As Herbal Formula Pharmaceutical pursues a listing on the Hong Kong Stock Exchange, its core product has been implicated in a bribery case related to drug sales. A recent notice from the National Healthcare Security Administration regarding the "Zhang Moumeng Drug Sales Bribery Case" revealed that from 2013 to 2023, a sales promoter from Shandong Herbal Formula Pharmaceutical Co., Ltd. provided rebates and benefits totaling 365,000 yuan to multiple medical staff in Qinhuangdao City to promote the drug "Compound Phellodendron Liquid."
Although the NHSA notice did not explicitly name Herbal Formula Pharmaceutical, verification confirms that the "Shandong Herbal Formula Pharmaceutical Co., Ltd." mentioned in the notice refers to this company. According to the first-instance criminal judgment document (Case No.: Ji 0303 Criminal Initial 126), the national drug approval number for the implicated product is "Z10950097." A search of the National Medical Products Administration database with this approval number confirms that the product involved is the Compound Phellodendron Liquid Paint produced by Shandong Herbal Formula Pharmaceutical Co., Ltd. Zhang Moumeng was sentenced to one year in prison, suspended for one year and six months, and fined 20,000 yuan in October 2024.
This Compound Phellodendron Liquid Paint, implicated in the bribery case, is the company's exclusive product. In 2023, 2024, and the first three quarters of 2025, this topical Chinese patent medicine contributed revenues of 1.05 billion yuan, 990 million yuan, and 800 million yuan to the company, respectively, accounting for 99.8%, 99.8%, and 99.7% of total revenue.
Notably, the company's sales expenses remain high. According to its listing application, sales and marketing expenses reached 510 million yuan, 480 million yuan, and 420 million yuan in 2023, 2024, and the first three quarters of 2025, respectively, accounting for 48.7%, 48.6%, and 52.3% of total revenue during the same periods. This sales expense ratio of nearly 50% is significantly higher than the industry average.
Within these high sales expenses, a substantial promotion service fee is particularly notable. The application shows that in 2023, Herbal Formula Pharmaceutical purchased promotion services worth 147 million yuan from its largest supplier, Shandong Jiyuan Information Technology Co., Ltd., accounting for 24.4% of total procurement that year. This supplier was ultimately controlled by Wang Meng, the nephew of the company's actual controllers, brothers Qin Wenji and Qin Yinji.
Regarding the use of sales expenses, Herbal Formula Pharmaceutical only mentioned "hiring third-party promoters responsible for collecting industry information and organizing professional academic conferences," without providing more detailed disclosure.
The NHSA emphasized that bribery in pharmaceutical sales essentially involves buying prescription rights through improper benefits, disrupting normal medical order, and shifting drug sales focus from clinical value to high rebates and kickbacks. The next step will involve the NHSA guiding the Hebei Provincial Healthcare Security Bureau to conduct credit evaluation and handling of the involved company according to the price procurement credit evaluation system.
Data also shows that the company's R&D expenses were 56.95 million yuan, 59.62 million yuan, and 41.55 million yuan in 2023, 2024, and the first three quarters of 2025, respectively. R&D investment is only about 10% of sales expenses, clearly indicating a characteristic of "heavy marketing, light R&D."
As a traditional Chinese medicine company seeking a Hong Kong listing, Herbal Formula Pharmaceutical exhibits distinct family-controlled enterprise traits. The application shows the company is currently 100% controlled by brothers Qin Wenji and Qin Yinji, with multiple family members in management positions. Besides the Qin brothers serving as chairman and general manager, Qin Wenji's daughter Qin Chengxue and son-in-law Ye Weibin also hold key positions. Qin Chengxue is one of the executive directors supervising the company's R&D affairs, while Ye Weibin is responsible for overseeing corporate governance and company secretarial matters.
Regarding this, Herbal Formula Pharmaceutical admitted in its application that "this concentration of shareholding may hinder, delay, or prevent a change in control of the company, which could deprive other shareholders of the opportunity to receive a premium for their H-shares upon a sale of the company and may reduce the price of the company's H-shares. Such events could occur even if opposed by other shareholders. Furthermore, the interests of the controlling shareholders may differ from those of other shareholders."
On the eve of its Hong Kong IPO, Herbal Formula Pharmaceutical distributed substantial dividends to shareholders. The application shows the company declared dividends of 50 million yuan in 2024 and 150 million yuan in the first nine months of 2025. The 50 million yuan dividend for 2024 has been fully paid, and 133 million yuan of the 150 million yuan dividend for Jan-Sept 2025 has been paid. As the company is 100% controlled by the Qin brothers, pre-IPO dividends were entirely received by family members.