Shanghai HeartCare Medical Files for Hong Kong IPO Amid Uncertain Profitability and Exit of Fosun Pharma as Shareholder

Recently, Shanghai HeartCare Medical Technology Co., Ltd. (hereinafter referred to as “HeartCare”) submitted its IPO prospectus to the Hong Kong Stock Exchange.Goldman Sachs、CICCas joint sponsors.

According to the introduction, HeartCare is a neurointerventional medical device company dedicated to redefining standards for the treatment and prevention of stroke, with the aim of reducing stroke-related mortality and improving patient outcomes. Currently, HeartCare has four ischemic stroke treatment devices approved for market launch.

Overall, HeartCare’s commercialization remains in its early stages, with revenue generation only beginning in 2020. According to Beiduo Finance, HeartCare recorded revenue of just RMB 7.293 million and gross profit of RMB 3 million in the first three quarters of 2020, while posting a net loss of RMB 67.745 million.

Notably, several investors who participated in the early-stage investment of HeartCare chose to exit midway. These included Futuo Biology, an affiliate of the Fosun Group, and Beile (Limited Partnership), founded by Ding Kui’s spouse and father-in-law, among others; Ding Kui serves as a non-executive director of HeartCare.

Fosun Pharmaupon withdrawal from the shareholder ranks

It is understood that the operating entity of HeartCare is Shanghai HeartCare Medical Technology Co., Ltd. (formerly known as Shanghai HeartCare Medical Science and Technology Co., Ltd.), which was established in June 2016. Business registration information indicates that HeartCare’s registered capital amounts to RMB 32.232558 million, with its legal representative being Wang Guohui, the company’s founder, chairman, and general manager.

According to public information, HeartCare completed a RMB 15 million angel financing round in 2017, a RMB 50 million Series A financing round in 2018, and a nearly RMB 100 million Series B financing round in 2019. In July 2020, it closed a tens-of-millions-of-US-dollars Series C financing round, followed by another Series C+ financing round in September 2020.

In December 2020, HeartCare completed a round of crossover financing amounting to approximately RMB 450 million. Following the completion of this financing, HeartCare’s valuation reached approximately RMB 3.379 billion. As of now, Wang Guohui remains the largest shareholder of HeartCare, collectively controlling 35.18% of its issued share capital.

From an institutional perspective, Tianjin Haida Venture Capital, Shengyu Investment, Jifeng Capital, Sherpa Investments, and Futuo Biopharma have all participated in the investment. Among them, Futuo Biopharma was the Series A investor; it acquired a 16.6667% equity stake for RMB 50 million in 2018 and 2019, and sold it for approximately RMB 88 million in May 2020, representing a 76% appreciation.

Specifically, on May 14, 2020, SDIC Chuanghe Fund and Huajin Jintian acquired 8.7719% and 5.8114% equity interests in HeartCare from Futuo Biotechnology, respectively, for consideration of RMB 50 million and approximately RMB 33 million. Upon completion of the share transfer, Futuo Biotechnology ceased to be a shareholder of HeartCare.

It is understood that Futuo Bio is a subsidiary of Fosun Pharma (SH: 600196, HK: 02196). According to Qichacha, Fosun Pharma holds a 51% equity stake in Futuo Bio.Fosun International(HK:00656) via Shanghai FosunHealth IndustryHolding Co., Ltd. holds a 49% equity stake in it.

Also exiting was Beile, one of the angel-round investors in HeartCare. In 2017, Beile invested RMB 6 million to acquire a 4.9981% equity stake in HeartCare, and in July 2020, it transferred this stake to an investor in HeartCare’s Series C financing round, thereby exiting the shareholder roster.

Furthermore, among the investors in HeartCare’s angel and Series B financing rounds, some shareholders reduced their equity stakes. Specifically, in July 2020, Speed, Xinsheng Yina, Beile, Haida, Huipu, and Guohong Jiyuan collectively transferred approximately 10.6812% of their equity to Sherpa Investment and other Series C investors, for a total consideration of RMB 122 million.

Prior to the IPO, LYFE Columbia held a 9.47% stake, SDIC Chuanghe Fund held 5.62%, TC Speed held 5.39%, Elbrus held 5.05%, Sherpa Investment held 4.47%, Raritan River held 4.04%, and Huajin Jintian held 3.73%. The shareholdings of Haida, Huipu, and CICC Pucheng (CICC) were each less than 1%.

Widening Losses, Uncertain Profit Outlook

As a neurointerventional medical device company, HeartCare has a cumulative portfolio of 23 commercialized and pipeline products for the treatment and prevention of ischemic stroke (including acute ischemic stroke and intracranial stenosis) as well as the treatment of hemorrhagic stroke.

The prospectus reveals that HeartCare has obtained approval from the NMPA (National Medical Products Administration) for four types of ischemic stroke treatment devices, namely microcatheters, intermediate catheters, stent retrievers, and balloon catheters. Among these, the stent retriever product began sales in December 2020.

HeartCare stated that it expects to commercialize nine late-stage pipeline products in 2021, and ten early-stage pipeline products between 2022 and 2025, including its core product, the left atrial appendage occluder.

Currently, HeartCare operates two production facilities in Shanghai. The Zhangjiang facility is already in operation with an annual production capacity of 12,000 units; the Lingang facility is currently under construction and is expected to commence operations in mid-2021, with an annual production capacity exceeding 100,000 units upon commissioning.

Financially, HeartCare generated zero revenue from its inception through 2019, with a net loss of RMB 75.498 million in 2019. In the first three quarters of 2020, the company reported revenue of RMB 7.293 million and a net loss of RMB 67.745 million, compared to a net loss of RMB 62.480 million in the same period of 2019, indicating a year-on-year widening of losses.

The prospectus shows that HeartCare's R&D expenses in 2019 and the first three quarters of 2020 were RMB 51.11 million and RMB 20.024 million, respectively. Among them, the R&D expenses in the first three quarters of 2020 accounted for 274.6% of total revenue, while sales and distribution expenses during the same period amounted to RMB 6.95 million, representing 95.3%.

HeartCare stated that it may continue to incur losses in the future, and such losses may increase due to the expanded development of its products under investigation, efforts to seek regulatory approval, and the commercialization of its products. HeartCare believes that developing a new product from design to readiness for commercial sale typically takes many years.

The prospectus also disclosed that the senior management of HeartCare includes its Chairman, Executive Director and Chief Executive Officer (CEO) Wang Guohui; Executive Director and Deputy General Manager Zhang Kun (formerly known as Zhang Ye); Deputy General Managers Li Zhigang and Wei Jiawei; and Chief Financial Officer and Joint Company Secretary Zhang Han, among others.

Among them, Zhang Kun holds 4.33% of the shares. In addition to Wang Guohui and Zhang Kun, Ding Kui, one of the promoters and a non-executive director of HeartCare, holds 4.86% of the shares.