Huamai Tech Abruptly Terminates IPO Filing on STAR Market

On the evening of December 25, an IPO project adopting the fifth set of listing standards of the STAR Market announced its termination.

According to the disclosure on the Shanghai Stock Exchange's official website, due to the withdrawal of the application for issuance and listing by Percutek Therapeutics and its sponsor CITIC Securities, the Shanghai Stock Exchange has terminated its review of the issuance and listing in accordance with relevant regulations. Percutek Therapeutics' listing application 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 focused on products and therapies in the fields of aorta, peripheral and coronary, neuro-intervention, and access. During the reporting period, the company 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 for the Sci-Tech Innovation Board (STAR Market) for its application, which does not impose requirements on net profit or even operating revenue.

Reporters noticed that after Zhi Xiang Jin Tai's listing in June this year, no projects adopting this set of standards have passed the review.

Data from East Money Choice shows that, as of December 25, 2023, there are 16 projects on the STAR Market using the fifth set of standards, all of which are pharmaceutical manufacturing or medical device companies. Most of them are in a "suspended" or "postponed review" status. The companies that have passed the review, Sirui Zhe and Bibet, have submitted their registration but no results have been announced yet. Meanwhile, Xintong Drugs, which has already been registered, has not yet issued shares.

01 Total loss exceeds 300 million yuan in three and a half years, with fundraising reaching 2.2 times the total assets.

In the prospectus, Beijing Percutek Therapeutics Medical Equipment Co., Ltd. ("Percutek Therapeutics") describes itself as a high-tech enterprise specializing in the innovative research, development, and application of products and therapies in the fields of aortic, peripheral, coronary, neuro-intervention, and access solutions. It currently has 8 marketed products, including thoracic and abdominal aortic stent graft systems, along with over 20 products in the research and development pipeline.

Financially, the company's operating revenue during the reporting period (2019 to 2021, and the first half of 2022) was 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, respectively, 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. 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.

Against this backdrop, Percutek Therapeutics has applied for listing on the STAR Market using the fifth set of standards in the STAR Market's stock issuance and listing review rules: an estimated market value of no less than RMB 4 billion, with its main business or products requiring approval from relevant national authorities, demonstrating significant market potential, having already achieved interim results, and meeting other corresponding conditions for the STAR Market positioning such as possessing clear technological advantages.

However, the prospectus shows that the issuer "cannot guarantee profitability in the next few years and will require continuous R&D investment, which may expose the issuer to financial risks and delisting risks." The main delisting risk is that if, by the fourth full fiscal year after listing, the sales of the company’s marketed products do not meet expectations, and the products under development fail to obtain regulatory approval or experience delays compared to the company's expectations, this could lead to the company meeting the conditions for delisting.

In this IPO, Percutek Therapeutics originally planned to raise 1.293 billion yuan, of which 400 million yuan would be used to replenish working capital, accounting for one-third.

The fundraising amount of nearly 1.3 billion yuan far exceeds the size of the company. As of the end of June 2022, Percutek Therapeutics had total assets of only 542 million yuan, with net assets at just 436 million yuan. In other words, the planned fundraising amount is 2.27 times the company's total assets and nearly three times its net assets.

02 Sales expenses account for about 50% of revenue

The prospectus shows that although Percutek Therapeutics adopted the fifth set of standards, which places more emphasis on scientific and technological innovation attributes, in its application, the company actually has a relatively high proportion of sales expenses.

During the reporting period, the company's sales expenses were 28.2058 million yuan, 34.5173 million yuan, 42.6373 million yuan, and 30.1319 million yuan, respectively, accounting for 57.63%, 69.03%, 48%, and 49.53% of operating revenue. The company's sales expenses mainly consist of labor costs, promotional expenses, share-based payment expenses, and travel and transportation expenses, among which promotional expenses account for the largest proportion of sales expenses, reaching up to 48%.

The prospectus shows that the company's sales expense ratio is far higher than the average of comparable companies, and in some years, it even reaches more than twice the average.

In the first round of inquiries, the SSE required the company to explain the main contents of promotional expenses and the top five payment recipients during the reporting period; to clarify whether the detailed items in the sales expenses have corresponding reimbursement vouchers, whether the reimbursement vouchers are standardized and authentic, whether the invoices issued correspond to the payment recipients, and whether there are instances of concentrated invoicing (concentrated invoicing time, location, or payment recipients).

Whether the company, major distributors, and promoters engaged in commercial bribery during the reporting period has also been a concern. "Are there any abnormal financial transactions between sales personnel and distributors or end customers, and can the issuer's relevant internal control systems effectively prevent commercial bribery risks?"

It is worth noting that the withdrawal of this IPO will trigger the reinstatement of certain terms in the company's actual controller’s valuation adjustment agreement.

The prospectus shows that on May 31, 2022, all parties signed a termination agreement. All special provisions involving the issuer were terminated and deemed invalid from the outset, while the special provisions involving the actual controller, Zhou Jian, were suspended but with a resumption clause.

The fourth clause of the restoration provision states: "If Percutek Therapeutics withdraws its application after filing for an IPO, or if the Shanghai Stock Exchange rejects or terminates the review, or if Percutek Therapeutics' IPO application is not approved, or if the China Securities Regulatory Commission decides not to register, then as of the date of the occurrence of the aforementioned circumstances (whichever occurs earliest), the special rights, obligations, and related terms of shareholders related to Zhou Jian will automatically restore their effectiveness and can continue to be enforced."

This article comes from the WeChat Official Account"China Fund News" (ID: chinafundnews), Author: Nanshen, published with authorization from 36Kr.