The announcement revealed the corresponding progress of the five resumption guidelines proposed by the Hong Kong Stock Exchange after the suspension of trading last year. However, Qiming Medical has adopted a positive attitude and proposed practical solutions to internal control risk issues that have arisen.
On February 25, after suspending trading for 62 trading days, Qiming Medical-B (02500) issued three consecutive announcements announcing the results of dealing with issues such as illegal loans and corporate credit disclosure by former management, as well as specific measures to improve the company's internal control system.
The Zhitong Finance App learned that on November 23 of last year, Qiming Medical suspended trading due to issues such as unauthorized loan funds and credit disclosure of related matters by management. Over the next three months, in response to internal control issues, Qiming Medical quickly set up a special committee, carried out special audits, and carried out forensic investigations, strengthened internal compliance, and actively cooperated with the Hong Kong Stock Exchange to promote the company's resumption process.
This time, Qiming Medical issued three consecutive announcements with the aim of disclosing the details of the incident in detail to the market, announcing the latest internal control measures, eliminating information asymmetries with investors, and enhancing market confidence. However, this move has brought the company to the forefront of public opinion recently.
Internal control problems: they exist, they are not being avoided, and they are being actively solved
Internal control, supervision, and risk assessment are topics that listed companies cannot avoid. Situations such as falling stock prices and suspension of trading due to corporate regulation issues are not uncommon in the pharmaceutical industry. However, in the current uncertain market environment, overall market opinion seems to be more inclined to emphasize the company's internal control risks.
However, through the content of the three consecutive announcements, it is not difficult to see Qiming Medical's attitude of facing internal control risks: acknowledging the problem, not avoiding the problem, and actively solving the problem.
The reason why Qiming Medical is on the cusp of public opinion is that the latest forensic investigation results announced in its February 25 announcement revealed that in addition to previously disclosed financial transactions, undisclosed financial transactions between Mr. Zi or Mr. Tsang's related entities were also discovered. Based on the combined calculation of disclosed financial transactions and undisclosed financial transactions, between April 2020 and May 2023, a total of RMB 1,849,623,319 was transferred to Mr. Zi, Mr. Tsang or their related entities, and a total of RMB 1,902,465,167 was transferred from Mr. Zi, Mr. Tsang or their related entities to the Company. The total net inflow of the transfers was RMB 52,841,848.
According to the announcement, forensic consultants discovered that in January 2021 and January 2023, Hangzhou Qijin, a wholly-owned subsidiary of Qiming Medical, lent 230 million yuan to Jiangsu Wuzhong without authorization. As of the announcement date, 80 million yuan remained unpaid. Furthermore, from March to June of last year, Hangzhou Qiyi, a wholly-owned subsidiary of Qiming Medical, pledged the company's deposits of about 400 million yuan to several banks without authorization to guarantee the bank's 396 million yuan loan to Zi Zhenjun's control company “Hangzhou Kuntai”. As of the announcement date, although about 198 million yuan of pledged deposits had been released, the remaining 200 million yuan pledged deposit had not expired.
In short, former executive Zi Zhenjun still has to pay back 280 million yuan to the company. According to the announcement, Zi Zhenjun has given a letter of repayment commitment and an asset pledge agreement to the company. According to an evaluation of Zi Zhenjun's assets, his assets include but are not limited to shares of 2 listed companies and equity pledges from leading domestic companies in the mitral valve sector. The asset valuation is sufficient to cover the current loan amount. It is easy to see that the underlying assets that it pledged shares in Qiming Healthcare also have a lot of room for integration with Qiming's existing business. If equity debt settlement is eventually required, the entry of underlying assets is also expected to further optimize the rich and rich business lines of Qiming.
Furthermore, the announcement revealed the corresponding progress of the five resumption guidelines proposed by the Hong Kong Stock Exchange after the suspension of trading last year. However, Qiming Medical has adopted a positive attitude and proposed practical solutions to internal control risk issues that have arisen.
In fact, before the suspension of trading in November, the company had completed a series of measures to remedy external factors, such as replacing third party auditors and hiring new internal controls and compliance advisors. According to the February 25 announcement, the company has appointed Deloitte as an internal control consultant, and the relevant process is expected to be completed by the end of March this year.
Within the company, all of the management involved were replaced. After the resignation of former chairman Zeng Min, former executive director Zi Zhenjun, and former CFO Ma Haiyue, Qiming Medical announced an update on the company's management information, appointed Lin Haosheng and Ma Liqiao as executive directors of the board of directors, and Lin Haosheng replaced Zi Zhenjun as the company's general manager. In January of this year, the new CFO Wang Fei also officially joined Qiming Healthcare.
On the company's management changes this time, the reason why Qiming Medical is taking big action and taking a firm attitude is, on the one hand, to address the company's internal control risks. On the other hand, it is probably referring to international industry experience and beginning to move towards a more professional management model for professional managers led by the board of directors.
According to the Zhitong Finance App, in the management team of this update, Lin Haosheng joined Qiming Medical as technical director in December 2016, mainly responsible for the company's business operations, regulatory approval, quality control, and commercial suitability and sustainability of products; Ma Liqiao has been the clinical vice president of Qiming Medical since 2019. It has more than 15 years of experience in the medical industry, focusing on medical affairs, clinical research and clinical development in the field of cardiovascular medical devices. It has led the formulation and implementation of clinical strategies for many innovative products, and successfully completed clinical trials and obtained market approval in many countries and regions.
In addition, Qiming also systematically reviewed its internal control and compliance issues, and carried out additional information. On February 25, Qiming Medical disclosed one of its land and construction contracts involving an amount of about $1,182 billion.
Regarding the last item requiring the company to fill vacancies for independent non-executive directors and related board committee vacancies, Qiming Medical also stated that it is “looking for suitable candidates.”
It is easy to see from the above that Qiming Medical has always maintained a positive attitude with regard to the company's internal control issues, cooperated with the Hong Kong Stock Exchange's guidelines to resolve internal control mechanisms and compliance issues in the company's operation and governance process, and try to “fix the dead, it's not too late.” If follow-up audits and improvements go well, it is expected that Qiming Medical will resume trading soon.
Heart valve racing is about to break out, medium- to long-term value is promising
It is worth mentioning that on November 22 of last year, Qiming Medical also cooperated with Dejin Medical to reach an exclusive strategic marketing cooperation agreement on the DragonFly transcatheter mitral valve clip system (DF). The two sides will carry out in-depth commercial cooperation after DF is approved to enter the market. Recently, the commercialization of DF has progressed rapidly.
The above is sufficient to show that during the suspension of trading in recent months, despite changes in the company's management, the core management team remained stable, and the company's overall product development and commercial cooperation operation were stable.
In fact, establishing and improving internal control mechanisms as soon as possible to pragmatically resolve the company's internal problems is not harmful to Qiming Medical. According to the Zhitong Finance App, benefiting from national innovation support policies and continuous growth in patient demand, the high-value medical consumables industry ushered in a rapid recovery as scheduled in the post-pandemic era.
Since 2023, the volume of domestic TAVR surgeries has recovered relatively quickly. According to data from the China Structural Heart Disease Annual Report, in terms of TAVR implantation volume, by the end of November 2023, China had performed 13,572 TAVR surgeries in 23 (cumulative total 37,552 cases), and the estimated annual number of implants is about 15,000. The report predicts that China's TAVR will maintain a rapid growth trend in 2024, with an estimated annual implantation volume of 20,000.
The company's 23 semi-annual report revealed that in the first half of last year, Qiming Medical achieved sales revenue of 256 million yuan, an increase of 21.74% over the previous year, and achieved the expected growth target. According to reports, the company's implantation volume reached a new high in January '24, with a year-on-year increase of over 200%.
While achieving domestic market breakthroughs, Qiming Medical is also gradually investing its strategic focus on the wider global market. Its international “fist” product, VenusP-Valve's transcatheter pulmonary valve replacement system, is the first self-expanding TPVR product approved for marketing in China and Europe, pioneering the entry of Chinese valve products into the European market. Even in the international market, Qiming's VenusP is comparable enough to “Love America”. Currently, Venusp-Valve has been successively covered by medical insurance in countries such as Germany and France, and has been registered and listed in more than 50 mainstream countries, including China, Germany, France, the United Kingdom, Italy, and Spain, and continues to achieve surgical implantation in newly covered medical institutions.
According to last year's interim report data, Qiming Medical recorded a total of 22.49 million yuan in overseas sales in the first half of 2023, an increase of 60.37% over the previous year. As the first domestically produced TPVR system to open up the European market, Venusp-Valve's overseas terminal implantation increased dramatically, increasing 80% month-on-month. Among them, European countries represented Germany, France, etc., accounting for about 77% of the implantation volume, reflecting the high recognition of the mainstream international market. Last year, the US FDA approved Qiming Medical's Research Device Exemption (IDE) application for Venusp-Valve and obtained the first US central ethical approval. Enrollment in key US clinical trials is about to begin. If progress goes well, Qiming Medical may become the first Chinese heart valve company to enter the US medical device market, and the future can be expected.
On the R&D side, Qiming Medical is almost on the same line as global multinational device companies in the field of bicuspid and tricuspid valve intervention.
Recently, Edward Life Sciences announced that its tricuspid valve product EVOQUE has been approved for marketing by the FDA. This is the first product approved by the FDA for tricuspid valve replacement through a catheter. Since the capacity of the transcatheter tricuspid valve replacement market is much larger than TAVR and is expected to be 2-3 times that of the TAVR market, the market expects this product to provide a strong growth engine within the next ten years.
In fact, enlightening medical progress in this field is leading the world, and its major product, CardioValve, an innovative catheter valve second/tricuspid valve replacement system, is expected to become the second TTVR product approved for marketing overseas. Judging from the latest research and development progress, its international multi-center clinical trial is progressing rapidly. TARGET CE, its key clinical study on tricuspid valve reflux, has enrolled nearly 70 patients, covering dozens of well-known cardiovascular centers in Europe and North America, and the clinical enrollment is smooth.
In addition to Cardiovalve, the new generation TAVR bulbous valve Venus-vitae for the treatment of aortic stenosis announced the official launch of global multi-center clinical research last year, and the new generation of self-inflating valves Venus-PowerX is progressing smoothly; in addition, its renal artery sympathetic ablation system (RDN) for treating intractable hypertension is steadily advancing, driving the company to the first tier of the world in terms of R&D innovation.
tail
In fact, even though it is as strong as Stryck, it has been short sold by shorting institutions due to controversial accounting methods, excessive debt problems, and failed inventory management issues, but this still did not prevent this multinational machinery company from rising all the way up after reorganization, and its market value eventually surpassed 130 billion US dollars.
The above is sufficient to show that the fundamentals of stability are the unbreakable truth of the sustainable development of enterprises. The development of innovative pharmaceutical companies in Hong Kong stocks can be based on the growth experience of US stock peers to a certain extent: companies that have developed by relying on platform technology and R&D teams will also become more and more clear as the company's fundamentals become steady.
According to this logic, as a leader in the domestic heart valve field, Qiming Medical may be experiencing challenges from internal and external factors, but as long as it continues to maintain a pragmatic attitude, solve problems effectively, and continue to innovate and develop while maintaining stable fundamentals, comprehensive and deep industry-university-research benefits will be further projected onto the company's performance, and the market's upward valuation expectations for the company are also expected to be reflected in the secondary market.