(Yicai) Aug. 9 -- Chinese pharmaceutical companies that are listed in the mainland posted selling expenses, which include marketing costs, distribution costs and agent fees, one-and-a-half times more than their net profit, according to Yicai research. It is figure that is likely to raise eyebrows as the country cracks down on graft in the pharmaceutical sector.

The 464 drugmakers listed on the mainland bourses reported CNY340.3 billion (USD47.2 billion) in selling expenses last year, and just CNY201.9 billion in net profit on CNY2.4 trillion (USD343.1 billion) in revenue, according to statistics from data provider Wind Information.

This gives a median ratio of selling expenses to revenue of 19.1, far higher than the ratio of 3.3 for all mainland-listed firms. The ratio of 39 drugmakers was over 50 percent and that of 138 firms was more than 30 percent.

Of these 464 companies, 295 have logged higher expenditure on selling expenses than net profit. Biotech firm BeiGene had the biggest discrepancy with losses of CNY13.6 billion (USD1.8 billion) and an outlay of CNY6 billion on selling expenses while Buchang Pharmaceuticals posted a CNY1.5 billion loss but spent CNY7.5 billion on sales.

The composition of drugmakers’ selling expenses is complicated. They mostly consist of payments to agents, marketing costs and travel expenses. Marketing costs are usually the biggest part and include conference and brand promotion fees, but the true purpose and genuineness of promotional activities have always been controversial.

Expenses are now coming under scrutiny when regulators review pharmaceutical companies’ initial public offering applications. The Shanghai Stock Exchange said at the end of last year that attention must be paid to the authenticity and eligibility of expenditure on marketing.

Perhaps as a result of this scrutiny, only one pharma firm has gone public on the Shanghai Stock Exchange’s Nasdaq-style Star Market this year, a big drop from the past two years.

Rongsheng Biotech applied to list on the Star Market in November last year, but the review has been delayed. This could be due to concerns about the amount of payments to its marketing agency as well as the frequency of its promotional activities. The firm held 1,653 marketing events last year, an average of 4.5 a day, its prospectus said.

Editor: Kim Taylor