In recent years, the rapid advancement of artificial intelligence (AI) technology has shifted its focus significantly towards healthcareParticularly in mainland China, one company has emerged as a frontrunner in merging AI with traditional Chinese medicine (TCM): Wenzhen TCM Technology, or Wenzhen for shortThe company has attracted considerable attention from the investment community, driven by its proprietary “TCM Brain” system designed to enhance diagnostics and treatment in traditional Chinese medicine.
In early 2025, Wenzhen submitted its prospectus to the Hong Kong Stock Exchange, aiming to become the first publicly traded TCM AI companyDespite showcasing unique technological innovations and a strong business model, Wenzhen also faces numerous hurdles regarding its profitability, research and development (R&D) capabilities, and overall competitive landscape.
The Challenge of Profitability Behind High Margins
Since its establishment in 2018, Wenzhen has focused on integrating AI with traditional Chinese medicine, culminating in the development of its TCM Brain diagnostic systemUtilising big data analytics and AI algorithms, the system provides personalized TCM treatment plans for patientsAccording to a report from Zhenzhi Consulting, by 2023, Wenzhen became the market leader in AI-enabled TCM healthcare services in mainland China, garnering a market share of 1.5%.
The company has demonstrated robust revenue growth in recent yearsFrom 2022 to 2023, Wenzhen's revenue surged from approximately 62.17 million Yuan to 189 million Yuan, marking a staggering increase of 204%. In the first three quarters of 2024, revenue further escalated to 173 million Yuan, reflecting a year-on-year growth rate of 33.8%.
Wenzhen’s core business model encompasses three main sectors: TCM healthcare services, TCM-related consumer products, and subscriptions for the TCM Brain system
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Notably, TCM healthcare services have emerged as the principal revenue stream, with the income from this sector growing from 50.42 million Yuan in 2022 to 155 million Yuan in 2024 (to date) — an impressive increase from 81.1% to 89.4% of total revenueOnline consultations have notably become a vital revenue source, accounting for approximately 90% of earnings.
Despite reporting impressive gross margin figures — with gross margins of 56.3%, 59.8%, and 60.7% from 2022 to the first three quarters of 2024, significantly above the average industry figure of 42.28% for traditional Chinese medicine — Wenzhen has yet to achieve profitabilityDuring this reporting period, the company experienced cumulative losses exceeding 400 million Yuan, primarily due to fluctuations in the fair value of convertible redeemable preferred shares.
Wenzhen's core offering, the TCM Brain system, has accumulated over a billion parameters and over 10,000 traditional formulas, encompassing more than 3,000 ailmentsThis impressive database significantly enhances both diagnostic efficiency and accuracyHowever, despite achieving a customer price point exceeding 900 Yuan and a gross margin of 55%, the contribution of the TCM Brain system to the company’s overall profitability remains limitedThis situation likely correlates with the company’s substantial investments in market promotion and technological development.
Turning to R&D expenditures, Wenzhen's spending has been relatively modestIn the period from 2022 to the first three quarters of 2024, R&D costs varied from 5.4 million Yuan to 8.4 million Yuan, representing 8.7%, 4.8%, and 4.9% of revenue during these respective periodsIn contrast, sales expenditures were considerably higher, amounting to 8.7 million Yuan, 25.1 million Yuan, and 18.5 million Yuan — making up 14.0%, 13.3%, and 10.7% of total revenue during the same periods
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This investment structure illustrates Wenzhen's prioritization of market expansion; however, it may also impede its long-term competitive edge in technology.
The Ongoing Struggles of Efficacy and Team Development
In recent years, the effectiveness of Wenzhen’s healthcare services has sparked considerable debateOn one side, internal company data suggests that its treatment efficacy reaches an impressive 93.8%, with patient follow-up rates rising year over year — soaring to 71.6% in 2024, which outpaces the industry average significantly.
However, Wenzhen has also faced complaints from some patients regarding treatment effectiveness, adverse reactions to medications, and service qualityRecent data from a social platform indicates that 43% of complaints lodged in the last 30 days were related to alleged “false advertising.”
The qualifications of healthcare professionals and service quality remain crucial in the medical industryWenzhen’s medical team consists of 83 full-time doctors, primarily recent graduates with master's degrees in traditional Chinese medicineWhile this youthful team structure fosters the introduction of innovative technologies and fresh ideas, it has also raised concerns regarding their professional competence among some patientsWenzhen needs to ensure that the dynamism of its team is balanced with enhanced professional standards in order to bolster patient confidence.
From a leadership perspective, co-founder Cui Xiangrui is notably young, at just 36 years oldHe graduated from Sun Yat-sen University with a degree in biotechnology and had previously served as a partner at Hejun Fengying Asset Management before founding Wenzhen
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Prior to the IPO, Cui held a 43.41% stake in the company, exercising approximately 43.60% of voting rights.
Despite facing scrutiny over healthcare services and having a relatively young medical team, Wenzhen continues to attract attention from numerous prestigious investment firms.
Regarding funding, Wenzhen secured its first two rounds of financing in its founding year, accumulating a total of $171.8 million (approximately 12.6 million Yuan). To date, the company has completed five financing rounds, with a collective total of around $21.72 million (approximately 160 million Yuan) being raisedInvestors include renowned firms such as BlueRun Ventures and Zhenge FundThe latest round of funding was completed in November 2024, amounting to $12 million, resulting in an estimated valuation of roughly $255 million.
However, despite this capital influx, Wenzhen still faces a myriad of challengesThe TCM healthcare service industry is heavily regulated, encompassing standards related to diagnosis and treatment protocols, the quality of medicinal ingredients, and physician qualificationsAny change in regulatory policies could profoundly impact Wenzhen’s operationsMoreover, the deployment of AI technology in TCM remains in its infancy; its inconsistent regulatory standards pose further uncertainties.
Additionally, the development of AI-enabled TCM technology grapples with three significant pain pointsFirstly, the scarce availability of high-quality clinical TCM data is a hindrance to the application of AI technologies, given that TCM diagnosis is often rooted in extensive clinical experience and individual differencesSecondly, the lack of standardization in TCM makes it challenging to implement AI uniformlyLastly, integrating AI with TCM theory is still in the early stages of development.
Ultimately, perhaps the key issue Wenzhen needs to address is how to harmoniously merge modern technology with traditional principles, carving a path for the evolution of TCM in the age of artificial intelligence.