Qizheng Tibetan Medicine: Cash dividends are 2.6 times the amount raised in the IPO, and its pain-relieving plaster achieves annual sales of 1 billion yuan.

　　Sustained strong performance and a high rate of investor returns are two prominent hallmarks of Qizheng Tibetan Medicine in the A-share market. As China’s largest Tibetan medicine manufacturer, Qizheng Tibetan Medicine has seen its net profit grow steadily and continuously since its listing on the A-share market in 2009, rising from 160 million yuan in 2009 to over 300 million yuan in 2017. The company’s cumulative cash dividends have reached 1.27 billion yuan—2.6 times the amount it raised in its IPO.

　　Recently, the “High-Quality Development in Action” interview team from the Securities Times visited Qizheng Tibetan Medicine. Zhou Yi, Executive Deputy Editor-in-Chief of the Securities Times, engaged in an in-depth conversation with Lei Jufang, Chairwoman of Qizheng Tibetan Medicine. Through this exchange, the secrets behind Qizheng Tibetan Medicine’s growth—including the continuous upgrading and implementation of its strategies—were unveiled. At the same time, the company’s new strategic plans and its emerging growth drivers for the future were also highlighted.

　　Lei Jufang stated that in the future, Qizheng Tibetan Medicine will further focus on its core business and strive to make it stronger and bigger. Among its flagship products, the pain-relief plaster boasts significant growth potential ahead. At the same time, the company will step up its efforts to launch new products and build a “pain relief family” to cultivate new growth drivers. In addition, the company will also place greater emphasis in the future on acquiring targets that can create synergies with its strategic initiatives, paving the way for a new phase of growth driven by both “organic expansion and external acquisitions.”

　　Interview: Zhou Yi (right), Executive Deputy Editor-in-Chief of Securities Times; Guest: Lei Jufang (left), Chairwoman of Qizheng Tibetan Medicine

　　I. Modern Technology Empowers Traditional Tibetan Medicine

　　Monday: You initially worked at the Institute of Physics, Chinese Academy of Sciences. What led you to venture into entrepreneurship later on? And why did you choose to cross over into the field of Tibetan medicine for your business development?

　　Lei Jufang: In the early 1980s, I was engaged in research and development work on a heavy-ion accelerator project at the Chinese Academy of Sciences. In 1987, just as the country called upon scientific and technological personnel to step onto the main battlefield of the national economy, I chose to start my own business. Looking back now, that decision seemed rather idealistic at the time. But once I made that choice, I moved forward without hesitation, resolutely pursuing my path.

　　The reason we chose to focus on Tibetan medicine for our development back then was, first of all, because I myself am deeply passionate about Tibetan culture and have many friends in Tibet. Secondly, it stemmed from certain experiences I had at the time. The Tibetan region is located in a remote area, and in the 1980s, transportation was extremely inconvenient. Yet, in these remote places, I discovered that people from China’s major cities were willing to endure an eight- or nine-hour car ride just to travel to Tibet specifically for rheumatoid arthritis treatment—and the results proved remarkably effective. You should know that rheumatoid arthritis is a global medical challenge, yet Tibetan medicine has demonstrated clear efficacy in treating it. Thus, under the guidance of Tibetan medicine experts, developing solutions for rheumatic pain became Qizheng’s primary focus.

　　Today, Tibetan medicine’s external treatments have evolved into an outstanding medical and technological system. Not long ago, Tibetan external treatment methods were even recognized as a UNESCO Intangible Cultural Heritage. However, at that time, there were still significant challenges in promoting the widespread application of these traditional external therapies. One of these challenges was how to extend the use of moist compresses beyond Tibet’s local regions—transportation and storage posed major difficulties in this process. My own long-term research in vacuum technology has played a crucial role in overcoming this challenge: vacuum freeze-drying technology provides the solution.

　　However, when Qizheng Tibetan Medicine was first established, the company couldn't afford equipment that cost several million yuan. So my colleagues and I rolled up our sleeves and collectively built one ourselves. Once it was completed, Tibetan medicine became much easier to carry around, and we were able to preserve the fresh medicinal ingredients of Tibetan herbs for a long time. This effectively leveraged modern technology to enhance traditional remedies, making them easier to promote.

　　Monday: After 25 years of development, Qizheng Tibetan Medicine has become a leading enterprise in the Tibetan medicine industry. In your opinion, which steps during this period were the most critical?

　　Lei Jufang: First, choosing to develop Tibetan medicinal topical pain-relief products is crucial, because oral medications are much more challenging to formulate. Second, transforming these topical remedies into portable, technologically advanced formulations using modern scientific and technological methods—this technology later earned us the National Award for Scientific and Technological Progress. Third, selecting Linzhi in Tibet as our base is also extremely important. Resources are the cornerstone of the Tibetan medicine industry, and Linzhi in Tibet is a veritable treasure trove of Tibetan medicinal herbs. As early as 1,300 years ago, the revered medical sage of the Tibetan medical community selected this region to establish a protection base, a research base, and a teaching base.

　　II. Pain-relieving plaster generates annual sales of 1 billion yuan.

　　Monday: Qizheng Tibetan Medicine’s flagship product, the topical pain-relief plaster, is widely regarded in the industry as having sparked a revolution in this market. How large is the future market potential for this product?

　　Lei Jufang: Currently, Xiaotong Paste is among the top-ranking products in China’s market for externally applied pain-relief patches. In the first half of 2018, the company’s revenue from patch products reached 417 million yuan (accounting for 76.79% of total revenue), representing a year-on-year increase of 20.82%. The rapid growth of Xiaotong Paste can be attributed to its successful bid-winning status in tenders across key provinces and cities nationwide; the impact of this round of price reductions has largely been reflected, resulting in steady growth in sales volume. Over recent years, the company’s annual sales volume of patches has typically hovered around 1 billion yuan.

　　In my view, the advancement of the product itself will determine its future growth potential. First, many hospitals have now established pain management departments, reflecting an expanding trend in addressing pain-related issues. Second, by integrating innovations such as smart technologies, the product can become even more user-friendly. Third, we already have technologies that allow for whole-body pain relief with just a single patch application; moreover, many internal diseases can now be treated externally, and external treatments are particularly well-developed in the field of Tibetan medicine.

　　Monday: What new opportunities are emerging in overseas markets?

　　Lei Jufang: Currently, the sales of topical patches overseas are relatively modest, with most sales concentrated in Chinese communities. However, new opportunities are emerging. For example, in the United States, pain management in developed countries has traditionally relied heavily on nerve-blockade drugs and addictive medications—including opioid-based drugs. Yet these treatments have posed both latent and overt risks to society: some young people have gradually developed drug addictions, turning into a social nuisance. In 2018, the U.S. government issued an order prohibiting hospitals from using opioid-based painkillers, which creates significant opportunities for plant-based pain-relief products. At present, our company is working closely with organizations such as the Acupuncture Association to expand our customer base beyond the Chinese community. For Western patients, if pain relief can be effectively sustained through topical patches, it would provide substantial assistance and support to healthcare providers, including acupuncturists.

　　However, for Tibetan medicine to successfully go global, there are still several key steps that need to be addressed—most importantly, aspects such as repeatability, verifiability, and standardization.

　　III. Building the “Pain Relief Family”

　　Monday: Why was the “One Axis, Two Wings, Three Supports” strategy proposed? And what were the “achievements” in 2018, as the inaugural year?

　　Lei Jufang: 2018 was the first year in which the company’s business operations were carried out under the strategic framework of “One Axis, Two Wings, and Three Supports.” The “One Axis” refers to strengthening the Pain Relief Plaster, achieving sustained growth through a three-pronged approach involving major hospitals, essential medicines, and retail channels. The “Two Wings” involve, on the one hand, enriching the product lineup for pain-related categories to provide patients with clinically valuable, distinctive therapies and combinations of time-tested traditional formulas; and on the other hand, focusing on the markets of neurological rehabilitation, women and children’s health, and dermatology. The “Three Supports” encompass innovation in marketing models, capital operations, and the development of a dynamic organizational structure that includes data information, operational capabilities, talent development, and institutional mechanisms.

　　In terms of both depth and breadth, the Tibetan medicine industry still requires companies to step up their promotional efforts. Many patients have been suffering from pain for years yet remain unaware of the effectiveness of Tibetan medicine—this clearly indicates that our outreach efforts have not yet reached their full potential. Particularly in rural areas, where medical insurance has already benefited numerous farmers over the past few years, companies still need to assume greater responsibility if they truly want to alleviate farmers’ pain and reduce the burden on rural medical insurance systems. The market potential here is enormous. As long as we continue to identify new applications, conduct thorough research, and intensify our promotional efforts, I believe it’s entirely feasible for the company’s flagship products to achieve annual sales of 2 billion yuan.

　　Regarding the “Two Wings” strategy, on the one hand, we will build a “Pain Relief Family” product portfolio. Over the past year, our company team has not only avoided downsizing but has continued to expand. On the other hand, concerning new Tibetan medicines, there is demand at the grassroots level in Gansu and other regions; accordingly, our company will also promote these products among grassroots communities in other Tibetan areas.

　　Monday: Will the company in the future expand from Tibetan medicine into the fields of Western medicine and traditional Chinese medicine?

　　Lei Jufang: We will focus on our core business by integrating physical therapy, physical discoveries, and Tibetan medicine. At the same time, we are also paying close attention to cutting-edge research areas—including the application of stem cells—and hope to find synergies among them.

　　Monday: So, within the Tibetan medicine industry, how will the company build a new product portfolio?

　　Lei Jufang: First, we’ve built a “Pain Relief Family.” In addition to our pain-relief patches, which are highly effective for severe pain, the company now also offers products for mild pain in small areas. We also have products specifically designed to treat skin conditions such as eczema, providing an alternative to corticosteroids that prevent recurrence after use. Our products are particularly helpful for nerve damage—including muscle atrophy following orthopedic surgery. Moreover, our Pain Relief Family, which includes Tibetan medicinal products for treating office-related cervical spondylosis, is now fully established and has been clinically validated through modern pharmaceutical trials.

　　Currently, the company holds more than 70 approved registration numbers for Tibetan medicines, dozens of which are already being used on a small scale in Tibetan hospitals. The reason not all of them have been fully implemented is that, in addition to undergoing validation according to their own established system, these Tibetan medicines must also be validated under the new system—and the company has to carry out this process one by one.

　　Other key products will focus on a field that combines traditional approaches with the exploration of innovation. The company is also pursuing industrialization through several other avenues. For example, in collaboration with MIT, we’re striving to achieve breakthroughs in drug administration comfort, and the company plans to file patents in this area at an appropriate time in the future. In addition, the company is advancing several projects related to topical drug delivery.

　　4. Make good use of the capital market.

　　Monday: Since the company went public, its performance has continued to grow steadily. However, over the past few years, profits have grown faster than revenue—why is that?

　　Lei Jufang: First, as output increases, the unit labor cost decreases—thanks to the company’s proactive efforts in automation and intelligent technologies.

　　Second, cost control. In Qizheng Tibetan Medicine’s corporate culture, there’s a tradition of hard work and perseverance. When I first went to Linzhi to explore the possibility of setting up a factory, every single brick in the yard was made by us—each one pressed using a brick-making machine we’d purchased ourselves. As a result, we immediately cut costs by 80%. More than 20 years later, those bricks still have remarkably smooth surfaces. Another example: when our company initially began promoting our pharmaceutical products, doctors had no idea what Tibetan medicine even was. It took us a full three years just to get them acquainted with it. Now, during our annual pain-relief promotion events, our employees don their traditional Tibetan attire, lie down on the ground, and personally apply medicinal patches to each attendee—one by one—touching people deeply with their dedication and sincerity.

　　Third, the company’s profit growth has been relatively rapid, and it has also benefited from the support of Tibet’s industrial policies.

　　Monday: What impact does “volume-based procurement” have on companies?

　　Lei Jufang: In my view, volume-based procurement is aimed at bringing down prices for a wide range of generic drugs and cancer treatments. Special emphasis should be placed on tackling the exorbitantly high prices of certain drugs. This approach not only makes these medications affordable for the general public but also helps reduce the financial burden on medical insurance systems. Currently, some pharmaceutical companies are operating below capacity. If volume-based procurement can drive down prices, enabling factories to run at full capacity and effectively control costs, that would be highly beneficial.

　　But I’m also concerned that a “one-size-fits-all” approach could have broader implications for the entire industry. In the pharmaceutical sector, significant breakthroughs in new drugs often stem from extensive research efforts; therefore, we can’t allow a single company to merely eke out a bare survival. Although some pharmaceutical companies currently enjoy relatively high gross profit margins, their sales expenses are equally high. For example, there are now more than 40 Tibetan medicine factories nationwide, most of which rely on third-party distributors for sales, leaving them with very low net profit margins. Only by building their own sales teams can these companies truly move toward high quality and sustainable growth.

　　Monday: In what areas will the company’s next steps toward high-quality development be focused?

　　Lei Jufang: First, Tibetan medicine is a great treasure trove that needs to be explored to identify therapeutic areas closely aligned with societal needs. We should leverage our company’s flagship products, devote significant effort to research, and rigorously demonstrate their efficacy.

　　Second, continuous efforts are needed in the area of innovation. Just as similar companies previously leveraged freeze-drying technology to address the inconvenience of carrying Tibetan medicines, there are still many similar opportunities today.

　　Third, pursue steady development. Recently, some A-share companies have been accused of facing equity pledge crises, and some enterprises have even sold off their controlling stakes—this is a truly alarming situation.

　　Fourth, make good use of the capital market and identify areas where it can provide mutual support and synergy with the company’s business—these are definitely areas that the company will focus on closely.

　　Monday: What changes does listing on the capital market bring to a company? What are your considerations for maintaining a high level of controlling stake? And why are investors more inclined to opt for cash dividends in terms of investor returns?

　　Lei Jufang: The changes are evident in three key areas. First, management has become more scientific, systematic, and compliant—especially with regard to the better resolution of strategic planning issues. Second, as a publicly listed company, we have a superior platform for attracting talent and promoting our brand. Third, in terms of risk prevention, in addition to the company’s internal control team, we also have the support of accountants and lawyers, which helps ensure the company’s steady and sustainable development.

　　The equity structure of Qizheng has historical roots, but today it’s clear that a stable equity structure plays a crucial role in supporting the company’s sustainable development. Amidst the ebb and flow of economic cycles and fluctuations in the market environment, shareholders must consistently maintain their confidence in the industry. At the same time, such stability helps create a favorable development atmosphere for the listed company at a higher level. Currently, Qizheng Tibetan Medicine’s controlling shareholder allocates 20% of its annual revenue to social welfare projects and has established two foundations that support Tibetan medical research, promote Tibetan medical education, and provide assistance to those living in poverty. Moreover, the company has been continuously considering, when the timing is right, using a portion of its shares to reward employees. All these initiatives require shareholders to adopt a long-term value-investment mindset as their guiding principle.

　　In terms of investor return methods, any approach that has been thoroughly vetted, is suitable for the market, and meets the needs of shareholders can be explored.

　　Monday: Since the beginning of this year, private enterprises have felt quite noticeably the pressure from the economic situation. What are their perceptions and suggestions?

　　Lei Jufang: In the new environment, it’s difficult for private enterprises to turn a profit, and even more challenging to achieve substantial growth. We hope that policies will be stable and encourage innovation. As taxpayers, private enterprises should enjoy equal national status. At the same time, we also hope that regulatory authorities can consider providing private enterprises with a more flexible and supportive environment. To use an analogy: For our family, those who are always by our side, serving us tea and water, are undoubtedly our loved ones. But even those who have gone far away to chop wood in the mountains—though they’re not physically present—should still be regarded as an important part of our family.

　　Reporting media: Securities Times

　　Report link: http://news.stcn.com/2019/0108/14785127_3.shtml