Chinese Endovascular Leader Huamai Tech Aborts IPO Under STAR Market's Rule 5

Dec 26, 2023 18:30 CST Updated 18:30

Percutek Therapeutics

Developer of Minimally Invasive Cardiovascular Treatment Devices

Another IPO project adopting the fifth set of listing standards of the STAR Market has announced its termination. On December 25, the Shanghai Stock Exchange issued an announcement stating that the issuance and listing review of Beijing Percutek Therapeutics Medical Equipment Co., Ltd. ("Percutek Therapeutics") had been terminated due to the withdrawal of its application for issuance and listing by the company and its sponsor. The listing application of Percutek Therapeutics was accepted at the end of 2022, and it responded to the first round of inquiries at the end of March. Since then, the review process has been at a standstill until the withdrawal now.

The prospectus shows that Percutek Therapeutics is a medical device company focusing on products and therapies in the fields of aorta, peripheral and coronary, neuro-intervention, and access. During the reporting period, the company has incurred continuous losses for three and a half years, with a total net profit loss exceeding 300 million yuan. For this reason, the company adopted the fifth set of standards of the STAR Market for its application, which does not impose requirements on net profit or even operating revenue.

Since the successful listing of Zhi Xiang Jin Tai in June 2023, no company adopting the fifth set of standards has been able to smoothly land on the STAR Market within half a year. According to East Money Choice data, as of December 25, 2023, there are 16 STAR Market projects using the fifth set of standards, all of which are pharmaceutical manufacturing or medical device enterprises. Most of them are in "suspended" or "postponed review" status. Si Rui Zhe and Bi Bei Te, which have passed the review, submitted registration with no results yet, while Xin Tong Drugs, which has already registered effectively, has not been issued for the time being.

Proposed Fundraising12.39100 Million Yuan
China's Leading Interventional Company Goes Public via "Standard Five"

According to the prospectus, Percutek Therapeutics, established in 2011, is a medical device company focused on the research, development, and application of innovative products and therapies for treating vascular diseases. In the fields of aortic, peripheral and coronary, neuro-intervention, and access, Percutek Therapeutics has obtained NMPA medical device product registration certificates for 8 products and EU CE certification for 2 products. Additionally, the company has over 20 products in the clinical trial and preclinical research stages.

The company's products have been distributed to more than 400 hospitals across 31 provinces, autonomous regions, and municipalities in China, including renowned tertiary hospitals such as Beijing Anzhen Hospital affiliated with Capital Medical University, Zhongshan Hospital affiliated with Fudan University, the First Affiliated Hospital of Sun Yat-sen University, and the Second Affiliated Hospital of Naval Medical University (Shanghai Changzheng Hospital).

The company's abdominal aortic stent graft system entered the special approval process for innovative medical devices in 2015 and was approved for marketing in 2017; the thoracic aortic stent graft system entered the priority approval process for medical devices in 2017 and was approved for marketing in 2019; the multi-branched artificial vascular stent graft system entered the special approval process for innovative medical devices in April 2020. The company's independently developed technical achievements have gradually been transformed into a relatively complete product line covering the entire field of vascular disease treatment.

Financially, during the reporting period (2019 to 2021, and the first half of 2022), the company's operating revenues were 48.94 million yuan, 50 million yuan, 88.82 million yuan, and 60.83 million yuan, respectively. The company's net profit remained in a continuous loss, recording -32.8125 million yuan, -126 million yuan, -120 million yuan, and -27.5418 million yuan, with cumulative losses exceeding 300 million yuan.

Due to the poor cash flow contribution from its main business, Percutek Therapeutics relied on continuous financing to maintain operations during the reporting period. Since 2014, the company has undergone eight rounds of financing in its history, three of which occurred during the reporting period, with one round each year from 2019 to 2021. Investors include more than 20 institutions such as Lilly Asia Ventures, OrbiMed, Cowin Capital, Hillhouse Capital, China General Technology Venture Capital, and CCB International. Based on the latest round of financing, the company's valuation before going public reached 3.712 billion yuan.

According to the listing criteria stipulated in Article 22, Paragraph 2, Item (5) of the "Shanghai Stock Exchange STAR Market Stock Issuance and Listing Review Rules": The estimated market value shall be no less than RMB 40 billion. The main business or product must be approved by relevant national authorities, with a large market space, and has currently achieved phased results. Pharmaceutical industry enterprises must have at least one core product approved for Phase II clinical trials. In this context, Percutek Therapeutics has achieved phased results and meets other corresponding conditions required for STAR Market positioning, such as having obvious technological advantages.

The company's IPO application was accepted by the STAR Market on December 30, 2022, with CITIC Securities as the sponsor. The company plans to issue 24 million shares, accounting for no less than 25% of the total share capital after the issuance, aiming to raise 1.293 billion yuan. The proceeds (after deducting issuance expenses) will be used for projects related to the company’s main business. The details of the specific investment projects are as follows:

Aortic Third Segment in China

Still has a large gap compared to Medtronic and Heartpulse.

According to the "Report on Cardiovascular Health and Diseases in China 2021" released by the National Center for Cardiovascular Diseases, the number of existing cardiovascular disease patients in China is 330 million. In the field of peripheral vascular intervention, it is expected that by 2023, the number of patients with peripheral arterial disease in China will increase to 55.96 million. Meanwhile, with the effective control of the COVID-19 pandemic in China, the market size of vascular interventional devices will resume rapid growth. It is estimated that the market size in China will grow to 65.94 billion yuan in 2022, indicating a promising industry outlook.

It is worth mentioning that vascular intervention is a technology-intensive field with high innovation technology barriers and low product standardization. Currently, foreign brands still occupy an absolute advantage. In terms of industry development, the vascular intervention field both in China and abroad has consistently been a major hotspot in the medical device sector in recent years due to its high technical barriers and high value attributes.

It is reported that China's aortic disease treatment market is still dominated by multinational companies, with major foreign manufacturers being Medtronic, Gore, Cook, etc. In 2021, the combined market share of foreign brands in the thoracic/abdominal aortic medical device market exceeded 50%. Among them, Medtronic has long been the industry leader, with its market share in thoracic and abdominal aortic endovascular interventional medical devices being over 30% and 45%, respectively, in 2021.

After more than a decade of development, Chinese companies have made significant progress. Taking Percutek Therapeutics as an example, the company launched its first product in 2002. By 2021, it held a 28.2% share in the thoracic aortic interventional device market and a 15.26% share in the abdominal aortic interventional device market.

Even among domestic manufacturers, Percutek Therapeutics ranks only third in market share, following Shanghai MicroPort Endovascular MedTech and Lifetech Scientific, with a significant gap from the top two. In response to this situation, the company emphasized the technological superiority of its products, stating that "compared to existing competitors, cultivating and expanding sales channels across China is the primary task at this stage of the company’s business promotion."

In the IPO review inquiry, the regulatory authority explicitly pointed out:

The company's thoracic aortic stent graft was approved for marketing in 2019, suitable for endovascular repair of Type B dissections with a 10mm anchoring zone, which is superior to most competing products that typically require a 15-20mm anchoring range. However, its share of surgical volume and sales revenue in the Chinese market remains relatively low.

The company's abdominal aortic stent graft was approved for marketing in 2017. It can treat short-neck aneurysms with a neck length greater than 10mm and a renal angle in the range of 0-75 degrees, surpassing the typical indications of similar competing products, which generally require a neck length greater than 15mm and a renal angle of 0-60 degrees. However, its share of surgical volume and sales revenue in the Chinese market remains relatively low.

In this regard, the regulatory authorities explicitly requested in their inquiry that Percutek Therapeutics: provide details on the number of newly covered patients, surgical volume, and their proportion compared to major competing products, and whether these meet significant clinical needs; aside from the anchoring zone length, analyze the advantages and disadvantages of the issuer compared to competitors in other performance aspects, and determine if there are alternative surgical methods or product combinations; based on the aforementioned factors, prudently assess the clinical value and market potential of the issuer’s thoracic aortic stent. In short, despite having certain advantages over competing products, why is the market share still lagging?

The "Standard Five" of the Sci-Tech Innovation Board is Strict,

Is It Harder for Medical Device Companies to Go Public?

In June 2022, the Shanghai Stock Exchange formulated the "Guidance No. 7 on the Application of the STAR Market Issuance and Listing Review Rules of the Shanghai Stock Exchange — Application of the Fifth Set of Listing Standards for Medical Device Companies," providing guidance documents for unprofitable medical device companies applying to the STAR Market. Specific requirements include:In line with China's medical device scientific and technological innovation strategy；Possessing key core technologies；Core technology product R&D should achieve phased results.；Meet the criteria of having a large market space for main business or products；There is no case of failure in the research and development of core technology products.；There is no situation where the commercial sales expectations of main businesses or products are significantly insufficient.。

Medical device companies are characterized by long R&D cycles, high investment, and significant risks, making it easy for them to remain unprofitable for extended periods. Restricted by profitability requirements, R&D-driven companies that are still in an unprofitable state face limitations in accessing financing through A-share listings.

Compared with other listing standards, the fifth set of standards does not impose requirements on financial indicators such as operating income, net profit, or cash flow. Instead, it sets regulations on market value, the progress of R&D for main businesses or products, and market potential. Particularly for pharmaceutical industry enterprises, it further requires that "at least one core product must have been approved for Phase II clinical trials." As a result, it has gained popularity among hard-tech companies in the medical field.

It is worth mentioning that although the listing rules do not impose requirements on enterprises' financial data, from the actual review situation, the success rate of "zero" revenue enterprises passing the review is not high. As of April 30, 2023, a total of 42 enterprises have applied for the STAR Market listing using the fifth set of standards, among which 19 have been issued and listed, two have registered and taken effect, seven have voluntarily withdrawn and terminated the review, and 14 are in the review inquiry stage. Among the 42 enterprises applying for listing using the fifth set of standards, except for the 19 listed enterprises, there are 23 enterprises under review or whose listing has been terminated.

Source: Kangcheng Investment, iFind, data as of April 30, 2023

Not long ago, multiple media reports mentioned that the fifth set of listing standards for the Sci-Tech Innovation Board may become stricter. The regulators will conduct more rigorous reviews on companies applying with the fifth set of listing standards.

In this regard, according to industry experts, for companies listed under the fifth set of standards, the main consideration is that their key products are still in the research and development stage, allowing biopharmaceutical companies sufficient room and a transition period for innovation. However, starting as early as 2024, companies listed under the fifth set of standards will gradually face "evaluation." If these companies still fail to meet relevant financial requirements at that time, they will still face delisting. Meanwhile, for unprofitable companies, the reduction of shares by their actual controllers and core personnel will be subject to stricter regulations.

Source: Medical Device Innovation Network

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