Hanfang Pharmaceutical IPO: 99% Revenue Relies on Single Product, Paid 180 Million Yuan in Promotional Service Fees to Related Companies Over Two Years

Image source: Visual China

Blue Whale News, March 11th Edition (Reporter: Tu Jun) Recently, Shandong Hanfang Pharmaceutical Co., Ltd. (hereinafter referred to as Hanfang Pharmaceutical) submitted an application for listing on the main board of the Hong Kong Stock Exchange, with Zhongtai International serving as its exclusive sponsor.

The company’s prescription ointment called Compound Huangbai Liquid Topical Agent contributed over 99% of its revenue; the company’s gross profit margin has remained above 80% for many years. However, the product’s patent protection period is less than five years remaining, and performance has begun to decline in recent years. Additionally, the company is a typical family business, with the actual controllers, the Qin brothers, holding 100% ownership before the IPO, and they distributed a sudden dividend of 200 million yuan before listing, which industry insiders suspect may be a form of cashing out.

Reliance on a single product for over 99% of revenue, performance showing signs of fatigue

Hanfang Pharmaceutical is a comprehensive pharmaceutical company engaged in the production, sales, and R&D of traditional Chinese medicine products, focusing on the treatment of skin and mucous membrane diseases. Its flagship product is the “Compound Huangbai Liquid Topical Agent,” a prescription external Chinese medicine, and currently the only approved prescription ointment in China’s traditional Chinese medicine field. This product is mainly used for wound repair and anti-infection treatment of skin and mucous membranes, applicable in surgery, dermatology, gynecology, and proctology.

Hanfang Pharmaceutical stated in its prospectus that from 2023 to the third quarter of 2025, sales of the Compound Huangbai Liquid Topical Agent accounted for 99.8%, 99.8%, and 99.7% of its total revenue, respectively, and it is expected that this product will continue to constitute the majority of its income in the future.

The prospectus shows that the company’s overall gross profit margin has been high in recent years, maintaining above 80%. Although the Compound Huangbai Liquid Topical Agent is its “cash cow,” the company faces significant risks of dependence on a single product. Factors such as recognition from the medical community and consumers, and fluctuations in raw material prices, could all impact its performance and profitability.

In fact, relying solely on a single product, its performance has already shown signs of fatigue. In 2023, 2024, and the first nine months of 2025, Hanfang Pharmaceutical’s revenue was 1.053 billion yuan, 992 million yuan, and 803 million yuan, respectively; profits for the year/period were 237 million yuan, 199 million yuan, and 145 million yuan.

Hanfang Pharmaceutical’s performance declined in 2024, with total revenue and net profit decreasing by approximately 5.8% and 16.1% year-over-year. The company attributed this mainly to a decrease in the maximum selling price of the Compound Huangbai Liquid Topical Agent to hospitals. This also limited its pricing to distributors because the entire supply chain from manufacturer to hospital must operate within fixed pricing margins.

In the first three quarters of last year, the company experienced a “revenue growth but profit decline” situation. For the first three quarters of 2025, it achieved revenue of 803 million yuan, a 3.1% increase year-over-year; profits were 145 million yuan, down 5.8%. The main reason for revenue growth, as stated in the prospectus, was due to efforts to expand retail pharmacy networks. However, it is noteworthy that the company had to spend a large amount on sales expenses, with sales and marketing costs reaching 420 million yuan, accounting for 52.3% of revenue, greatly squeezing profit margins.

Additionally, the prospectus shows that the Compound Huangbai Liquid Topical Agent’s national second-class Chinese medicine protection certificate will expire on July 20, 2030. If it cannot be successfully renewed, Hanfang Pharmaceutical’s performance could suffer a major blow. After expiration, generic drugs will flood the market, and the company’s pricing power and market share could be significantly diluted.

Before the end of the exclusive protection period, whether Hanfang Pharmaceutical can successfully find a “second growth curve” is critical. In fact, the company has been promoting diversification into cosmetics, An Gong Niu Huang Wan, and Wu Ji Bai Feng Wan, but based on its current revenue structure, other products still account for a very small proportion.

Pre-listing one-time dividend of 200 million yuan flows into the controlling shareholders’ pockets

Public information shows that Hanfang Pharmaceutical is a typical family business, established in June 2004, with an initial registered capital of 9 million yuan. Initially, three key figures—Qin Wenji, Qin Yinji, and Xie Junping—held 80%, 10%, and 10% of the shares, respectively. Qin Wenji and Qin Yinji are brothers.

Two years later, Xie Junping transferred his 900,000 yuan, representing all 10% of the registered capital, to Qin Wenji, fully exiting Hanfang Pharmaceutical.

The prospectus indicates that the actual controllers, the Qin brothers, held 100% of the shares before the IPO. The company was 100% controlled by Qin Wenji and Qin Yinji, with Qin Wenji holding 90% and Qin Yinji 10%. Not only is ownership highly concentrated, but the core management team also consists of family members: Qin Wenji’s daughter Qin Chengxue serves as an executive director responsible for R&D, and her husband Ye Weibin is the company secretary.

It is noteworthy that while raising funds, Hanfang Pharmaceutical also distributed large dividends, raising market concerns. In 2024 and the first three quarters of 2025, the company declared dividends of 50 million yuan and 150 million yuan, totaling 200 million yuan. Since the Qin brothers hold all shares, this huge dividend ultimately went into their pockets. While seeking public market funds to supplement operational capital, the company also made a sudden dividend payout before listing, raising questions about the IPO’s rationality.

In addition to the 200 million yuan dividend before the listing, the high concentration of ownership also raises concerns about corporate governance transparency and protection of minority shareholders.

Between 2023 and 2024, Hanfang Pharmaceutical paid about 180 million yuan in promotional service fees to a company called Shandong Jiyuan. In 2023, it paid 147 million yuan, accounting for 24.4% of procurement; in 2024, the promotional service fee dropped to 32.2 million yuan, accounting for 5.4% of procurement.

The prospectus shows that Shandong Jiyuan is an affiliated company controlled by the company’s controlling shareholder’s nephew.

Looking at the company’s sales and R&D expenses, industry insiders question whether it is “heavy on marketing, light on R&D.” The prospectus shows that in 2023, 2024, and the first three quarters of 2025, Hanfang Pharmaceutical’s sales and marketing expenses were 510 million yuan, 480 million yuan, and 420 million yuan, respectively, accounting for 48.7%, 48.6%, and 52.3% of total revenue during those periods. In stark contrast, R&D expenses were only 56.95 million yuan, 59.62 million yuan, and 41.55 million yuan, with R&D expense ratios remaining low at 5% to 6%.

This “heavy marketing, light R&D” structure reflects that the market expansion of the Compound Huangbai Liquid Topical Agent largely depends on aggressive channel promotion. In the pharmaceutical industry, outsourced academic promotion often carries compliance risks. In recent years, regulators have tightened scrutiny of promotional expenses in pharma IPOs, and thorough inquiries have become routine.

Hanfang Pharmaceutical also openly admits in its risk factors that it cannot guarantee that internal controls can fully prevent employees or distributors from engaging in illegal activities without its knowledge. If involved in criminal, investigative, or administrative procedures related to commercial bribery, it could be blacklisted, which would suspend sales of its products in certain provinces’ public medical institutions and healthcare facilities receiving government funding for two years.