Pien Tze Huang’s Cosmetics Performance Continues to Decline, Why Pharmaceutical Companies Struggle in the Cosmetics Industry?

Recently, well-known Chinese pharmaceutical company Pien Tze Huang released its financial report for the third quarter of 2023, reporting revenue of 431 million yuan from its cosmetics business, representing a year-on-year decline of 6.53%. As early as October 2020, Pien Tze Huang had considered spinning off its subsidiary, Fujian Pien Tze Huang Cosmetics Co., Ltd., for a separate listing. If successful, it would become the first domestically listed cosmetics company incubated by a pharmaceutical enterprise. However, due to the unstable performance in recent years and the closure of some cosmetics brands launched by pharmaceutical companies, the products introduced by pharmaceutical companies have also encountered challenges.

The slow growth of the cosmetics business performance may impact the IPO prospects

To break through the market growth ceiling faced by its core products, Pien Tze Huang has focused on cultivating its cosmetics business in recent years, positioning it as the “second growth curve” for achieving performance growth. Pien Tze Huang has expressed its determination to strengthen its cosmetics business and drive further industry upgrades by striving to build well-known beauty brands such as “Pien Tze Huang” and “Queen”, as mentioned multiple times in the company’s annual reports.

Pien Tze Huang has been involved in the cosmetics industry for over 40 years. Currently, the company’s cosmetics business is on a positive development trajectory in terms of research and development, branding, and sales. The company has formed a three-brand matrix, including introducing the new “Queen” brand based on the original “Queen” brand and expanding its premium traditional Chinese medicine brand, Pien Tze Huang, into the cosmetics field.

Until 2020, Pien Tze Huang consistently demonstrated impressive performance in its cosmetics business, maintaining high-speed growth. According to data, from 2017 to 2020, the revenue of Pien Tze Huang’s cosmetics business increased from 175 million yuan to 611 million yuan, while net profit increased from 21.02 million yuan to 114 million yuan. Particularly in 2020, the revenue and net profit of Pien Tze Huang’s cosmetics business both grew by over 40% year-on-year, becoming the main contributor to the company’s operating profit.

With the positive performance, Pien Tze Huang put the spin-off plan on the agenda. In October 2020, the company announced its intention to spin off Fujian Pien Tze Huang Cosmetics Co., Ltd. for a separate listing and independent operation of its cosmetics business.

However, due to intensified competition in the domestic cosmetics industry and changes in consumer habits following the pandemic, Pien Tze Huang has lagged in marketing and product development. The growth of Pien Tze Huang’s cosmetics business began to slow down in 2021. According to annual report data, the operating revenue of Pien Tze Huang’s cosmetics business reached 685 million yuan, with a growth rate of 12.11%, indicating a slowdown. Net profit was 134 million yuan, with a growth rate of 17.54%.

In 2022, despite cutting over 140 million yuan in sales expenses, Pien Tze Huang’s operating revenue declined to 634 million yuan, a year-on-year decrease of 24.61%. At the same time, the gross profit margin decreased by 6.41 percentage points compared to the previous year.

The performance of Pien Tze Huang’s cosmetics business did not improve in the third quarter of 2023. The cosmetics business achieved a revenue of 431 million yuan, representing a year-on-year decline of 6.53% for the first three quarters of the year.

The decline in performance of Pien Tze Huang’s cosmetics business, just as it is preparing for a spin-off listing, has raised concerns among some investors.

Few companies disclose data on their cosmetics business

In the Chinese cosmetics market, pharmaceutical companies occupy a significant position.

In 2022, among the top ten domestic cosmetics companies ranked by revenue, Bloomage Biotech and BTN ranked third and fourth, with revenues of 6.359 billion yuan and 5.014 billion yuan, respectively. These two companies also originated from pharmaceutical enterprises.

Bloomage Biotech has now developed into a well-known domestic functional skincare enterprise. Its main brands include BIOHYALUX, QUADHA, and MedRepair. Among them, BIOHYALUX and QUADHA achieved revenues exceeding 1 billion yuan in 2022, with 1.385 billion yuan and 1.368 billion yuan, respectively.

BTN’s predecessor was a skincare project team under Yunnan DIHON PHARMACEUTICAL GROUP CO., LTD. In 2014, the brand became independent and was acquired by BTN. BTN has now become a leading domestic company in sensitive skin care. Its main brands include Winona, Winona Baby, AOXMED, and Beforteen. According to Euromonitor’s statistics, in 2022, Winona ranked eighth in the skincare product market, improving by two positions compared to 2021. Its market share in the domestic dermatological skincare product sector has significantly increased compared to the same period last year, reaching approximately 23.2%.

In recent years, many domestic pharmaceutical companies have been expanding into the cosmetics business. According to incomplete statistics, there are now over 300 pharmaceutical companies in China involved in the cosmetics industry, including well-known pharmaceutical enterprises such as Pien Tze Huang, Yunnan Baiyao, Renhe Pharmacy, and Mayinglong Pharmaceutical.

As a pioneer in the traditional pharmaceutical industry, Pien Tze Huang introduced a skincare product called “Pien Tze Huang Queen” in 1980. This product gained popularity in Southeast Asia due to its highly confidential national formula. However, Pien Tze Huang did not rapidly expand using this success at the time. It was not until March 2002 that Pien Tze Huang Cosmetics Company was officially established, with brands including “Pien Tze Huang” and “Queen.” Its product range covers skincare, cleansing, and hair care, including products such as pearl cream, eye cream, and toner. Over time, Pien Tze Huang gradually expanded into various types of cosmetics.

In 2009, Pharmaceutical officially launched its product “Eight Treasures Eye Cream” into the market. Mayinglong’s entry into the eye cream field was not an overnight decision but had a strong background. As early as 2011, Mayinglong Pharmaceutical was included in the “National List of Intangible Cultural Heritage” for inheriting the “Mayinglong Eye Medicine Production Craft” dating back over 400 years.

That same year, Mayinglong Pharmaceutical introduced the eye cream product “Tong Hua.” Later, at the end of 2018, with an investment of 32 million yuan and a 64% stake, they officially established Wuhan Mayinglong Health Co., Ltd. Today, Mayinglong not only offers eye creams but also various products such as lip balms, women’s perfumes, and facial cleansers.

Renhe Group’s Renhe Craftsmanship series also holds a place in domestic cosmetics. According to official information from Renhe Group, “Renhe Craftsmanship” is Renhe Group’s beauty and personal care sub-brand established in 2019 as part of their layout in the health industry.

In its first two years, “Renhe Craftsmanship” mainly sold products through e-commerce platforms such as Tmall,, and Pinduoduo. Its products mainly cover daily skincare items such as spot removal, acne treatment, scar repair, hair growth, and wrinkle removal.

It wasn’t until after 2021 that “Renhe Craftsmanship” began to gain prominence on the Douyin platform and frequently appeared on various skincare category rankings. According to statistics, in the first 11 months of 2022, Renhe Craftsmanship made it to the top 20 beauty brands list on Douyin five times.

From the perspective of pharmaceutical companies entering the cosmetics business, there are three categories:

The first category is pharmaceutical companies directly launching their own cosmetics brands, such as Pien Tze Huang, Yunnan Baiyao, and Mayinglong, which is also the primary approach.

The second category is upstream positioning in the cosmetics industry chain by focusing on raw materials. For example, Pulead Pharmaceutical successfully mass-produced representative cosmetic ingredients like Bosidin.

The third category is indirectly entering the cosmetics business through investments and other means. For instance, Tianjin Pharmaceuticals acquired Yumeijing.

Although there is an increasing number of pharmaceutical companies in China venturing into the cosmetics business, few can establish a strong foothold in the domestic cosmetics market like BTN and Bloomage Biotech. Pien Tze Huang’s revenue in 2022 was only 634 million yuan, which is a significant gap of over 1 billion yuan compared to the last-ranked Wanmei Holdings’ revenue of 1.732 billion yuan among the top ten domestic cosmetics companies in 2022.

However, currently, there are not many pharmaceutical companies that can firmly establish themselves in the cosmetics industry or even breakthrough. Among the listed pharmaceutical companies involved in the cosmetics business, only a few, such as Pien Tze Huang and YISHENG PHARM, have disclosed the performance of their cosmetics divisions. This indicates that the brand effect of pharmaceutical companies in the beauty and personal care market has not yet received a full response from consumers.

Why do pharmaceutical companies struggle in the cosmetics industry?

As pharmaceutical companies increasingly venture into the cosmetics industry, industry insiders generally believe that their research and development (R&D) advantages will pose a challenge to other cosmetic companies. Pharmaceutical companies typically have strong R&D capabilities and possess in-depth knowledge of active ingredients, pharmacology, and clinical research. This enables them to develop cosmetic products with pharmacological effects, such as anti-aging, anti-inflammatory, and antioxidant properties.

Indeed, pharmaceutical companies do have distinct advantages in R&D. However, these advantages may not be fully realized in the fast-moving consumer goods industry, which includes the cosmetics sector. Pharmaceutical companies entering the cosmetics market face several challenges:

Firstly, in terms of product development speed, pharmaceutical companies may be slower in researching and launching new products compared to companies solely focused on cosmetics. Due to the unique nature of the pharmaceutical industry, pharmaceutical companies may face more regulatory and approval requirements, which can result in slower innovation and missed market opportunities. In particular, the process of registering and monitoring raw materials used in products can take up to three years for pharmaceutical companies, which slows down their product development speed. Other beauty companies may have a more mature approach to selecting raw materials.

Secondly, in terms of consumer perception and brand positioning, pharmaceutical companies’ brands are often associated with healthcare and wellness, which may limit their brand positioning in the fashion and beauty field. Pharmaceutical companies need to work hard to build a brand image that aligns with the demands of the cosmetics market to attract target consumers. When pharmaceutical companies enter the cosmetics market, they may need to address differences in consumer awareness. Consumers have different perceptions and demands for cosmetics and pharmaceuticals, which requires pharmaceutical companies to adapt their marketing strategies to approach the consumer goods sector.

Lastly, in terms of marketing, pharmaceutical marketing differs significantly from that of fast-moving consumer goods. Pharmaceutical marketing focuses more on hospitals and pharmacy chains, with a B2B (business-to-business) approach, while cosmetics are primarily marketed directly to consumers (B2C). Moreover, digital marketing has become the dominant marketing method in the cosmetics industry, while pharmaceutical companies often employ more traditional marketing approaches. There is a significant gap in channels and direct customer engagement between the two sectors.

In reality, for pharmaceutical companies to establish a strong foothold in the cosmetics market, they need to break free from their pharmaceutical operating mindset. Pharmaceutical companies entering the skincare market face challenges due to significant differences in product and brand strategies between pharmaceuticals and skincare products.

Taking BTN and Bloomage Biotech as examples, these two pharmaceutical companies have completely moved away from the pharmaceutical operating mindset and positioned themselves as fast-moving consumer goods (FMCG) cosmetics companies. Furthermore, they have successfully shed the image of being a pharmaceutical company in their marketing and brand development, which has made them more easily accepted by consumers.

More importantly, their research and development (R&D) achievements are effectively applied to their products. BTN utilizes its research accomplishments in dermatology, while Bloomage Biotech leverages its authority in hyaluronic acid. Weleda also highlights the use of unique plant ingredients from Yunnan Province as a key feature of its products, which contributes to its success.

The role of R&D in the cosmetics industry is undeniable, not only in the development of new products but also in ensuring product safety. As Ren Hankun, Executive Deputy Director of the Brand Expert Committee of China’s for/get Skincare Brand, mentioned at the 2023 (8th) China Cosmetics Trend Conference organized by CHAILEEDO, “Doing scientific research is not about showing off skills or simply accumulating research and technology. It is about using scientific research to truly understand the relationship between brands and consumers and establish a brand’s mental position among consumers.” This illustrates that regardless of the industry, the ultimate goal of research and development is to be implemented in products and reach consumers.

Pharmaceutical companies entering the cosmetics industry may encounter consumer biases and face challenges in terms of brand influence, channel development costs, and brand positioning. According to industry insiders, for pharmaceutical companies, entering a new sector is not an overnight process but requires continuous exploration and experimentation, especially considering the current structural adjustments in the industry, stricter regulations, and sluggish growth.

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