Recently, Venus Medical-B (02500) disclosed the borrowing dynamics of former executives, which appeared on the hot search of the industry in another way.
The first medical device company listed on the 18A stock market in Hong Kong and the "first share of heart valves in China", Venus Medtech has been shining all the way since its listing on the Hong Kong Stock Exchange. In November 2023, a company announcement announcing the suspension of trading pending the publication of inside information pushed Venus Medtech off the altar, and there were different opinions for a while.
The suspension has already occurred, and the suspension and resumption of trading may be the most worthy part of Chinese medical device companies. The author reviews the company's progress during the suspension period, aiming to explore the growth enlightenment brought by Venus Medtech to China's innovative medical device industry.
Lessons learned: A standardized governance model for professional managers
During the five-month suspension period, Venus Medtech issued a total of 12 announcements to disclose matters such as the former executives' loans and the company's resumption of trading, including: conducting 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 of trading can be seen.
On April 29, 2024, Venus Medtech announced its 2023 annual results report, which is the second time that the management has officially responded to the loan of former executives after the company's performance meeting on April 1. Overall: The company has made substantial progress in strengthening internal management control, standardizing business processes, and controlling compliance risks.
Have you paid back the borrowed money? This is probably the most important issue for everyone. Up to now, only 80 million of all the funds illegally transferred by former executives have not been repaid, and it is expected to be fully repaid by September 30, 2024. In the "More Information on Unauthorized Loans and Pledged Deposits" section of the annual report, Venus Medtech pointed out that the 200 million yuan pledged deposit provided to the company "Hangzhou Kuntai", controlled by Zi Zhenjun, announced on February 25, had been released by the bank and further withdrawn by the company from the bank.
(5 details of the resumption guidelines)
Former executives? The author noticed that everyone has 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 and chairman. The basic fact that the founders ≠ the company is the most overlooked issue. Companies are systems that operate independently, and this is a crucial lesson we learned.
In terms of Article 2 internal control review, the company previously announced that it has hired Deloitte Consulting (Shanghai) Co., Ltd. Beijing Branch as an internal control consultant to review the company's internal control and assess whether the company has adequate internal control policies and procedures to fill and reduce relevant loopholes.
It is reported that in recent months, the company has continuously published a series of written materials for internal control rectification, such as whistleblowing policy, internal investigation procedure regulations, internal audit management system, risk prevention and control management system (non-product-related), and inside information management system, for all employees to learn and circulate. In addition, the company announced the establishment of an internal audit and compliance department, which is independently responsible for the company's internal audit work and compliance work, and the internal audit work is reported to the audit committee of the board of directors of the company, and the compliance work is reported to the general manager of the company. It can be seen that the corresponding reviews and measures should have been completed and implemented, and the company's internal audit compliance has taken 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 capital environment, which will help further promote the rise of Hong Kong stocks. If Venus Healthcare can take this opportunity to standardize the internal control risks of the enterprise and restore the confidence of the capital market, it may be able to usher in a wave of benefits in the case of exhaustion of profits.
Article 3 of the Resumption Guidelines: Prove the integrity of the management. The beginning of the annual report is the topic: the company's management has changed blood. The executives involved successively resigned from the positions of general manager, chairman, and CFO of the company; appoint the company's veterans as general managers, executive directors, supervisors, authorized representatives and other positions; A new CFO is in place; It has also completed the process of replacing third-party auditors, new internal controls and hiring compliance consultants. Under the leadership of the new management, Venus Medtech is moving towards a more professional management model led by the board of directors, which is worth learning from peers in the industry.
Regarding Articles 4 and 5 of the Resumption Guidelines, the Company will continue to disclose to the market information including but not limited to performance announcements, resumption progress, legal and political investigation results, and management appointments after the suspension of trading. In addition, Venus Medtech said that it is looking for suitable candidates to fill the vacancies of independent non-executive directors and relevant board committees.
Misfortune and blessing are relied upon, and blessing and misfortune are lurking. It is not difficult to see from the above measures that Venus Medtech has taken pragmatic measures to gradually solve the company's much-criticized internal control problems, and if the follow-up progress goes smoothly, the resumption of trading is just around the corner. The lesson we can learn from this is that the management model of Yiyantang has passed, and decision-making without systematic and scientific support will be like a tree without roots; Enterprise institutionalization and transparent decision-making will play a more important role in China's innovative medical device enterprises. It is also expected that Venus Medtech can regroup as soon as possible and return to the big stage of innovative medical devices.
After the pain: Solid fundamentals are corporate moats
The learning of experience is multifaceted, standardization and specialization are important, and the steady performance is also the truth of the enterprise's bumps. The author has a glimpse of the fundamentals of Venus Medtech from the latest annual report materials.
The first is cash flow, which is the biggest concern. The annual report discloses: as of the end of 23, Venus Medtech had 770 million cash on hand; Coupled with the recent withdrawal of 200 million pledged funds from the bank, the company's cash on hand is nearly 1 billion, and the funds can cover the current operating requirements, and the impact is expected to be small in the short term. Regarding the expected funds, the annual report pointed out that a variety of financing channels will be used to support capital expenditures, including but not limited to internal funds and bank loans, and the company's bank credit line is sufficient.
Secondly, hematopoietic ability. High-quality commercialization capabilities have laid a solid cash foundation for the company's long-term development. In 2023, Venus Medtech achieved sales revenue of RMB491 million, a year-on-year increase of 21%. Among them, overseas sales recorded a total of 72.7 million yuan, a year-on-year increase of 40%. At the same time, the company's gross profit for the year reached RMB389 million, a year-on-year increase of 23.9%, and the gross profit margin improved.
In terms of overseas commercialization, the company's international flagship product, VenusP-Valve, has seen a significant increase in global terminal implantation in 23 years, with a year-on-year increase of 180%. As of the end of March 24, the global sales volume of this product totaled more than 1000 cases, covering 135 overseas centers. The internationalization strategy has begun to show results. It is reported that VenusP-Valve has been included in the French medical insurance price, which is far better than that of international peers, which will help to further increase the international mainstream market share. Domestically, Venus Medtech has become the only company in China to achieve positive profitability in its TAVR business by optimizing sales costs and expenses, improving operational efficiency, and optimizing production costs, demonstrating its industry-leading commercialization capabilities. By the end of 23 years, VenusA series products have covered more than 550 hospitals, benefited more than 16,000 Chinese patients, and achieved domestic sales revenue of 400 million yuan. In addition, the continued approval of inclusion in the medical insurance of various provinces and cities will further promote the growth of domestic sales.
The rich product portfolio will further consolidate the competitive barriers of the enterprise. From the perspective of R&D, Venus Medtech has three commercialized TAVR products, one TPVR product and two surgical accessory products. Layout of two cutting-edge innovative dry valve TAVR products, both of which are in global multi-center clinical progress; Have a device that works with both TMVR and TTVR; An investigational product in animal trials for the treatment of aortic regurgitation. In the field of non-valvular structural heart disease, the world's first radiofrequency ablation system for hypertrophic cardiomyopathy and the nephrogenic sympathetic nerve ablation (RDN) system for interventional treatment of hypertension have been deployed. As the only company in China that can provide four-petal integrated structural heart disease solutions, Venus Medtech has high barriers to competition.
Finally, will the company's day-to-day operations be affected during the suspension period? The company's significant business progress is a wordless testament. In 2023, VenusP-Valve was approved for the US IDE application, becoming the first Chinese artificial heart valve approved by the US FDA for clinical studies. At the beginning of 24, the first center of VenusP-Valve PROTEUS IDE clinical research in the United States was officially launched, and the enrollment of pivotal clinical trials in the United States is imminent; The data from this study will support both the US FDA and the Japanese PMDA for registration. The product has been registered and marketed in more than 50 mainstream countries such as China, Germany, France, the United Kingdom, Italy, Spain, Canada, Australia, etc., and continues to be surgically implanted in newly covered medical institutions.
At the same time, the Cardiovalve TARGET CE study for tricuspid regurgitation disease has made rapid progress, and more than 70 patients have been enrolled by the end of March 24, covering more than 20 well-known centers in Europe and North America. The three international multi-center clinical trials of Cardiovalve TARGET CE Study, VenusP-Valve PROTEUS Study and Venus-Vitae Smart-Align Study have been progressing steadily, covering the three major disease areas of tricuspid valve, aortic valve and pulmonary valve, breaking through clinical difficulties and solving clinical pain points. In addition, in December 23, the company announced the opening of a global pivotal clinical trial of Smart-Align, the first spherical expansion dry valve Venus-Vitae product, a self-developed next-generation TAVR system. At the beginning of 24 years, the company's new generation of full-release full-recovery TAVR system, Venus-PowerX product completed the early feasibility study of patient enrollment, and the clinical performance was excellent.
To sum up, the former executive's loan incident did not have a negative impact on the company's production and operation. Taking advantage of this incident, the company's management has been reshaped and internal rectification has been completed, which will further standardize the company's operation and escort its stable and long-term development in the capital market.
tail
Enterprises develop in ups and downs, not faster than whom, but farther than whom. The negative turmoil caused by the loan incident is not necessarily a bad thing for China's medical device industry and Venus Medtech in the long run.
Like Venus Medtech, China's innovative device companies are experiencing a transition period from domestic substitution to Chinese innovation, which coincides with the opening of Hong Kong stock 18A to welcome innovative biotechnology companies, and Medtech companies to usher in a double harvest of capital and policy. In less than six years, most companies are struggling on the brink of survival. In addition to having strong commercial hematopoietic capabilities and pragmatic R&D and innovation skills, the outperformer also needs a good timing. Hibernation at the trough, fighting again after reorganization, through the cycle, I believe that the road to the resumption and return of China's heart valve "first brother" will not be very far away.