Guangyuyuan's Strategic Revival: TV Drama Placements, TCM Cultural Towns, and Overseas Clinics Drive Growth Amid IPO Filing

Surrounded by several media outlets, including VCBeat (WeChat: vcbeat), the head of Guangyuyuan frequently delivered memorable quotes.

Regarding the establishment of standardized bases for Chinese herbal medicines, he said, “In the future, every household will keep two pangolins, so that pangolins will not have to worry about extinction.”; discussing the two-child policy, he stated, “Research has found that human sperm motility has declined by half over the past 30 years. If it decreases by another half in the next 30 years, human reproduction will become a problem”—“The ultimate extinction of humanity will not be caused by war or atomic bombs, but possibly by the loss of human reproductive capacity.”; regarding the inheritance of traditional Chinese medicine, he said, “Establish a town dedicated to traditional Chinese medicine culture in Taigu and invite renowned senior TCM practitioners from across China to develop distinctive cultural initiatives.”

It is difficult to determine whether such catchy phrases are the result of a whim or long-term contemplation, and the impression left by a brief encounter is hardly sufficient to capture the essence. Just as Guangyuyuan’s net profit surged more than 60-fold last year, as disclosed in its annual report, it remains challenging to see through the true state of this company, whose operational performance resembles a roller coaster.

Younger audiences may have noticed product placements for Guangyuyuan in the hit TV drama “Let’s Fall in Love,” which aired on Mango TV last year.

In addition to product placements in TV dramas, Guangyuyuan undertook numerous brand-building initiatives last year, including advertisements on China Central Television (CCTV), news dissemination, and social media campaigns. More innovatively, the company partnered with live-streaming platforms such as Huajiao and DouYu to conduct live broadcasts, effectively extending its advertising reach to every channel accessible to its target audience.

How effective was it? Guangyuyuan’s annual report shows that the company achieved revenue of RMB 936 million during the reporting period, representing a year-on-year increase of 118.70% compared to 2015.Net profit of 122 million, a year-on-year increase of 59.48 times compared to 2015, which recorded the largest change in net profit among the 130 listed pharmaceutical companies in China.

The TV drama product placements mentioned earlier contributed substantial revenue and profits to Guangyuyuan. The annual report stated that its “traditional Chinese medicines,” represented by Guilingji, Dingkun Dan, and Angong Niuhuang Wan, generated RMB 579 million in revenue, a year-on-year increase of 116.63% compared with 2015.

Regarding the reasons for the significant growth in revenue and net profit, Guangyuyuan stated that it benefited from “"Traditional Chinese Medicine + Premium Chinese Medicine + Health-Preserving Liquor" Three Major Business SegmentsDevelopment has received strong support, while rapid growth in terminal channels such as hospitals, OTC, and commercial sectors, coupled with further optimization of the product mix, has effectively reduced the sales expense ratio.

Shockingly, the gross profit margins of these three segments are alarmingly high, reaching 80.17%, 85.94%, and 58.43%, respectively. It is precisely due to such striking financial results that Guangyuyuan has received an inquiry letter from the Shanghai Stock Exchange.

The inquiry letter comprises four major categories and 11 questions, focusing on operational performance, financial information, production qualifications, and discrepancies between production and sales volumes. Notable points of concern include: the reasons for the significant fluctuations in Guangyuyuan’s revenue and net profit last year, as well as quarterly variations; the substantial credit sales volume, which necessitates disclosure of credit sales policies and settlement methods (raising concerns about potential channel stuffing to end customers); the failure to provision for inventory impairment, requiring disclosure of the impact of inventory expiration; and details regarding selling expenses, specifically the advertising models employed, payment terms, and accounting treatment rules.

In addition, it includes “production of Guilingji (Premium) decreased by 19%, sales volume increased by 110%, and inventory increased by 33%,” a scenario in which production declined and sales rose, yet inventory simultaneously increased.Arithmetic"Contradiction."

As a time-honored brand with a history spanning nearly 500 years (Guangyuyuan’s origins can be traced back to the 20th year of the Jiajing reign of the Ming Dynasty, i.e., 1541), Guangyuyuan has entered the public eye through product placements and brand advertising, leading to increased sales and profits—a testament to new growth from an old tree.

Among the representatives of traditional Chinese medicine (TCM) enterprises we interviewed—including Zhao Chao, President of Buchang Pharmaceutical; Guo Jiaxue of Guangyuyuan; and Zhang Zhongshan of Hongjitang—we consistently heard the view that TCM should be regarded as an integral part of traditional Chinese culture, and that promoting TCM culture is tantamount to promoting Chinese culture.

A statement by Guo Jiaxue, the head of Guangyuyuan, may be more eye-catching: he said, “"To Destroy Chinese Culture, First Destroy Traditional Chinese Medicine"”. He pointed out that certain foreign organizations, such as the Green Foundation, attack Traditional Chinese Medicine (TCM) with ulterior motives, undermining Chinese people’s confidence in their traditional culture. In promoting Chinese culture, TCM culture constitutes a very important component.

In terms of heritage, Traditional Chinese Medicine (TCM) indeed boasts a history spanning thousands of years, replete with tales of practitioners who hung up their pots to aid the world, brought the dying back to life with miraculous skills, and demonstrated masterful diagnostic prowess. The TCM diagnostic philosophy emphasizing “the unity of heaven and humanity” has also elevated TCM to a philosophical level. However, in modern times, especially after the introduction of Western medicine, TCM has been subject to intense scrutiny and criticized as “Empirical Discipline”。

"The survival and development of Traditional Chinese Medicine (TCM) have garnered attention from the TCM industry beyond just enterprises,""If the skin does not exist, where can the hair attach?"”, Guo Jiaxue also described to the media present the relationship between giving proper attention to Traditional Chinese Medicine (TCM) and the TCM industry in this way.

“Traditional Chinese Medicine (TCM) is a discipline that advances with the times. In ancient times, TCM practitioners primarily produced crude, large-sized honey-pills and powders. Today, however, we have developed oral liquids, capsules, and injectables. TCM is not an insular practice confined to a dark room, indulging in self-admiration and complacency. For thousands of years, it has consistently kept pace with the times. We should inherit and promote this tradition, fostering greater public engagement with and recognition of TCM.”

For this reason, Guangyuyuan is also making efforts to promote the culture of Traditional Chinese Medicine (TCM), including media dissemination and popular science education on TCM knowledge. Guo Jiaxue introduced that Guangyuyuan actively disseminates TCM knowledge on platforms such as its official WeChat account, launching special features titled “Into Traditional Chinese Medicine” to introduce the TCM production process to the public.

In addition, Guangyuyuan will collaborate with the retail pharmacy alliance to transition from simple product sales to service-oriented offerings.

“Establish strategic alliances with retail pharmacies across China, and through in-depth strategic cooperation, transform the previous structural model,”From a company that solely sells products to one that provides Traditional Chinese Medicine (TCM) health solutions“, to establish Guangyuyuan’s own system of Traditional Chinese Medicine (TCM) clinics and TCM cultural framework, thereby addressing the issue of (the dissemination of TCM culture).”

In its efforts to promote Traditional Chinese Medicine (TCM) globally, Guangyuyuan has made numerous attempts. “Our current preliminary strategy is to establish TCM clinics in several developed countries, such as Australia, the United States, and the United Kingdom. This initiative aims not only to disseminate TCM culture but also to position the export of Chinese culture as a strategic objective.”

Speaking of the dissemination of traditional Chinese medicine (TCM) culture, Guo Jiaxue believes thatTraditional Chinese Medicine Should Become More Youthful and Fashionable, to capture the attention of young people and thereby achieve broader dissemination. “Young people have a voice; through more mainstream communication channels, Traditional Chinese Medicine (TCM) is entering their field of vision and truly becoming a lifestyle.”

Therefore, Guangyuyuan is also venturing into more youth-oriented traditional Chinese medicine (TCM) products, such as cosmetics and personal care items. Examples include whitening facial masks and feminine hygiene products. Guo Jiaxue pointed out that Dongsheng Group, the controlling shareholder of Guangyuyuan, will establish a national pharmaceutical cosmetics company to oversee its cosmetics product line and develop products through collaborations with external entrepreneurs.

Meanwhile, Guangyuyuan has also made numerous attempts in the “Internet Plus” sector, such as the health cloud service platform it previously launched, “Xinglin No. 1”, the platform focuses on the internet-based features of “consulting renowned TCM practitioners” and “dispensing herbal medicines according to prescriptions.” It is anchored by an interconnected “Health Cloud Services” platform as its core, forming a traditional Chinese medicine (TCM) service network in conjunction with Guangyuyuan’s Guoyaotang pharmacies and TCM clinics distributed across China.Online and Offline Entry Points, providing innovative traditional Chinese medicine services.

To the outside world, this eloquent leader responds with composure; those privy to the inside story may be more astonished by his decades-long ups and downs in the capital markets.

Guo Jiaxue graduated from Ankang Normal University in Shaanxi Province in 1985 and stayed on as a faculty member. Two years later, he resigned to embark on an entrepreneurial venture, starting with pig farming before acquiring a state-owned pharmaceutical enterprise to enter the pharmaceutical industry. By 2005, Dongsheng Group, controlled by Guo Jiaxue, had alreadyAnnual Revenue of RMB 15 Billion, Owning Baijiahei and Gaitianliand other well-known brands.

In the capital markets, Guo Jiaxue has also demonstrated pinpoint precision. Since the early 1990s, through capital operations and intercompany lending, he successively took control of Jiangsu Gaitianli, Qinghai Pharmaceutical, Livzon Group, and Hubei Qianjiang Pharmaceutical. In 2004, he vied with Huayuan, China Resources, and Fosun for control of Yunnan Baiyao Group, ultimately securing controlling rights—all before he had even turned forty.

Rapid expansion strained Dongsheng Group’s capital chain. Compounded by the bankruptcy of a state-owned enterprise for which it had provided guarantees, all of Dongsheng Group’s bank accounts were frozen. When loans came due, banks refused to extend further credit, causing the group’s capital chain to break.

There is another version of the widely circulated story about Guo Jiaxue, who allegedly sat in his office from sunrise to sunset, contemplating suicide. Guo calculated the costs required to rectify mismanagement and the proceeds from the sale of held assets, ultimately deciding to repay the loans in a “decisive” manner.

Guo Jiaxue has listed the assets sold to the media: Baijiahei was sold for RMB 1.264 billion, shares in Livzon Group were sold for RMB 170 million, and Yunnan Pharmaceutical shares were sold for RMB 750 million. Coupled with operating cash flows, by the end of 2012, Dongsheng Group had fully repaid all RMB 3.8 billion in loans, as well as RMB 800 million in loans guaranteed for state-owned enterprises plus interest, totaling RMB 4.8 billion.

"As an observer, one cannot definitively ascertain the motives behind debt repayment: if driven by legal compulsion, it is worthy of respect; if stemming from entrepreneurial conscientiousness, it is worthy of admiration."

Dongsheng Group took control of Guangyuyuan in 2003. As a time-honored traditional Chinese medicine brand with centuries of heritage, Guangyuyuan undoubtedly bore significant expectations from Guo Jiaxue for the future during its challenging times. Therefore, Guo has stated on various occasions that managing Guangyuyuan well is “the only thing I will do for the rest of my life.”

As times change and the world evolves, the entrepreneurial stories behind companies are worth remembering. Behind Guangyuyuan’s nearly 60-fold year-on-year growth in net profit, Guo Jiaxue’s inheritance of the mantle of Traditional Chinese Medicine (TCM) culture may be even more noteworthy.