Up to now, only 80 million of the remaining funds transferred by former executives in violation of regulations have not been repaid, and it is expected that all of them will be repaid by September 30, 2024.
Recently, Qiming Medical-B (02500) disclosed loan trends from former executives, and in another way became popular in the industry.
The first medical device company to be listed on the Hong Kong Stock Exchange in 18A, “China's First Heart Valve Stock Company”. Since its listing on the Hong Kong Stock Exchange, Qiming Medical has gained momentum along the way. In November 2023, a company announcement announcing the suspension of trading pending the publication of insider information pushed Qiming Medical off the altar. There were many opinions for a while.
The suspension of trading has already occurred. The time between suspension and resumption of trading is probably the part worth thinking about by Chinese medical device companies. The author has sorted out the company's progress during the suspension period, with the aim of exploring the growth implications that Qiming Medical brought to China's innovative medical device industry.
Experiences and Lessons: Standardized Professional Manager Governance Model
During the five-month suspension period, Qiming Medical issued a total of 12 announcements, disclosing matters such as loans from former executives and the company's resumption of trading, including: carrying out special audits, forensic investigation results, internal compliance measures, etc.; the company's determination to face internal control risks and actively cooperate with the Hong Kong Stock Exchange to promote the resumption process can be seen.
On April 29, 2024, Qiming Medical announced the 2023 annual results report. Following the company performance meeting on April 1, management once again officially responded to the loan incident of a former executive. Overall, the company has made substantial progress in strengthening internal management control, standardizing business processes, and managing compliance risks.
Have you paid off your loan? This is probably everyone's biggest concern. Up to now, only 80 million of the remaining funds transferred by former executives in violation of regulations have not been repaid, and it is expected that all of them will be repaid by September 30, 2024. In the “More Information on Unauthorized Loans and Pledged Deposits” section of the annual report, Qiming Medical stated that the 200 million yuan pledged deposit previously provided to Zi Zhenjun's control company “Hangzhou Kuntai” on February 25 has been cancelled by the bank and further withdrawn by the company from the bank.
(5 rules of the Resumption of Trading Guidelines)
A former executive? The author has noticed that people have always misunderstood the identities of Zi Zhenjun and Zeng Min. In fact, on November 20, 2023, the company announced that Zi Zhenjun is no longer the executive director, general manager and authorized representative of Qiming; Zeng Min is no longer the company's executive director or chairman. The founder ≠ the company. This basic fact is the most overlooked issue. The company is an independently operated system, and this is a critical lesson we've learned.
Regarding the second internal control review, the company previously announced that it has hired Deloitte Corporate Consulting (Shanghai) Co., Ltd. Beijing Branch as an internal control consultant to review the company's internal controls and assess whether the company has sufficient internal control policies and procedures to remedy and reduce related loopholes.
According to reports, in recent months, the company has continuously published a series of written materials on internal control and rectification, such as reporting policies, internal investigation procedures regulations, internal audit management systems, risk prevention and control management systems (not product-related), and insider information management systems, for all employees to learn and circulate. Furthermore, the company made an internal announcement and established an internal audit compliance department, which is independently responsible for the company's internal audit work and compliance work. The internal audit work is reported to the audit committee of the company's board of directors, and the compliance work is reported to the company's general manager. It can be seen from this that the corresponding reviews and measures should have all been completed and implemented, and the company's internal audit compliance is a big step forward.
An industry insider said that the Hong Kong stock market has continued to rebound recently, with favorable policies, improved fundamental expectations, and a better financial environment, which will help further drive the rise of Hong Kong stocks. If Qiming Medical can use this opportunity to regulate the company's internal risk control and restore confidence in the capital market, it may be able to usher in a positive situation where the gap is exhausted.
Section 3 of the Resuming Trading Guidelines: Proving the integrity of management. The opening article of the annual report was a topic: the company's management changed blood. The executives involved have successively resigned from positions such as the company's general manager, chairman, and CFO; appointed company veterans to positions such as general manager, executive director, supervisor, and authorized representative; appointed a new CFO; and completed processes such as replacing third party auditors and hiring new internal control and compliance consultants. Under the leadership of the new management, Qiming Medical is moving towards a more professional management model for professional managers led by a board of directors, which is worth learning from peers in the industry.
Regarding Sections 4 and 5 of the Resumption of Trading Guidelines, after the suspension of trading, the company continued to disclose information to the market, including but not limited to performance announcements, progress of the resumption of trading, legal investigation results, and management appointments. Furthermore, Kai Ming Medical said it is looking for suitable candidates to fill the vacancies of independent non-executive directors and related board committees.
Where bad is good, good fortune overtakes evil. As can be seen from the above measures, Qiming Medical has taken practical measures to gradually resolve the company's much-criticized internal control issues. If the follow-up progress goes smoothly, the resumption of trading is just around the corner. The experience we can learn from this is that the one-word management model is over, and decisions lacking system and scientific support will be unfounded; corporate institutionalization and transparency of decisions will play a more important role in innovative medical device companies in China. We also hope that Qiming Medical will reorganize its momentum as soon as possible and return to the big stage of innovative medical devices.
After the pain: solid fundamentals are a corporate moat
Learning from experience is multifaceted. While standardization and specialization are important, steady and steady performance is also the truth that an enterprise is unbreakable. The author takes a peek into the basic situation of Qiming Medical from the latest annual report materials.
The first is the issue of cash flow that is of utmost concern. Annual report disclosure: By the end of 23, Qiming Medical had 770 million yuan in cash; in addition to the 200 million pledged capital recently withdrawn from the bank, the company had close to 1 billion dollars in cash. The funds can cover current operating requirements, and the impact is not expected to be significant in the short term. Regarding anticipated capital, the annual report indicates that various financing channels will be used to support capital expenditure, including but not limited to internal capital and bank loans, and that the company's bank credit lines are sufficient.
Secondly, hematopoietic capacity. High quality commercialization capabilities lay a solid cash foundation for the company's long-term development. In 2023, Qiming Medical achieved sales revenue of 491 million yuan, an increase of 21% over the previous year. Among them, overseas sales recorded a total of 72.7 million yuan, an increase of 40% over the previous year. At the same time, the company's annual gross profit reached 389 million yuan, an increase of 23.9% over the previous year, and gross margin increased.
In terms of overseas commercialization, Venusp-Valve, the company's international flagship product, saw a sharp rise in global terminal implantation in 23, an increase of 180% over the previous year. By the end of March '24, the total global sales volume of this product exceeded 1,000, covering 135 overseas centers. The results of the internationalization strategy are beginning to show. According to reports, Venusp-Valve is included in French health insurance at a price far superior to international peers, which helps to further increase its share in the mainstream international market. Domestically, through measures such as optimizing sales costs and expenses, improving operational efficiency, and optimizing production costs, Qiming Medical became the only company in China to achieve positive profits in the TAVR business, demonstrating industry-leading commercialization strength. By the end of 23, VenUSA series products had covered more than 550 hospitals, benefiting more than 16,000 Chinese patients, and achieved domestic sales revenue of 400 million yuan. Furthermore, continued approval to be included in health insurance in various provinces and cities will further boost domestic sales volume growth.
A rich product portfolio will further strengthen the competitive barriers of enterprises. From the R&D side, Qiming Medical has three commercialized TAVR products, one TPVR product, and two surgical accessory products; the layout of two cutting-edge innovative dry valve TAVR products, all of which are in global multi-center clinical progress; a device suitable for both TMVR and TTVR; and an ongoing research product for the treatment of aortic valve reflux in animal testing. In the field of non-valvular structural heart disease, the layout includes the world's first radiofrequency ablation system for hypertrophic cardiomyopathy and a renal sympathetic ablation (RDN) system for interventional treatment of hypertension. As the only domestic company that can provide four-valve integrated structural heart disease solutions, Qiming Medical's competitive barriers are high.
Finally, was the daily operation of the company affected during the suspension of trading? The company's significant business developments are unspeakable proof. In 2023, Venusp-Valve was approved by the US IDE application, becoming the first Chinese artificial heart valve approved by the US FDA for clinical research. At the beginning of '24, Venusp-Valve PROTEUS's first US IDE clinical research center was officially launched, and key US clinical trials are about to be enrolled; the study data will also support registration applications from the US FDA and the Japanese PMDA. The product has been registered and marketed in more than 50 mainstream countries including China, Germany, France, the United Kingdom, Italy, Spain, Canada, and Australia, and continues to be surgically implanted in newly covered medical institutions.
Meanwhile, Cardiovalve's Cardiovalve TARGET CE research on tricuspid valve reflux disease is progressing rapidly. By the end of March '24, more than 70 patients had been enrolled, covering more than 20 well-known centers in Europe and North America. The three major international multi-center clinical trials of the Cardiovalve TARGET CE Study, Venusp-Valve PROTEUS Study, and Venus-Vitae Smart-Align Study are progressing steadily, covering the three major disease fields of tricuspid valve, aortic valve, and pulmonary valve, breaking through clinical difficulties and solving clinical pain points. Furthermore, in December '23, the company announced the launch of a key global clinical trial of Smart-Align, the next-generation TAVR system and the first global-dilated Venus-Vitae product. At the beginning of '24, the company's next-generation fully released fully recovered TAVR system. Venus-PowerX products completed early feasibility studies and enrolled patients with excellent clinical performance.
In summary, the former executive loan incident did not have a negative impact on the company's production and operation. When Theon lost his horse, he knew it was not a blessing. Using this incident, the company's management was reshaped and internal reforms were completed, which will further standardize the company's operations and protect its steady and far-reaching progress in the capital market.
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Businesses grow in the midst of ups and downs, not because they go faster than anyone, but rather go farther than who. The negative crisis caused by the loan incident is not necessarily a bad thing for China's medical device industry and Qiming Healthcare in the long run.
Innovative Chinese device companies like Qiming Medical are experiencing a transition period from domestic substitution to innovation in China. It coincided with Hong Kong Stock 18A opening arms to welcome innovative biotechnology companies, and Medtech companies ushered in a double harvest of capital and policy. In less than six years, most businesses have been struggling on the edge of a survival line. In addition to having strong commercial hematopoietic capabilities and pragmatic R&D and innovation skills, the winners also need a good time. Dormant when it's at a low point, and fight again after restructuring to get through the cycle. I believe the Chinese heart valve “One Brother” will not be far off to resume trading.