Jinjiang Electronics Withdraws IPO Application Amid Regulatory Shifts; Backed by Hillhouse Capital

Recently, Jinjiang Electronic's IPO has been terminated, becoming the fifth medical device company to halt its progress on the Sci-Tech Innovation Board this year.

Wind data shows that as of June 5, 185 companies have terminated their IPO review applications (withdrawn) this year, including 36 companies planning to list on the Shanghai Main Board, 28 on the Shenzhen Main Board, and 48 on the Growth Enterprise Market (GEM), 32 on the STAR Market, and 41 on the Beijing Stock Exchange.

Among the companies planning to list on the STAR Market, medical devices have become a "disaster area." Apart from Jinjiang Electronic, the IPO journeys of companies such as Aikang Medical, Hanyu Medical, Jianguo Pharmaceutical, Langshi Instrument, Aikang Biotech, and Shihew Gene have all "stumbled," with no shortage of star investors behind them.

Regarding the termination of this IPO, Jinjiang Electronic told reporters from the Venture Capital Daily that the main reasons for the termination were changes in the capital market environment and adjustments in regulatory policies. "Due to factors such as its own development strategy, it was decided to terminate this IPO."

"The market response to the company's PFA series products has been enthusiastic, with steady growth in performance. Subsequently, we will initiate relevant work for the product launch based on market conditions," Jinjiang Electronic stated.

Jinjiang Electronic IPO Terminated, Hillhouse is a Shareholder

The prospectus shows that Jinjiang Electronic, established in 2002, is a company focused on high-end innovative medical devices for diagnosis and ablation in the cardiac electrophysiology field. Before the IPO, Jinjiang Electronic completed four rounds of financing, with Hillhouse entering in 2021. At that time, Hillhouse Qi Yi and Hillhouse Qi Rui each invested 100 million yuan, with their combined shareholding reaching 7.4%.

Regarding this investment, the head of Gaoling Ventures publicly expressed optimism at the time, stating that China's cardiac electrophysiology industry is still in its early stages of development and has significant unmet clinical needs. "Jinjiang Electronic's Pulse Field Ablation (PFA), as an emerging catheter ablation therapy, is expected to drive rapid growth in the electrophysiology sector."

The electrophysiology field favored by Hillhouse has already produced three IPOs, and Hillhouse has successfully invested in one of them.

The prospectus shows that Kangfeng Bio (06922.HK), which is engaged in the research and development of cryoablation equipment and interventional catheters, had a post-money valuation of approximately 2.093 billion yuan in its last round of financing, with Hillhouse holding an 8.48% stake. In December 2022, when Kangfeng Bio (06922.HK) went public, its market value on the first day exceeded 4.4 billion Hong Kong dollars, twice the valuation of the last round of financing.

But this valuation is only half that of another listed company in the same industry, MicroPort EP (688351). In 2022, on the first day of its listing, MicroPort EP (688351) closed with a market value of over 6 billion yuan, surpassing the post-money valuation of 4.8 billion yuan from the previous round. After the listing, its highest market value approached 10 billion yuan.

Surprisingly, Hillhouse, which has close ties with the parent company of MicroPort EP (688351), MicroPort Medical, is not among the shareholders of MicroPort EP. In April this year, MicroPort Medical was bailed out by Hillhouse and received 1 billion yuan from Hillhouse and other investors to alleviate the pressure of maturing debts.

Another listed electrophysiology company is Huitai Medical (688617). At the beginning of the year, it was acquired by Mindray Medical for 6.65 billion yuan, allowing its investors, Chenyi Investment and Qiming Venture Capital, to exit successfully with substantial returns. An investor mentioned during an exchange with a reporter from the Venture Capital Daily that Mindray Medical's acquisition of Huitai Medical was driven by its lack of presence in the electrophysiology business and its desire to fill this gap through the acquisition.

"The acquired Huitai Medical ranks first in market share among domestic brands in the electrophysiology sector and is a strong competitor to MicroPort Electrophysiology," the investor mentioned.

As of now, the aforementioned investors believe that the main reason for Jinjiang Electronic's termination of its IPO still lies in the changes to the 5th set of listing standards for the STAR Market. "This year, the CSRC and the Shanghai Stock Exchange issued new regulations, imposing requirements on unprofitable companies, such as the industrialization of invention patents, R&D investment amounts, the number of invention patents, and compound annual revenue growth rates, which has made it impossible for some companies that might have originally met the 5th set of standards to go public."

"In terms of R&D investment, the new regulations require that the total R&D investment over the past three years should reach more than 80 million yuan, while Jinjiang Electronic's cumulative R&D investment over the past three years is over 60 million yuan; in terms of the number of invention patents, the new regulations require that the number of invention patents applied to the main business should reach more than 7, and Jinjiang Electronic has 5; plus, indicators such as the compound annual growth rate of operating income over the past three years should be no less than 25%, all of which have made some companies halt their IPO plans," the aforementioned investor said.

Multiple Medical Device Companies Halt IPO on Sci-Tech Innovation Board

In addition to Jinjiang Electronic, several other medical device companies have also "failed" in their STAR Market IPO attempts.

Take Ecolite Medical as an example. This neurointervention company is backed by star investors such as Sequoia China, Huagai Capital, and PICC Fund. Before the IPO, Sequoia Hanchen held 17.04%, Boyuan Jiayu held 8.6%, PICC Fund held 4.6%, and Huagai Xincheng held 4.26%. However, the halt of Ecolite Medical's IPO prevented these institutions from exiting through the listing.

Aikang Medical's ability to attract leading institutions may stem from its presence in the neurointervention industry, which was a blue ocean track two years ago. At that time, multiple companies within this track garnered investments from prominent institutions. In addition to Sequoia China, Hillhouse also actively invested in MicroPort Medical, Peijia Medical, Guichuang Tongqiao, and VascularMedic; Sequoia China, on the other hand, invested in Just Medical and Aikang Medical.

But this track, which was favored by leading institutions, later encountered a series of impacts brought by the centralized procurement.

In March this year, the selection rate for neurointerventional consumables in the Beijing-Tianjin-Hebei "3+N" procurement was as low as 27%.

At the same time, the significant price reduction has sparked heated discussions in the market. In December 2023, the "Notice from the Guangdong Provincial Medical Security Bureau on the Implementation of Volume-based Procurement and Use of Neurointerventional Coil Medical Consumables" mentioned that the average price reduction for neurointerventional coil medical consumables in this round of procurement was 71%, effectively reducing the burden on patients.

Thus, when Aikang Medical Technology attempted to go public on the STAR Market, it faced questioning from the exchange regarding the competitive landscape, market ranking, pricing advantages, market potential, and future profitability plans of its products. The company was required to provide details on product sales revenue and unit prices, as well as the competitive landscape, market share, and rankings of related products both domestically and internationally.

Among other companies that have halted their IPOs, HanYu Medical has raised 10 rounds of financing, with backing from Yingke Capital, Hetang Venture Capital, CPE Yuanfeng, L&R Asset Management, Yunfeng Fund, and others; JianGeng Pharmaceutical, in its 9 rounds of financing, attracted investments from Legend Capital, Sunshine Insurance, PuHua Capital, and Borun Investment.

A medical field investor told the reporter of Venture Capital Daily that after the centralized procurement of consumables, the competition in innovative medical devices has intensified. "From the perspective of the industry, centralized procurement can significantly reduce the price of medical devices and alleviate the financial burden on patients, but for enterprises, they will inevitably face industry reshuffle. Subsequently, they must focus more on product innovation and quality improvement to succeed in market competition."

The aforementioned investor further stated that previously unprofitable medical device or biopharmaceutical companies mostly achieved listing by adopting the fifth set of listing standards, but the profitability of these enterprises remains far from optimistic.

"Most of these companies are in a loss-making state. For instance, ZhiXiang JinTai (688443), the only company that went public in 2023 through the fifth set of standards, saw its shares plunge below the issue price immediately after listing. As of now, ZhiXiang JinTai's performance remains significantly in the red." Reporters from the Venture Capital Daily observed that ZhiXiang JinTai’s (688443) earnings per share in 2023 were -2.5 yuan, with a net profit attributable to shareholders of -801.3 million yuan.

The aforementioned investors believe that, despite the current situation where all institutions are focused on "exit," as the market changes, the financial status of invested companies when they push for an IPO—including aspects such as losses, earnings authenticity, sustainability, liquidity, market potential, growth, and technology innovation attributes—will face new challenges.

Recently, the results of Beijing's electrophysiology centralized procurement showed that the average price reduction was between 40-45%. Jinjiang Electronic mentioned in its prospectus that companies that failed to win bids would essentially lose the opportunity to enter the main public hospitals in China, and their market share would significantly shrink; on the other hand, winning a bid means that product prices will drop substantially, negatively impacting profit margins. Therefore, how to manage profit expectations is a challenge for IPO-bound companies and their investment institutions.