In-Depth Analysis Report on Goodwill Impairment Risk of Buchang Pharmaceuticals

Based on the above data and analysis, I will provide you with a systematic and comprehensive interpretation of Buchang Pharmaceuticals’ goodwill impairment issues and remaining goodwill risks.

---

Buchang Pharmaceuticals (603858.SS) sought to rapidly expand its business scale by acquiring two companies, Tonghua Guhong and Jilin Tiancheng, at high premiums after its IPO in 2015. However, this strategy brought a heavy goodwill impairment burden in the following years [1].

Time Period	Impairment Amount	Main Impairment Targets	Impact on Net Profit
2021	RMB 220 million	Partial Goodwill	Net profit decreased by 18.9%
2022	RMB 3.035 billion	Tonghua Guhong, Jilin Tiancheng	Net loss of RMB 1.59 billion
2023	RMB 700 million	Continued accrual	Net profit of only RMB 150 million
2024	RMB 853 million	Tonghua Guhong, Jilin Tiancheng	Net loss of RMB 427 million
Cumulative	Approx. RMB 4.588 billion	—	—

This round of intensive goodwill impairment directly resulted in annual losses for the company in 2022 and 2024, with a narrow small profit barely achieved in 2023 [1].

In its 2024 annual report, Buchang Pharmaceuticals clearly stated that the main reasons for goodwill impairment of Tonghua Guhong and Jilin Tiancheng are:

• Multiple products of Tonghua Guhong and Jilin Tiancheng were successively
  removed from the national medical insurance catalog
  [1]
• Some products are restricted by medical insurance or included in the
  key monitoring catalog
  in some provinces
• Significant sales decline led to failure to meet performance commitments

Review of acquisitions from 2018 to 2020:

Acquired Target	Acquisition Time	Acquisition Amount	Original Goodwill Value	Accrued Impairment Amount	Impairment Ratio
Tonghua Guhong	2018	Approx. RMB 3 billion	RMB 2.13 billion	RMB 1.3 billion	61.0%
Jilin Tiancheng	2019	Approx. RMB 3 billion	RMB 3.256 billion	RMB 2.359 billion	72.5%
Others	—	—	RMB 580 million	RMB 50 million	8.6%
Total	—	Approx. RMB 6 billion	RMB 5.966 billion	RMB 3.709 billion	62.1%

These two acquisitions generated approximately RMB 5.2 billion in goodwill, accounting for nearly 90% of the total acquisition consideration [1][3].

As of the end of Q3 2025, Buchang Pharmaceuticals still has

. Although the peak period of large-scale impairment has passed, the remaining goodwill still carries certain risks:

Risk Factor	Risk Score	Risk Level	Specific Explanation
Medical Insurance Risk of Tonghua Guhong’s Products	75/100	High Risk	Uncertainty exists regarding whether core products can be re-included in the medical insurance catalog
Sales Risk of Jilin Tiancheng’s Products	70/100	High Risk	Sales of Compound Troxerutin and Cerebroside Injection, Compound Peptide and Ganglioside Injection continue to face pressure
Overall Goodwill Scale	45/100	Medium Risk	The remaining RMB 620 million in goodwill has dropped significantly compared to the original value of RMB 5 billion
Litigation Risk	60/100	Medium Risk	Uncertainty exists in the RMB 650 million litigation with Zimmer Biomet
Insufficient R&D Investment	55/100	Medium Risk	The huge gap between sales expenses and R&D expenses raises doubts about long-term competitiveness

1. Sufficient Release of Impairment Pressure
   : Over RMB 4.5 billion has been accrued in total, accounting for nearly 90% of the total goodwill, and risks have been significantly released [1]

2. Signs of Performance Recovery
   : The company achieved a net profit of RMB 215 million in the first three quarters of 2025, a year-on-year substantial increase, indicating a recovery in the main business [1]

3. Decline in Goodwill/Net Asset Ratio
   : The proportion of remaining goodwill to the company’s net assets has dropped to a low level

4. Litigation Outlook
   : Buchang Pharmaceuticals is the plaintiff in the litigation with Zimmer Biomet; if it wins the case, it may recover part of the losses [1]

Although the peak period of large-scale goodwill impairment has passed, the following risks still require attention:

• Uncertainty in medical insurance catalog adjustment policies
• Tighter supervision in the traditional Chinese medicine (TCM) industry
• Possible expansion of the key monitoring catalog

• Fierce competition in the cardiovascular and cerebrovascular TCM market
• Core products such as Naoxintong Capsules and Wenxin Granules face competition from generic drugs
• Sales of Wenxin Granules decreased by 78.57% year-on-year in 2023 [3]

• Business transformation into medical devices is affected by litigation
• Small investment scale in the big health sector
• Limited short-term contribution from international business

• Asset-liability ratio reached 45.55% in 2023, the highest in the past eight years [3]
• Quick ratio is only 0.49, resulting in relatively high short-term debt repayment pressure [3]
• Continuous capital injection into subsidiaries (Zhejiang Huapai has an asset-liability ratio of 251%) [3]

Evaluation Dimension	Current Status	Trend Judgment
Goodwill Risk	Mostly Released	★★★☆☆ (Medium)
Performance Stability	Improved	★★★★☆ (Good)
Policy Risk	Medium	★★★☆☆ (Medium)
Valuation Rationality	Extremely high P/E ratio (10,465x)	★★☆☆☆ (Poor)

: The worst period of goodwill impairment risk for Buchang Pharmaceuticals has passed. Although the remaining RMB 620 million in goodwill still requires attention, the probability of large-scale one-time impairment is low. The company is in a critical period of transformation from “marketing-driven” to “product-driven”, with key focuses including:

• Whether core TCM products can maintain market share
• Litigation progress of the medical device business
• Whether increased R&D investment can bring new products
• Effectiveness of international business expansion

It is recommended that investors closely monitor the company’s subsequent product approval status, medical insurance catalog dynamics, and litigation progress, and carefully evaluate investment risks.

---

[1] Caifuhao - “Litigation Troubles, Investment Floating Losses: Buchang Pharmaceuticals’ Comeback May Be on the Horizon” (https://caifuhao.eastmoney.com/news/20260115095330377387350)

[2] OFweek - “Cumulative Goodwill Impairment Exceeds RMB 3.6 Billion, Buchang Pharmaceuticals Reaps the Bitter Fruit of High-Premium Mergers and Acquisitions” (https://m.ofweek.com/medical/2024-05/ART-11106-8460-30634143.html)

[3] Financial data from Buchang Pharmaceuticals’ 2023 annual report and 2024 semi-annual report

[4] Jinling AI - Company fundamentals and financial analysis data [0]