Drugmaker Guizhou Bailing Mired in Bribery and Other Scandals

Sun_Huixia

Sun_Huix...

· 5月1日

Jiang liked the game of Go and thus built a Go house, self-styled as the best in China. He liked race cars and thus created an auto racing team. He liked luxury hotel rooms and thus spent RMB1 billion building Hilton Hotel in Anshun, a third-tier city in Guizhou province.

Guizhou Bailing

Guizhou Bailing's major product.

BEIJING, April 30 (TMTPOST) -- During decades-long reforms in China’s healthcare sector, some pharmaceutical ompanies focused on research and development (R&D) and begin to reap benefits but others neglected R&D and instead spent lavishly on marketing. Guizhou Bailing is one of the latter. It has been also embroiled in a string of scandals.  

Founded in 1999, Guizhou Bailing debuted on the Shanghai Stock Exchange in 2010 as the first pharmaceuticals company focusing on Miao ethnic medicine. Miao is an ethnic group who live primarily in southwestern China. Right after the listing, the company expanded quickly in business size and saw earnings surge, leading to rising share prices and crowning Jiang Wei, Chairman and the actual controller of the firm, the wealthiest person in the province. However, Jiang's good time did not lasted long. He did not value R&D but spent excessively on marketing and even bribed officials. To make things even worse, he made forays into other fields, including building Hilton Hotel in a remote city in Guizhou province, a Go house and high-cost buildings.  

His wanton forays needed money. Jia and his family pledged company shares for the money when shares prices were high. When share prices hit new lows, his debt repayment was in trouble.

In the past 12 years, Guizhou Bailing added only one new product – Infant Caihu Fever Drugs - by acquisition.

Guizhou Bailing started to go downhill in 2019. In the past three years, the company had revenues of RMB2.851 billion in 2019, representing a year-over-year decline of 9.13%; the revenue reached 3.088 billion in 2020, representing a slight year-over-year increase of 8.3%; the figure was RMB3.112 billion in 2021, up 0.77% from 2020. The net profit attributable to company shareholders fell by 9.13%, 46.11% and 18.49% year-over-year in 2019, 2020 and 2021, respectively.

Pharmaceuticals companies tend to invest heavily in R&D given the long cycle to develop a drug. However, Guzhou Bailing spent lavishly on marketing but grudgingly on R&D. In 2019, 2020 and 2021, the company used RMB970 million, RMB1.135 billion and RMB1.289 billion in marketing and sales expense respectively, accounting for 34.04%, 36.77% and 41.41% of total revenues. While its peers reduced their spending on marketing and sales, Guizhou Bailing’s spending on marketing kept surging.        

By comparison, its spending in R&D in 2019, 2020 and 2021 amounted to RMB24.7908 millon, RMB36.9972 million and RMB30.4254 million, respectively, representing 0.87%, 1.2% and 0.98% of total revenues.

On March 2019, Herentang’s Certificate of Good Manufacturing Practice (GMP) was revoked. Subsequent manufacturing suspension caused reductions of RMB109 million and RMB20.260 million in the revenue and net profit respectively. The production halt was the major contributing factor to poor results in 2019.  

On March 2019, Herentang’s Certificate of Good Manufacturing Practice (GMP) was revoked. Ensuing manufacturing suspension caused reductions of RMB109 million and 20.260 million in revenue and net profit respectively. The production halt was the major contributing factor to poor results in 2019.

More woes followed. In June 2021, seven defects in Guizhou Bailing's manufacturing were found in an unannounced inspection conducted by Guizhou provincial drugs supervision bureau. 11 problems in Guizhou Bailing’s subsidiary Zhengxin Pharmaceuticals were identified. The provincial regulator ordered them to correct wrongdoings by a certain time.

According to 2021 annual reports, a drug named Tangningtongluo is still being developed after a bribery scandal broke out in April 2017. Beiing-based Legal Daily reported that the company's chairman bribed an official of Guizhou Drugs and Food Supervision Bureau with RMB100,000, in exchange for a favor in reviewing a production permit application and pharmaceutical registration.    

Reckless forays into other fields and misappropriations

Since Guizhou Bailing’s IPO in 2010, Jiang has made inroads into many fields unrelated to pharmaceuticals. From 2011 to 2014, the company spent RMB100 million growing radix ginseng and RMB395 million developing collagen beverage. It also started developing Chinese herb medicine tablets and bought warehouses. It even acquired a chemical fertilizer manufacturing company. In 2018, it invested in a biomedicine company. However, none of the investments succeeded. In 2021, Chinese herbs, western drugs and other business contributed only 0.11%, 0% and 0.93%, respectively, of total revenues.
Guizhou Bailing

Guizhou Bailing's products

Jiang liked the game of Go and thus built a Go house, self-styled as the best in China. He liked race cars and thus created an auto racing team. He liked luxury hotel rooms and thus spent RMB1 billion building Hilton Hotel in Anshun, a third-tier city in Guizhou province. He even built the most expensive buidlings in Guiyang and invested in a plane manufacturing project. The list of his pet projects can go on and on. According to corporate information, he controls 69 companies directly or indirectly and held positions in 22 companies (with eight firms terminated).

In order to finance his non-pharmaceutical investments, he borrowed. In 2010, the company issued bonds, raising RMB1.48 billion. Furthermore, the company’s operations relied on short-term borrowings. Since 2018, the company’s short-term debts have stayed high. They were RMB1.582 billion, RMB2.202 billion, RMB2.063 billion and 1.448 billion, respectively, at the year-end of 2018, 2019, 2020 and 2021.  

As of December 31, 2021, Guizhou Bailing’s non-current debts due within a year amounted to RMB238 million and short-term debts to RMB1.686 billion. But its cash and cash equivalents totaled only RMB466 million, including RMB146 million with restrictions. Even with RMB4.75 million in receivables, short-term debt repayment obligation is overwhelming. High debts and rising interest expenses have eroded net profits. Interest expenses in 2019, 2020 and 2021 were RMB52.04 million, RMB63.14 million and RMB107 million respectively, compared with only RMB16.70 million in 2018.  

Jiang pledged his shares for loans. When share price plunged, he was in big trouble. In 2018, Guizhou Bailing’s share price fell by 43.18%, leading to a problem in cash flows. With debts looming, Jiang misappropriated the listed company’s cash for his personal use. In 2020, Jiang took RMB1.229 billion from corporate coffers and returned RMB888 million, with an outstanding amount of RMB341 million on December 31, 2021. In the first three months of 2021, Jiang took another RMB418 million from the company.

After his irregularities were caught, he was forced to return all the funds by April 2021.

As the misappropriation was stoppd, Jiang found a new channel for cash. While the company’s net profit fell in 2021 from the previous year, dividends were given out generously to shareholders. Paid dividends amounted to RMB310 million, which was about 106.55% of the net profit attributable to the shareholders and combined dividends handed out in the previous three years. Given Jiang and his family are a majority shareholder, most of the dividends went to their pockets.

(The Chinese version of article was written by Su Qitao and edited by Cui Wenguan. The English version is based on the Chinese version).

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