Micro-Tai Medical, a Diabetes Device Developer with Revenue Exceeding RMB 70 Million, Files for Hong Kong IPO; Patch Insulin Pump Already Launched

Recently, Microtech Medical Equipment (Hangzhou) Co., Ltd. (“MicroTech Medical”) filed its prospectus with the Hong Kong Stock Exchange, seeking a listing on the Main Board of the Hong Kong Stock Exchange.

MicroTech Medical, established in 2011, is a high-tech enterprise dedicated to the research and development of medical devices in the field of diabetes. It aims to reshape the monitoring, treatment, and management paradigms of diabetes through closed-loop solutions that enable dynamic monitoring and control of blood glucose levels. According to a Frost & Sullivan report, MicroTech Medical is the only company globally with both an approved patch insulin pump and a calibration-free continuous glucose monitoring system on the market.

According to the prospectus, MicroTech Medical’s operating revenues in 2019 and 2020 were RMB 51.863 million and RMB 75.277 million, respectively; its corresponding R&D expenditures were RMB 50.060 million and RMB 82.009 million, respectively; and its corresponding net losses for the years were RMB 78.614 million and RMB 121 million, respectively.

MicroTech Medical Financial Data (Source: Prospectus)

Like many innovative biotech companies, MicroTech Medical has not yet achieved profitability; its losses are primarily attributable to the financial accounting treatment of share-based incentive payments.

Diabetes is one of the chronic diseases with the highest prevalence worldwide. As a country with a large population, China has seen a continuous increase in the number of diabetes cases in recent years.

According to a Frost & Sullivan report, the global number of diabetes patients was 486.9 million in 2019 and is projected to reach 607.6 million by 2030. According to the same source, the number of diabetes patients in China was 119 million in 2019 and is expected to reach 143 million by 2030.

As early as the 1960s, attempts were made to simulate physiological insulin secretion using continuous subcutaneous insulin infusion. By the late 1970s, mechanical insulin delivery devices began to be used, marking the prototype of the modern insulin pump.

Over time, insulin pumps have evolved into two main types: tubed and tubeless patch pumps. The tubeless patch insulin pump not only offers the advantages of a compact size and greater portability but also avoids many issues associated with infusion sets, thereby improving patient adherence to the treatment regimen.

Traditional tubular insulin pumps are equipped with a pumping mechanism and an insulin reservoir, delivering insulin through a long tube to an infusion set worn on the body. These devices are typically larger in size and feature bolus buttons, allowing users to correct blood glucose levels by administering bolus insulin during meals or when blood glucose is elevated. They also enable the setting of basal insulin infusion rates and the temporary suspension of insulin delivery when necessary. Products from Medtronic, SOOIL, and others adopt this tubular insulin pump design.

Patch insulin pumps are more compact, eliminating the inconvenience caused by the external tubing of traditional tubed insulin pumps and reducing treatment risks associated with tubing kinking, bending, or pulling.

However, patch insulin pumps face high comprehensive barriers, as they involve multiple disciplines—including mechanics, electronics, software, materials, sensors, and system integration—and, being therapeutic devices, are subject to stringent requirements for reliability and safety. In recent years, many companies and teams both in China and abroad have attempted to enter this field, but have frequently failed.

In its strategic layout for diabetes management, MicroTech Medical early on targeted the development of patch insulin pumps, focusing on overcoming the key technical challenges in this area. The company successfully developed its core product, Equil, and achieved commercialization. It is reported that Equil is the world’s second commercially available semi-disposable patch insulin pump, and the first domestically produced patch insulin pump to gain regulatory approval in both China and the European Union.

MicroTech Medical Equil (Image source: MicroTech Medical official website)

The first patch-style insulin pump on the market is the Omnipod series launched by Insulet. Unlike Omnipod, which adopts a disposable design, MicroTech’s Equil features a semi-disposable design.

From the perspective of MicroTech Medical’s vision to reshape diabetes management, its strategic layout clearly extends beyond mere diabetes control. As a critical tool for glucose management in diabetic patients, blood glucose monitoring systems are also an integral part of MicroTech Medical’s product portfolio.

In fact, MicroTech Medical had already launched a blood glucose monitoring system as early as 2013, but this product did not differ significantly from existing systems on the market. With the growing popularity of the continuous glucose monitoring (CGM) concept, MicroTech Medical began to strategize in this area and officially initiated clinical trials for its calibration-free, real-time CGM product, AiDEX G7, in 2018.

Compared with traditional blood glucose monitoring products, Continuous Glucose Monitoring Systems (CGMS) can continuously and dynamically monitor blood glucose fluctuations throughout the day, providing reliable and comprehensive blood glucose information. In terms of usage, CGMS simplifies the blood glucose monitoring and management process and is entirely painless, thereby improving diabetic patients' adherence to treatment regimens to a certain extent.

It is reported that the AiDEX G7 is the second commercially available calibration-free, real-time continuous glucose monitoring (CGM) system worldwide. Since its launch, the AiDEX G7 has demonstrated various advantages over traditional blood glucose monitoring systems, featuring real-time monitoring, reduced risk of hyperglycemia and hypoglycemia, and improved adherence to treatment regimens by eliminating the need for routine fingerstick blood tests.

Although the AiDEX G7 has not yet been approved for marketing in China, it officially obtained CE certification in September 2020, thanks to its superior performance and clinical efficacy. The application for domestic registration is currently being actively advanced.

Given that the blood glucose meter market is a red ocean, MicroTech Medical positions its continuous glucose monitoring (CGM) system merely as one component of comprehensive diabetes management. In contrast, the patch insulin pump is MicroTech Medical’s more critical product. It overcomes certain drawbacks of conventional injection methods and offers advantages such as greater convenience and more precise infusion compared to traditional tube-based pumps. Furthermore, the semi-disposable insulin pump segment remains a blue ocean market in China.

In December last year, MicroTech Medical announced the completion of its Series D financing round amounting to RMB 575 million. The round was led by Taikang Qianzhen Fund under Taikang Investment, with Tencent and IDG Capital as co-lead investors. Follow-on investments were made by China Everbright Limited, CICC Pucheng, and Sanzheng Health, among others. Existing shareholders, including Qiming Venture Partners, Lilly Asia Ventures, Chende Capital, and Guofang Fund of Funds, continued to participate in the investment.

According to the prospectus, MicroTech Medical previously completed three rounds of financing—Series A, B, and C—in 2016, 2017, and 2018, raising RMB 31 million, RMB 120 million, and RMB 136 million, respectively.

MicroTech Medical’s continued appeal to capital is evidently inseparable from its robust R&D capabilities and the successful development of high-quality products.

Regarding the team, the founder and core R&D members of MicroTech Medical have many years of R&D experience in the industry. The R&D team brings together interdisciplinary talents from the fields of mechanical engineering, electrical engineering, software engineering, biomedical engineering, and artificial intelligence.

In terms of R&D investment, MicroTech Medical’s R&D expenditures in 2019 and 2020 were RMB 50.06 million and RMB 82.009 million, respectively, both accounting for more than 35% of its total expenditures, with this proportion continuing to rise.

MicroTech Medical’s Expense Breakdown (Source: Prospectus; as items such as financial expenses and impairment losses on financial assets account for a relatively small proportion, they are consolidated under “Other Expenses”)

In terms of product coverage, over the past decade, MicroTech Medical has developed a robust and comprehensive product portfolio, encompassing multiple product lines such as patch insulin pumps and continuous glucose monitoring systems (which provide the foundation for closed-loop artificial pancreas systems), as well as IVD devices (e.g., blood glucose monitoring systems and point-of-care testing devices).

Building on its launched Equil and AiDEX G7 products, MicroTech Medical is also advancing its pipeline of improved products, with plans to expand the scope of application to include closed-loop artificial pancreas systems, second-generation patch insulin pumps, AiDEX X, and IVD devices.

MicroTech Medical Product Line (Source: Prospectus)

In the development of artificial pancreas systems, MicroTech Medical completed relevant market and feasibility studies in the first quarter of 2021 and expects to complete engineering validation of the artificial pancreas in the first half of 2022.

In addition to its diversified product portfolio, MicroTech Medical has developed a series of diabetes management solutions and is striving to establish a cloud-based big data diabetes management platform that integrates the company’s products through big data and artificial intelligence.

At the current stage, MicroTech Medical’s revenue growth is primarily driven by increased sales of its core product, Equil. Since its market launch in 2018, Equil has been sold or distributed to 747 hospitals across China. In 2019 and 2020, revenue generated from Equil accounted for 47.6% and 46.2% of MicroTech Medical’s total revenue, respectively.

Compared with traditional tubing pumps, Equil adopts a lightweight, tubeless design that enables users to manage diabetes privately, conveniently, and safely. Other features include vibration alerts perceptible through clothing, and the ability to deliver bolus insulin conveniently using the pump’s built-in bolus button even when the wireless PDA is not at hand. Furthermore, owing to its enhanced safety, superior accuracy, and semi-disposable nature, Equil delivers performance comparable or superior to that of major competing products.

In September 2017, Equil obtained marketing authorization for adult use from China’s National Medical Products Administration (NMPA) and received the CE Mark in the European Union in the same year. As of the Latest Practicable Date (May 5, 2021), Equil had been successfully sold in more than 15 countries across the Asia-Pacific region, Europe, the Middle East, Africa, and Latin America. In February 2021, MicroTech Medical submitted a 510(k) premarket notification to the U.S. Food and Drug Administration (FDA), with FDA approval expected in 2022.

Meanwhile, MicroTech Medical is developing its second-generation patch insulin pump, which will feature comprehensive optimizations in product size, waterproof performance, compatibility with insulin reservoirs of various sizes, and user experience. We believe that in the near future, sales of Equil will continue to be a key driver of MicroTech Medical’s revenue growth.

Furthermore, AiDEX G7 is also a significant component of the company’s revenue.

As a company with commercialized products in both patch insulin pumps and calibration-free continuous monitoring systems, MicroTech Medical’s product portfolio enables an integrated diabetes management model combining monitoring and treatment for patients, while also laying the foundation for the subsequent development of closed-loop artificial pancreas systems.

The artificial pancreas has long been regarded as one of the disruptive solutions for diabetes monitoring, treatment, and management. It effectively integrates insulin pumps with continuous glucose monitoring systems through a series of control algorithms to achieve continuous monitoring, treatment, and management of blood glucose levels.

During use, the artificial pancreas can automatically adjust insulin delivery based on continuous glucose monitoring, reducing the risk of hyperglycemia or hypoglycemia and minimizing manual patient intervention. If MicroTech Medical successfully launches its artificial pancreas product in the future, it will undoubtedly unlock greater growth opportunities for the company.

Based on the revenue data of MicroTech Medical from 2019 and 2020, although R&D investment accounted for the majority of the company's total expenditures, the company also allocated substantial resources to its sales layout, with increasing intensity in such investments.

According to the prospectus, as of December 30, 2020, MicroTech Medical had 370 distributors. As of the latest practicable date, the Company had 120 in-house sales and marketing personnel, covering product sales in 30 provinces, municipalities, and autonomous regions in China, as well as in 60 countries overseas. Leveraging its robust distributor network, MicroTech Medical’s business has expanded globally, including in the Asia-Pacific region, Europe, the Middle East, Africa, and Latin America.

In terms of sales model, MicroTech Medical adopts distribution as a key sales channel. For the years ended December 30, 2019 and 2020, MicroTech Medical’s total sales to distributor customers amounted to RMB 51.251 million and RMB 73.277 million, respectively, accounting for 98.8% and 97.3% of its revenue, with all of its top five customers being distributors.

At this stage, MicroTech Medical is in the early phase of marketing and promoting its patch insulin pump and continuous glucose monitoring system. According to the prospectus, MicroTech Medical is also making new attempts to expand its sales channels.

Currently, MicroTech Medical is actively establishing communication channels with product users and implementing a user-centric, clinical data-driven sales strategy, which also facilitates the development of more products based on patient experience.

Furthermore, MicroTech Medical is actively establishing partnerships with commercial insurance companies to broaden its promotional channels, thereby facilitating more efficient market entry for its products and further increasing their penetration rate among the diabetic population.

From a revenue perspective, although MicroTech Medical has not yet achieved profitability at this stage, it realized a 45% year-on-year growth in revenue between 2019 and 2020, while continuously increasing its R&D investment. In the long run, as more products are launched and R&D investments begin to yield returns, MicroTech Medical is well-positioned to capture a leading market share by leveraging its robust sales network.