Analysis of Potential Compensation Risks in Zuoli Pharmaceutical's Bailing Capsule Patent Dispute

According to public information, the patent dispute between Qinghai Everest Cordyceps Sinensis Pharmaceutical Co., Ltd. (a holding subsidiary of Zuoli Pharmaceutical (300181.SZ)) and Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd. (a wholly-owned subsidiary of Huadong Medicine) involves the following key elements [0][1]:

• Involved Patent
  : Fermented Cordyceps sinensis powder invention patent
• Claim Amount
  : Approximately 111 million yuan
• Litigation Claim
  : The plaintiff demands the defendant to stop production and sales and compensate for losses
• Case Progress
  : On December 12, 2025, the Zhejiang Higher People’s Court
  dismissed all the plaintiff’s claims
  in the first-instance judgment

1. Favorable first-instance result
   : The Zhejiang Higher People’s Court has dismissed all of Huadong Medicine’s claims in the first-instance judgment, which to some extent supports Zuoli Pharmaceutical’s defense position [0][1]

2. Uncertainty remains
   : Huadong Medicine clearly stated in the announcement that it will
   appeal to the Supreme People’s Court
   [0][1], meaning the case has not yet been finalized

3. Company risk reminder
   : Zuoli Pharmaceutical stated in the announcement that if the subsequent appeal is successful or the litigation continues, it may have an
   uncertain impact
   on operations and profits [0]

1. Patent validity determination
   : If the Supreme People’s Court finally determines that there are substantial differences between Zuoli Pharmaceutical’s production process and the patent technical features, the compensation risk will be significantly reduced

2. Policy background impact
   : At the end of 2022, the National Medical Products Administration’s Center for Drug Evaluation released the “Technical Guidelines for the Research of Generic Drugs with the Same Name (Trial)”, which provided policy basis for the launch of Zuoli Pharmaceutical’s Bailing Capsule [0][1]

3. Market share and loss calculation
   : The 111 million yuan compensation amount claimed by Huadong Medicine may be calculated based on its alleged market share loss. If it can be proven that the loss has no direct causal relationship with patent infringement, the amount may be significantly reduced

1. Current Risk
   : Before the final judgment of the Supreme People’s Court, Zuoli Pharmaceutical does not need to pay any compensation for the time being, and the
   immediate compensation risk is low

2. Worst-case Scenario
   : If the Supreme People’s Court revokes the first-instance judgment and supports part or all of Huadong Medicine’s claims, the potential compensation amount may range from
   0 to 111 million yuan
   , depending on the court’s determination of the degree of patent infringement and actual losses

3. High-probability Scenario
   : Considering the first-instance judgment result and policy environment support, the
   probability of the final judgment maintaining the original verdict or significantly reducing the compensation amount is high

• The litigation result will not affect Zuoli Pharmaceutical’s legal sales qualification for Bailing Capsule
• This product has already contributed significant performance growth to Zuoli Pharmaceutical (29.58% YoY growth in Q1-Q3 2025)
• Even if an unfavorable judgment occurs, the compensation amount is still within the bearable range relative to the company’s scale and profitability

[0] Sina Finance - “3 Billion Yuan Market Battle: Huadong Medicine Defends Its Throne, Zuoli Pharmaceutical Attacks Violently” (https://finance.sina.com.cn/roll/2025-12-19/doc-inhckesc2042896.shtml)

[1] China Finance Online - “Behind the 356 Million Yuan ‘Takeover’: Zuoli Pharmaceutical’s Urgency and Careful Management” (http://mp.cnfol.com/28928/article/1766973139-142188486.html)