“Science and Technology Innovation Board Daily”, April 11 (Reporter Xu Hong) With the announcement of a debt relief plan, investors who were anxiously awaiting couldn't help but breathe a sigh of relief, and minimally invasive medical treatment (0853.HK) has finally given them a chance to take a break.

According to the company's latest announcement, Minimally Invasive Healthcare will repay about 448 million US dollars of outstanding convertible bonds due in June this year by issuing 150 million US dollars of convertible bonds, plus credit support exceeding 300 million US dollars from financial institutions.

This financing arrangement has undoubtedly solved the urgent needs of minimally invasive medical care, which is currently being questioned, and provided the necessary financial buffer for the company's subsequent strategic adjustments. And in order to truly take down the financial sword that hangs over the company's head, the company even promised that it will drastically reduce losses today and next two years, and turn losses into profits in 2026.

▌Chang Zhaohua's Minimally Invasive Empire

In the Chinese medical industry, “minimally invasive” has always been a popular name. This is also a medical device empire created by Chang Zhaohua.

In 1994, the Shanghai Municipal Government organized a delegation of international students to return home from the province. After being away from the motherland for many years, 25 overseas scholars finally set foot in their homeland again. Chang Zhaohua, who had just passed the year of their establishment, was one of them.

Born in 1963, Chang Zhaohua obtained a bachelor's degree in refrigeration engineering and a master's degree in cryogenic engineering from the Shanghai Institute of Mechanical Engineering (now Shanghai University of Technology) in 1983 and 1985, respectively. Later, he went to the State University of New York at Binghamton to study, and obtained a doctorate degree in biological science after 1992.

“In 1994, I returned home for the first time after seven years in the US. Once I set out on my way back home, my desire to return home and start a business was particularly strong. Having worked abroad for seven or eight years, I really want to do something for my country.” Looking back on the past, Chang Zhaohua once said this.

Once he had the idea to start a business, he quickly put it into action. Since then, he began frequent visits to China, and officially resigned two years later to fully participate in the establishment of Minimally Invasive.

In 1996, MicroPort Surgical Science (American Minimally Invasive) was incorporated in California. It is the predecessor of Shanghai Minimally Invasive. After completing early product development and technical attacks, Minimally Invasive followed the trend and landed in Shanghai. On May 15, 1998, minimally invasive medicine was officially established in the Zhangjiang Hi-Tech Park known as China's Silicon Valley.

Minimally invasive medicine started with coronary intervention products (balloon catheters, coronary stents, etc.). At the time, due to the high monopoly price of imported products, there were very few patients in the country who could receive minimally invasive coronary artery disease surgery. Therefore, Chang Zhaohua chose this track for a very simple reason. In his words, it was “to make a product that Chinese people can afford.”

According to public information, the world's first coronary stent product was approved for marketing by the US FDA in the summer of 1994. This stent was jointly developed by two doctors and named Palmaz-Schatz stent (PS stent for short). As a bare metal stent product, PS stents were once in short supply after they went on sale, and the usage volume exceeded one million, making its manufacturing company occupy a place in the field of interventional diagnosis and treatment of coronary heart disease.

However, after the bare metal stent is implanted in the human body, it will still be 20%-30% more narrow, and in order to solve this problem, drug-eluting stents were introduced. In 2002 and 2003, Cypher, the world's first drug-eluting stent, was certified and marketed in Europe and the US, respectively. Subsequently, it was approved for listing in China, and the market price was 36,000 yuan.

The way to import and replace minimally invasive coronary stents occurred almost at the same time. In 2000, the company launched the first bare stent product; in 2004, it became the first domestic manufacturer of medical stents to enter the market; in 2006, more than 100,000 sets of coronary stents were implanted... Since then, for a long time, the cardiovascular intervention business with cardiac stents as the core has been a pillar of minimally invasive medicine.

Since 2008, minimally invasive medicine has been pursuing more diverse business lines through “self-development+mergers and acquisitions”: established minimally invasive orthopedics in 2009, laid out the heart rhythm management market in 2010, established Minimally Invasive Heart and Minimally Invasive Magic in 2012, and entered the medical robot circuit in 2014...

Today, there are more than 20 subsidiaries under Minimally Invasive Medicine. The products cover almost the entire field of medical devices, including cardiovascular, orthopedics, heart rate management, arterial and peripheral intervention, neurological intervention, heart valves, robotics, electrophysiology, ophthalmology, medical aesthetics, etc.

It is worth mentioning that minimally invasive has also sent a large number of talents to China's medical device industry during development. Many Hong Kong stock listed companies, including Zhang Yi, founder of Peijia Healthcare, Wang Li, founder of Baixinan, and Zi Zhenjun, founder of Qiming Healthcare... are all big names in the industry who have emerged from minimally invasive.

“For this reason, minimally invasive is known as the 'Huangpu Military Academy' for the Chinese medical device industry.” Zhou Yan (pseudonym) told the “Science and Technology Innovation Board Daily” reporter.

Zhou Yan has long-term experience following minimally invasive medical care. In his opinion, Minimally Invasive has deep technical accumulation and a sound R&D system, and sales have penetrated the capillaries of hospital channels throughout China over the years, so it can be called a leader among domestic medical device companies.

▌$700 million convertible debt causes crisis

According to public information, although in 2001, when it was only 3 years since it was founded, it fell into an operating crisis and the corporate capital chain was almost broken, the development of minimally invasive medicine has been relatively smooth for many years since then.

In 2010, minimally invasive medicine was successfully listed on the Hong Kong Stock Exchange. Since then, starting in 2018, Minimally Invasive Healthcare has spun off its subsidiaries and listed on the Science and Technology Innovation Board in 2019, spin-off Heart Care (heart valve business) and minimally invasive robotics (surgical robot business) to the Hong Kong Stock Exchange in 2021, and in 2022, it also spun off and promoted the listing of its subsidiary Minimally Invasive Brain Science and the associated company Microelectrophysiology (neurological intervention business) on the Hong Kong Stock Exchange and the Science and Technology Innovation Board respectively.

This time, Minimally Invasive Healthcare suddenly fell into a financial crisis. The trigger was a dollar convertible bond issued by the company 3 years ago. In 2021, taking advantage of rising stock prices, Minimally Invasive Healthcare launched a $700 million convertible bond financing plan on June 2, 2021.

The maturity period of this convertible bond is 2026, and the conversion price (HK$92.82 per share) is about 30% premium over the closing price on June 1. Simply put, if the share price exceeds the conversion price, the holder can profit by converting the bond into a stock.

What is unexpected, however, is that after reaching its peak in June of that year, the stock price of Minimally Invasive Healthcare began to fall all the way down. Today, it has fallen 90% from a historical high of over 70 yuan/share. At the same time, the five-year convertible bond issued in June 2021 also has an early repurchase clause. According to the agreement, the bondholder has the right to require the company to redeem all or part of the holders' bonds due in June 2024.

Due to the sharp drop in stock prices, on December 6, 2023, Minimally Invasive Healthcare issued an announcement announcing plans to redeem this $700 million zero-interest convertible bond. Up to now, convertible bonds with a total principal amount of US$252 million have been repurchased and cancelled, but there are still about US$448 million of unpaid convertible bonds that need to be bought back before June of this year.

According to the financial report released by Minimally Invasive Healthcare, the company's revenue in 2023 was US$951 million, up 15.8% year on year; adjusted net loss was US$435 million. This is the fourth consecutive year since 2020.

In 2024, in addition to the US$448 million convertible bond to be redeemed, Minimally Invasive Healthcare also has a short-term bank loan of US$295 million that is about to expire. However, as of the end of 2023, the amount of cash and cash equivalents on minimally invasive medical accounts was US$1,019 million. It can be seen from this that the pressure on the company to repay its debts cannot be overstated.

At a time when the current financial situation was being tortured, a private equity researcher, who did not wish to be named, also questioned the company, “When stock prices are high, why doesn't the company do equity financing but instead issue convertible bonds? Naturally, there is no problem with issuing convertible bonds on A-shares for a long time and low interest rates, but issuing convertible bonds on Hong Kong stocks this time has caused the company's liquidity problems because of the early repurchase clause.”

Recently, the “Science and Technology Innovation Board Daily” reporter contacted minimally invasive medical care about this debt crisis. In response, the company said that in the 2021 market environment, the amount of financing for issuing convertible bonds was much higher than the amount of equity financing, and the interest level was lower. Therefore, in line with the industry environment at the time, the company decided to issue convertible bonds, and the coupon interest on the convertible bond was zero.

Minimally Invasive Healthcare further stated that the 448 million US dollar convertible bonds have successfully implemented the refinancing plan, and the pressure on the Group's cash flow will be effectively relieved.

Allegedly, “Based on external circumstances such as the US dollar interest rate hike, the company expects that the probability that the holder will exercise the early repurchase right is high. As a result, a $252 million repurchase cancellation was completed in 2023. Furthermore, as mentioned in the April 5 announcement, the company has formulated solutions to ensure that the remaining 448 million US dollars can be repaid if the holder exercises the right to repurchase.”

▌The test is not over yet!

Although the early redemption of the $700 million convertible bond triggered a liquidity crisis in minimally invasive medical care, it was not the “cold of a day” that caused the company's current plight.

“In order to increase the attractiveness of the company and to finance subsidiaries, the company slowly disassembled and went public separately, leading to an outflow of high-quality assets, and poor profitability of businesses left behind in the parent company. For example, orthopedic acquisitions have accumulated more than 1 billion US dollars over the years but have never been profitable. Due to the decline in the profitability of collecting coronary products, the current situation is actually foreseeable.”

“Management's ideas are too diverse, and there is no 'break,' abandonment 'from non-core businesses. Over the years, they have held high hopes of becoming Medtronic in China, but Medtronic doesn't have such a comprehensive business at the same time.”

“Mr. Chang also allows subsidiaries to develop freely. The advantage is that it is conducive to innovative research and development, and the disadvantage is that it invests unnecessary research and development in many areas.” Referring to the reasons behind the current mobility crisis in minimally invasive medicine, Zhou Yan analyzed this to reporters.

Another investor, Huang Qian (pseudonym), told the reporter that during the transformation process, Minimally Invasive has always relied on hematopoiesis in the coronary stent business to cultivate new businesses. Helplessly, the plan couldn't keep up with the changes, and the implementation of the high-value consumables collection policy suddenly disrupted the company's pace.

“After collection, the profitability of minimally invasive coronary stents declined sharply, and other businesses were unable to top it. Some innovative businesses are still losing money and require continuous investment.” he said.

In the second half of 2020, coronary stents were purchased in bulk as the first variety to test the waters for high-value medical consumables. Four minimally invasive medical products were shortlisted. The median price of the selected products dropped from 10,000 yuan to less than 800 yuan, with an average drop of more than 90%. Due to the pressure of collection and the impact of the COVID-19 pandemic, Minimally Invasive Healthcare handed over its first losing annual report in five years in 2020, and cardiovascular intervention, the company's former core profit, has since lost its ability to transfuse blood to other businesses.

According to Minimally Invasive Healthcare's 2023 financial report, as of the end of 2023, the company had only three profitable businesses, including net profit of aortic and peripheral vascular interventions of US$69 million, neurological interventions (cerebral haemorrhage, ischemia, and pathway products) of US$19 million, while cardiovascular interventions (mainly coronary stent products) had just turned losses into profits, achieving net profit of US$0.4 billion.

“Therefore, I think this is a question worth pondering about how to transform a player that relies heavily on one business field, such as minimally invasive medicine, who has already achieved most of the substitutions for imported products under an unexpected policy of collection and procurement.” Huang Qian said.

Minimally Invasive's current crisis is also worth alerting the industry. Huang Qian said, “Under the dual influence of the economic cycle and market fluctuations, short-term IPO financing is blocked, such as the delay in listing after submission of minimally invasive heartbeat forms, or being unable to circulate Tier 1 funds to support innovation. In such an unfavorable environment, how can such companies that also require financing to maintain R&D investment overcome difficulties. This is not only minimally invasive, but also a common issue that the industry needs to think about today.”

As far as minimally invasive medicine is concerned, according to the April 5 announcement, the company has signed convertible financing agreements with original lenders such as Gao Lin Capital and Jumbo Glorious (wholly owned by Chang Zhaohua). The latter agreed to provide Minimally Invasive Healthcare with convertible debt financing of 150 million US dollars at an annual interest rate of 5.75%, plus 300 million US dollars of newly applied financial institution loans, and the pressure to repay the $448 million convertible debt of Minimally Invasive Healthcare has been relieved.

“But this only solved the company's urgent needs within two years; it was not enough to reduce the long-term financial pressure on the parent company.” Zhou Yan said. As a result, the minimally invasive battle is not over yet.

As one of the conditions for obtaining US$150 million convertible bond financing, Minimally Invasive needs to turn a loss into a profit within three years: from 2024 to 2025, the company should reduce losses to -2.75 and -55 million US dollars, and should make a profit of at least $90 million in 2026.

According to Zhou Yan, in order to achieve such a challenging business goal, minimally invasive not only needs to continue to grow at least 20%, and the orthopedic and cardiology business balance as soon as possible, the company may also abandon and dispose of non-performing assets in exchange for cash to reduce debt levels as soon as possible and lower financial interest levels.

“The market environment is changing, but Minimally Invasive has not been able to respond in a timely manner in terms of management and operation.” In the midst of the storm, an investor voiced such an exclamation. Now, minimally invasive has reached a time when we must make drastic efforts to seek new changes.

In the 2023 financial report, Minimally Invasive Healthcare clearly indicated the direction of the company's future strategic adjustments, which is to focus on the health of financial statements and sufficient cash flow. To achieve this goal, the company plans to focus on core business, increase revenue, and reduce related expenses such as R&D expenses.

“Beginning in 2023, the company has adjusted its R&D strategy to focus more on core projects. After comprehensively evaluating the R&D prospects and market prospects of each project, the company has formulated a new R&D investment strategy. For projects that are expected to be certified in the past two years, priority satisfaction is given, and the rest of the long-term projects will adjust their R&D pace.”

“At the same time, the company also carried out strict controls on various expenses in 2023. The sum of R&D and management expenses during the year decreased by 24 percentage points over the same period last year. Over the next 24 and 25 years, it is expected that we will continue to implement similar fee control strategies. ” In response to the “Science and Technology Innovation Board Daily” reporter's questions, Minimally Invasive Medicine answered one by one.

Currently, the company seems to be concerned about whether it can successfully pass 2024. In an exchange with investors, it was revealed, “In the absence of significant asset impairment last year, management is confident that the company's loss level in 2024 will be drastically narrowed, and the narrowing rate is expected to be over 60%.”

Whether minimally invasive can actually get out of this difficult situation will still take more time to verify; we will wait and see.