Annual Revenue of 1 Billion Yuan, 500 Million Yuan Spent on Marketing, Hanfang Pharmaceutical Rushes to Hong Kong Stock Market with a Single Topical Agent, Multiple Dilemmas Await Resolution | China's Medicine Rust Belt

This newspaper (chinatimes.net.cn) reporter Wang Yu and Na Beijing report

As a company deeply involved in the traditional Chinese medicine industry, Shandong Hanfang Pharmaceutical Co., Ltd. (hereinafter referred to as “Hanfang Pharma”)'s listing in Hong Kong has attracted much attention. Hanfang Pharma holds an exclusive core product, the Fufang Huangbai Liquid Ointment, which has established a foothold in its niche market with its proprietary protection rights. However, at the same time, the company is trapped in a reliance on a single product, compounded by a development model that emphasizes sales over R&D, a highly concentrated family-controlled ownership structure, and multiple risks. Whether Hanfang Pharma can gain recognition from the capital market remains uncertain.

Revenue Dependency Raises Concerns

Hanfang Pharma’s development history is closely tied to the growth of its core product, the Fufang Huangbai Liquid Ointment. This topical Chinese medicine, used for skin and mucous membrane diseases, is currently the only approved prescription ointment in China’s external Chinese medicine field. It is recognized as a national second-class Chinese medicine protected variety, with exclusive production rights, legally prohibiting other entities from manufacturing the same medicine. This unique advantage creates a strong competitive barrier in the market. According to data from Frost & Sullivan, in 2024, this product ranked fourth in the domestic and international topical Chinese medicine market, accounting for 1.1% of the market share, and leading the dermatological topical Chinese medicine market with a 5.5% share. Relying on this core product, Hanfang Pharma has achieved steady financial performance in the past, but the risks of revenue concentration are gradually becoming apparent.

The prospectus shows that in 2023, 2024, and up to September 30, 2025, the company’s total revenue was 1.053 billion yuan, 992 million yuan, and 803 million yuan, respectively, with net profits of 237 million yuan, 199 million yuan, and 145 million yuan in the same periods. Notably, sales of the Fufang Huangbai Liquid Ointment accounted for 99.8%, 99.8%, and 99.7% of total revenue during these three years, making it almost the company’s “revenue dependency.”

This reliance on a single product makes the company’s performance highly susceptible to factors related to that product. In 2024, the company’s revenue declined by 5.8% year-over-year, mainly because the maximum retail price of the Fufang Huangbai Liquid Ointment to hospitals decreased, limiting the prices offered to distributors. Although the company expanded its retail pharmacy network, resulting in revenue growth in the first nine months of 2025 compared to the previous year, price fluctuations of the core product still directly impact the company’s profitability.

From a market perspective, Hanfang Pharma faces increasing competitive pressure. Although the Chinese external Chinese medicine market is growing, reaching 91.6 billion yuan in 2024 and expected to grow to 139.6 billion yuan by 2034 with a compound annual growth rate of 4.3%, competition is intensifying. The company not only faces competition from other established topical Chinese medicines but also from Western pharmaceutical companies introducing steroid creams, antibiotics, and biologics as alternatives. With the market’s rapid growth, new domestic and international entrants are likely to continue emerging. Some competitors, especially large multinational corporations, possess significant advantages in financial, marketing, and R&D resources.

To break the reliance on a single product, Hanfang Pharma has strategically acquired the listing rights for well-known Chinese medicine products such as “An Gong Niu Huang Wan” and “Wu Ji Bai Feng Wan,” and has also entered the cosmetics business. However, in terms of contribution to performance, diversification has yet to take hold. In 2023, 2024, and the first nine months of 2025, sales of cosmetics and other products accounted for only 0.2%, 0.2%, and 0.3% of total revenue, respectively. Therefore, in the short term, it remains difficult to change the company’s heavy dependence on a single product, and the growth dilemma persists.

Focus on Sales, Less on R&D

Beyond operational reliance on a single product, Hanfang Pharma’s development model of “emphasizing sales and downplaying R&D” is also a core shortcoming restricting long-term growth.

The prospectus shows that in 2023, 2024, and up to September 30, 2025, the company’s sales and marketing expenses were 513 million yuan, 483 million yuan, and 420 million yuan, respectively, accounting for 48.7%, 48.7%, and 52.3% of total revenue in those periods, remaining at a high level of nearly half. These high sales expenses mainly fund the maintenance of a large distribution network and academic promotion. The prospectus states that Hanfang Pharma has nearly 1,000 distributors, with over 92% of revenue generated through distribution channels in the first nine months of each year from 2023 to 2025. To maintain channel coverage and market penetration, the company must invest heavily in channel maintenance and marketing.

In stark contrast, R&D investment is relatively insufficient. During the same period, R&D expenses were 56.945 million yuan, 59.615 million yuan, and 41.553 million yuan, with R&D spending accounting for only about 5% of revenue—far below the proportion of sales expenses. Given the long R&D cycles and high investment requirements typical of traditional Chinese medicine innovation drugs, the current scale of R&D investment is inadequate to rapidly expand the product pipeline. The company’s current R&D focus is on developing new Chinese medicine formulations, transforming medical preparations, and commercializing classic formulas. While “An Gong Niu Huang Wan” has been commercialized and “Wu Ji Bai Feng Wan” is expected to launch in January 2026, contributions from new businesses are minimal. Insufficient R&D investment and weak innovation capabilities may lead the company to become even more dependent on its core product, creating a vicious cycle of “light R&D—single product reliance—heavy sales—and reduced R&D investment.”

It is also noteworthy that Hanfang Pharma’s highly concentrated family-controlled ownership structure raises questions about corporate governance independence. The prospectus shows that Chairman and Executive Director Qin Wenji and General Manager Qin Yinji, who are brothers-in-law, are acting in concert. Qin Wenji directly holds 27 million shares, and Qin Yinji holds 3 million shares, jointly controlling all voting rights. In the board of directors, Executive Director Qin Chengxue, Qin Wenji’s daughter, oversees R&D, while her husband, Ye Weibin, is responsible for supervising corporate governance and company secretarial affairs. Xu Huageng, director of the Financial Law Research Center at Capital University of Economics and Business Law School, told Huaxia Times that family-controlled ownership may lead to failures in internal supervision mechanisms, with family interests overriding company interests, potentially harming minority shareholders.

Whether Hanfang Pharma can successfully pass the Hong Kong IPO and address development challenges under market supervision remains to be seen.