A well-known pharmaceutical company's IPO critical period, exposed to sales bribery, with one drug accounting for over 99% of the company's revenue

Reporter | Tang Weike

Editor | Ji Yuanyuan Zhang Mingyan

Amid the pharmaceutical anti-corruption storm, another prospective listed company has been embroiled in a commercial bribery scandal.

On March 24, the National Healthcare Security Administration reported on the “Zhang Moumeng Drug Sales Bribery Case,” with many details pointing to the exclusive manufacturer of the Compound Huangbai Liquid topical agent, Shandong Hanfang Pharmaceutical Co., Ltd. (hereinafter referred to as “Hanfang Pharmaceutical”), which is in a critical period leading up to its IPO in Hong Kong.

In the context of strict regulation in the pharmaceutical industry normalizing by 2026, this decade-spanning case involving 365,000 yuan in bribes may not only trigger healthcare credit evaluations but also subject Hanfang Pharmaceutical’s business model, which is overly dependent on a single product, and its compliance system to in-depth scrutiny from the capital markets.

Ten years of bribery totaling 365,000 yuan

Exclusive product implicates Hanfang Pharmaceutical

Details disclosed by the National Healthcare Security Administration show that from August 2013 to July 2023, Zhang Moumeng, a promoter from a certain pharmaceutical company in Shandong, paid a total of 365,000 yuan in kickbacks and benefits to multiple medical staff at the Shanhaiguan People’s Hospital in Qinhuangdao City to promote the Compound Huangbai Liquid.

Among them, he bribed the head of the obstetrics and gynecology department 156,900 yuan for medication recommendations, bribed the outpatient pharmacy director 25,000 yuan in exchange for drug usage statistics, and bribed two dermatologists 183,000 yuan to increase the prescription volume. In November 2024, Zhang Moumeng was sentenced to one year in prison, with a year and a half probation, and fined 20,000 yuan for bribery and bribery of non-state personnel.

Although the report did not directly name the involved company, a comparison with data from the National Medical Products Administration shows that currently, there is only one approved Compound Huangbai Liquid in the country, which is produced by Hanfang Pharmaceutical.

Furthermore, according to reports from Red Star Capital, the first-instance judgment disclosed by the court matches the product approval number “Z10950097” associated with the company. This means that Hanfang Pharmaceutical’s core product is precisely the one involved in this commercial bribery case.

Notably, Hanfang Pharmaceutical just submitted its prospectus to the Hong Kong Stock Exchange on February 25, only a month before the healthcare administration’s report. The prospectus indicates that the Compound Huangbai Liquid topical agent is the company’s absolute revenue pillar; in the first three quarters of 2023, 2024, and 2025, revenue from this product accounted for as much as 99.8%, 99.8%, and 99.7% of total revenue, nearly supporting all of the company’s performance. The overlap between the implicated product and the core revenue source has raised strong doubts in the market regarding the compliance of its sales model.

Moreover, the financial data disclosed in the prospectus further exposes the potential risks in Hanfang Pharmaceutical’s sales model. In the first three quarters of 2023, 2024, and 2025, the company’s sales and marketing expenses reached 510 million yuan, 480 million yuan, and 420 million yuan, respectively, accounting for 48.7%, 48.6%, and 52.3% of total revenue during the same periods, consistently remaining at a high level close to fifty percent. Regarding the use of high sales expenses, Hanfang Pharmaceutical only mentioned “hiring third-party promoters responsible for collecting industry information, organizing professional academic conferences, etc.,” without providing further details.

In the context of the pharmaceutical industry’s policy of completely eliminating “kickback sales,” such a high proportion of sales expenses appears particularly glaring.

The revised “Regulations on the Implementation of the Drug Administration Law” in January 2026 clearly prohibits kickbacks and improper benefit transfers in drug sales and purchases, requiring pharmaceutical companies to establish compliance systems and assume principal responsibility, with both bribers and recipients facing reciprocal accountability. Hanfang Pharmaceutical’s reliance on third-party promotion sales models is precisely situated in a gray area that is under regulatory scrutiny.

The more severe issue is that the company’s extremely singular product structure has magnified the compliance risks. As a nationally protected second-class traditional Chinese medicine, the exclusive protection period for the Compound Huangbai Liquid topical agent will last until July 2030, but signs of stagnation in growth have already appeared for this product—2024 revenue is expected to decline by 5.8% year on year, with net profit dropping by 16.03%, attributed to a decrease in the highest selling price of the product. Industry analysts point out that if this product is included in the healthcare dishonesty list due to the bribery case, it may face restrictions on listing, distribution, and other measures, directly putting Hanfang Pharmaceutical’s operations at a standstill.

IPO under strict regulation faces pressure

Multiple dilemmas await resolution

Hanfang Pharmaceutical’s path to listing is already fraught with thorns, and the exposure of the bribery case has further compounded its challenges. In addition to compliance risks, the company also faces financial pressures, family ownership, and gaps in new product development.

The prospectus shows that in the first three quarters of 2025, the company had only 57.42 million yuan in cash and cash equivalents, with a current ratio of 1.2 and a quick ratio of 1.0, indicating weak short-term debt repayment ability; yet, during a time of liquidity constraints, the company still paid out a total of 200 million yuan in dividends in 2024 and the first three quarters of 2025, leading to a 45.4% reduction in cash reserves compared to the end of 2024.

In terms of ownership structure, the company exhibits clear characteristics of family control. Chairman Qin Wenji and General Manager Qin Yinji are siblings, holding 90% and 10% of the shares, respectively, and their ages are 70 and 63. In terms of research and development, Hanfang Pharmaceutical is also progressing slowly; besides the Compound Huangbai Liquid topical agent, it has only launched traditional Chinese medicine products such as An Gong Niu Huang Wan and Wu Ji Bai Feng Wan, failing to form a substantial second growth curve.

The follow-up handling of this bribery case will become a key variable. The National Healthcare Security Administration has explicitly stated that it has treated this case as a source of pharmaceutical commercial bribery and will guide the Hebei Provincial Healthcare Security Administration to conduct credit evaluations based on the pricing procurement credit evaluation system. According to the 2025 discretionary guidelines, a commercial bribery amount exceeding 1 million yuan will be recognized as “especially serious dishonesty,” facing maximum penalties such as national bidding bans and product delisting; even if it does not reach this standard, “serious dishonesty” will still result in the disqualification of the implicated product from listing.

Industry analysts have previously pointed out that by 2026, regulation in the pharmaceutical industry will have entered a phase of “penetrating governance,” with healthcare credit evaluations becoming a “sword of Damocles” hanging over companies. For Hanfang Pharmaceutical, it needs to quickly clarify the degree of association between the bribery case and the company, the construction of its internal compliance system, and other issues; otherwise, it may affect the Hong Kong Stock Exchange’s listing review process. In the long run, both the reliance on a single product business model and the compliance risks behind the high proportion of sales expenses are core issues that must be addressed after its entry into the capital market.

As the anti-corruption efforts in the pharmaceutical industry deepen, compliance capability has become the core competitiveness of enterprises. Hanfang Pharmaceutical’s encounter with the bribery case during the critical IPO period once again highlights the importance of standardized operations for pharmaceutical companies. In the future, only by truly abandoning the old model of “kickback sales” and shifting towards a development path focused on product efficacy and clinical value can sustainable development be achieved in the era of strict regulation, which is also the basic requirement of the capital market for all prospective listed pharmaceutical companies.