Summary of Key Points
Yiling Pharmaceutical experienced its worst loss since going public in 2024 (a loss of 725 million yuan), but it achieved a V-shaped turnaround in 2025, with revenue increasing by 20% and profits rising by 277%. The first quarter of 2026 continued to show double-digit profit growth. The key to this turnaround was getting rid of the inventory burdens left over from the pandemic, reducing costs, and increasing product sales. However, there are also underlying concerns such as reliance on fluctuating best-selling products, policy pressures, and internationalization risks. Whether it can continue to grow in the future will depend on innovation and its globalization strategy.
Why Was the Loss So Severe in 2024? – The Retreat of Pandemic Benefits + Inventory Bombs
The loss in 2024 was not accidental; it was the result of settling accounts after the pandemic:
- The “aftermath” of Lianhua Qingwen: During the pandemic, Lianhua Qingwen was sold out, and channels stocked up on large quantities. After pandemic prevention and control measures became routine, demand plummeted. In 2024, revenue from respiratory products dropped from 32% to 12%, forcing the company to write off losses for nearly expired drugs (equivalent to disposing of unsold inventory), which directly reduced profits.
- The Cardiovascular and Cerebrovascular Business Failed: As the second-largest source of revenue, cardiovascular and cerebrovascular product sales decreased by 17.68% in 2024. On one hand, the overall pharmaceutical industry was struggling (with nearly 70% of traditional Chinese medicine companies seeing revenue declines), and on the other hand, rising raw material costs and high sales expenses squeezed profits.
- A One-Time Clearance of Problems: These inventory issues were bound to surface eventually, so the company chose to address them during a low point in the industry. Although it was painful, clearing these problems paved the way for recovery in 2025.
How Did the Turnaround Happen Suddenly in 2025? – Getting Rid of Burdens + Cost Reductions + Strong Product Sales
The turnaround was the result of three factors working together:
- Inventory Clearance: The impairment in 2024 eliminated historical burdens, and by 2025, inventory levels in respiratory product channels returned to normal. Lianhua Qingwen once again sold for over 2 billion yuan, becoming the number one choice for cold medications in public hospitals.
- Earning More and Spending Less: Prices of raw materials (such as leeches and honeysuckle) decreased, and the proportion of high-margin products increased, raising the gross margin by 14 percentage points to 64%. At the same time, sales, administrative, and research and development expenses all fell by more than 10%, leading to a significant profit increase (profit growth was 13 times that of revenue).
- Cash Flow and Dividends Prove Profitability: Operating cash flow in 2025 increased by 190%, faster than profit growth, indicating that money was actually being generated. The company distributed 1.3 billion yuan in dividends, with a payout ratio of 103% (paying out exactly the amount earned, even reinvesting some of the profits), showing management's confidence in the future.
How Does It Make Money Now? – Stable Cardiovascular and Cerebrovascular Business, with Respiratory Products Becoming a Driver
Yiling's business is driven by two main pillars:
- Cardiovascular and Cerebrovascular Business as a Stabilizer: In 2025, this segment accounted for 50% of revenue, with only a 2% increase, but the gross margin rose to 68.6% (an increase of 11 percentage points), indicating stronger profitability. Products like “Tongluo Sanbao” (Tongxinluo, Cansong Yangxin, Qili Qiangxin) ranked among the top ten in cardiovascular medications, providing a stable source of revenue.
- Respiratory Products Turning from a Drag to a Driver: Respiratory product sales increased by 153% in 2025, with their proportion rising to 25%. Lianhua Qingwen became popular again due to an influenza outbreak. A new version of Lianhua Qingke Tablets sold 40 million units in the first quarter of 2026, with annual sales expected to exceed 200 million. However, there is a concern: Lianhua Qingwen's sales are still dependent on external factors (such as influenza); if there is no pandemic next time, sales may decline.
Can It Continue to Grow in the Future? – The Base Drug Catalogue Offers Opportunities, but There Are Risks Too
The 2026 base drug catalogue update included six exclusive Yiling drugs (including one innovative drug for treating depression), which is a significant opportunity, but it also comes with challenges:
- Benefits and Costs of Being Included in the Base Drug Catalogue: Being listed means that these drugs must be used preferentially in primary hospitals, expanding the market (which is larger than tertiary hospitals), but prices may be compressed. For example, Jieyu Chufan Capsules (for treating depression) could become another bestseller due to guideline recommendations, but whether sales can compensate for price losses is uncertain.
- R&D Potential with High Risks: The company has invested 4 billion yuan in R&D over the past five years and holds 17 patented drugs, including a breakthrough in chemical pharmaceuticals (such as Anilofen Injection). However, the R&D cycle for innovative drugs is long, and failure rates are high. For instance, XY0206 Tablets (for treating leukemia) face competition from multinational companies, and its success depends on clinical data.
- Hidden Risks: ① Lianhua Qingwen's sales are highly cyclical and dependent on external factors; ② Centralized procurement of traditional Chinese medicines and healthcare cost controls may pressure profits; ③ Internationalization carries compliance risks (the subsidiary was subject to arbitration by the US, and received an FDA warning); ④ Fluctuations in raw material prices (such as rising costs for ginseng and honeysuckle) can erode profits.
In Conclusion: A Turnaround Is a Demonstration of Capability, but Sustained Growth Is a Test
Yiling's V-shaped turnaround represents a shift from relying on pandemic-driven best-selling products to focusing on innovation and policy benefits. This shows that the competitive advantage of traditional Chinese medicine companies lies in a combination of theoretical frameworks, evidence-based medicine, patent portfolios, and policy access. Whether it can transform from a temporary recovery into sustained growth will depend on whether the base drug catalogue can be effectively utilized at the primary healthcare level, whether innovative drugs are successful, and whether internationalization issues can be resolved. While the turnaround has been achieved, sustained growth still needs to be verified over time.