Behind Jingxin Pharmaceutical's IPO: A Battle to Reassess the Identity of a 'Cash Flow Pharma Company'

In the current Chinese pharmaceutical capital market, there is a type of company that is becoming increasingly awkward.

They are not short on profits, nor on products, and their cash flow is even much healthier than most innovative drug Biotechs; but as long as they are labeled as "generic drug" companies, their valuation struggles to rise.

Jingxin Pharmaceutical is precisely such a typical example. In 2024, the company achieved revenue of 4.159 billion yuan and net profit of 719 million yuan, with a gross margin close to 50%. Its book profitability is not inferior within the pharmaceutical manufacturing sector.

However, when it rushed to the Hong Kong Stock Exchange with this "solid report card," the market discussion was not about how much money it made, but a sharper question: Is this company a traditional pharmaceutical enterprise or an innovative drug company?

This seemingly simple classification hides a valuation chasm. On one side is the generic drug logic repeatedly compressed by volume-based procurement and price wars; on the other is the high-risk but high-premium innovative drug narrative. Jingxin Pharmaceutical is trying to cross this dividing line. This IPO is more like an adventure of identity transformation than a financing event.

When Generic Drugs Are No Longer Sexy: The "Growth Anxiety" of a Profit Machine

If you only look at the financial statements, Jingxin Pharmaceutical is almost a textbook "good company."

It has maintained profitability for many consecutive years, with revenue stable in the 4-billion-yuan range, and gross margin consistently maintained between 48% and 49%. Compared to many innovative drug companies still burning cash for pipelines, it neither relies on capital infusion nor faces huge loss pressure.

With over 60 marketed products spanning generic drugs, traditional Chinese medicine, biologics, active pharmaceutical ingredients (APIs), and medical devices, its channels penetrate deep into hospitals and retail terminals, forming a stable and extensive commercial network.

This structure was once the ideal survival paradigm for local Chinese pharmaceutical companies: use generic drugs for volume, use APIs to control costs, use scale to dilute expenses, and then expand in a rolling manner.

Over the past two decades, many pharmaceutical companies grew into regional leaders precisely by relying on this "industrialized approach." Jingxin Pharmaceutical's development path is almost a microcosm of the evolution of China's pharmaceutical industry, starting from intermediates and APIs, then extending to formulations, and finally building a complete manufacturing system.

The problem is that this logic is failing. With the normalization of volume-based procurement, the profit margin of generic drugs is being systematically compressed. As prices repeatedly drop, companies can only rely on larger sales volumes to maintain revenue scale, but larger scale does not necessarily mean stronger bargaining power. The industry has shifted from "more sales, more profit" to "more sales, less profit," making generic drugs increasingly resemble a tough business.

A more disruptive change comes from the market structure itself. According to industry forecasts, the market share of patent-protected drugs in China will increase from 44.6% in 2020 to 70% in 2035, while the share of generic drugs will rapidly decline from 55.4% to 30%. In other words, the future high ground of value will be more in the hands of innovative drugs with patent barriers.

When capital begins to price pharmaceutical companies based on "innovation content" rather than "revenue scale," companies like Jingxin Pharmaceutical fall into a subtle dilemma: they are profitable, but not "sexy" enough; they are stable, but lack imagination.

The financial report also reveals this ceiling. From 2023 to 2024, the company's revenue growth was minimal, gross margin was basically flat, and the growth curve tended to flatten. In the Hong Kong stock market, where innovative drug stories are flying everywhere, such growth rates are difficult to support high valuations.

Thus, a reality is laid out: if it continues to be a generic drug cash cow, the company may be safe, but its valuation is destined to be mediocre. For a company hoping to enter the Hong Kong stock market and reshape its capital image, this is clearly not the optimal solution. Jingxin Pharmaceutical must tell a new story.

Betting the Future on Innovative Drugs: The Leap from a "Cash Flow Company" to a "Patent Drug Player"

The real turning point came in 2023. This year, Jingxin Pharmaceutical launched a Class 1 innovative drug, Didaxini, for the treatment of insomnia. This is not just a new product, but also an identity tag—it marks the company's first real step onto the innovative drug track.

Choosing the insomnia track is no accident.

For a long time, sleep disorders in China have been a typical market with "high prevalence, low treatment rate." From 2020 to 2024, the size of China's insomnia drug market was almost stagnant at around $1.7 billion. However, with improved diagnosis and treatment awareness and the emergence of new mechanism drugs, the industry is expected to expand at a compound annual growth rate of 7.5% over the next decade, potentially doubling to $3.5 billion by 2035.

This type of chronic disease area has a key characteristic: large patient base, long medication cycles, and high repurchase rates. Once a product has differentiated advantages, the commercialization ceiling is not low. For Jingxin Pharmaceutical, which already has a mature sales network, this is more realistic than building a system from scratch like a Biotech.

More importantly, the company has focused its innovative R&D on two major areas: the central nervous system and cardiovascular/cerebrovascular diseases, essentially betting on "long-term demand-driven tracks."

These two areas are among the most stable sources of cash flow for global pharmaceutical companies. The global CNS drug market and cardiovascular drug market are both above the hundred-billion-dollar scale, and the Chinese market is expected to grow at a compound annual growth rate generally exceeding 4% over the next decade. Unlike oncology or rare diseases, which are highly dependent on a single blockbuster, they excel in having a large patient population and sustained demand.

In other words, Jingxin is not blindly chasing the most cutting-edge technology trends, but has chosen "sustainable innovation" that is more in line with its own DNA. This path is completely different from that of pure Biotechs.

The latter often start from scratch, betting on a blockbuster product with high R&D investment, and all is lost if it fails; Jingxin Pharmaceutical is more like adding a new engine to an old chassis, using generic drugs and APIs to provide cash flow, using existing channels to amplify the commercialization efficiency of innovative drugs, and then supplementing pipeline depth through IPO financing.

This is a more "hybrid" model: neither as conservative as traditional pharmaceutical companies, nor as all-in as innovative drug companies. But problems also arise.

How should the capital market price such a company? From a revenue structure perspective, it still relies mainly on generic drugs; from an R&D investment ratio perspective, it has not yet reached the aggressive level of a typical innovative drug company; from a pipeline depth perspective, blockbuster products are still in the cultivation stage. It sits between the two, struggling to enjoy the high premium of Biotechs, yet unwilling to accept the discount of traditional pharmaceutical companies.

This is the most subtle aspect of Jingxin Pharmaceutical's IPO. The use of proceeds is clearly stated: increase R&D, expand sales networks, acquire or introduce pipelines, and strengthen innovation layout. But the deeper goal is only one: to complete a valuation reshaping through the capital market.

In essence, it is using today's stable cash flow to exchange for tomorrow's innovation premium. This is a game of time and patience.

If it can produce one or two truly scalable innovative products in the coming years, Jingxin Pharmaceutical may upgrade from a "4-billion-yuan revenue generic drug company" to an "innovative pharmaceutical company with patent barriers"; but if innovation progress falls short of expectations, it will still be classified as that stable yet inflexible profit machine.

In the current collective transformation of Chinese pharmaceutical companies, Jingxin Pharmaceutical is not an isolated case, but a particularly typical one. It represents a common choice for a group of traditional pharmaceutical companies: no longer satisfied with being a cash flow business, but trying to rewrite the valuation logic with innovation.

The Hong Kong IPO is just the starting point of this transformation. What ultimately determines success or failure is never the financial report, but when the next blockbuster new drug will appear.