform on its existing marketing system, re-integrating its marketing structure and market areas, and re-grouping its generic drug sales company and expand the market area for the selling of its products in Shandong province, central China, northern China and southern China. This has broadened the management scope of its branch companies and significantly improved the company's ability to respond to market and increased its operational efficiency, bringing a turn to the sales performances of company's penicillin, 6-APA and 7-ACA series products. Meanwhile, the company has adjusted the export of some products and their export channels and increased the proportion of direct exports. However, the company still mainly sells its products in the domestic market at present.
    Lukang Pharmaceutical estimates that in 2010, the market capacity of 7-ACA products will not be less than 6 000 tons. The company's current market share in this market is about 8% -10%. According to the market demand, the company will timely increase its output of 7-ACA to raise its market share.

Focus on four business sectors

Lukang Pharmaceutical has decided to focus on the development of four business sectors, that is, APIs, formulations, animal & plant drugs, and environmental protection.
    In 2010, the company will continue to strengthen the production of APIs, further adjust the product portfolio of its semi-synthetic antibiotics, use existing equipment to expand the production of semi-synthetic penicillin products and cephalosporin and raise the proportion of higher value-added ultra wide spectrum penicillin products such as mezlocillin and azlocillin. Meanwhile, the company will also increase its solvent crystallization capacity of ampicillin sodium and mezlocillin sodium.
    In the aspect of formulations, the company is expanding its cephalosporin powder injection capacity. This project will be completed in the second half of 2010.
    After Lukang Pharmaceutical acquired the veterinary drug business from its mother company Lukang Pharmaceutical Group Co., Ltd., its status in the field of veterinary medicine further increases. Among the company's veterinary antibiotic products, its output of salinomycin ranks first in China, and its output of tylosin ranks third, according to the company. In 2010, Lukang Pharmaceutical will focus on the development of salinomycin, tylosin and colistin sulfate and enhance investment in new product development. The company's environmental protection sector has now had good fundamental for rapid development. The company strives to make its sales revenue in the environmental protection field reach over RMB100 million in two years.