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Baiyunshan, a veteran pharmaceutical company that produces "domestic Viagra" and Wanglaoji herbal tea, suddenly "changed its leadership". On the evening of July 22, Baiyunshan announced that the board of directors had received a written resignation report from the company's chairman, Li Chuyuan. In addition, there are reports that Li Chuyuan has been taken away by relevant departments of Guangdong Province for investigation. This sudden change of leadership surprised the industry. Li Chuyuan has been in charge of Baiyunshan for 11 years. With the decline in performance, this change may bring about a deep adjustment for the entire Baiyunshan.

Li Chuyuan suddenly resigned

According to the announcement, the board of directors of Baiyunshan received a written resignation report submitted by the company's chairman, Li Chuyuan. Li Chuyuan resigned from the positions of chairman of the company's ninth board of directors, executive director and director of the board's strategic development and investment committee for personal reasons. After his resignation, Li Chuyuan no longer holds any position in the company.

Baiyunshan said in the announcement that Li Chuyuan confirmed that he had no disagreements with the company's board of directors and that there were no other matters that needed to be brought to the attention of the company's shareholders. The resignation did not cause the number of board members to fall below the statutory minimum number and would not affect the normal operation of the board of directors. As of the date of the announcement, Li Chuyuan did not directly or indirectly hold shares in the company.

Li Chuyuan's resignation was somewhat sudden. Li Chuyuan's term as chairman of the board began in May 2023, and it has only been one year and two months. In addition, Li Chuyuan, 59 years old this year, will retire in another year.

As for the reason for the chairman's resignation, the market heard that Li Chuyuan was under investigation. According to the First Financial News, people close to the state-owned assets system in Guangdong Province said that they heard that Li Chuyuan was in (under investigation) and his family members were also investigated. The company's secretary's office responded that it was not clear whether it was true. The Beijing Business Daily reporter contacted the person in charge of the Guangzhou Baiyunshan brand, but no response was received as of press time.

According to the information, the parent company of Baiyunshan is Guangzhou Pharmaceutical Group Co., Ltd. (hereinafter referred to as "Guangzhou Pharmaceutical Group"), and Li Chuyuan also serves as the chairman of Guangzhou Pharmaceutical Group. The Beijing Business Daily reporter also tried to call the contact number disclosed on the official website of Guangzhou Pharmaceutical Group, but no one answered. Subsequently, the Beijing Business Daily reporter tried to contact the 12388 reporting hotline of the Guangdong Provincial Commission for Discipline Inspection and Supervision, and the other party said that the information disclosed publicly shall prevail. The Guangdong Provincial People's Government 12345 hotline stated that there was no relevant guidance, and feedback would be given to the reporter after verification, but no feedback was received as of press time.

Deng Yong, director of the Health and Healthcare Legal Research and Innovation Transformation Center of Beijing University of Chinese Medicine, told Beijing Business Daily that there is no definitive authoritative conclusion on the specific reasons for Li Chuyuan's resignation and related rumors. If the market rumors that Li Chuyuan was taken away for investigation are not confirmed, then to a certain extent, it may trigger market speculation and anxiety, which may have a short-term negative impact on the company's stock price and investor confidence.

Influenced by this news, Baiyunshan's share price rose slightly at the opening of the market on the morning of July 23, and then fell back. By the close of the day, Baiyunshan's share price was 29.99 yuan per share, down 3.2%.

He was reported for falsely raising drug prices and bribery

Li Chuyuan's last public appearance was on July 13. According to the "Guangdong Pharmaceutical Baiyunshan" official account, on July 13, Guangzhou Pharmaceutical Group and the (China) Alzheimer's Disease Prevention and Treatment Association jointly held the "2024 International Academic Conference on Alzheimer's Disease and Related Diseases". Li Chuyuan delivered a speech at the opening ceremony of the conference.

The rumor in the market that Li Chuyuan was taken away for investigation may be related to the anti-corruption storm. In 2022, Baiyunshan was notified by the National Medical Insurance Administration for falsely raising drug prices to obtain funds and bribery.

According to the National Medical Insurance Administration's announcement at the time, the main way for the three pharmaceutical manufacturers under Baiyunshan to cash out was that the pharmaceutical manufacturers signed cooperation agreements with pharmaceutical agents and added designated "distributors" in the procurement of raw materials. The "distributors" purchased raw materials at normal prices, raised the prices several to ten times, and then sold them to pharmaceutical manufacturers. In the name of "raw material price increases and high production costs", pharmaceutical manufacturers further transmitted the inflated prices of raw materials to the ex-factory and bidding prices.

After cashing out by purchasing APIs at inflated prices, Baiyunshan transferred funds to downstream drug agents. The amount involved was huge, and part of the funds were used to bribe medical staff or specific people and conduct illegal drug promotions.

The relevant person in charge of Guangzhou Pharmaceutical Group responded to the Beijing Business Daily reporter at the time that the company attached great importance to the notification and had taken a series of rectification measures. The three companies have been ordered to stop cooperating with relevant agents and distributors, comprehensively rectify their marketing models, reduce prices or withdraw related products nationwide, and resolutely deal with illegal operations without any protection. The relevant responsible persons of the three companies have been suspended from their posts.

Net profit growth rate fell for three consecutive times

During the more than ten years that Li Chuyuan served as chairman, the revenue scale of Guangzhou Pharmaceutical Group and Baiyunshan has increased significantly. In 2017, Guangzhou Pharmaceutical Group's industrial and commercial sales revenue exceeded 100 billion yuan; in 2021, Guangzhou Pharmaceutical Group entered the Fortune Global 500 list for the first time, ranking 468th, becoming the world's first company to enter the Fortune Global 500 with traditional Chinese medicine as its main business. Baiyunshan's operating income also increased from 17.608 billion yuan in 2013 to 75.515 billion yuan in 2023, and its net profit increased from 980 million yuan in 2013 to 4.056 billion yuan in 2023.

The announcement stated that in order to ensure the good operation of the company's board of directors and the smooth implementation of business decisions, Baiyunshan nominated the company's vice chairman Yang Jun to perform the duties of chairman of the company's ninth board of directors.

But Yang Jun is facing Baiyunshan, whose net profit growth rate has dropped for three consecutive years. In 2023, Baiyunshan achieved operating income of 75.515 billion yuan, a year-on-year increase of 6.68%; net profit of 4.056 billion yuan, a year-on-year increase of 2.25%. Compared with 27.6% in 2021 and 6.63% in 2022, Baiyunshan's net profit growth has slowed down for three consecutive years.

At present, Baiyunshan has two major products, "domestic Viagra" and Wanglaoji herbal tea. In 2023, Baiyunshan disclosed specific sales data by therapeutic field or classification of major drugs (products). Among the 9 drugs in four categories, including internal medicine, antimicrobial drugs, male drugs, analgesia, and antipyretics, the domestic "Viagra" sildenafil citrate tablets (trade name Jin Ge) had sales of 1.2895 billion yuan, and it was also the only drug among the 9 drugs with revenue exceeding 1 billion yuan, with a gross profit margin of 91.76%. But Jin Ge faces fierce competition. Data show that there are currently more than 20 manufacturers in China producing sildenafil, and since 2023, sildenafil citrate tablets from Renhe Pharmaceutical and Qilu Pharmaceutical have been approved one after another.

Through its subsidiaries, Wanglaoji Health Company and Wanglaoji Pharmaceutical, Baiyunshan conducts health-related businesses. Its main products include Wanglaoji Herbal Tea, Ciningji Series, Throat Lozenges, Guilinggao, etc. Wanglaoji Health Company is the main source of profit for Baiyunshan. In 2023, the subsidiary achieved revenue of 10.013 billion yuan and net profit of 1.459 billion yuan, but it has never cultivated a new absolute star.

Zhang Wenbo, senior partner and director of the Life Science and Healthcare Law Department at Beijing Jundu Law Firm, said that Li Chuyuan had worked at the company for 11 years and had made contributions to the company's development. His sudden resignation will undoubtedly have a certain impact on the company. Although Li Chuyuan's departure will bring a certain degree of uncertainty, the company's long-term development still depends on its overall strategy, market competitiveness and the joint efforts of its employees.

Deng Yong said that the future development of Guangzhou Baiyunshan Pharmaceutical is uncertain and needs to consider the impact of multiple factors. First, the ability and strategic vision of the new leadership team are crucial. They need to quickly stabilize the situation, clarify the company's development strategy, and continue to promote the development of various businesses. Secondly, the company's operational capabilities in core businesses such as product research and development, marketing, and supply chain management will also affect its future development.

Beijing Business Daily reporter Yao Qian and Ding Ning