Analysis Report on RMB 3.0-3.4 Billion Goodwill Impairment Risk of Biopharmaceutical Enterprises

I have now collected sufficient information and provide you with an in-depth analysis report on the RMB 3.0-3.4 billion goodwill impairment risk of biopharmaceutical enterprises:

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According to the latest financial data, in its 2024 annual performance forecast, Bu Chang Pharmaceuticals (603858.SH) disclosed that it plans to record goodwill impairment provisions for its wholly-owned subsidiaries Tonghua Guhong and Jilin Tiancheng,

[1]. This huge impairment resulted in the company’s expected net profit attributable to shareholders in 2024 being a loss of RMB 428 million to RMB 808 million, turning from profit to loss compared to the same period last year’s profit of RMB 319 million[1].

Bu Chang Pharmaceuticals’ huge goodwill originated from two major acquisitions between 2012 and 2015:

Acquisition Target	Acquisition Time	Acquisition Cost	Recognized Goodwill	Core Product
Tonghua Guhong	2013-2015	RMB 2.748 billion	RMB 1.836 billion	Guhong Injection
Jilin Tiancheng	2012-2015	RMB 3.597 billion	RMB 3.161 billion	Compound Troxerutin and Peptide Injection, Compound Cerebroprotein Hydrolysate and Ganglioside Injection
Total	-	RMB 6.345 billion	RMB 4.997 billion	-

These two acquisitions formed Bu Chang Pharmaceuticals’ goodwill assets of nearly RMB 5 billion, accounting for a considerable proportion of the company’s total assets at that time[2].

The fundamental cause of the goodwill impairment is

. Since 2019, the state has begun to build a unified national medical insurance drug catalog, and required provincial medical insurance catalogs to be aligned with the national catalog[3]. Compound Cerebroprotein Hydrolysate and Ganglioside Injection and Compound Troxerutin and Peptide Injection of Bu Chang Pharmaceuticals’ subsidiary Jilin Tiancheng, as well as Guhong Injection of Tonghua Guhong, are all included in the scope of cleanup and standardization.

• 2020
  : The three aforementioned products were successively removed from provincial medical insurance catalogs
• End of 2022
  : All three products have been withdrawn from provincial medical insurance catalogs
• Early 2023
  : Some provinces included them in the “Provincial Key Monitoring Catalog for Rational Drug Use”[4]

Policy changes directly led to a cliff-like decline in product sales and revenue:

Product	2021 Revenue	2023 Revenue	Decline Rate
Guhong Injection	RMB 2.112 billion	RMB 178 million	-91.6%
Compound Troxerutin and Peptide Injection	Approximately RMB 1.5 billion	Approximately RMB 300 million	-80%
Compound Cerebroprotein Hydrolysate and Ganglioside Injection	Approximately RMB 1.2 billion	Approximately RMB 200 million	-83%

The total operating revenue of the three products in 2023 decreased by

compared to 2022[5].

Due to the sharp decline in product revenue, the profitability of the relevant subsidiaries has dropped drastically:

• Jilin Tiancheng
  : 2020 revenue was RMB 690 million, a year-on-year decrease of 32.62%
• Tonghua Guhong
  : 2023 revenue shrank by more than 90% compared to 2021
• Overall Gross Profit Margin
  : The 2024 gross profit margin was 60%, a year-on-year decrease of 8.4 percentage points[5]

Bu Chang Pharmaceuticals’ goodwill impairment exhibits the characteristic of

:

Year	Impairment Amount	Proportion of Initial Goodwill	Impact on Net Profit
2020-2021	RMB 0	0%	-
2022	RMB 3.07 billion	61.4%	Loss of RMB 1.53 billion
2023	RMB 597 million	11.9%	Profit of RMB 319 million
2024	RMB 850 million - RMB 1.0 billion	17-20%	Expected loss of RMB 428 million - RMB 808 million
Cumulative	RMB 4.53 billion	88%	-

As of the end of 2024, Bu Chang Pharmaceuticals’ remaining goodwill still amounted to RMB 1.473 billion, and there is still a risk of impairment in the future[6].

• Net assets attributable to shareholders decreased by 12%
• Total assets decreased by 7.5%
• The proportion of goodwill to total assets remains at a high level

• 2024 loss of RMB 554 million, a year-on-year decrease of 273.60%
• Earnings per share decreased by 277%
• Non-recurring profit and loss turned from positive to negative, totaling -RMB 61.1 million[5]

• On January 21, 2024, the stock price was RMB 14.87 per share, a decrease of 3.88%
• Current market value is approximately RMB 16.4 billion
• A 70% decrease compared to the issuance price of RMB 55.88 per share[7]

According to industry research data, the overall goodwill scale of the pharmaceutical manufacturing industry is huge, and many enterprises faced goodwill impairment pressure in 2024:

Enterprise	Goodwill Impairment Amount	Main Reason
Bu Chang Pharmaceuticals	RMB 3.0-3.4 billion	Changes in medical insurance policies, products withdrawn from catalogs
Sinopharm Accord	RMB 890 million	Declining performance of retail business
Beijing Beilu Pharmaceutical	Impairment provision	Integration of acquired Tianyuan Pharmaceuticals fell short of expectations

Goodwill impairment risks in the pharmaceutical industry mainly stem from the following factors:

• High valuation is common in M&A activities in the pharmaceutical industry
• Large gap between performance commitments and actual performance
• Sustainability of performance supported by academic promotion expenses is questionable[8]

• Dynamic adjustment mechanism for medical insurance catalogs
• Normalization of volume-based procurement
• Restrictions on traditional Chinese medicine (TCM) injections and supportive medications

• Competition from homogeneous products
• Frequent price wars
• Insufficient R&D investment in innovative drugs

Risk Indicator	High-Risk Feature	Situation of Bu Chang Pharmaceuticals
Goodwill/Net Assets Ratio	Exceeding 30%	Exceeded 50% in the early stage
Dependence on Core Products	Single product accounts for over 50%	Three products contribute to main profits
Policy Sensitivity	TCM injections, supportive medications	Meets high-risk characteristics
R&D Investment Ratio	Less than 5%	Consistently less than 5% for a long time

• Goodwill impairment leads to significant performance fluctuations
• “Roller coaster” trend: loss in 2022, return to profit in 2023, loss again in 2024

• Price-to-book ratio is at a historical low
• The market continues to price in goodwill risks

• Questions have been raised about the reasonableness of not provisioning for impairment in 2020-2021
• The Shanghai Stock Exchange (SSE) once issued a regulatory letter[9]

• Avoid pharmaceutical enterprises with a goodwill/net assets ratio exceeding 30%
• Pay attention to enterprises with high dependence on a single product
• Be vigilant against manufacturers of TCM injections and supportive medications

• Analyze the sustainability of the profitability of M&A targets
• Evaluate the impact of policy changes on core products
• Pay attention to the R&D investment ratio (recommended >10%)

• Impairment signs in quarterly performance forecasts
• Medical insurance access status of core products
• Dynamics of industry policy changes

For investments in the pharmaceutical industry, it is recommended to focus on the following areas:

Sub-sector	Risk Level	Suggestion
Innovative Pharmaceutical Enterprises	Medium-Low	Focus on R&D pipeline progress
Medical Devices	Medium-Low	Focus on domestic substitution opportunities
CXO/CMO	Medium	Focus on order growth
TCM Injections	Extremely High	Recommended to avoid
Supportive Medications	Extremely High	Recommended to avoid

1. Bu Chang Pharmaceuticals’ RMB 3.4 billion goodwill impairment
   is a typical case of the sequelae of high-premium M&A in the pharmaceutical industry, with the core driving factors being changes in medical insurance policies leading to products being withdrawn from catalogs and a cliff-like decline in sales volume.

2. At the industry level, pharmaceutical manufacturing enterprises generally face goodwill impairment pressure, especially in the fields of TCM injections and supportive medications where risks are most prominent.

3. Investors should focus on indicators such as the goodwill/net assets ratio, policy sensitivity of core products, and R&D investment ratio to avoid high-risk enterprises.

• Short-term
  : After three consecutive years of large-scale impairment, Bu Chang Pharmaceuticals’ goodwill risk has been significantly released, and the subsequent impairment pressure has decreased
• Mid-term
  : The company needs to cultivate new growth points and get rid of dependence on policy-sensitive products
• Long-term
  : The main line of the “cost control” policy in the pharmaceutical industry remains unchanged, and investors need to continuously pay attention to the impact of policy changes on the industry

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[1] Bu Chang Pharmaceuticals’ Goodwill Crisis Erupts Again - Sina Finance

[2] Bu Chang Pharmaceuticals’ Growing Pains at 20 - Jiemian News

[3] Analysis of Causes and Prevention of Goodwill Impairment in the Pharmaceutical Industry - Hans Publishers

[4] Does Bu Chang Pharmaceuticals’ Exclusive Variety Fear Volume-Based Procurement? - Sino-Manager

[5] Bu Chang Pharmaceuticals’ Large-Scale Goodwill Impairment, Doubts About Kickback Sales Persist - Eastmoney

[6] Cumulative Goodwill Impairment Exceeds RMB 3.6 Billion, Bu Chang Pharmaceuticals Reaps the Consequences of High-Premium M&A - OFweek

[7] Violent Impairment of RMB 4.5 Billion Goodwill - Sina Finance

[8] Observation of the Pharmaceutical Manufacturing Industry and 2025 Credit Risk Outlook - Lianhe Credit Rating Co., Ltd.

[9] Summary of Q3 2025 Reports of the Pharmaceutical Industry - Southwest Securities