The truth is hard to discern.

Cai Jun from Investor Network.

At the same time that Sinocare Inc. (300298.SZ, hereinafter referred to as 'the company') announced bullish news, it is advancing a lawsuit.

In December, the company announced that it received approval from the National Medical Products Administration, stating that the new product, 'Continuous Glucose Monitoring System' (CGM), has been completed and obtained a medical instruments registration certificate. Subsequently, the USA FDA also notified the company that the product has officially entered the substantial review stage. As a product developed independently, the CGM employs third-generation direct electronic transfer technology, which compared to the second generation has advantages such as low potential, oxygen independence, fewer interferences, good stability, and high accuracy.

However, behind this product is a commercial dispute, with numerous rumors circulating in the market about this dispute. The complexity will only be revealed in the future.

The dispute involves a complicated past.

According to Qichacha, the hearing for the commercial secret infringement dispute case between Sinocare Inc. and Suzhou Zhongxing Medical was held at the Changsha Intellectual Property Court at the end of December. The content mentions individuals Gao Hanmin and Gao Zhiqiang being involved. In fact, the case was filed in March of this year at the Suzhou Intermediate People's Court and underwent a civil first trial in October.

The nearly year-long lawsuit shifted from Suzhou to Changsha, involving a complex story.

In 2020, Gao Hanmin founded Suzhou Zhongxing Medical and served as Chairman, while Gao Zhiqiang was the General Manager and Held a certain share. Information shows that Gao Zhiqiang, a scientist who studied in the USA, worked at Abbott Laboratories after returning to China, overseeing the development of the dynamic blood glucose meter BGM, which is the predecessor of the CGM. At that time, Abbott's blood glucose meters accounted for about 80% of the Global market share.

In 2023, Sinocare Inc.'s CGM was approved for listing, becoming the first third-generation technology product listed in China, with plans to expand into overseas markets. The newly approved product in December is an upgraded version of similar new products, with improvements in design and craftsmanship, mainly enhancing user experience in terms of portability and comfort.

However, the details of how Gao Hanmin and Gao Zhiqiang became entangled with the company are various on the internet. A popular saying is that after returning to China, Gao Zhiqiang once led the CGM development work at the company, then switched jobs to Suzhou Zhongxing Medical, but was suspected to be caught in a web of rumors. Yet, searching through the company's annual reports over the years does not mention Gao Zhiqiang's name.

The accurate information in public records is that Suzhou Zhongxing Medical also primarily engages in blood glucose meter products and has approved relevant patents. Since 2024, the shares of the enterprise held directly or through platforms by Gao Hanmin and Gao Zhiqiang have been frozen. Moreover, private equity funds from Hangzhou, Guangzhou, Chengdu, and other places also hold shares in the enterprise.

Regardless, amidst the litigation progress, Sinocare Inc. is actively promoting CGM products as the second growth curve.

According to a Research Report by Founder Securities, there are over 10 similar products in China. Domestic manufacturers include Sinocare Inc., Weitai Medical, Jiangsu Yuyue Medical Equipment & Supply, while imported manufacturers include Abbott Laboratories and Medtronic. The JD.com platform shows that the prices of Abbott’s and the company's products are 425 yuan/box and 379 yuan/box, respectively, both belonging to third-generation CGM, while the prices for first and second generations are about 250-300 yuan/box.

In the first three quarters of this year, the company's revenue reached 3.182 billion yuan, a year-on-year increase of 4.83%. In the first half of the year, sales of blood glucose detection systems were 1.552 billion yuan, a year-on-year increase of 12.7%, but BGM and CGM product sales were not detailed. When the company first launched CGM, its strategy was to import resources from the BGM sales system, including over 3,200 grade hospitals and more than 220,000 pharmacies.

The opportunities lie in the progress of domestic substitution and overseas expansion. Founder Securities reported that the domestic market share of imported brands exceeds 50%, with an advantageous layout in hospital channels. The company's entry point is in retail channels such as chain pharmacies and e-commerce platforms.

On the international front, in 2023, the USA Food and Drug Administration announced a recall of Abbott Laboratories' CGM products due to multiple safety incidents. Abbott responded that the recalled products do not involve the Chinese market. As of now, the company's overseas registration application work for CGM products is progressing in an orderly manner.

The repercussions of "cross-border shopping" are far from over.

At the beginning of the new century, Li Shaobo, the actual controller of Sinocare Inc., began his entrepreneurial journey. Transitioning from a doctor to the business world, he targeted the blood glucose testing market, and in 2012 led the company to ring the bell for listing on the Capital Markets.

Subsequently, domestic companies initiated a wave of overseas "shopping". Since 2016, the company has acquired two American enterprises, Trividia and PTS. Among them, the platform for the acquisition of Trividia is Xinno Health. Initially, the company and Li Shaobo established this platform together, after which Li Shaobo transferred part of the equity to external parties.

However, it was unexpected that the repercussions of "cross-border shopping" have yet to dissipate.

In 2023, the company increased its investment in Xinno Health with nearly 0.5 billion yuan of its own funds, and Li Shaobo also repurchased equity for 0.228 billion yuan. After one round of operations, the company and Li Shaobo each held 55% and 45% of the platform's shares, with the latter included in the company's consolidated financial statements.

In fact, alongside changes in the external environment, Trividia has long been in a state of loss. In 2022, prior to being included in the financial statements, Xinno Health reported a Net income of 0.104 billion yuan, with the shift from profit to loss due to receiving a one-time arbitration compensation and interest of 0.022 billion USD (approximately 0.16 billion yuan). In 2023, due to the USA expanding its Medicare coverage for related products, Trividia fell back into losses.

Moreover, the moment when the company's performance was pressured due to losses has also arrived.

In the first three quarters of this year, the net income attributable to shareholders of the listed company was 0.23 billion yuan, a decrease of 19.71% year-on-year. During the same period, the impairment losses on credit and assets were -0.022 billion yuan and -4.578 million yuan respectively, mainly due to the increase in bad debt provisions for accounts receivable from Trividia and the provision for inventory write-down.

As for goodwill, as of the third quarter, the company's balance was 1.11 billion yuan. In the first half of the year, Trividia's goodwill balance was 0.802 billion yuan, with an impairment provision of 0.085 billion yuan.

Moreover, when acquiring Trividia, Sinocare Inc. incurred a large amount of bank borrowing. In November, the company announced a loan of 0.221 billion yuan to Sinocare Inc., secured by Li Shaobo. As of the disclosure date, the company had cumulatively provided financial assistance of 0.386 billion yuan to this platform, and after this loan, there was still a remaining supply of 0.114 billion yuan.

In the aftermath, Li Shaobo's personal financial expenditures were also substantial.

First, Li Shaobo repurchased shares of Sinocare Inc. for over 0.2 billion yuan in 2023. Second, in November, the company announced that the third phase of the employee stock ownership plan's non-trade transfer was completed at a price of 25.69 yuan/share, raising a total of 77.07 million yuan, with 18 contributors including one deputy general manager and 17 other employees. Li Shaobo did not participate in the plan but provided loans for this employee stock ownership plan.

As of October 30, Li Shaobo pledged 79.55 million shares of the company, accounting for 58.36% of his holdings, to meet financing needs. After pledging shares, the stock price tends to be more sensitive to fluctuations.

In 2020, the company issued Convertible Bonds for financing. In November of this year, due to the stock price being below 80% of the conversion price, which is 27.69 yuan/share, the downward adjustment clause was triggered. Ultimately, the company decided not to adjust the conversion price downward and if triggered again within a certain period, will not propose a similar plan.