Abstract: with a gross profit margin of more than 80%, why can't this company make money?

Chinanews.com, Oct. 12-following Keya Medical, Eagle pupil Technology and Conceptual Medicine, AI has joined the wave of listing.

Recently, AI digital doctor platform company Jukun (Beijing) Network Technology Co., Ltd. (hereinafter referred to as Jukun Technology) officially launched IPO to Hong Kong. JPMorgan Chase & Co, Bank of America Securities and Bank of China International served as co-sponsors. According to the prospectus, although revenue and gross profit are growing, Jukun Technology is still at a loss.

Husband and wife have just completed 700 million financing to start a business together.

Founded in 2017, Jukun Technology is a leading AI medical enterprise that provides artificial intelligence medical imaging solutions for disease screening, diagnosis and treatment selection and planning.

According to the prospectus, the two largest shareholders in the pre-IPO shareholding structure are Mao Xinsheng and Ma Chune, who hold 17.53 per cent and 11.82 per cent, respectively. Ma Chune is the founder of the group and serves as executive director and CEO, while Mao Xinsheng serves as executive director and chairman.

According to the prospectus, Mao Xinsheng once served as chief technology officer and director of the Innovation Research Institute of IBM China Development Center, and head of the global development team of cloud platform, with more than 20 years of experience in the field of information technology. Ma Chune, a former R & D manager of IBM Innovation Research Institute, has more than 14 years of experience in the field of artificial intelligence.

Ma Chune has her own ideas about the technical focus of AI Medical. She chose to focus on the most technically challenging and clinically valuable areas of treatment (such as cardiovascular disease), and then expanded to other areas of treatment.

Compared with other imaging AI products, cardio-cerebrovascular AI has higher entry barriers and greater technical challenges. In the early days of the company, Ma Chune revealed in an interview with the media that choosing this kind of disease as a starting point, on the one hand, paralysis caused by cardiovascular and cerebrovascular diseases ranked first. On the other hand, the diagnosis process of cardiovascular disease is complex and the technical threshold is high, which can not be carried out in many grass-roots hospitals.

After years of development, Jukun Technology has formed a "digital human body" artificial intelligence technology platform through independent research and development of "digital heart", "digital brain", "digital chest", "digital abdomen" and "digital muscle bone". To provide intelligent diagnosis and treatment for heart disease, stroke, cancer and other diseases.

It is understood that the digital human artificial intelligence technology platform developed by Jukun Technology can "read" medical images to understand the human body (including heart, brain, chest, abdomen and musculoskeletal system), analyze pathological changes and generate auxiliary diagnostic reports for doctors. The platform provides data asset management for high-throughput raw data processing and high-quality tagging.

Pan Helin, executive dean and professor of the Institute of Digital economy of Central South University of Economics and Law, believes that the demand of medical institutions for AI medical care is to solve practical problems. Under the premise of sufficient information, AI medical images are more accurate than human beings. Once AI performance reaches or exceeds the critical point, medical institutions will scramble to use AI to interpret images, which depends on whether AI can interpret images more accurately. At the same time, as a medical AI, it needs to go through functional review and evaluation, and it is critical to take the lead in passing the review.

At present, many registration certificates have been obtained for AI which covers heart, brain, lung, abdomen and other key parts. According to Burning knowledge report, among the providers of medical imaging solutions based on artificial intelligence, Cikun Technology ranks first in the field of treatment coverage and the number of medical device registration certificates of the State Drug Administration, and ranks first in hospital coverage and installation in China.

In terms of commercialization, Jukun Science and Technology adopts the commercialization strategy of "infiltrating from China's top hospitals to low-level hospitals". As of September 15 this year, Sikun Technology's digital doctor products have been adopted and installed by more than 1200 hospitals at different levels in China, and have been commercially purchased by about 200 hospitals. More than 30%, more than 20% and about 5% of all third-tier, third-tier and second-tier hospitals in China adopt and install Sikun technology products respectively.

At the capital level, before IPO, Huagai entity (including Huagai far Airlines, Huagai Xincheng, Huagai Home and Huagailishang) held 10.22% of the shares of Yuankun Technology and was the largest institutional investor. Yuanyi entity (including Yuanyi Zhiyuan, Yuanyi Qiheng and Ruiyuan), Shanghai Chenxi, Sequoia entity (including Sequoia Hanchen and SCHP) and other investors held 9.12%, 9.11% and 8.62% of the shares respectively.

It is worth noting that Jukun Technology has received 10 rounds of financing since September 2017. According to the company's website, in August 2021, Zikun Technology completed 700 million yuan of D-round financing, including Goldman Sachs Group Capital Management, Chunhua Capital, Sequoia Capital China, Yuanyi Capital, Jane Street Asia, Ruizhi Capital, WT focus China Fund and Future Entrepreneurship Fund. According to the prospectus, after the completion of D-round 's financing, the company was valued at 9.407 billion yuan.

The R & D expenditure exceeded the revenue of the same period and lost more than 300 million in two and a half years.

From the performance point of view, from 2019 to 2020, the revenue and gross profit of Jukun Technology increased rapidly. According to the prospectus, in 2019 and 2020, Jukun Technology achieved operating income of 764000 yuan and 24.771 million yuan respectively, and revenue of 6.739 million yuan and 52.624 million yuan in the first half of 2020 and the first half of 2021.

In 2019 and 2020, the gross profit of Jukun Technology was 637000 yuan and 20.677 million yuan respectively, and the gross profit margin was 83.4% and 83.5% respectively; the gross profit in the first half of 2020 and the first half of 2021 was 5.728 million yuan and 44.333 million yuan respectively, and in the first half of 2021, the company's gross profit margin was 84.2%.

However, in terms of profitability, Jukun Technology is still in a state of loss. According to the prospectus, Jukun Technology lost 91.298 million yuan and 129 million yuan respectively in 2019 and 2020, and lost 46.99 million yuan and 87.424 million yuan respectively in the first half of 2020 and the first half of 2021.

Both revenue and gross profit are growing, why the hole in loss is getting bigger and bigger? In its prospectus, Jukun Technology explained that most of the company's operating losses came from R & D expenses, sales and marketing expenses and administrative expenses. Whether profits can be generated from business activities in the future depends to a large extent on the successful development and commercialization of pipeline products.

Looking back on the expenditure projects of Jukun Technology, we can see that the company's R & D expenditure is increasing year by year, even exceeding the revenue during the reporting period.

According to the prospectus, the company's sales and marketing expenses, administrative expenses and R & D expenses were 30.907 million yuan, 20.363 million yuan and 81.188 million yuan respectively in the first half of 2021. According to Zhongxin Jingwei statistics, the above expenditure accounted for 58.73%, 38.70% and 154.28% of the income in the same period, respectively.

Research and development costs account for an even larger proportion in 2019 and 2020. In 2019 and 2020, the R & D expenditure of Jukun was 42.689 million yuan and 62.933 million yuan respectively, accounting for 5587.57% and 254.06% of the income in the same period, respectively.

Jukun also said in its prospectus that it was impossible to predict when or whether the company would be able to achieve or maintain profitability.

"in order to achieve and maintain profitability, we must complete clinical trials of candidate products, obtain regulatory approval, and commercialize approved products to gain market recognition." Jukun Technology said that even if the above work is successful, the company may not be able to make a profit; even if it can make a profit in the future, it may not be able to maintain a profit.

According to the prospectus, the funds raised by IPO will mainly be used for the research and development, clinical trials and registration, and commercialization of core products and other pipeline products; to seek strategic cooperation opportunities through acquisitions, equity investments or joint ventures to implement long-term development strategies in product development and industry penetration; and to use working capital and general corporate purposes to support business operations and growth.

What is the difficulty of listing AI enterprises?

2021 is called the first year of AI medical commercialization. According to the cautionary report, the Chinese and global AI medical imaging industry is expected to grow exponentially to $24.1 billion and $166.5 billion in 2030, with compound annual growth rates of 74.2 per cent and 73.0 per cent respectively from 2020 to 2030.

However, it is not easy to do a good job in this market. It is understood that medical imaging AI enterprises Keya Medical, Eagle pupil Technology, and supposedly listed stocks in Hong Kong before and after medical treatment, but they are all at a loss at present.

In March this year, after being inquired by the Shanghai Stock Exchange, Yitu Technology once announced the "suspension" of IPO until July 3, when the IPO status of Yitu Technology became "terminated". According to the prospectus, the cumulative loss of Yitu Technology exceeded 7.2 billion yuan in the three and a half years from 2017 to the first half of 2020.

"at present, the main difficulty in the listing of AI medical enterprises is that the profitability is not up to expectations." Pan Helin said to Zhongxin Longitude and Latitude Analysis that there are two difficulties for AI medical enterprises to make a profit: first, AI Healthcare itself needs continuous algorithm optimization and requires a large amount of data to train AI, which itself is a long-term development; second, data-based AI Healthcare lacks the ability of continuous data acquisition and data cooperation, and there are compliance problems in collecting data from medical institutions, which is too difficult to achieve data scale.

According to Pan Helin, the current domestic mainstream AI medical enterprises are in the R & D investment period, and in order to shorten the R & D cycle, various AI medical companies are moving towards subdivision areas, such as cardiopulmonary and retinal sugar sieves in AI medical images.

He said that although there are technical barriers, there is a ceiling in the development of the industry, and even if it is recognized as a function, it will be subject to the number of audiences, making it difficult to popularize. The primary market is optimistic for AI enterprises, but for AI segmentation, the market views are different.

"AI accumulates the function of AI through data, and it is a long process from weak intelligence to strong intelligence." Pan Helin pointed out that the current AI obtains weak intelligence through data accumulation and solves many problems, but in the medical field, the accuracy of the current AI still needs to be improved. Capital has lost patience with some subdivisions of AI, and there are indeed signs of withdrawal, but this does not mean that the overall tide is out, and AI can find new breakthroughs in the future. (Zhongxin Longitude and Weft APP)

(the point of view in this article is for reference only and does not constitute investment advice. Investment is risky and it is necessary to be cautious in entering the market.)

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(responsible Editor: Wang Zhiqiang HF013)