Venus MedTech-B (02500.HK): Progress Toward Resumption Following Trading Halt and Governance Overhaul

Recently,Venus Medtech -B (02500)Disclosure of Former Executive’s Loan Activities Lands on Industry Trending List in Another Way.

The First Company Listed Under Chapter 18A of the Hong Kong Stock ExchangeMedical DevicesVenus Medtech, known as “the first stock of Chinese heart valves,” has been in the spotlight since its listing on the Hong Kong Stock Exchange. In November 2023, the company announced a trading halt pending the release of inside information.Announcement, knocking Venus Medtech off its pedestal and sparking a flurry of speculation.

Trading Suspension Has Already Occurred; The Period Between Suspension and Resumption May Be the Most Worthwhile Aspect for Chinese Medical Device Companies to Reflect On. This article reviews the company’s developments during the suspension period, aiming to explore the growth insights that Venus Medtech offers to China’s innovative medical device industry.

During the five-month trading suspension, Venus Medtech issued a total of 12 announcementsAnnouncement, disclosed matters such as loans to former executives and the company’s resumption of trading, including details on the special audit, forensic investigation findings, and internal compliance measures; this demonstrates the company’s determination to address internal control risks and its proactive cooperation with the Hong Kong Stock Exchange to facilitate the resumption of trading.

On April 29, 2024, Venus Medtech released its annual performance report for 2023, marking management’s second formal response to the former executive loan incident following the company’s earnings conference on April 1. In summary: The company has made substantial progress in strengthening internal management controls, standardizing business processes, and managing compliance risks.

Has the borrowed money been repaid? This is likely the question of greatest concern to everyone.To date, former executivesViolationOf the total funds transferred, only RMB 80 million remains outstanding and is expected to be fully repaid by September 30, 2024.In the annual report’s section titled “Additional Information on Unauthorized Loans and Pledged Deposits,” Venus Medtech stated that the RMB 200 million in pledged deposits previously announced on February 25 as provided to “Hangzhou Kuntai,” a company controlled by Zi Zhenjun, had beenBankRelease, and further withdrawal by the Company from the bank.

(Five Detailed Rules for Resumption of Trading Guidelines)

Former Executives? The author has noted persistent misconceptions regarding the identities of Zi Zhenjun and Zeng Min. In fact, on November 20, 2023, the company announced that Zi Zhenjun was no longer an Executive Director, General Manager, or Authorized Representative of Venus Medtech, and that Zeng Min was no longer an Executive Director or Chairman of the Board.The founder is not the company—this fundamental fact is the most overlooked issue. The company operates as an independent system, which is a crucial lesson we have learned.

Regarding the second internal control review, the Company previously announced that it had engaged Deloitte Consulting (Shanghai) Co., Ltd. Beijing Branch as an internal control advisor to conduct a review of the Company’s internal controls and assess whether the Company has sufficient internal control policies and procedures to address and mitigate related deficiencies.

It is reported that in recent months, the company has successively issued a series of written materials on internal control rectification for study and circulation among all employees, including the Whistleblowing Policy, Internal Investigation Procedures, Internal Audit Management System, Risk Prevention and Control Management System (non-product related), and Inside Information Management System. Furthermore, the company announced the establishment of an Internal Audit and Compliance Department, which will independently oversee internal audit and compliance functions. The internal audit function reports to the Audit Committee of the Board of Directors, while the compliance function reports to the General Manager. This indicates that the relevant reviews and measures have been completed and implemented, marking a significant step forward in the company’s internal audit and compliance efforts.

An industry insider stated that the ongoing rebound in the Hong Kong stock market, driven by favorable policies, improved fundamental expectations, and a more conducive funding environment, is poised to further propel the rise of Hong Kong-listed stocks. If Venus Medtech can seize this opportunity to standardize its internal control risk management and restoreCapital MarketsConfidence may see a wave of positive momentum once all negative factors have been fully priced in.

Guideline 3 for Resumption of Trading: Demonstrating Management Integrity. The annual report opens by addressing this key issue head-on: a major overhaul of the company’s management team. Executives involved in the incident have successively resigned from their positions as General Manager, Chairman, and CFO. Veteran company personnel have been appointed to roles such as General Manager, Executive Director, Supervisor, and Authorized Representative. A new CFO has assumed office, and processes including the replacement of the third-party auditor and the engagement of new internal control and compliance advisors have been completed. Under the leadership of the new management team, Venus Medtech is transitioning toward a more professional, board-led corporate governance model driven by professional managers—a approach worthy of emulation by industry peers.

Regarding Articles 4 and 5 of the Trading Resumption Guidance, the Company has continued to disclose information to the market during its trading suspension, including but not limited to financial results announcements, updates on trading resumption progress, findings from legal and regulatory investigations, and appointments of management. In addition, Venus Medtech stated that it is identifying suitable candidates to fill the vacancies for independent non-executive directors and related board committees.

“Misfortune is what fortune relies on; fortune is where misfortune hides.” From the above measures, it is evident that Venus Medtech has taken pragmatic steps to gradually address its widely criticized internal control issues. If subsequent progress proceeds smoothly, the resumption of trading is just around the corner. The lessons we can draw from this are:The era of autocratic management has passed; decisions lacking systematic and scientific support are akin to trees without roots. Institutionalization and transparent decision-making will play an increasingly vital role in China’s innovative medical device enterprises.We also look forward to Venus Medtech regaining its momentum and returning to the forefront of innovative medical devices as soon as possible.

Learning from experience is multifaceted. While standardization and specialization are undoubtedly important, steady and solid performance remains an unshakable truth for enterprises. From the latest annual report materials, the author gains insight into the fundamental strengths of Venus Medtech.

First and foremost is the most pressing concern: cash flow. The annual report disclosed that as of the end of 2023, Venus Medtech had RMB 770 million in cash on hand. Combined with the recently released pledged funds of RMB 200 million from banks, the company’s cash holdings approach RMB 1 billion, which is sufficient to cover current operational requirements, indicating limited short-term impact. Regarding future funding needs, the annual report stated that the company will utilize multiple financing channels to support capital expenditures, including but not limited to internal funds and bank loans, and that it has ample available bank credit facilities.

Secondly, cash-generating capability. Strong commercialization capabilities have laid a solid cash foundation for the company’s long-term development. In 2023, Venus Medtech achieved sales revenue of RMB 491 million, representing a year-on-year increase of 21%. Of this, overseas sales totaled RMB 72.7 million, a year-on-year increase of 40%. Meanwhile, the company’s gross profit for the full year reached RMB 389 million, up 23.9% year on year, with an improvement in gross profit margin.

In terms of overseas commercialization, the company’s flagship international product, VenusP-Valve, saw a significant increase in global terminal implantations in 2023, with a year-on-year growth of 180%. As of the end of March 2024, the cumulative global sales volume of this product exceeded 1,000 cases, covering 135 overseas centers. The effectiveness of its internationalization strategy is beginning to show. It is reported that the reimbursement price for VenusP-Valve in France is significantly more favorable than those of international competitors, which will help further increase its share in mainstream international markets. Domestically, through measures such as optimizing sales costs and expenses, improving operational efficiency, and reducing production costs, Venus Medtech has become the only company in China to achieve positive profitability in its TAVR business, demonstrating industry-leading commercial capabilities. By the end of 2023, the VenusA series products had been adopted by more than 550 hospitals, benefiting over 16,000 Chinese patients, and achieving domestic sales revenue of RMB 400 million. In addition, continued inclusion in medical insurance lists across various provinces and cities will further promote the growth of domestic sales volume.

A robust product portfolio will further solidify the company’s competitive moat. From an R&D perspective, Venus Medtech has three commercially launched TAVR products, one TPVR product, and two surgical accessory products; it is developing two next-generation dry-valve TAVR products, both currently undergoing global multicenter clinical trials; it possesses one device suitable for both TMVR and TTVR; and it has one investigational product for treating aortic regurgitation that is in the animal testing phase. In the non-valvular segment of structural heart disease, the company is pioneering a first-in-class radiofrequency ablation system for hypertrophic cardiomyopathy and a renal denervation (RDN) system for interventional hypertension treatment. As the only company in China capable of providing an integrated four-valve structural heart disease solution, Venus Medtech has established a formidable competitive barrier.

Finally, was the company’s daily operations affected during the trading suspension? The company’s significant business progress speaks for itself. In 2023, the VenusP-Valve received approval for its Investigational Device Exemption (IDE) application in the United States, becoming the first Chinese-made artificial heart valve approved by the U.S. FDA to conduct clinical studies. In early 2024, the first site for the VenusP-Valve PROTEUS U.S. IDE clinical study was officially launched, with enrollment for the pivotal U.S. clinical trial imminent; data from this study will support regulatory submissions to both the U.S. FDA and Japan’s PMDA. The product has been registered and marketed in more than 50 major countries, including China, Germany, France, the United Kingdom, Italy, Spain, Canada, and Australia, and continues to achieve surgical implantations in newly covered medical institutions.

Meanwhile, the Cardiovalve TARGET CE study for tricuspid regurgitation has progressed rapidly, with over 70 patients enrolled by the end of March 2024 across more than 20 renowned centers in Europe and North America. Three major international multicenter clinical trials—the Cardiovalve TARGET CE Study, the VenusP-Valve PROTEUS Study, and the Venus-Vitae Smart-Align Study—are advancing steadily, covering the three key disease areas of tricuspid, aortic, and pulmonary valves, thereby overcoming clinical challenges and addressing unmet medical needs. Furthermore, in December 2023, the company announced the launch of the global pivotal clinical trial for Smart-Align, the first balloon-expandable dry valve product of its independently developed next-generation TAVR system, Venus-Vitae. In early 2024, patient enrollment for the early feasibility study of the company’s new-generation fully retrievable and repositionable TAVR system, Venus-PowerX, was completed, demonstrating excellent clinical performance.

Based on the above observations, the loan incident involving former executives has not had a negative impact on the company’s production and operations. As the saying goes, “a blessing in disguise,” this event has enabled management restructuring and the completion of internal rectification, which will further standardize corporate operations and safeguard the company’s steady and long-term development in the capital market.

Corporate development is characterized by ups and downs; it is not a race of speed, but of endurance. The negative turmoil triggered by the borrowing incident may not necessarily be a bad thing for China’s medical device industry and Venus Medtech in the long run.

Chinese innovative medical device companies, similar to Venus Medtech, are undergoing a transition from domestic substitution to indigenous innovation, just as the Hong Kong Stock Exchange’s Chapter 18A opens its arms to welcome innovative enterprises.BiotechnologyMedtech companies are reaping dual rewards from capital and policy support. Yet, in less than six years, most have struggled on the brink of survival. Beyond robust commercialization capabilities for self-sustaining revenue and pragmatic R&D innovation, winners also need favorable timing. By lying low during downturns, restructuring, and re-entering the market to navigate economic cycles, we believe the relisting and return of China’s leading heart valve company is not far off.