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Yan Kaijing never built the "Tianshili" he wanted, which led to him being repeatedly questioned by the outside world for "messing around".

Yan Kaijing never built the "Tianshili" he wanted, which led to him being repeatedly questioned by the outside world for "messing around".

Text｜Reporter Tan Liping of "Chinese Entrepreneurs"

Editor: Zhang Hao

Head photo by Tan Liping

In the north of Tianjin, there is a station named "Tiansli" on Metro Line 3. This is the location of the old Chinese medicine company "Tiansli".

On August 9, an ordinary working day, the Tasly factory was relatively quiet, with employees and vehicles occasionally seen shuttling around. Everything was still running as usual - the recent commercial merger did not seem to have much impact on its daily life.

A few days ago, Tasly announced a blockbuster news: the controlling shareholder of the company will change, and China Resources Sanjiu plans to purchase 28% of its shares for 6.2 billion yuan. The two companies that have been ranked in the top ten of the sales list of traditional Chinese medicines for many years have "married", and the buyer "China Resources" is currently the most active capital player in the market. This transaction is interpreted by the industry and the media as a major strategic change of central state-owned enterprises in the traditional Chinese medicine market - more active.

Before the announcement of the transaction, there were already signs within Tasly, with several employees saying on their personal social media that they had taken a month-long vacation in advance. “I’ve been working here for more than 20 years, and this is the first time I’ve had a month-long vacation. It turns out that we’ve become a state-owned enterprise.”

A staff member of Tasly Healthcare City told China Entrepreneur that one production workshop has indeed been shut down for two weeks, "perhaps because internal integration is underway."However, some employees said that due to the high temperature in summer, it is normal for Chinese medicine enterprises to shut down their production workshops in summer. Apart from the production line, research and development work does not seem to be affected. Several employees of the "Tasly Research Institute" told reporters that "there are no internal adjustments at present."

Internal promotion for the merger has already begun. An interviewed Tasly employee said that this cooperation is "a good thing". "Whether it is Dong-E E-Jiao or the '999' brand that all Chinese people know, China Resources has done a good job in brand marketing. Tasly has always focused on products in the past, and its sales channels are also the hospital side. It will directly send sales staff to hospitals and pharmacies to promote it. Therefore, although doctors and patients know Tasly, ordinary people still know very little about it. We have R&D, and China Resources has brand capabilities. If we can use our respective strengths, we may be able to revitalize Tasly's brand influence and turn it into a well-known company like Sanjiu."

She said, “This also combines the meaning of ‘leadership interpretation’.”There were some rumors circulating internally before, and the "leader" specially convened a meeting to explain the matter to everyone.Regarding this transaction, Tasly described it as a “strong alliance” on its official website.

"Of course, China Resources has a very complete marketing system that is even superior to ours. There may be adjustments in this sector in the future, but the overall organizational structure should not change much," said the above employee.

At present, including the holdings of China Resources Sanjiu, Kunming Pharmaceutical Group, Tasly, Dong-E E-Jiao, and Jiangzhong Pharmaceutical,The total market value of Chinese medicine listed companies under the "China Resources Group" in the A-share market has ranked first in the industry.

At the investment meeting for this transaction, the management of China Resources Sanjiu mentioned the future positioning of the two companies: China Resources Sanjiu's advantages lie in its brand and channels, and its goal is to become a leading company in the industry; after being acquired, Tasly will focus on innovative drug research and development and prescription drug business.

Regarding more specific plans, "China Entrepreneur" sent interview questions to China Resources Sanjiu, but no reply was received as of press time.

The second generation of entrepreneurs who are “messing around”?

In the industry’s view, considering the actual situation of China Resources Sanjiu, Tasly is a good investment target.

First, it has “Compound Danshen Pills”.To this day, this drug still ranks first in the traditional Chinese medicine market for ischemic heart disease, surpassing the "Quick-acting Heart-saving Pills" that the public may be more familiar with.

There is a special exhibition hall in the Tasly Park, which displays the company's history. A product that runs through it is the "Compound Danshen Drop Pills". This is the flagship product of this pharmaceutical company and the starting point of its entrepreneurship. In 1989, while working at the 254th PLA Hospital in Tianjin, the founders of Tasly, Yan Xijun and his wife, jointly developed the drug. With this, Tasly was established in 1994.

Photography: Tan Liping

Tasly's main battlefield is the cardiovascular and cerebrovascular industry, which is also the most "stable" large market in the traditional Chinese medicine industry. This has led to a continuous increase in its revenue in the pharmaceutical sector, although the increase has not been large in the past two years. In 2023, it will have a main business income of 8.6 billion yuan, ranking 10th among A-share traditional Chinese medicine companies. On the 2024 Hurun Global Rich List, Yan Xijun ranked 1949th on the list with a wealth of 13 billion yuan.

In addition to Compound Danshen Drops, Yangxueqingnao Granules (Pills) rank first in the traditional Chinese medicine market for headaches and migraines, and there are several exclusive varieties such as Astragalus and Salvia miltiorrhiza Drops.

Secondly, among traditional Chinese medicine companies, Tasly has rich reserves in drug research and development.

As of the end of 2023, it has 98 products under development, including 41 Class 1 innovative drugs (drugs that have not been marketed at home or abroad). Two products, Loquat Qingfei Drink and Wenjing Decoction, have submitted production applications.According to Tasly’s internal statement: Starting from 2024, it is expected that an innovative Chinese medicine will be launched every year.

Third, as a private Chinese medicine company that has been established for 30 years, Tasly has a complete channel layout on the hospital side, especially for popular cardiovascular and cerebrovascular drugs.

This is complementary to China Resources Sanjiu's relatively heavy focus on OTC (over-the-counter) channels. Over the years, Tasly has formed a marketing network covering all levels of markets across the country - as of the end of 2023, it has 29 regions and 562 offices. Not only is the coverage rate of hospitals above the grade high, but in recent years, it has also continued to strengthen the sinking of terminal channels. Usually, control of marketing channels is an important means for pharmaceutical companies to ensure market share.

Judging from the financial data, Tasly's overall operating conditions have been relatively stable since its listing in 2002, with a market value of more than 50 billion yuan. In recent years, it has been more "turbulent", with its market value falling to the 20 billion yuan range, which is also considered by the industry as an opportunity for China Resources Sanjiu.

The company's operating income has continued to decline after reaching a peak of 19 billion yuan in 2019, and has remained at 8.6 billion yuan in the past two years. The core change is that Tasly has been selling its pharmaceutical retail business, including pharmacies. The net profit attributable to the parent company has also fluctuated greatly, and in 2022 it even suffered its first loss in 20 years since its listing, with a loss of 264 million yuan.

The most frequently mentioned reason is that the second generation of entrepreneurs did not develop smoothly after taking over. In 2014, Yan Xijun retired as the chairman of the company, and Yan Kaijing, then 35 years old, stepped into the spotlight. He is a second generation entrepreneur with a master's degree in international securities, investment and banking from the University of Reading in the UK and a doctorate in traditional Chinese medicine from Tianjin University of Traditional Chinese Medicine.

It is worth mentioning that Yan Kaijing also joined the army after returning from overseas studies. This may be due to his father's experience. Yan Xijun served in the army for 20 years. At that time, the development of the compound Danshen dripping pills was also due to the sudden death of an "old leader" due to a heart attack, which brought him a big blow.Several Tasly employees told reporters that to this day, the company still retains the tradition of giving "military training" to all new graduates entering the company every year.

An internal employee said that although he had not had much contact with Yan Kaijing, unlike the outside world's view of the second generation of traditional entrepreneurs, he was a "pragmatic" person. "He started to take over the company's affairs in 2014 and officially took over in 2021. He was also very busy at work, either on a business trip or on the way to a business trip."

After Yan Kaijing came to power, he became famous for "innovation" and "investment".

In 2023, Tasly's R&D investment of 1.315 billion yuan increased by 29.49% year-on-year, which is higher than the net profit of 1.071 billion yuan in the same period. Its investment in R&D ranks first among Chinese patent medicine companies, higher than leading companies such as China Resources Sanjiu, Yiling Pharmaceutical, and Baiyunshan, and several times that of Chinese medicine companies of the same size such as Yunnan Baiyao, Tongrentang, and Dong'e Ejiao.

However, these products under development have not yet entered their "harvest period", and the core source of income is still the compound danshen drops left by our parents.

The main carrier in the investment field is Tasly Capital. According to reports, the capital was founded in 2007 and focuses on the 4D (drugs, diagnostics, equipment, digital health) investment field, focusing on the five core disease areas of cardiovascular and cerebrovascular, tumors, digestive metabolism, respiratory, and neurological diseases. Now the total scale of the managed funds has reached 15 billion yuan, with more than 150 investment projects. After Yan Kaijing took over, he made a large number of foreign investments in innovative pharmaceutical companies, including Coherus Pharmaceuticals, I-Mab, PHARN, and Yongtai Bio.

This once allowed Tasly's net profit in 2021 to hit a record high of 2.359 billion yuan. At that time, it was mainly the disposal of Tianjin Biopharma's equity to obtain income, which increased Tasly's net profit by 1.73 billion yuan. But in sharp contrast, Tasly's net profit attributable to shareholders in 2022 fell by 110.87% compared with the same period last year, mainly because the fair value change profit and loss in the current period decreased by 1.024 billion yuan year-on-year, and the decline in fair value was mainly affected by the decline in stock prices. The financial assets held by Tasly through investment, such as Tianjin Biopharma and Coji Pharmaceuticals, fell by 1.104 billion yuan in market value that year.

"After many debates, I began to lead the group's asset structure adjustment in 2017." In an interview with the media in 2022, Yan Kaijing said, "Enterprises need to adjust their asset structure to adapt to the cycle. Tasly was built brick by brick by our fathers, and it is difficult to make the decision to 'sell assets'."

In that interview, he also mentioned that every successor to a family business faces a problem: how to find personal value in an established business group? "On the one hand, successors often have the ambition to surpass their parents. But on the other hand, the achievements of their parents are extremely difficult to surpass."

In recent years, in contrast to its innovative businesses, Tasly has begun to "slim down" its traditional businesses. In 2020, Yan Kaijing sold the equity of Tasly Marketing Company to Chongqing Pharmaceutical for 1.489 billion yuan. In September 2023, he sold the relevant equity of Jinan Pingjia Pharmacy and Liaoning Tasly Pharmacy to Shuyu Pingmin for 659 million yuan.

But until today, Yan Kaijing has not built the "Tasly" he wanted. The investment and innovation business have not been able to keep up with the performance, which has repeatedly caused him to be questioned by the outside world for "making a fuss". The deal with China Resources Sanjiu may be the result of his final choice after struggling. After this transaction, Tasly Group and its concerted actors hold a total of 261 million shares of the company, accounting for 17.50% of the total share capital.

In May this year, Yan Kaijing took over the chairmanship of Guizhou Guotai Liquor from his father again. Combined with the current transfer of controlling stake of Tianshili, the market speculates that the Yan family may withdraw its focus from the traditional Chinese medicine business.

Photography: Tan Liping

In the Tasly Exhibition Hall, products such as Guotai Liquor, Diboer Bio-Tea, C-Cell Vitality Natural Mineral Water, and Kings Marselan Wine are also on display.According to a Tasly insider, "The pharmaceutical business has been acquired by China Resources, but the wine, water, tea and health products sectors are still with us."

The “moment of integration” has arrived

The capital market was not surprised by China Resources Sanjiu's move.

According to statistics from Huatai Securities' research report, since 2009, China Resources Sanjiu has completed at least 19 large and small external mergers and acquisitions.The industry even believes that China Resources Sanjiu's main responsibility is "responsible for mergers and acquisitions in the traditional Chinese medicine sector."

If we zoom in on the entire pharmaceutical sector of China Resources Group, the frequency of asset operations is even more complicated. As for listed companies alone, the entire China Resources Group currently covers 9 pharmaceutical listed companies, including 7 A-share listed companies, namely China Resources Sanjiu, Jiangzhong Pharmaceutical, Dong-E E-Jiao, Kunming Pharmaceutical Group, China Resources Double Crane, Boya Bio, and Dirui Medical, and 2 Hong Kong-listed companies, China Resources Pharmaceutical and China Resources Healthcare.

Wang Xiangming, Chairman of China Resources Group. Photo: Deng Pan

Wang Xiangming, Chairman of China Resources Group, once mentioned that in 2022, the State-owned Assets Supervision and Administration Commission of the State Council officially approved China Resources Group to be transformed into a state-owned capital investment company, and the main development direction of the group is "big country people's livelihood" and "big country heavy equipment". Using capital to leverage the industry is the "forte" of the entire China Resources Group.Ning Gaoning, who was once the group's vice chairman, used the story of "twenty-six cats turning into a tiger" to illustrate the truth that "only by mergers and acquisitions can we resist foreign enemies."The business segments under China Resources Group basically follow this development logic.

Moreover, China Resources Group does not follow a purely investment-oriented development logic, but places great emphasis on the management of the invested enterprises. The six capabilities emphasized by China Resources Group include fund raising, investment management, industrial development, supervision management, asset exit, and shared services, which greatly exceeds the scope of "fund raising, investment, management and exit" often mentioned in the venture capital fund industry. Half of the capabilities are related to enterprise management, industrial development, and business synergy.

Although China Resources Group has established its position in the traditional Chinese medicine industry through various means, the outside world is still not so "familiar" with the management style and logic of this state-owned enterprise giant.

According to previous information from "China Entrepreneur", China Resources Group has internally built a three-level management and control structure of "capital layer - asset layer - operation layer". The group headquarters is the "capital layer", responsible for creating capital value through capital operations, strategic management, etc., making the company "more valuable"; the business unit, as the "asset layer", must create industrial value through investment management, asset management, etc., making the company "more profitable"; the grassroots production and operation enterprises are the "operation layer", directly creating market value to make the company "richer".

Within China Resources Group, one of the most important systemic issues is the degree of authorization and decentralization of invested enterprises. How to reconcile the contradiction between "chaos if you delegate power, death if you control".In 2021, China Resources Group established a "Differentiated Management and Control Plan" based on the principles of "classification control, hierarchical control, dynamic adjustment, and combination of relaxation and regulation". It integrated five dimensions and 14 indicators to establish a mature evaluation system. The more mature the enterprise, the greater the degree of authorization and delegation.

When it comes to sub-businesses and fields with large degrees of authorization and delegation, China Resources Group companies have always acted quickly and implemented them strongly.

In 2017, when China Resources Microelectronics took over AVIC's micro-electronics industry in Chongqing, the latter had been losing money for 10 consecutive years. China Resources Group sent a person in charge to Chongqing with several people in charge of finance and operations. The handover took several months, and then after a year of rectification, it turned the loss into profit.

Afterwards, through a series of mergers and acquisitions, China Resources Microelectronics quickly supplemented its capabilities in product design, photomask manufacturing, packaging and other aspects. It has now become China's largest integrated semiconductor IDM (covering everything from design to production and manufacturing) company, with sales of its own brand products accounting for 50%.

The path that China Resources Sanjiu took in Kunming Pharmaceutical Group is “exactly the same.”

At the end of 2022, China Resources Sanjiu completed the acquisition of 28% of Kunming Pharmaceutical Group's shares for RMB 2.902 billion and became the controlling shareholder. According to the overall plan, Kunming Pharmaceutical Group focuses on chronic disease management and elderly health.

In 2023, one of the major tasks of China Resources Sanjiu is to promote the integration of Kunming Pharmaceutical Group. One year after entering the system, the profitability of Kunming Pharmaceutical Group has improved. In 2023, the operating income of Kunming Pharmaceutical Group decreased by 6.99% year-on-year due to the optimization of the business structure of the commercial sector and the reduction of foreign aid business, but the net profit increased by 16.05% year-on-year.

Take the issue of "competition in the same industry" as an example. At the beginning of the transaction, China Resources Sanjiu promised that within 5 years after the completion of the transaction, it would solve the existing competition in the same industry between the two parties in accordance with legal procedures through methods including but not limited to asset restructuring. The core is Xuesetong Sanqi Soft Capsules, and the company involved is China Resources Shenghuo, which is 100% controlled by China Resources Sanjiu.

But in June this year, the major competition problem that had been planned for five years was resolved. China Resources Sanjiu and Kunming Pharmaceutical Group simultaneously announced that the two parties had signed an equity transfer agreement, and Kunming Pharmaceutical Group acquired 51% of China Resources Shenghuo's equity for 1.791 billion yuan. In the eyes of the capital market, China Resources Group's pace was somewhat beyond expectations.

Dong-E-Erhu, which was previously plagued by negative news, had its major shareholder China Resources Pharmaceutical send in management at the beginning of last year. That year, the sales of its donkey-hide gelatin and series products once again exceeded the 4 billion yuan mark after a lapse of four years. In 2021, after the blood products company Boya entered the China Resources system, it gradually divested other businesses besides blood products within two years, and its profitability was improved.

The development status of Tasly, which has entered the China Resources system, is still unknown. When discussing the reasons for the acquisition, China Resources Sanjiu mentioned that the transaction aims to achieve two major goals: one is to deepen the layout of the entire industry chain of traditional Chinese medicine, and the other is to speed up the replenishment of innovative traditional Chinese medicine pipelines.

"Digesting" Tasly may be more complicated, with more products and more complex channels. But the strategic significance is clear, and by cooperating with China Resources Sanjiu, we can achieve a "full industry chain layout."

In its 2023 annual report, China Resources Sanjiu mentioned that the demand for chronic disease management among the elderly is growing rapidly. As the elderly population expands and their prevalence of chronic diseases such as cardiovascular, diabetes, coronary heart disease, orthopedics, and respiratory diseases is high, related categories are expected to usher in new growth.

Photography: Tan Liping

Huaan Securities analyst Tan Guochao believes that this transaction is a "complementary advantage". Through this acquisition, China Resources Sanjiu can further consolidate its leading position in the traditional Chinese medicine industry chain, expand its business territory, and optimize resource allocation. For Tasly, the acquisition of China Resources Sanjiu will bring important financial support, alleviating its financial pressure in business expansion and research and development.

There are still many practitioners in the industry who expressed their "regret" for Tianshili. After all, its product structure layout may correspond to a broader situation.

It is worth mentioning that after this transaction, the top six of the top ten Chinese medicine companies in China by market value are all controlled by state-owned assets.What is foreseeable in the future is that the strong entry of state-owned assets will cause the Matthew effect to emerge in the traditional Chinese medicine industry, which has always been considered "fragmented".